Good afternoon, everyone, and welcome to Storenze's Q2 Results Call. And we are broadcasting today here from sunny Helsinki. And I will now hand it over to Kalle, our CEO. Please, Kalle.
Thank you, Ula. And I'm happy to be here and good morning to the ones on one side of the globe and good afternoon to the other people on the other side of the globe. So we announced our Q2 release today and our earnings and there was another quarter with progress. So sales came in slightly better than the same period a year ago, basically EUR 2,000,000 higher. But if you exclude divested and closures business, we're actually up EUR 3.7.
If you look at the four growth provisions, is basically the company excluding paper, it was a growth of 7.1%. And this is the second quarter in a row where we have total growth for the total company. Operational EBIT came in at EUR219 million, slightly below a year ago of EUR226 million. We had solid cash flow from operations. We came in on the same return on capital employed and we are basically the same excluding Beihai.
Net debt to EBITDA improved from 2.2 a year ago to two times, which is a step in the right direction again. And the SEK50 million profit improvement program is proceeding according to plans. So in a portfolio like Storenso, it's a lot of moving parts and I will go through some of the highlights here before you get more details from Sepul later on in the presentation. So if you look at Consumer Board, there are basically CHF 8,000,000 down compared to a year ago. It's all due to three factors.
It's logistic costs extra, which is partly driven by the strike we had in the Gothenburg Container Harbor. It is positioned within the Consumer Board division for layoffs in conjunction with the profit improvement program and its impairment of green certificate. Beihai came in at minus CHF17 million impact on the EBIT, which is CHF1 million better than last year. But you have to remember that we reversed in this quarter $4,000,000 of the $7,500,000 provision we made in Q1 due to the turbine failure. Packaging Solutions growing $23,000,000 year over year, of which is all explained by Warkaus ramp up combined with better kraftliner prices and a strong performance of China packaging.
Biomaterials increased 5,000,000 and that's coming from better pulp prices, but also additional capacity coming out of our mills in Latin America. Wood Products improved and that is also driven by the transformation projects, Murrow and Varkaus. Paper had a challenging quarter and came down $32,000,000 part of that explained by maintenance that usually has been in quarter three for Oulu and lower sales prices. But if you look at the big picture, you have to remember that because of new maintenance schedules for biomaterials and paper and some additional costs, we are $15,000,000 higher in maintenance costs in the second quarter this year compared to last year. And we are coming in $10,000,000 worth of our guidance to you guys in conjunction Q1 for maintenance.
If you take some of the steps of transformation that we performed in the second quarter and has been announced before this release, is actually the CLT production unit for EUR45 million in Gruve that we announced in early July. We have also announced that we are going to build a corrugated plant in Tisi in Poland. In June, we stopped production at PM8 and we have also announced a decision to divest the reboard business because it's not core. Today, we signed an agreement and made a separate press release regarding that we are selling our minority stake in Bula Sha Packaging. And the buyer is packaging, which is the majority owner.
And the reason for this exit out of the Pakistani market is very simple for us. First of all, the capabilities of that mill means that we are getting products that are not in our strategic focus. And the other one is that we will never reach in that mean we believe the 20% return on operating capital, which is the target for Consumer Board. However, the exit will be done under a responsible manner together with an external party who will make sure that we do that in the best way. And we continue here to ramp up ahead of plan.
And I'm very, very happy to announce that we are moving the EBITDA breakeven from Q1 twenty eighteen to Q4 twenty seventeen. We have also in this quarter added commercial shipments to two additional liquid packaging board customers. Now we have total of three liquid board customers taking volumes from Beihai. And we delivered 90,000 tonnes of board from that mill in the second quarter compared to 4,000 in the first quarter. It's a fairly dramatic ramp up.
Before handing over to Seppo to go through some of the details of the divisions, I would like just to make a bit of reflection. We are now moving ahead and the transformational investments are driving our growth in the growth divisions. Today 72% of our sales are coming from the four growth divisions and 95% of the profit. As I said before, it was a bit of a challenge for result wise for paper, but they made a record cash generation, which is very, very important. With that, I hand over to you, Sascha.
Thank you, Karl. And I start with some of the key figures from the report that we have published today. First of all, the sales and like Karl said, it's very positive and important sign of our transformation and a milestone that we have reached that we have now two quarters this year in a row where we can see growth of the reported top line. And in Q2, it's marginal, but we have to remember that the divestments of the paper mills have reduced the sales line by EUR90 million. And despite that, we are showing a slight increase of the top line.
Operational EBIT reported at €219,000,000 slightly down due to the higher maintenance costs in the quarter. Profit before tax excluding items affecting comparability up 36.6% that is thanks to lower financial net costs in the quarter compared to a year ago. And main reasons there are foreign exchange gains from the U. S. Dollar denominated loans in China, as well as lower losses from bond repurchases this year compared to last year.
Earnings per share also up excluding IACs up by €07 and EPS basics up 20%. And that is also affected by lower taxes in the quarter. And that is coming from positive change in the deferred taxes in Q2 of this year. Return on capital, excluding Beihai 12.4%, slightly below the targeted 13% level, but at the same level with a year ago. And solid cash flow from operations continues, it was €365,000,000 And this is despite the ramp ups in Beihai, Warkaus and elsewhere increasing working capital.
And we continue to focus on working capital to keep it in on the positive trend. Net debt to last Belmar's EBITDA came down to two point zero reflecting the good cash flow despite the dividends that we have paid during the quarter. Then moving to divisions and I start with Consumer Board, where sales increased by 5.2% driven by Beihai mill ramp up. Operational EBIT declined by €7,000,000 due to the higher logistics costs and also provisions booked related to the cost improvement program as well as green certificate in turn. Beihai development continues positive as Karl already mentioned.
And we expect board machine to reach operational EBITDA breakeven in Q4 this year, one quarter earlier than previously forecast. Operational EBIT improved by $1,000,000 versus last year for Beihai operations. And here I want to highlight and remind that Peiha operations includes not only the mill, but also the forestry operations there. And in Q3, we expect that operational EBIT in PeiHai will be approximately EUR17 million, so at the same level as in Q2. And this is for the total operations in PeiHai.
Power stopes and damage repair works are ongoing and we expect that the turbine is back in operation during the 2017. We reversed €4,000,000 of the provision that we booked in Q1. The provision was €7,500,000 and we made the reversal based on the latest information we have on the repair costs. Operational return on capital was 13.9% and excluding payer operations 34.3%. We also signed today the agreement to divest our holding in Puleshah packaging in Pakistan and expect to close that transaction in Q3.
Then moving to Packaging Solutions, where sales grew 21%, thanks to Bartels Mill and China Packaging, as well as favorable price development in Europe. Operational EBIT was at all time high €40,000,000 thanks to the same reasons. And this is really a proof point for the profitable growth that we are reaching in Packaging Solutions, but also in Storebrands in general. Important to note is also that Varkas Kraftliner mill delivered first positive quarterly EBIT as expected and operational return on capital was 18.3%, clear improvement from 7.7% reported a year ago. I'm not far away from the targeted 20% level.
We also announced investment of €10,000,000 to expand our corrugated plant in Poland in Tigit and signed an agreement to divest our report business in Sweden. This is a business that we don't see as part of the fall of Packaging Solutions going forward. Then in Biomaterials, where sales also increased due to volumes and higher prices, especially from Latin American pulp mills and sales increased 8.5%. Also EBIT improved by 8.8%, thanks to the higher prices and delivery volumes. But there were some negatives like higher logistics costs, higher maintenance costs due to altered sequence of maintenance shutdowns and higher spending in R and D and innovation.
But R and D and innovation expenditure of course should be seen as an investment to future where we expect to get the fruits later. And startup process at the Pokasta Silos demonstration plant in Raceland in U. S. Is proceeding as planned. And we expect that the first batches of Silos will be delivered towards the end of the year.
Wood Products also continued profitable growth and sales increased 1.6% driven by the strategic investment in Varkas LVL line and Muro sawmill. Good to notice that excluding Baltic Wood Sourcing operations that we transferred internally to segment other, sales would have been up 3.5%. EBIT increased by 6.1%, thanks to higher delivery volumes and better sales prices And the increased wood cost had some negative effect in the result. Very happy to see the strong performance also return on capital, where we reached 25.5% clearly exceeding the strategic target level of 18%. And ramp up in Varacals LVL mill continues and we expect full production to be reached in mid-twenty eighteen that is about a year from now.
We also announced a new investment on CRT production unit at Gruber Somme in Sweden that is a €45,000,000 investment to address the growing wooden element wooden building markets in Sweden and Scandinavia. Then moving to Paper, where strong solid cash flow continues and is clearly above the targeted level. Sales of the ongoing operations decreased 3.6% driven by lower sales prices in euro terms and lower pulp sales. And like I mentioned earlier divestment of Carpel, Arrapate and Suzu Mills reduced the sales line by €90,000,000 Operational EBITDA decreased by €37,000,000 main reasons being extensive maintenance shutdown at the whole pulp mill, lower sales prices and divestments and closures as well as variable costs. That was somewhat offset by positive development of fixed costs that were lower.
At Kvaaswena mill in Sweden, we were moving ahead with the close of 100,000 tons SC machine capacity as announced earlier. An internal review that we started about a year ago has been completed now to address the topic of how to compete under increasing cost pressures and declining market conditions. Now we are in place a clearer more efficient structure supporting improved competitiveness going forward. Then looking at the strategic targets that are as you can see from the traffic lights that we have added, they also know that they are ambitious, but also reachable. Looking at the group level first, you can see the dividend.
We are at the target that we are distributing increase in dividends. Growth, we are growing faster than the relevant market. If you look at the businesses excluding paper 7.1% growth during the second quarter this year. And debt ratios both net debt to EBITDA and net debt to equity are below the target levels. And operational return on capital excluding stay high like mentioned earlier 12.4% below the 13% targeted level.
Something where we still need to work on is fixed cost sales where we are 25.6% level and we are aiming at 20% level, which we still believe is reachable and realistic path. Then looking at the divisions, Consumer Board is growing very high, clearly above the 20% targeted level at 34.3%. And then very happy to see Packaging Solutions improving the performance and reaching 18.3% return on capital not far away from targeted 20% level. Biomaterials at 9.8% and Wood Products like I said earlier clearly about 18% targeted level at 25.5%. So solid performance continues there.
And Paper strong cash flow and we are reporting cash flow after investing activities to sales at 10.6% level where the target is 7%. So this is showing the good cash flow generation capabilities of the paper business we have in Stora Enso. With that, I hand over to you, Karl.
Thank you, Sefo, for a good presentation of what's happening in the divisions. So guidance for the 2017. Sales are estimated to be similar to the amount of thousand €528,000,000 recorded in the 2017. Operational EBIT is expected to be somewhat or even clearly higher than the €219,000,000 recorded in the 2017. Operational EBIT estimates include negative EUR17 million impact of the ramp up of the Belaya operations.
Impact of the annual maintenance shutdowns is expected to be approximately EUR10 million lower than the second quarter of twenty seventeen and is included in the guidance. BAI BoardMachine expected to reach operational EBITDA breakeven in Q4 twenty seventeen, one quarter earlier than previously forecast. Before going into the Q and A session, I only want to remind you, we are clearly seeing the positive contribution from our transformation projects accelerates. So sales growth excluding paper at 7.1%. Total sales growth excluding divestitures and closures almost 4% accelerated profitable growth by Beihai, Warkaus, Kraftliner and LVL, China Packaging and Murrow.
And we are on a good track of moving away from the asset transformation to innovation and sales transformation. We have strengthened the balance sheet by solid cash generation. With that, I hand over to Ulla for Q and A.
Okay. Thank you, Karl. And yes, we are ready now for the Q and A session.
Thank We will now take our first question from Antti Koskivori from Danske Bank. Please go ahead. Your line is open.
Yes. Thank you and good afternoon. First question about the Beihai Q3 guidance. Just to be sure that I get it right. So you guide SEK 70,000,000 EBIT loss in Q3 versus SEK18 million in Q2.
But the Q2 twenty eighteen, I guess that includes the SEK4 million reversal. So are you operatively or comparably guiding a EUR5 million improvement from Beihai? That's my first question.
We are guiding a EUR4 million improvement, if I could do the numbers right, because it was CHF17 million in Q2 and we are guiding CHF17 million in Q3 as well. And included in the CHF17 million is a reversal of a provision that we took in Q1. So my number tells me it's SEK4 million.
Okay. Sorry. Yes, I remember it was SEK18 million. Okay. Thanks.
So that's kind of the if we look at the Q4 and you expect the EBITDA breakeven to be reached in Q4. So I guess you are expecting rather similar kind of pace or whatever to Q4.
No, not really actually.
No, but I would like to explain. There is an improvement by €4,000,000 yes. However, when we start to prepare for the bigger volumes of what we would say would be the better profitable grades, we need to hold down a bit on the folding boxboard that we're doing today. And that's the reason.
All right. That's very helpful. Thanks. Second question on biomaterials and the reason pulp price increases. How should we think about the current prices and the timing when those prices will fall into your numbers in coming quarters?
What's the timing REPRESENTATIVE:] at this time on the change in the pulp prices please?
So if I ask you the following, so if I take from Q2 to Q3, if you take European softwood, we believe they are stable. European hardwood will be slightly higher, fluff stable. Then if you look upon China, then we believe softwood will be slightly lower and then we see hardwood lower and dissolving lower. However, then you need to understand the mix of our total sales of market pulp 20% goes to China. I think that gives you a good picture.
Yes. Thanks. Lastly, still on the maintenance you give that €10,000,000 change going to Q3. I was just wondering what is that number in the Biomaterials division? The change in maintenance costs going into Q3 versus Q2.
It's not significant in biomaterials. But as you know, we don't give figures per division. We guide the full group figures, but there is nothing major there. Okay.
Those were my questions. Thank you very much.
Thank you, Antti.
Thank you. We will now take our next question from Mikael Jas from Kepler Cheuvreux. Please go ahead. Your line is open.
Yes. Hello, everybody. Two questions. The first one is sort of a broad one. For this year, you're guiding for CapEx 600,000,000 to €650,000,000 Then as you scrapped the potential testliner machine in Poland, I'm wondering how should we think about future CapEx in the light that you now are basically saying that you are moving from asset asset transformation to sales and innovation transformation?
That's the first question. And then a second housekeeping question. Financial costs were a bit higher, if I remember well in Q2. How should we think about financial costs for the remainder BACHER:] of the year? Thank you.
Those were my questions.
So the first one regarding CapEx is that we don't give we will come to guidance about next year a little bit later. But obviously, we are having the long term goal is over time to take us down to basically depreciation plus the replantation of the plantations which today is about SEK100 million. So that's the aim we're having. And let me we are right now into starting the seasons of budgeting and capital planning and capital allocation for next year. So we will come back to you later on that one.
And the other one regarding financial, I
hand over to Seppo. In financial of course, I think that in general if you look at the trend net debt going down and also we have been managing our loan portfolio by paying down prepaying all the higher interest rate bearing liabilities and taking in new long term money with lower interest rates. So that way the if you look at the financial net sort of interest cost that I would expect to go down. I think the thing where you have challenges then if you look at the and I try to compare quarter on quarter, year on year, the development it is what I also commented on EPS is that for instance this year Q2 we have lower finance net than a year ago and that's because we had positive gains from dollar denominated loans in China. And last year and this year also we did some bond repurchases, but the capital losses from repurchase were higher a year ago.
That is of course difficult to model in. But in general, I would say that you can look forward that interest net as such is going down.
Perfect. Many thanks.
Thank you. We will now take our next question from Robin Santavirda from Carnegie. Please go ahead. Your line is
Three questions, if I may. First of all, on the Biomaterials division. I'm a little bit puzzled about the sort of average price if I look at the sales divided by delivered tons. It's only according to my calculation up by 5% year on year and spot prices, pulp spot prices have gone up more than that and the dollar in Q2 has been quite strong. So could you just explain the dynamics there and whether there's sort of a lag of a couple of months before the sort of spot pulp prices filter through into the P and L or your results?
JOSE So in general, when you're using spot prices, are you using the ones on the Forex?
JOSE Yes. For example, compared to the Forex price.
But Forex prices are without discounts. And you have everything from 5% discount depending on the grade up to 30% discount on the price. So it's very hard and it's higher in certain markets than in others. So it's very hard to really answer your question. Secondly, think it's also important to say that there is a turnaround time between when you take the order of a new price until you deliver because you have a backlog of somewhere to two to three months.
Right. Of course, the discounts, I understand, but the sort of lag is what I'm seeking. So you say it's two to three months?
Yes.
And the discount rates, I understand are quite similar at the moment compared to, for example, one year ago?
No, they have actually increased according to our information.
They have,
all right.
How much? And is this a market phenomenon or
It's very hard to say because I can only say what we have done and so forth. But it's not really to disclose because I think it's also slightly different depending on what sort of customer and what contract you are taking and how long it is.
Thank you. I understand. Then on Consumer Board, now the second quarter, actually the, I guess, third quarter in a row with declining sort of average prices. What is explaining that? Is it FX or simply average prices decline?
Consumer board prices are very stable. Could be probably a bit of the mix. And you have to remember that we are ramping up in Beihai with folding boxboard. So you cannot really following it because still a lot of the volume coming out of Beihai of the 90,000 ton, a lot of that as you can see on my little graph is actually folding boxboard, which has a very different price level than liquid, CUK and foodservice board.
Good. Thank you. I understand. And then finally on Beihai and the liquid packaging of new customers, you say three now. Are there any major customers that you are still sort of doing the test rounds with or are sort Yes.
There are still some or the major customer you need?
Yes, we don't go into that. But it's lower volume it's more volume still that we are delivering commercially and it's also on certain grades. But so we have three customers and there are a couple of more to go after. And now we don't want to name any of them.
Good. Thank you very much. Thanks.
Thank you. We will now take our next question from Lars Kjellberg from Credit Suisse. Please go ahead. Your line is open.
Yes, thank you. I just wanted to return to Beihai a bit. And if you could talk us through a bit what is going better than expected in terms of your timing in the ramp up? Is that a better market growth? Or is it your specific ramp up that is doing better?
Also, you talk about liquid packaging board and you're ramping that up potentially at a quicker pace, you've said earlier, if I recall correctly, that you would probably cannibalize about 100,000 tonnes that you're currently selling from Europe into China. If you can comment a bit how that's proceeding and were those 100,000 tonnes, if that's the right number, where they're going to land? And then I have a couple of follow ups beyond that.
So what is going better is that first of all, it's probably the fastest qualification of liquid packaging board ever made. So that's going better. It's also going better in regards of getting out high quality folding boxboard and high quality CUK with a bulkiness that makes it quite unique. So on that side and I would say that team is doing really well. So that I will say is very well.
And the efficiency is actually it's been among the best performing machines a couple of times in the last six months, which is very unusual. Usually you need to have a team who worked on the machine for a couple of years. But this team who has been trained both in EMAT, Glasgow and Foch have actually learned to run this machine and it's a very good machine so far. So I would say these are the things. And about these 100,000 tons, they are basically sold out already that we will replace in China over time.
We are actually squeezed on liquid right now And in the
in terms of the turbine that malfunctioned, that actually delayed the progress of this machine, would you have been better off if that wouldn't have happened?
It doesn't really It make may me a week or two, because what we managed to do was actually to increase the power supply from the grid, which was a backup line. And we've been running basically, I think we had one week done.
Were less, but no significant.
No significant. We've been able to the CTMP to keep that running as well. So we didn't lose a lot of time. But you have to understand, when it was two days before the quarter end that it happened and then the machine stood basically when we were doing the quarterly report. So we were a bit shell shocked.
Understood. Then shifting just to Wood Products for two seconds. So of course, that's an area that you do comparatively very well in. You're investing quite a lot of money in it. What are you seeing in terms of demand trends, housing, construction, etcetera, and that gives you confidence that this is a good place to put more money behind?
So first of all, when it comes to if I take the Murrow first, that is basically focusing on Glulam for the Japanese market and its unique offering that we're having. So that is driven by that. Then you have the LVL, which is a new product for us and it fits very well with the CLT and that is when you want to build wooden elements to build multi tenant houses. And today, think in Sweden, I think it is about 10% of all multi tenant house that are built up a wood. And there are studies made that that will double in a very few years.
And we see that as a demand. And it's actually so that for example, NCC, they are screaming at us to get this CLT plant up as fast as possible. Because today when we supply this biggest CLT building in Sweden or in The Nordic, the 7,000 cubes to Vexter, we have to ship it from Austria. So it's actually we started to work with this four or five years ago and demand has just increased and we need to hurry up here. So we gained this market and nobody else, because this is the first CLT plant in The Nordics.
Okay. Final question from me. Currency has obviously shifted quite dramatically over the past call it six, seven weeks. How are you hedged? Can you share any color on when we should see an impact from in particular the dollar weakness we've seen into your P and L?
Yeah, it's Zefo here. Maybe I'll take this one. Like we also said earlier, we follow our policy that we hedge about 50% of the annual cash flow. And typically, we have higher hedge rate ratio for the short term and a bit less for longer term. So that means that in short term it takes a bit longer time before the effect is visible in the profit and loss.
Just to remind you that if you look at the total exposure, so $1 10% move is about €120,000,000 €121,000,000 before the head sees.
Understood. And there's any difference between the different business areas?
Of course, if you look at the divisions, so highest exposure we have in biomaterials, because of the pulp being priced in and pricing based on dollar. And then there is some effect in other divisions like in paper and also somewhat in consumer, but depending on the export volumes outside Europe. But main effect is in biomaterials.
So in essence, what you're saying is we're not going to see any impact this year of any significance, it's really going to be in 2018 impact?
It will be if it is remaining where it is and or if it goes more to wrong direction, there will be some effect, but not full effect visible.
Understood. Thank you.
Thank you. We will now take our next question from Mikael Doepel from Handelsbanken. Please go ahead. Your line is open.
Thank you. A couple of questions. First of all, on the Consumer Board business. You mentioned that there were some provisions and some impairments taken in the quarter. Could you quantify those?
So the whole basically the whole package of the additional logistic costs partly caused by the strike in Gothenburg and the profit improvement provisions and the green certificate makes up basically all of the 8,000,000.
Okay. But you don't want to split that up, guess.
Maybe I can give you some flavor. The extra logistics cost we have talked about some couple of million, 2,000,000 to €3,000,000 Profit improvement program related provision is in the range of 1,000,000 to €2,000,000 and green certificate related write off was something around EUR 1,000,000 or EUR 51,000,000. So that gives you some flavor on magnitudes.
Okay. Thank you. That's helpful. And then still staying in Consumer Board and just a question on Beihai. Now you brought forward the EBITDA breakeven guidance for Beihai.
Would you dare to give a guidance on where it when it will breakeven on the EBIT level? Would Q2 next year be a good
I am not that brave. Let me pass EBITDA breakeven and then we can talk about EBIT.
Okay. Fair enough. Then a couple of questions still. First of all, on the SEK 50,000,000 profit improvement program, how much of that could we expect to see, I guess, late this year? And how much will go into next year?
Roughly half will be visible this year still second half next year.
And that will be I guess an annual run rate?
That's an annual run rate.
Okay. And then finally on the Q3 guidance, which I guess implies some SEK 50,000,000 or so improvement compared to Q1. Maintenance is one thing. Beihai is basically flat quarter over quarter. What would you say are the main drivers for such a significant earnings uplift?
If I talk about it, you will see continuous improvement from Warkaus. You will see continuous improvement from Murrow and from Warkaus LVL. You will see improvements in Consumer Board. And you will continue to see improvements from China packaging also in Packaging Solutions. And obviously we expect to have a slightly better or a better result in paper.
Okay. That's very helpful. Thanks a lot.
Thank you. And we will now take our next question from Harry Kattonen from Nordea. Please go ahead. Your line is open.
Yes. Thank you and good afternoon. Well, following up on the SEK 50,000,000 program, you booked some costs related to it this in the second quarter. But is there some sort of costs remaining related to that program still? And that would be my first question.
There might be some relatively small extra cost to be book as provisions, but nothing significant as this is not any
sort
of major headcount reduction program. So it differs from the other previous programs that we have been running from that respect. So nothing significant.
And we're talking about 50,000,000 that's not a lot.
No. Okay, exactly. All right. And the second one related to the structural sort of assessment of the paper business and that you are sort of now done with that and the structure is ready. Can you sort of elaborate a bit like what has been the core changes there?
Earlier you talked about IT, sort of the platform, HR, things like that. But is the change in this? Are we now going to see some sort of step or change in Q3 from Q2 related to that?
So first of all, this gives paper a platform to be more competitive. They don't have to participate in a lot of the other common things we are doing in the group supporting the growth that we have in the growth divisions, which means that they have a more of an independent structure, which helps them to so to say ring fence their own cost and work with them. That's the whole purpose. So for them in things like new systems or new processes or other things, they have a more independent way of dealing with it, which gives them an easier cost to continuously drive costs down.
Okay. Sure. Thank you. And then finally, third question. I mean, comparing the two presentations, one in sort of Q1 presentation and the second and this presentation, I'm looking at the Beihai assumptions and looks like that you have revised those volume and sort of mix assumptions a bit also going forward.
It looks like now you're looking at folding boxboard production lasting a bit longer and maybe a bit sort of more gradual volume ramp up between sort of 2018, '19 to 2020. Is there something you want to say on that? Or what the thinking behind that change between these two charts
It's a continuous discussions of doing this. And one of the big things that we have done is that we have made a decision that we are not going to have any sale of second grade, because that is actually a cost of poor quality. So that will be repulsed, which will affect a bit and has already affected a bit the production volume, because that is not counted as production. The other thing is that we have seen that the possibility of getting into a premium position on certain premium folding boxboard boards is actually better than we thought before. And that gives us also longer time to build up for new products, for example, CKD or CUK is a very new product to China.
And maybe we are a bit more conservative how fast we can launch it. But this is something that will continuously change in our S and OP discussion and long term planning. So you shouldn't read too much. You should just read into maybe we are a little bit more mature than we were when we did this slide maybe nine months ago.
Yes. Okay, understood. Thank you very much.
Thank you. We will now take our next question from Linus Larsson from SEB. Please go ahead. Your line is open.
Thank you very much and good afternoon to everyone. A couple of questions on Consumer Board, please. You did in detail go through the year on year development in the second quarter and why the Consumer Board ex Beihai was somewhat weaker. Now that we look into the third quarter, I wonder if you could help us bridge the development versus the second quarter. So Beihai is flat, maintenance is, I guess, up SEK 20,000,000 or so.
What are the other moving parts in terms of seasonality and other when we look at Consumer Board Q3 operational EBIT versus Q2?
So you have in the guidance and in the report, we are having maintenance in Imatra and Ingeloids. We do not expect the same problem with logistics. Volumes are higher. We are not planning to impair green certificates. And we don't see the same amount of impairment in for the profit improvement program.
I mean, you've had quite a seasonal upswing and I guess that's what you're referring to when you say higher volumes. Is that something that you would care to quantify
or No, guide on the totality. I cannot give explicit. But paper is also usually up in Q3. And now Uulu has been moved was moved to Q2 and not
Right, right, right. Now I mean part of the reason why I'm asking is because Beihai is such a huge swing in the third quarter year on year. So I'm just trying to grasp what the offsetting negatives might be, so we don't overestimate the year on year improvement in the Consumer Board division.
If you see what I mean.
I see what you mean. But
that's fair enough. Then on Beihai, the guidance that you provide for the fourth quarter sounds very encouraging. But if I understand it correctly, you are referring to the actual machine. It's an EBITDA breakeven for the machine rather than the totality of the Beihai operation. Would you care to give any sort of idea around what kind of EBITDA you would expect for the whole Beihai operation in the fourth quarter, for instance?
Leen, as you know, we guide only full company or full group on operational EBIT level. But the thing in Beihai, just to explain you a bit why we don't want to go into details there, specifically relating to it is relates to forestry and it's very much depending on the forestry volumes, how much is harvested and how much wood is sold. And that is increasing or decreasing the result between the quarters amounts significantly sometimes. And that's why when talking about the EBITDA breakeven, have been focusing on mill, because that is more stable become better control the forecasting process for that. There are less change in parameters relating to mix of the wood and volume and market prices.
I see. But I guess that's at least partly an offsetting factor that you will see rising harvest as your wood demands go up and therefore higher depletion in your forestry assets in Beihai?
Correct. The higher the harvesting, the higher the depletion cost.
That The is only thing you have to remember, Linus, is that we have more plantation than we need right now since we are only running it on the CTMP. So there is a swing factor what we sell in the market.
But of course, the reason when the volume goes up relative fixed costs go down and that is helping the
right. And then just one lastly and that's detail on Beihai, but you're ahead of plan and you specify in which ways previously on the call. In one way, you had been, I guess, could call it a negative development. When you look at production, it's actually lower in the second quarter compared to the first quarter. Could you just explain if there was anything if we should read anything into that please?
So that's why I was explaining that we are repulping second grade and we don't count that from as production that we started in Q2. That was trying to say on the previously. So deliveries were 90,000, production was 81 and that is because a couple of thousand tons have been repulsed, because we don't want to create a second grade market.
Excellent. That's very clear. Many thanks.
Thank you, Lijas.
Thank you. We will now take our next question from Justin Jordan from Jefferies. Please go ahead. Your line is open.
Thank you. Good afternoon. Just staying on the theme of Beihai for a second. According to RISI in China, Tetra Pak is rationalizing from four to three plants. I'm just wondering, has that got any impact on you in China, specifically for that rationalization?
I don't know about and I can't really say about Tetra Pak. I only know that Tetra Pak is growing in China. So I don't know if that means that they have fewer but bigger plants. I don't know.
Okay. All right. And then just moving divisions to Packaging Solutions, obviously, strong growth in EBIT year on year. I'm just one thing I'm just conscious of is that they I guess, in Q3, you've got the VarCross shut, which was in Q4 last year. Is that going to be impactful for this division in terms of increased maintenance costs in Q3 vis a vis Q3 twenty sixteen?
Oh, let me think. We are having maintenance in Varkas in Q3. And but I don't think
there's nothing major related to maintenance in Packaging Solutions in Q3. Warkaus has maintenance upright, but it's not a major topic.
Thank you. And just regard to VarCross and obviously the backdrop of increasing kraftliner prices that we're seeing across Europe. Can you just give us some sense of how quickly VarCross or store ends are generally benefit from rising kraftliner prices that we see on screen for a POEX or PIX or whatever. I'm just kind of curious what sort of time lag there might be to when you actually see the benefit of that in reported revenue and EBIT?
I would say it's two to three months.
Okay. Thank you for that. Then just
would say that it's depending on the contract and how fast we can do it and if you can do it faster, but usually it's two to three months.
Okay. So as we sit today then there should be some more benefit to come in Q3 from price increases that seem to have been achieved, shall we say, in May, June?
Yes. So it has come into your maintenance question. You should remember that in Q2 we had Ostraleka maintenance and now in Q3 we So that is also smoothing the difference between the quarters.
Thank you. Okay. And just one final thing, just on again, staying on the theme of kraftliner. Sorry, there's been obviously across the industry generally some announcements regarding a further €50 ton price increase from August. Is that something that Storr is participating in also?
So when we talk about kraftliner, we believe the prices quarter on quarter will be higher without going into specific euro amount per ton.
Okay. Thank you.
Thank you. And we will now take our next question from Mikur Vasti from DNB Markets. Please go ahead. Your line is open.
Thank you very much and good afternoon. Just following up on the biomaterials and on the earlier pulp ASP question. I understand the lags and discounts, but purely compared to your competitors who have reported already, your ASP growth looks a bit weaker. So can you still please elaborate a bit on this? Do you have longer contracts or what's possibly causing this?
That's my first question. Thanks.
Seth, maybe I can comment. Of course, I don't know who are the competitors you referred to, but of course mix of portfolio is different. You should remember that we have if you look at the total 2,150,000 tons, we have about 900,000 tons is short wood pulp, 100,000 is soft wood pulp. Then we have dissolving pulp 150,000 tons and 250,000 tons of fluff. And on top of that, we have some 50,000 tons of brown kraft pulp.
And depending what kind of mix people are in it they bought for you, I think that has an effect. It's difficult to comment more on that.
Okay, that's fine. And then the second question on the Consumer Board excluding Beihai, so excluding it. So you talked about the cost movers there. But looking at just the volumes, it seems that the second quarter deliveries are down by more than 2% year over year. So what's happening there?
Can you explain? And is it the strike impact or the LPB switch or something in the underlying market, please? Thank you.
We certainly did miss certain things when it comes to logistics problems. That's for sure. And that hit also the working capital we couldn't ship. But otherwise, it's for me more a mixed question.
Mixed question. Okay. Okay. Thanks very much.
Thank you. And we will now take our last question from Lars Kjellberg from Credit Suisse. Please go ahead. Your line is open.
Yes. That's obviously quite a few questions on what your guidance really means, right? So could you just elaborate for those that don't know you that well, what does in line mean? What sort of range you're talking about? What is somewhat and or clearly higher mean in terms of quantum versus the prior quarter?
So in line is plusminus 10. The other one is 10 to 25. And the last one is 25 and upwards percentage points.
Percentage points.
Okay.
Thank you. Thank you.
Thank
you. There are no further questions in the phone queue at this time. I'd like to hand the call back over to you for any additional closing remarks.
Jose, this is Carlos Onsimere. First of all, you for participating in the call. We are looking for the future with great enthusiasts. Our transformation is clearly visible in the numbers we are doing. And don't forget that we have now a CMD in London, the November 8 this year.
You are very welcome all of you. Thank you very much.
Thank you. Thank you.