Good afternoon, everybody, and welcome to Stora Enso Capital Markets Day. It's great to see you all here today. We are one of the oldest companies in the world, maybe even the oldest. What's more, today, exactly 100 years ago, we listed at the Helsinki Stock Exchange. By the way, it's not always when we plan our Capital Markets Day to coincide with 100 years of anniversary. It goes without saying that companies this old have to keep evolving in order to exist. That's exactly what we have successfully done. Today, our management team will show you how far we have progressed in our current transformation, and critically, what it means to our growth and profitability. Let us now have a look at today's agenda. Welcome, everybody, and those also on the web.
First of all, I want to remind all of you here in London, that I hope you had time to look at our demonstrations in the lobby when you arrived here. These are excellent examples of where the future growth is going to come. If you haven't had time to look at them, please do so during coffee breaks and drinks. Looking at the program, we want to update you how far we have progressed in reaching our strategic targets announced last year's CMD. The mix of our business have changed since, and the growth is going to come from our focus on renewable materials. Biomaterials and wood products are important part of this growth. They are developing some of the most exciting new products, which will increase further our margin expansion. Before we start, a brief word of safety, which is important KPI for our businesses.
In this room, we have six emergency exits. In case of emergency, the meeting point is at the BBC House, which is couple hundred meters from this hotel. The quickest way there is from that corner. There is the emergency exit that leads very close to the BBC building. Now I think it's time to start, and I will welcome our first speaker, our CEO, Kalle Sundström. Please, Kalle, the floor is yours.
Thank you very much, and it's good to see you again. We were in the exactly same location about a year and a half ago, and we will now talk about the performance that we have seen since then, and a little bit about our accelerated contribution. Before that, I would like to go through a couple of small things that you might know or might not know. The first thing is regarding implementing our product management, Sales and Operation Planning, innovation, and a sales academy. Why do I bring up such a thing, internal process things here? Because if you want to be a more innovative company, you need to focus on product management to be able to deliver new products to the customers faster than anybody else. S&OP, Sales and Operation Planning, is how you get more out of your installed base.
We have gone some way on this one, but we still have a lot more to do. Innovation is how you actually drive an interactive behavior internally, but also with your customers to bring out new products. Sales academy, it's about lifting the games of our sales force. That is very important when we go into the next phase. We have improved our EBITDA margin since 2013 to 13.6% in the quarter that we just published. If you add back the 1.2 percentage points that is coming from Beihai startup, which is a negative of EUR 35 million, and the EUR 7 million that we had in the sale of some secondhand equipment within paper, it's actually another 1.2 percentage points, which is actually the underlying running EBITDA of the business, which is close to 15%. The same goes for EBITDA.
EBITDA has significantly improved. We are now running an underlying business slightly over 10%, basically at 10.4% if you put back the startup cost of Beihai and the positive effects that we had in paper. We have been able, actually, to deleverage the balance sheet after peaking at three and a half times, now down to 2.1 times in the third quarter. We have improved the return on capital employed significantly since 2013. This has been part of the transformation process, but we have also been able to shift our business. I will cover that. I will also tell you about how we're going to shift the business going forward. Like everybody else in this planet, we are all being affected by the big seven mega trends, covering everything from global warming, growing population, digitalization.
However, many of these, or most of these, are actually beneficial to our industry and especially to Stora Enso, because we are having a raw material that is not only reusable, it's also renewable. The forest inventory in the Northern Hemisphere is growing every year. Bioeconomy will not solve anything, but will be part of the solution when we have to phase out fossil-based materials. We have a portfolio of five divisions. Today, Juan Carlos Bueno will make a deeper dive into Biomaterials, which is about differentiation of the existing portfolio and then building a platform for the future. Jari Suominen will basically go through what we are doing in Wood Products, which is an area which I think some of you are taking for granted for many years, which is actually quite exciting.
I will cover briefly what we are doing in Consumer Board, which is about expanding relative market share in very profitable niches. I will also cover Packaging Solutions. It's about selective growth in certain areas. I will also cover our cash generator Paper about how we maintain the cash generation out of that unit. With this slide, I'm trying to explain what we have achieved since 2013. On this side is basically some EUR 2.5 billion of investments, which we are now gradually taking down. First step, we announced at the Capital Markets Day a year and a half ago, bringing it down somewhere between EUR 700 million and EUR 730 million, which is the target today for this year. On the other side, it's about closures and divestitures, which is basically somewhere slightly more than EUR 500 million.
If you take that into consideration, we have actually basically reduced 4.8 million tons of capacity since 2006. Since 2012, we have invested almost EUR 4.3 billion in new assets. That asset base and that asset transformation is now coming to an end, and we are going to focus on the next phase. When we met last time here a year and a half ago, we had the same slide. The very big difference is that on the right-hand side of the slide, it was pretty empty. Before that, I would like to cover a little bit on the right-hand side, or left-hand side for you. Sorry, now I'm getting confused, but sorry about that. About asset transformation. We have managed to start up MDP, and who had a record production in the month of October.
When we met here a year and a half ago, we had Raja, the Project Manager and Director, who built the mill. We built that mill from the piling in December 2014 to inauguration in May 2016 in a record time of 18 months. When you were here, it was a lot of questions about our ability. The mill is there, and I will come back to that. It's ramping up and is doing well. We still have a long way to go until we qualified all the products and get into the desired capacity. We have converted Varkaus, a 280,000 paper machine to a 390,000 board mill, which has just passed break even in the third quarter of 2016. We have invested in a modernized sawmill in Poland, going from 70,000 cubes to 400,000 cubes in Poland, inaugurated in August.
We have the LVL machine in Varkaus that we started up at the end of Q2 this year. We are debottlenecking Imatra, and we are actually launched in early 2015, the Sunila biorefinery, producing LignoBoost. On the other side, this has happened since we met last year, we have started one innovation center in Helsinki focusing on packaging. Part of that was demonstrated out there, which is part of the launch of intelligent packaging. We started an innovation center about the same time in Stockholm on the biomaterial, which Juan Carlos will speak about a little bit later. We have signed a joint development agreement with Rennovia, and just about the time when we met a year and a half ago, we launched the first commercial MFC product for source reduction within liquid packaging.
Intelligent packaging, we have a number of interesting tries with customers, and hopefully soon we will have the first commercial launch. Meanwhile, we have launched a new FBB grade, which is called Performa Brilliance by Stora Enso, which is focusing on the high quality of FBBs with printing capability similar to SBS. We have also launched just a couple of months ago, a new CUK grade called CKB Nude by Stora Enso, which is an uncoated bleached board, unbleached board for certain applications, which has received a lot of positive. I will now go into a bit about the strategy and the way forward for consumer boards. In consumer board, it's about a game of relative market shares in very profitable niches. 60% of our sales in consumer board is coming from liquid packaging, food service board, and CUK. That's where we have the highest growth and the best margins.
30% is coming from FBB, where we have a very strong position in Europe. However, the position within liquid, CUK, and food service board, we are either number one in the world, as we are in liquid, or we are number one in Europe. Here we are focusing with the Performa Brilliance in the FBB area. We are having a strategy when it comes to SBS and special paper to maintain our position. Good margins, but it's a stagnant market. This is the reason why we have chosen. If you look upon the growth in consumer board, you will see that LPB, food service board, and CUK are the fastest-growing board categories in most regions. That's why we are focusing on them, and that's why we want to expand our relative market share. In most of these categories, it's one to four competitors.
It's high barriers to entry because you are working very close to converters or brand owners. Now a few words about Beihai. The ramp-up is ahead of plan, as you can see, over time, this will be a mill 100% focused on liquid packaging board, food service board, and CUK. That's the reason we see that China is the fastest-growing market, very closely followed by Southeast Asia, and that's why we put it in Beihai. The CTMP will be ready by the end of this quarter, Q4. The coating will be ready by mid-2017. We are going quite well with the LPB testing with all major customers. We have done the first trial successfully on CUK board. We have already a product ready for launch, which is a noodle cup, but it's uncoated and will be coated by the customer.
That later on will bring more value to us once we can have the coating facility up and running. Just to repeat what we said at the end of Q1, there will be no, if any, decision to make a pulp mill in Beihai before Q2 2018. We are fully focused on ramping up the Beihai mill, which is going well at the moment. Going into packaging solution, we have a slightly different matrix here, which is about, on one hand, Stora Enso's ability to win, but attractiveness of the market. Here we are focusing in the area of kraftliner, testliner, and integrated packaging or corru business, and semi-chemical fluting. That's where we want to grow. That's about 50% of our sales today. We have selective growth in packaging China, which is around our Stora Enso Impact, which is focusing on a special area in China.
That's about 10% of our sales. The remaining 40% is in the corrugated units in Russia, Baltics, and the Nordics. The reason why we've chosen this strategy is actually a couple of things. It's basically based on our strength. First of all, I think it's very important to remember that one of the main drivers, based on the mega trend of digitalization today, is the growth of internet trade. Here, China is one of the areas that is growing actually faster than Europe, and then Europe is coming. This is an area which is driving the corru business right now. The other reason is actually that we are specializing in Heinola, in high-quality fluting, which is a growth area. The other area we are focusing on is RCP-based boards. These are in conjunction with our corrugated capabilities in Eastern Europe.
That is the reason why we've chosen that. Kraftliner, or in other words, talking about Varkaus. This is the area where we are focusing on being a European player, because outside U.S., this is growing. All in all, based on the trends today, corrugated is growing. This is the reason why we've chosen those ways of focusing our portfolio and our growth. That's why we call it a selective growth. Talking about the ramp-up of Varkaus. We managed to get to a breakeven at EBITDA in the third quarter of 2016. In the second quarter of 2017, we will reach EBIT breakeven, and we will have full capacity in the second half of 2017. Now I will spend a few minutes on paper, and what we are doing in paper.
Paper is all about maximizing the cash flow, and Seppo will later show how we've been able to do that over a number of years. As you see on the graph here, it's about demand decline and market share, because this is a declining market. What we're trying to achieve is actually to focus on the least declining areas. If you look upon these boxes where we are, in the area of where we want to grow market share, which is book paper, uncoated, mechanical paper, and improved newsprint, that's about 40% of what we're selling. If you look on the other one, where we have selected growth of market share, it's in office paper and coated fine paper. The reason for that, for example, the retail segment is probably one of the most stable, and the second most stable segment is things about office, bureaucracy.
Even if we are getting more digital, bureaucracy seems to be staying pretty flat. We are just trying to maintain our market share in newsprint, traditional newsprint, and that's about 15% of our sales. The reason for that is we are the second biggest, but we are not the biggest in any single of the categories of the main competitors. This is the reason why we've chosen that. When we met last time, we actually talked about a number of strategic targets. These targets are also linked to our way how we allocate capital. Because when we allocate capital between the different divisions, we allocate it based on the possible returns. For this, total of the group is 13%, and you have two divisions with 20%, one with 15%, and one with 18%, and you have a cash requirement for the paper division.
At the same time, we are trying to bring down the fixed cost to below 20%. Our capital allocation for 2017 is as follows. It's a very simple model. We estimate that we will spend somewhere between EUR 600 million and EUR 650 million on CapEx, of which EUR 200 million to EUR 250 million is maintenance CapEx. Part of that is a little bit efficiency because you usually get a technology factor when you change something out, but mostly it's to maintain the operations that we have in.
Anything above that, excluding the EUR 100 million that we have to put back into the plantations, which is basically EUR 250 million to EUR 300 million, has to either give us more revenue, lower cost, or a combination of both. We have a lot of alternatives. We test it between the different divisions, depending on the hurdle rates, and based on that basket, we choose what project to do.
During this period, since 2013, we have improved profitability, reduced debts, and generated a lot of cash. That is the reason why we've gone from the over 3 in net debt to EBITDA down to 2.1 in the third quarter. Even though we have been investing in the area of EUR 2.5 billion, we have been able to continue to deliver the company. These are the targets that we set up and published in conjunction with last year's Capital Markets Day in this very same room. We got tick in the box for some of them. We got tick in the box of the growth, if you exclude paper and divested entities. We are getting close to the level of the total return of the company. We are at 11%, we got 2% to go.
We are actually reaching it at a staggering 42% in consumer board if you exclude Beihai, and that's basically more than doubling what it was in 2013. That is how you make your assets sweat a bit more. If you look on the portfolio going forward, on the sales portfolio and profitability pools, we believe they will look like this. This is what the tree can do. We've gone from basically being a fully dedicated paper company to become a lot more of a renewable materials company with a cash generation, still continue to come from great part from paper, but the profit pool and the sales are to a great majority coming from new areas. To sum up, I think we've had a solid performance. We have accelerated the transformation.
We have a number of proof points that we're actually moving into new areas based on innovation and customer focus. We have improved profitability, profit margin, and cash generation. We are ready for the next step. With that, Ulla, please.
Thank you, Kalle. First I want to apologize for the quality of this screen here. I hope you all have the good solid paper where you can read everything clear. We have now time for a couple of questions. The main detailed question session is during the breakout session. We will take now about four minutes questions. Please go ahead, and there will be microphone given to you so we can webcast these questions. Okay, Antti and then Linus. Antti is there in the middle.
Thank you, Antti Koskivuori, Danske Bank. I was just wondering about the paper division. You said you want to grow your market share in book paper and this segment. Is that going to be done through conversions, or do you-
No, we want to expand in it and get fit. We got small capacity we can use from Anjala.
All right. Thank you.
Okay, then Linus.
Thank you very much. It's Linus Larsson with SEB. Coming back to your statement about the asset transformation being largely concluded, that leads me to ask around paper. Paper's still, at this point in time, around 30% of the top line. Over the past 12 months or so, you have done quite a speedy exit out of some of your paper operations. Should we expect more of that, or how do you come to the 2021 split of your top line?
That is basically if we compare the opportunities in the other businesses compared to a declining paper business and managing the cost as we have done historically. That's how we get there.
How do you look at involving external parties in potential changes to your paper asset holdings and the industrial developments?
First of all, they have to come and talk to us, which they haven't. The other thing is, I like to manage my own cash flow. If there is a straight sale, somebody wants to buy it, I've been telling since 2012, we are willing to talk about it should be paid the value it's worth. We have proven, like many others in this industry, you can manage cash flow very efficiently out of paper machines.
Thank you.
Steve Glass is next here.
Paperboard, of course, is a focus on your business. We have very good margins. It has been very slow growth versus, for example, corrugated and other packaging substrates. How do you think about that going forward, and do you see that you as a company have any particular edge on intelligent packaging that could actually provide organic growth going forward?
I agree with you, even though, in this economic area to grow three or 4%, that is pretty good. That is mostly coming from paper and pulp. I think we have certain edges, but I believe that in 10-15 years, all packages are intelligent in one way or another. It is going to be something that you need to do. We are just out a little bit earlier than most of the others.
Okay.
That might give us an upper hand going forward, which means that we might have to develop different models of managing the intelligence, how you make it, and your own core operations. We are already into that.
How do you position paperboard as a substrate versus other substrates, plastics, which is quite versatile, and seemingly at this moment growing quicker than paperboard?
I think what we are trying to do is first of all start to work with new substances in it, like MFC is one way to get slightly different form factors and also abilities into it. That's one way or differentiate yourself. We already see in certain markets, like PET bottles, for example, in China, it's not growing fastest any longer. In the U.S. it is because it's a big market, but already in the U.S. they just launched, I think it was about two months ago, they launched actually water in a fiber bottle. I think it's also this seven mega trends are actually putting pressure on the producers.
Just to conclude, so what you're saying is it doesn't necessarily have to be paperboard, but it's fiber-based.
Yes.
You're on that fiber side.
Yes.
Okay. Thank you.
Okay, thank you. We hear more about this when the next speaker comes up here. Thank you for the questions, and thanks, Kalle.
Thank you. Juan.
It's Juan Carlos Bueno that will talk about biomaterials.
Thank you, good afternoon, everybody. I'm here to talk to you about a very exciting journey that we're going through in biomaterials. It's a journey that splits itself in two different avenues. On one side, we have the pulp business, the traditional pulp commodity business that you're all very familiar with, and our efforts on how to differentiate ourselves from this commoditized world that we live in where we identify clear opportunities to extract value from those differentiation capabilities that we know we have, and that we have proven that we can exercise. On the other side, we have a new business platform that we're going into, and we're investing in technologies that can allow us the possibility to extract raw materials from the biomass that we have at our disposal that we traditionally burnt as we produce pulp, and everybody burns as they produce pulp.
That leads us into different raw materials, different building blocks for future business. I'll also expand a little bit on that, and how this has been a journey that we have been into for the last five years since we established the biomaterials division. It's not something that is happening only now, it's something that we've been working on for the last few years. Before I get into that, a few interesting facts about our business, starting with our pulp business. We are, by fact, the largest producer in terms of grades of pulp that is out there. We have the widest portfolio of pulps. We have hardwood from eucalyptus and birch. We have softwood. We have unbleached kraft pulp. We have fluff pulp. We have dissolving pulp. There's no one company in the world that has that array of products.
It gives us an advantage with customers because they see in one supplier the possibility of attain several of the things that they need, we have been well commended for that effort. It gives us also an edge because as we know, pulp prices vary across the year, along the year. Some are high, some are low. You don't get the perfect world every year. There's always a balance, that allows us to manage and navigate through those years, like this one, where you have a hardwood in a very low level, but you have dissolving at record levels, you have fluff at very high levels, you have softwood still at very high levels, you can balance off things a bit. That's something that we use to our advantage as well.
Another interesting fact about ourselves is when you look at our market pulp, less than 20% of what we sell externally goes to the paper market. We have de-levered to the graphic paper market. We have de-leveraged ourselves from paper intentionally, following very much what Kalle already spoke, the decline that you know very well of in paper, because we know that's a segment where we won't find the growth-sustaining ability that we need for our businesses to run the way we want them. We do find growth in other segments, like textile, and in that particular segment, we have our dissolving pulp capabilities. We're completely sold out. We have been sold out since day one three years ago, and we have three years of orders and commitments and contracts that have ourselves completely committed.
This is another opportunity that we see ourselves very clearly tapping into the future as an option for us to grow. There's one more interesting fact about our business, our pulp business, which is fluff, and what we have in fluff. We have the luxury of being probably the single largest producer of fluff in Europe. That gives us a very interesting advantage with our customers, especially European customers. Logistics are naturally very favorable to them. One more thing that very few can claim, and that is FSC-certified fluff pulp. That is another clear advantage where customers prefer our offering versus some of the competitors that are out there. Now in fluff, many things have changed.
The merger that has recently announced between two very big companies, that has opened even more opportunities for us, because customers that are our customers and are also customers of those companies that merged, they found themselves going from having two suppliers to having one supplier, and that makes them very uncomfortable. We have been approached already by several of them wanting to buy from us and expecting more production output from us, precisely so that they can manage better their portfolio and their dependency of only one supplier like they're in right now. Finally, another interesting fact, and this is not in the pulp side, but on the new product side, on lignin. I'll speak a little bit about later on the opportunity that we have to develop lignin to replace phenols in the resins market, resins that go into wood products.
That is in itself a very interesting opportunity, That is only us scratching the surface of what is behind the potential that lignin brings, and I'll elaborate a bit more into that. Past these facts and going now into the details of our strategy, what is it that we want to do as a division? As I mentioned at the beginning, there's two different things, and I'm going to elaborate first on pulp. What are the drivers for pulp? What makes pulp grow? It's nothing different from what Kalle already explained before. We have megatrends. We have things that are out there that are generating and pulling a lot of demand for fiber-based materials. There are some that grow at a higher rate than others. You have tissue growing at 3%, and it expands much more in Asia than it does in other economies.
You have textiles growing above 4%, about 4.5%. Also, a very interesting opportunity for dissolving pulp. You have hygiene markets, diaper, incontinence products. With an aging population, that is a growing market, almost above 3.5% per year for the next 10 years. You have containerboard that grows also around 2% per year. You have paper that declines 3%. Paper is still a component of fiber, naturally, but this paper decline of 3% brings yet another element into this that is interesting: recycled fiber. Recycled fiber is a very important source of raw material for some of these businesses, especially tissue, containerboard. It's a very important raw material.
With the decline in paper that we see as an impact of digitalization around the world, we see less availability of recycled fiber and less quality of recycled fiber, to the point that many of the companies that are used to buying recycled fiber, they end up not having a price advantage by using recycled fiber over virgin fiber. This is a trend. This is happening. Every year it gets more and more complicated. That is, even though digitalization on paper has a negative effect, it has a spin effect on recycled fiber that for the effect of virgin fiber consumption, it's actually positive, and gradually, year-over-year, it ends up carving a bit more.
If we look a bit deeper into these segments over here, into these markets, and how they translate into pulp, we need to look at history, how pulp has behaved over the last 10 years. It has grown 2.5% per year over the last 10 years, and is expected to grow more or less the same, 2.3% growth for the next 10 years. No major difference in that respect. 2.3% per year going forward, it's about 1.5 million tons of virgin pulp every year, virgin fiber every year. Okay, we have 1.5 million tons of pulp that the market can absorb every year. Obviously, we talk about where that market is going to. Tissue is the big taker of that. Tissue absorbs, in that 10-year timeframe, they will absorb about 10 million tons of new virgin fiber.
Dissolving pulp would be the second one in that respect, with a little bit more than 2.5 million. Fluff will also be important. Specialty papers will be important, just as board was still important. Paper in itself, graphic papers, that declines and takes a little bit out of it. Obviously, when you look at the whole picture and you figure out which of the grades that will grow, hardwood is naturally the one that will take the biggest share of that pie, of the growth, but dissolving pulp and fluff pulp also take quite a bit. Softwood is the one that takes the least amount of growth of that potential for the coming 10 years. That in itself is very important for you to understand why we have the strategy that we have of differentiating ourselves into certain pulp segments.
Let me elaborate a bit more into this. You see that on any given year, and let's begin with the last 10 years. There's been a tremendous amount of new pulp mills coming into play. Everybody knows them, everybody talks about them, and everybody talks about the new projects that are coming to stream. We need to look, though, at what happened over the last 10 years in terms of pulp balance. How much came in and how much actually came out. When you look at all the capacities that were added, we had about 3.6 million tons between hardwood and softwood being added over that period. At the same time, 2.2 million tons were taken out. Everybody speaks about what's coming in, but very few are speaking about how much is coming out.
What's coming out is coming out here and there, bits and pieces. They're not pre-announced, so they don't get the publicity or the media that others come when they have a news about a new mill coming up in stream. These are smaller capacities, especially in China, that are being closed year-over-year, and it just continues to happen. Every now and then you have a new mill, or excuse me, an old mill announcing that they're going to close up or something like that, but very seldom that happens even though it does. We need to think about what we have for the next few years. How does that scenario look like? Are we going to have new pulp mills? We have. We have several announcements. We have Oulu mill coming up soon.
That soon is a big question mark that it keeps extending itself. We have Fibria's Três Lagoas Horizonte 2 project. We have Äänekoski mill in softwood. There's both in softwood as well as in hardwood, we have new capacities coming in. Overall, when you put the 2 together, it's about 11 million tons in the next 10 years. You have 3 millions of softwood and about 8 million of hardwood that will be coming into stream. It's going to be paced, and we believe it's based on the everything that is circulated among the companies that dig into these numbers, it's about 2.2 million tons per year of additional capacity being added. Added. How much is gonna be subtracted? We don't know. That's not pre-announced. We know that out of those 2.2, something will go out.
We're in no position to say if it's gonna be 1 million or 500,000 or 2 million, like it was in the last 10 years. We know sometimes it will balance itself out, and history has proven that this market balances itself out. We expect the same thing going forward. We have price downturns, and the market finds its way back into balance, and that's the way it has been over and over the past few years. We expect the same thing. There's one more thing important about this slide, and that is precisely where those capacity closures can come from. It usually comes from either old mills or small mills that are not competitive, that are not in the tier 1 situation cost-wise.
When we look at how they're mapped, and we map them here by age and capacity, and that gives us a sense of which ones are probably in the weakest place to position themselves when prices go down and so forth. We find ourselves looking at a very significant amount of pulp that is sitting in those gray areas. Just those gray areas where you have mills that are more than 22 or 23 years old or that produce less than 500,000 tons per year. Just in that pocket over there, you have 20 million tons of pulp sitting. That is 20 million tons that are somehow vulnerable to these price downturns. Those are the pots where some of these closures come from, and that's where most likely the balancing of the market will end up coming from.
It is something that we keep monitoring, that we maintain in our sight, because we know that the market in itself will balance. Now, a proof of the fact that the market balances itself is precisely how the pulp has maintained more or less its level when you compare it with some of the most important commodities that are out there. There are companies that have done these indexes, and we just look at some of the commodities, how they behaved since 2012 versus today. Yes, they oscillate, they follow commodity markets and whatnot. Pulp has actually been much more resilient than many of the other commodities. This is not meant to be all the majority of the commodities, but a sample of them, and pulp clearly shows some strength versus many of them.
We know that there's, again, this concept of the market balancing itself out, going through price downturns and then picking up again, and then we go again into the 95%, 93% occupancy of the mills and so forth. It is a cycle that we go through. Now, it is very important when we look at all of this, that we understand or I try to convey to you the importance of the strategy that we have in our division. Because right now, yes, we produce about 5.7 million tons of pulp, most of it wet pulp. We dry and sell to market about 2 million tons of it, so 35%. But we position ourselves in various different segments. Yes, 40% of our sales nowadays are in softwood, but not for long. I'll explain to you a little bit how that's gonna evolve.
Hardwood is important, and hardwood with MDP, obviously, we grew tremendously, but we position MDP for tissue and specialty markets, specialty paper markets. Why? Because the pulp that we produce in MDP has a strong tensile strength, has a high tensile strength. For those markets, that is a very interesting characteristics. It comes just because we use certain types of wood that in Brazil are not the ones that are used. It gives us an edge, and it allows us to position our product in the markets that we know are growing and where we have an advantage. We do the same with dissolving, we do the same with fluff, where we see opportunities to grow these percentages that are up in the chart.
What we want to do with this is basically change the ratio at which we sell and we position ourselves in the market. I mentioned 40% was softwood. Well, that's not the plan five years from now. Softwood will be half of that share in five years. As a matter of fact, in a matter of two years, it's already going to transform significantly because fluff will take over an important part of that. We have the investment in Skutskär got already approved and going, and it's under construction. By the second quarter of 2018, we will have 170,000 tons more of fluff capacity on top of the 250,000 tons that we have. In dissolving pulp, we also see opportunities for growth. We will aim to actually go after some of those growth opportunities.
I mentioned already at the beginning, we have sold ourselves for the next three years. We know there's more demand than we can handle with our capacity. There's opportunities there. We want to reduce the exposure in softwood. When we think about adding fluff, we add that fluff but by subtracting away from dissolving. We're not just adding a new line, we're converting one line to another. That's a possibility that we have also on dissolving pulp, converting softwood for dissolving pulp. There's a clear strategy, a clear point around making sure that we de-leverage ourselves from softwood, which is the segment that grows the least in the coming future. We invest more in those segments where we see a clear advantage and a clear opportunity for growth. Same thing in hardwood.
We look at opportunities to actually even be more productive than what we are. Extract cost from the chain, extract cost from our operations, make sure that we make ourselves even more efficient with the current asset base that we have. That's in essence, and in a few slides, what we want to do with pulp. It's differentiating, it's growing in fluff, it's growing in dissolving, it's subtracting from softwood. It's being more effective on hardwood. There's another piece of the business, which is what we can do that is completely new. For you to understand this, the first thing that I should say is that whenever any company makes pulp, we get wood into those chips, into chips, we digest them and all of that process that we go through, we end up only extracting 45% of the wood.
That's as much as we can get of cellulose out of any log of wood. It varies depending if it's birch or if it's eucalyptus or if it's pine. It varies. It's about less than half of a tree. The other half, everybody burns it. It goes into the black liquor. Then you take it out, you burn it, and that's how every company operates. There are other things that what we're actually burning is we're burning two components that are very significant in the way they make up that log of wood. We're burning lignin, which is about 25%-30%, and we're burning hemicellulose, which is the remaining 30-plus %. Those two are very valuable components that need to be extracted. Instead of burnt, they need to be extracted. They need to be separated and used as raw materials for you to do different things.
That's our strategy. That's what we want to do. If we do that, if we extract and separate those three components, cellulose, hemicellulose, and lignin, we have all of a sudden ourselves with building blocks for various different products that have nothing to do necessarily, with the existing businesses that we have in our company. They may be complementary to some of those businesses, and they may be completely different to the businesses that we have nowadays in the company. It takes us into polymers, into plastics, into adhesives, into chemical ingredients, into a series of different things. How do we go around and do that? Kalle mentioned we have an innovation center that we set up in Stockholm, and we're building our capacities in that innovation center. We have about 60 scientists now located in Stockholm, and they're working on four different clusters.
Let me explain, let me run through you what we're working on. The first one on the upper line would be we start with biomass, we go through a pulp mill, we produce pulp, then we see what else we can do with that pulp. We refine, we do pulp applications, we try to do something different, add something to that fluff or, excuse me, to that pulp so that it becomes a better product. That's one route of innovation. We have people that are very knowledgeable about pulp making and mixing pulps and whether we mix MFC with hardwood pulp, and that gives us a special pulp. You can fly with the things that can be done there, and whether they can serve specific needs from a specific customer's segments. That's one thing. It's about improving our current pulp business.
There's another one, which is also you start the same thing with a pulping process that we have today, there's some byproducts that we extract, that we do some things with. A very good example of that is lignin, and I'll show how that translates in the next slide. You can do things with lignin. We can do things with microfibrillated cellulose. You can do things around carboxylated cellulose or tall oil or turpentine. There are several things, several streams that come out of it that are very valuable that we just need to make sure that we extract the highest value from. There's a group of people that are looking specifically into that.
There's another group of people that is looking into the more dramatic change in terms of coming up with something completely different, that goes back to what I just showed you on extracting the different components of any biomass. When we talk about cellulose, we're talking about carbon 6 sugars. When we talk about hemicellulose, we're talking about carbon 5 sugars. When we're talking about lignin, we're talking about a very different component. They're very different products and can be used for very different things. There's people within our team that are looking at the best technologies out there for extracting those three components. We acquired a company in 2014, Virdia. We have that technology. We're building actually a demo plant in the U.S. that is about to begin in the next few weeks. That is already ongoing, and that is one technology.
We want to scout what other technologies are out there to make sure that we hit on the best. We know that we can extract it, but we need to make sure that we can be the best at extracting those three components. And there's another team that looks at, okay, I have the sugars, I have the C5 or the C6 or the lignin through this other method. What can I do with it? Oh, I told you I was going to give some examples, and here they are. Lignin, the first one. And this is LVL. LVL, for us to do all this gluing that goes into this laminated veneer lumber that is produced by Stora Enso, among many others, as well as plywood, you need glue or resin. That resin is produced from phenol all over the world. It's the same resin everybody produces. It's phenol-based.
What is phenol? That's benzene product that's oil-based. Lignin can replace 50%, or sometimes even more, of the phenol that goes into resin. You're substituting a product that is oil-based from something that is environmentally friendly. We're talking about a green product instead of an oil-based. You get customers, which are very enticed by this, out of the cycle of oil [prying] out from the pulp mill. Nothing extraordinary novel, even though we're one of the few companies that are doing it. The quality that we're able to extract in Sunila is superb, and we have caught the attention of many customers. We have already signed commercial agreements with them, and we will soon begin commercializing these 40,000 tons of lignin.
We have the appeal to customers that actually by doing it the way we're proposing to do, their costs will actually go down versus the current offering. They have several advantages, plus the cost goes down, versus what they do today. This is specialty chemical. We're getting into glue manufacturing out of a tree that we had not dreamt about in the last few years. And that is our reality. That is happening. And this is a very profitable business. Remember, this is a byproduct from pulp. We have lignin in Sunila. Sunila is our mill in Finland that produces only softwood, and they're going to be running on lignin just as much as they run on softwood. A tremendous boost in terms of profitability. It's a very big market, almost 2 billion EUR market, and we have 40,000 tons of it.
This is just the beginning of a journey, but again, quality needs to be at a very high level. The other example, I talked about C5 sugars, hemicellulose. What are we doing with C5 sugars? We're building a plant, or we built already a plant in the U.S., in Raceland. That's very close to New Orleans, 30 minutes away from New Orleans. What we do is from biomass, from waste, actually, in this case, we trialed sugarcane bagasse. From waste, actually, in this case, we trialed sugarcane bagasse as a waste. It can be done from eucalyptus. It can be done from any sort of wood. Actually, birch is the one that has the highest amount of hemicellulose in its structure.
Through our technology that we acquired from Virdia, we're able to extract the C5 sugar from that biomass, whatever that is, and convert it into xylose. Xylose is a low-intensity sugar that has anti-cavity properties and that is used in toothpaste and chewing gum. We are now in dialogue with some of these companies, all very keen and interested in having a source of xylose, non-food competing, because the xylose that is out in the market is corn-based for the largest majority. This is an option of them having into second-generation sugars or non-food competing sugars, the possibility of adding one raw material to their supply chain. That would give us the opportunity to play into a market that grows about 5%-6% per year, 120,000 tons of xylitol.
For those of you that come from the Nordic countries, xylitol is a very popular brand that you found everywhere in supermarkets. That is, again, something that we were burning, and all of a sudden, we're using it for chewing gum and toothpaste. That is our reality. That is not something 5 years from now. That plant will be up and running. In the first quarter of next year, we will have xylose coming out of that plant. That is the reality that we're living in. That's why I said at the beginning, we are in a very exciting journey in biomaterials because we know that we can create new things, and there's more to come. I mentioned that this has been a journey. This hasn't been something that just happened overnight.
In this journey, we have mapped out and we have taken actions, not only on the pulp side, which here are shown in blue, on whether we introduce dissolving pulp or whether we add fluff pulp or whatnot, but also in the area of new businesses. I talked about Virdia. I talked about some of the things that are in there. Kalle mentioned Rennovia. Rennovia is very important because Rennovia is a route from C6 into bioplastics. That joint development agreement with them is absolutely strategic for the success of some of these things that we're going into. Yet we have options for the future. We have options, as I mentioned, we can look into investing further in dissolving pulp capacity. That's an option that we want to look further into because we know there's higher profitability in there.
Just as we know there are options in many of these opportunities on lignin. Lignin can take us into carbon fiber, and there's some samples outside of carbon fiber made out of lignin. That gates us into auto industry, into construction industry, into other different things, and even complementary with some of the industries that we already participate in. That's why it's an exciting journey. It's part of what the strategy of our division is on how we grow in pulp and differentiate ourselves in it and improve the profitability, and how at the end of the day, we create a business platform of very new, different things for us and new avenues of growth for our company. That's it. Thank you.
Thank you, Juan. I think we can take one more question to Juan before we go to Jari's presentation. Okay, Lars.
Two questions essentially. These markets that you're potentially looking at are very large markets. Can you put into context how much you could really produce if you were to try to think about this 10 years from now from your existing pulp mills? What sort of quantum could you produce for these secondary streams? Of course, ultimately the value of that. The second component would be, you're obviously burning this today, which is creating energy for the mills that they use for various purposes. What is replacing that loss of energy that you wouldn't be burning anymore, so to speak?
Of course. Good questions. The first one, if we look at just the existing assets, and we're not looking here at only the assets within biomaterials, but within the company. We have pulp assets in the company. We've mapped out about five different assets that could produce lignin from them. You could already say, just by looking into them, you have about 200,000 tons of lignin that could be potentially produced using the LignoBoost technology that we have today in Sunila. There is a clear map on how that can be done on lignin. Now, when you look at some of the other extractives, when you look at C5 and C6, we're looking at whether we're better off taking it from the pulp mills or whether we're better off starting from a completely new asset.
If it is from the pulp mill, and even with lignin from the pulp mill, you still need to work out the energy balance, as you well said. For Sunila, we had excess steam, so it was kind of an easy choice. In some of the different mills, you might need some biomass to be burnt in addition to create that biomass power, that energy power. That is something that our team is precisely addressing. What are the next steps? What are the logical next steps on those where the energy balances would suffer less, so that we can actually have a good output.
Again, back to the C5 and C6, it's still a question on whether we could plug it into our mills and to which ones we could plug it in, or whether we would need to run separate units on themselves, like this demo unit that we built in the U.S.
Maybe also to Lars, we also sell energy outside of some of the mills, so that could be a replacement as well. Okay, thank you, Juan. Next we will have Jari here. Jari Suominen is head of Wood Products division, and he will have some help from colleagues to set up his presentation. It takes a couple of minutes before we get the setting here up.
Dear ladies and gentlemen, now you can see the strength of our top management. Thank you. Some of you possibly do not know Wood Products so well, so I will start by sharing some impressive facts from us. We, Stora Enso Wood Products division, we are the largest supplier of wood and construction materials in Europe. We are number 4 globally. When comparing to Stora Enso, we are representing some 16% of the sales, so our turnover last 12 months has been some EUR 1.6 billion. When looking at the profitability, year to date 2016, we have reached our strategic growth target of 18%. When comparing to our peers, we have been outperforming them since 2014. Are we satisfied with that? Yes, we are, but that's not enough, and we want to accelerate the growth. Already today, we are leader in wooden building components and systems.
We want to double that business to EUR 750 million by 2021. Secondly, we are leader already today in digitalized business processes, but we are leader in our own industry. In this area, we want to become world-class level among all industries. Last but not least, we will continue our disciplined focus on value creation. This is the only way how we can secure that we can outperform our competition also in future. These are the areas, these are the topics I would like to go a bit more into details today. The world around us is changing. In left side, you can see the global megatrends influencing on Stora Enso. Of these ones, in right side, you can see the ones impacting on demand on Wood Products. World needs sustainable and efficient construction. People need sustainable living.
We see that we have great opportunity to differentiate out there. This is due to fact that wood is the only truly renewable construction material in the world. With our new innovations in building components and systems, first time now we can build houses up to 12 floors just with wood. If you are looking the growing forest, it is binding carbon dioxide. If you are looking wooden buildings, those will act as a carbon storage. When summing this all up, we see wood as an unbeatable construction material for the future. Moving to our wood products end markets. There are two markets impacting on us. First of all, there is classic sawn market, which is some 300 million cubes globally, or EUR 60 billion sales. The second is European new construction, which is even between EUR 600 billion-EUR 700 billion.
What is positive that both of these markets are growing. Both of these markets are not the easy markets. Those are fragmented, those are volatile, and those are highly competitive. However, we in Stora Enso Wood Products, we do not see this as a weakness, we see this as a great opportunity. Why? This question I will try to answer in next couple of minutes. First of all, we have possibility, clearly, to differentiate. We are one of the very few players who have truly global access when looking our own end markets. Stora Enso people are serving the customers in each continent except Latin America.
When taking two our main markets as a example, Australia and Japan, we serve them with high-quality European wood, which is not available locally, and then we have developed, in those markets, service and distribution concepts which will differentiate us from other importers. The second area where we can differentiate is our operational base. We are located in 10 different European countries. We are operating 20 units, each of them close to this high-quality European forest. The unique position here is that we can optimize the production of these 20 different units. Is it then enough just that we have global market access and we can optimize our operational base? No, it's not. Dear ladies and gentlemen, here you can see our raw material. This is log. This is highly important for us, or even crucial for us, because this is representing some 60% of our cash costs.
It is crucial that we get the right raw material and further on, like you see from the slide, this sawing pattern, that we cut that correct way. This is example of highly profitable log. Each person you will gain, each person you will lose, when purchasing the raw material or when cutting the raw material will be directly impacting on our profitability. Continuing, this is an example of log which has not been so beneficial for us. This is smaller one and as you can see, the log could not be cut. It could not be utilized as efficiently. Profitability of these two logs and cuttings are deviating largely. This can be even more than two times more profitable than the smaller one. Then, like you see in this slide, our value chain is long.
Traditionally, we received the wood from the forest, we tried to make best out of that, cut that as efficient as possible. Today, we have turned our business model upside down. We start from customer demand. We review what customer wants, then we cut the log, like you see here. We cut the log as customer wants, then we purchase the wood according to that. We start from demand flow, then material flow will follow that. This all we are pacing into digitalized business processes, and I will come back to that later on. Still to highlight what is the complexity here is that part of this cutting pattern is profitable as classic sawn, as you can see here. It is profitable, it's like filet.
Part of this log is lower quality, and these are the qualities we want to develop to higher value added, like building components. Where we are proud of is our versatile product portfolio. This classic sawn, what you see here or in picture, is the biggest single product for us. The area where we want to develop, where we want to grow, are highly developed value added building components. Here you can see CLT. We have LVL, these products are visible in our station in outside, so you can see those, during the break. As an example, this LVL, this is the strongest construction material in the world when you are comparing the strength and weight. Like Juan in his presentation referred, this is truly renewable.
Only the glue is oil-based, in some years, we will replace all these oil-based glues with renewable lignin-based glues. What is special with these building components, we are the only operator who can offer all required wooden building components to high-rise building. Further on, we are the first one in Stora Enso. Stora Enso wood products is the first one who has developed building system, how to build high-rise building up to 12 floors just with wood. All these products, all these services we will offer to our customers online in our tools. I move to tell you a bit about our track record. Before that, summing up these opportunities. I was telling you earlier that we see that despite the volatile market, fragmented market, highly competitive market, we see the opportunity out there.
This was the reason why we see so. We have global market access. We can optimize our operational portfolio, European-wide operational portfolio. We have developed digitalized processes to manage the total value chain and optimize this log. Last but not least, we are the only one who can offer all required building components for high-rise building, we are the first one who has even created a building system for that. What I want now to tell you that this is not just the future, we are well on our way. First of all, the profitability. We have been outperforming our peers since years. Since 2013, we have been starting to get stepwise towards our ROCE target 18%, and today I'm happy to say that year to date 2016, we are on that level.
When looking the development of these high-value added businesses, development of sale of that in our total portfolio, we have grown with building component and systems from 15% to 24% in 2015. Our target is to reach 35% 2021. Here, please bear in your mind that all of these logs will not be developed as building component systems. Part of this timber is good as it is, as classic sawn. Similar what Juan presented, we have been also developing our asset platform for future growth. Just giving us a couple of examples. In 2014, we took total saw mill from Sollenau, Austria, and we moved that to low-cost country, Poland, and that including construction beam production. This summer we started this kind of LVL production in Finland in Varkaus, and we have feasibility study ongoing to start our third CLT production in Sweden in Gruvön.
I will move into next section. I will present you some activities, what we are implementing in digitalization field. It looked simple, and I can promise you that it is also simple. Behind this there's been a lot of work. For decades, concrete has been dominating the construction market. It has been easy to build, efficient to build, and there has been guidelines and instructions available. With our new innovations, we first time we can enter into markets which have been earlier dominated by wood and steel. We have, like you saw in this video, these components required for buildings, we can offer all of them, and then this system is created by us, and this is the first building system meant for high-rise building for wood.
This system will be in digitalized tool called BIM, Building Information Modeling tool in future and available for our customers. This will make building with wood easy. We have launched this system already in six different countries, and we were launching that here in London last summer. It's not just enough to make building with wood easy. We want to make also our products easily available to our customers. We have developed so-called MySupply tool, where our customer can online 24/7 order our products, they can see their inventories and even plan the logistics. This is common practice in many industries, but we are one of the very first ones in wood products industry. Moving back to forest, like I explained you how important the wood procurement is to get the right log, right time.
There traditionally, the wood purchaser went to forest. He reviewed the stand, he had certain mechanical ways to evaluate the quality of the wood, volume, species and so on. Based on that, they made estimation regarding the value and price. In this area, we have developed new tools. The purchaser will go to forest. He will have his mobile phone. He will have a new tool, which is cloud-based. He will take the photo will go to cloud. Based on that photo, our system will evaluate that what is the quality, what is the volume, and which kind of species you have in that forest.
The same cloud will take information from our so-called ProCalc system, cost information, profit information, and results will be calculated, and it will come back to wood purchaser's mobile phone, and he can see summary of the qualities, he can see even the summary of the value and even proposal for pricing there. Like I mentioned, if we with these systems can improve the efficiency even with couple of percent, it will be immediately visible in our profit. During this year in wood products, we have developed our digitalization strategy. We have 12 steps in our operational or our value chain. In each area, we are working also with digitalized solutions. Each of those will bring a lot of value, and we are well on our way in that side. The true value we will gain when we get end-to-end digitalization in place.
We have visibility over total value chain. We can optimize it, we can create efficiency and so on and so on. Dear ladies and gentlemen, it's time for me to come to conclusions. How we see is that wood is and wood will be unbeatable construction material for the future. There are already visible demand increase out there. I hope you learned today that we are well prepared for growth, and we are well on our way, and dear ladies and gentlemen, we are well on our way towards exciting future. Thank you.
Thank you, Jari. Now we have time for questions. Okay, Lars is always so quick.
You clearly succeeded driving this business well ahead of your competition. I'm curious to understand how you've been able to reduce volatility and drive the business forward. Also, the last comment that you made, there's some signs of success. I think one part of the reasons that wood has been volatile is of course, disruptive new supply comes into the market very quickly when you make money, someone adds capacity and profitability goes down again. It's also been defined by a comparatively small target market, meaning this country is not particularly wood-based in construction. How do you, and are you breaking into brick-and-mortar markets with wood as a material?
This is very good question and the main question. Like I mentioned at the beginning, we are connected to construction business, this is volatile and this will be volatile. In history, the entry barriers have been pretty low. We will increase these entry barriers by differentiation. It is like I mentioned, we have global market access, we have the best visibility on market, if something change in log market, we have operational base in total Europe, we can optimize that. We have the capacity and competence to develop these digitalized business processes and optimizing these patterns and so on. Last and not least, we have developed this targeted offering that we can offer to customer all components they are requiring. They don't need to go into different places and buy those differently.
Those all pieces will fit into our system. It is not one single issue, it's all of these together which will differentiate us in future.
Okay.
One other thing that I think is important what you've done, you have, for a long time targeted not going through merchants, going to the ones who owns the inventory, bypassing the channels. That you did already in 2013, we started that work.
Okay, good. Was there a question? Yeah, Linus.
Thank you. It's Linus Larsson with SEB. Basically, two questions. I wonder if you could maybe say anything about the margin or profitability difference between, on the one hand side, the basic sawn wood business and the systems business on the other hand side. Second to that, more of a strategic question. You're in both these parts of the business, and you're targeting to have more than 35% of sales in the systems business by 2021. Is it necessary to maintain a position in the part of the industry where there are low barriers to entry?
I think that what is important here is that when we are looking this log, this is very much optimizing. This one part of this is profitable, but quite often it's matter how you manage the total log. We will get this classic sawn, but part of this classic sawn we will develop into high value added grades. These high value added grades are most efficient to produce so that it's integrated with sawmill. Our sawmills starts to be certain kind of integrates. We have their classic sawn production. We have one or two different kind of value added products. We have bioenergy like pellets and so on and so on. This total integrate is extremely efficient, and to create this kind of is already including entry barrier.
We believe that, we are certain that it is important to stay in classic market. Like I mentioned, our growth will be in this high value added grades. Also in this classic sawn products, you can differentiate when you have this global market access and you develop the service and distribution concepts there.
Okay.
Maybe I can take the profitability question. Profitability, you have to understand, as Jari said, this is an integrated business. You reuse everything of the round wood who goes into square products. When you look upon the profitability on classic sawn versus value added, classic sawn has about half versus the systems. That is also, it's very hard to make engineered wood if you don't have the classic sawn. It's basically more a business out of making breakfast at McDonald's. You already have all the costs for the dinner, you add breakfast, the whole profitability increases.
Thank you.
Okay. Thank you for the questions and also answers. Now we have Seppo Parvi, our CFO, who will talk about our financials.
Okay. Thank you, Ulla. I start first by sharing some facts about our transformation journey that we have been through during the past four years, and actually 10 years, but just sharing what has happened with the past four years. First of all, if you look at our balance sheet today, it is good to notice that even though that we have EUR 2.9 billion net debt, actually value of our forest assets is EUR 3.5 billion. You probably noticed earlier this week that we announced increasing the fair valuation of our forest assets in Finland and Sweden by some EUR 140 million on top of what you have here. Like Kalle already mentioned, we have been improving our balance sheet over the time, and our net debt to EBITDA has been coming down to 2.1 now, and just only three, four years ago, we were above three.
That is quite an achievement while we have been investing significant amounts in our transformation from traditional forest industry company to renewable materials company. Secondly, if you look at the working capital, we have been working hard on reducing our working capital. That has been one reason also why we have been able to manage our net debt so well over the years while we have been investing significant amounts. We have been able to reduce, if you look at the ratio of working capital to net sales from 17% level to 11%. We feel that there is still more potential to come. Like we have said earlier, our target is about 10% level, so at least one percentage point, which transfers into about EUR 100 million cash flow going forward.
The lower you get, the more work it takes, we are working on it all the time. Looking at our rating or the rating agencies our financers are looking at, we are getting positive outlook, our rating outlook is getting better. That's of course, thanks to improved debt metrics. Also, the fact that our transformation is coming now from asset transformation to what Kalle already mentioned, the sales and R&D product innovation transformation. The heavy investment years are behind us, we start to have the footprint that we need. Also, if you look at the cash flow, again relating to improved profitability, cash management, and other things, we have been able to increase our cash flow from operations by 27% over the time.
What is the role of CFO office in this and how we are supporting the businesses, our divisions, to perform? Actually, it is as you know, it's all about performance when it comes to cash flow, profitability, making things to happen as planned. We have been working, we put a lot of focus on improving cost structure. It's very much about around the fixed costs, how to keep those under control. It's about the group functions, it's about the divisions, ensuring that we are mean and lean. We are, like I said, working to reduce our working capital, that work continues, we want to be world-class. We are getting there. We are not quite there yet, we will be one of those companies. We have been also working on managing our debt portfolio.
Our debt has been coming down, in the meantime, we have been also now taking opportunity on the market of the lower interest rates. We've been issuing new debt, longer maturities, repaying and prepaying old debt at the same time, using the market windows, we are of course, keeping our eye on that. One important theme going forward when it comes to our work is around delivering our transformational investments. We have done the investments. Now we need to show to you and to market, our shareholders, that we can walk our talk and reach the targets and what we have promised when it comes to these investments. Like you heard from Kalle, Juan, and Jari today, we are very confident that we are getting there. We are working to harmonize our processes. That means cost competitiveness.
It is about digitalization like Jari was mentioning in his business area. It's taking advantage of digitalization opportunities when it comes to collecting data from board machines, paper machines, pulp process, use the big data and improve our analytics to understand better and online, where do we stand and how to improve the performance. It's also about improving our processes when it comes to finance. Very simple back office things where with the new modern robotics, as they call it, this piece of programming as we all know, where we can again knock out costs from the system, be more efficient going forward. We have been, over the past three years, getting about EUR 500 million, EUR 520 million cash from our non-core asset disposals program.
We will of course, continue to look at the business portfolio and clean it also going forward and use that opportunity when that comes. About the trends a bit, where we are when it comes to performance and how we have been improving over the time. One challenge has been, which is visible here when it comes to top line of the group, that our net sales top line has been coming down 2%-3% a year because of the decline in paper market. It's not only decline of the volume, it's also the fact that we are closing capacity and divesting businesses, which of course means that your top line comes down. Important to note this here, that at the same time, we have good underlying growth in our packaging businesses, Wood Products, and Biomaterials.
There the growth has been 2%-3% a year. As you know all now that when Beihai is ramping up, Varkaus is at the final stage, that will accelerate. I dare to say that we will see increase also on the top line when it comes to group. That is of course important milestone once we reach that in the transformation of the company. Operational EBITDA % has been improving. Back in 2014, we were about 10%. Now we have reached totally new level, step change there at 14%. Operating EBIT has been increasing also despite the investment in Beihai and startup cost there. If you look at the year-to-date here, if you exclude the effect of Beihai ramp-up, actually underlying profitability has improved 18% year-on-year. Quite a strong underlying performance.
Looking at the different divisions and how we are performing compared to the targets we have set and the strategy. In Consumer Board, we have had good underlying stable growth, about 3% a year. That will now, of course, accelerate when Beihai is coming on stream. That is 450,000 tons of board, like Kalle already mentioned. Operating return on capital, excluding Beihai, has been on excellent levels, already 40% plus, if you look at where we have been recently. That we expect, of course, that we continue the positive development once we are ready with the ramp-up also in Beihai, and Beihai is added to that figure. Packaging Solutions growth has been accelerating already thanks to Varkaus startup with the new kraftliner production there, we expect that to accelerate further now when Varkaus is reaching full speed towards the end of next year.
Operating return on capital has been below our targeted levels, mainly because of the startup cost in Varkaus and also some challenges in China. We believe that it can be reached. It's a reachable target, realistic target once we get in full speed in Varkaus and also the new businesses in China are getting ramped up. Looking at Biomaterials and Wood Products. In Biomaterials, of course, in 2014-2015, we had big increase in the sales thanks to Montes del Plata. Our previous big investment ramping up. Now the sales figure has been coming down slightly, mainly due to the fact that hardwood pulp prices have been going down. Return on capital has been, of course, suffering by the same reason.
Last year when Montes del Plata was in reaching the full speed and we had good pulp prices, we had about 12.5% level, which proves that this 15% target is reachable. Remember here that we are putting a lot of money at the moment on R&D work to develop the new things that Juan was telling you about. That is, of course, investment to future where we expect returns going forward. Today it's a cost in Juan's figures. That's, of course, reflected there. Wood Products, look at the sales line. It has come down, but that is the reason. There's a strategic reason. Jari and his team has been restructuring the business portfolio, getting out of lower profitable business in some basic sawn and trading and moving the portfolio more towards the value-added business.
That you see if you look at the profitability of the business and also return on capital, that has been done quite successfully. We are around the 18% targeted level for the return on capital. Paper, last but not the least, staple cash flow generator. Like I said earlier, net sales has been coming down because of the decline in volumes, but also because of the closures and recently, you remember, have been also selling quite a lot of capacity, and that is, of course, having an effect on the top line. There's the staple cash flow generator, around 6% if you look at the annual figures.
Target is 7, and like Kalle already mentioned, last quarter, we were actually almost at 12% level, which shows it's a good cash flow generator and has a good role in the business and in our portfolio, helping us to fund our investments in the growth businesses. Also if you put into perspective, cash flow we get from Paper is more or less equal to our dividend. You can also say that we can fund our dividends with the cash flow from Paper. Look still talking about the cash flow, which I think has been a quite successful story. It's of course important part. It's not only that you grow and improve your profitability, but it's important that you take care of your cash flow because that way you can also take care of your balance sheet.
All the businesses are contributing to cash flow, if you look at the cash flow from operations here. That's of course important also going forward, and we will continue to keep our eye on that. If you're at the group level, also there you can see that we have reached over 15% level to net sales if you look at the cash flow from operations. That there is also clear step improvement if you compare to the previous years. Capital allocation. Here Kalle already shared with you some main principles, and here also you see how the level we had passed for years, even five years, about EUR 800 million a year up to EUR 1 billion, is now coming down this year to about EUR 700 million-EUR 730 million.
Our guidance for 2017 is level of EUR 600 million-EUR 650 million, including about EUR 100 million for the biological assets at the plantations in Uruguay, China, and Brazil. That's the money we need to replant after the harvesting cycles in those places. Depreciation about EUR 500 million-EUR 520 million. This very much in line what we have been telling already a year or so, that going forward, we foresee that our CapEx will come down towards the level of depreciation when it comes to fixed assets. How it's split between the divisions, this is how the primary look for 2017 looks like. Please notice that there is a, on right-hand side, unallocated amount which is still to be seen how and where we allocate that and how we set the priorities.
This is sort of the big picture, this including maintenance CapEx in different divisions. This EUR 100 million CapEx in forestry, biological assets, it's included in Consumer Board and Biomaterials here in the figures. If you look at the main projects that are in there, Consumer Board, including of course PE coating projects in Imatra and Beihai. Just to be clear, there is no chemical pulp mill investment in the figure of Consumer Board. Like Kalle has said, that is something we will look at once we are ready with the ramp-up with the board machine. If you look at the Biomaterials, it's in addition to some maintenance and biological asset for instance, Skutskär and fluff pulp investment that we are working on. Wood products, some Finland and Sweden-related boiler and pellet investments.
Packaging Solutions, at Sampo, that is including, for instance, the announced investment related to restructuring of our business in Finland and Sweden. There's some money on top of other smaller things. Paper, that's mainly maintenance-related. Some small investments about development of business, but mainly maintenance. That's how the big picture looks today. Cash flow after CapEx, I think this is important picture and shows the cash flow strength of the company. That even if you look at 2013, 2014, and 2015, where we had high CapEx because we have been able to be cash flow positive after CapEx. That is I think important and great achievement by the organization. That's thanks to improved profitability, working capital management, happy working on supply chain, and CapEx control.
On top of that, of course, outside this because we have this EUR half a billion in the divestments of non-core assets. Looking at the dividends Again, I think important part of the journey and our transformation. Throughout the transformation, we have been able to keep our dividends stable. Actually, for 2015 dividend that was paid early this year, we increased the dividend by 10%. Our dividend policy remains the same as earlier, that half of the net income over the cycle is paid as dividend. Our strategy is, of course, to keep stable dividends linked to the long-term performance of the company. About the enterprise value, worth to note is that since 2007, our enterprise value is up some 45%.
Of course, like I said, if you've got the distribution of enterprise value, share of net debt has been going steadily down in the big picture. My final slide to summarize where we are with the strategy. Key points Kalle already shared with you some flavor. First of all, when it comes to growth, there we have reached the target, and that I expect to accelerate also going forward thanks to Beihai ramping up, Varkaus ramping up, some other investments coming on stream. Debt ratios, both when it comes to net debt to operating EBITDA, and year-end, both at the targeted level. That's something, of course, we continue to watch and make sure that our balance sheet remains strong and in good shape. That, of course, gives room for moves if and when looked at.
The challenge where we are still working on is fixed cost to net sales, where we are at 25% level. Target is about 20% or below. We strongly believe it's reachable target. We are growing the top line, and of course, we are working on continuous improvement when it comes to cost structures and fixed costs in the company. So we are going to get there, not of course tomorrow, but over the time. Return on capital, Kalle already commented. Look at the divisions. Like said already in the consumer part, excluding Beihai, clearly above. Packaging solutions figures are reflecting the Varkaus ramp-up costs and the challenges in China. Biomaterials at 6.8% compared to 15%, but that is reflecting the latest development of the hardwood pulp prices, and I want to highlight the R&D costs that we are adding at the moment.
Wood products steadily around 18%, and paper strong cash flow generator. I think like always, targets had to be ambitious, but I think they are truly reachable and in some of them we are already there and continue to work to improve where we are lacking behind. Thank you very much.
Thank you, Seppo. Do you have questions for Seppo? Okay, Mikael.
Thank you. [Mikael Olofsson], Kepler Cheuvreux. I have a question about your guidance there on CapEx. You are doing a feasibility study regarding a potential second test line and machine in Ostrołęka. If we play a little bit with the idea that it's a positive decision, how should we look on your longer-term CapEx guidance, the EUR 600-EUR 650, in light of a potential positive decision?
Yeah, that's a good question. That we always get every once in a while. It feeds to the frame we have mentioned. To remember that EUR 650, about EUR 100 is for the biological assets, EUR 200-EUR 250 for the maintenance. There still is remaining about EUR 300. Of course, if you make bigger projects, then you need to set the priorities of how you allocate the capital between different businesses and projects. We believe that we can manage within the frame we are given, even if we go forward with that project. There is space.
Perfect. Thank you.
Okay, we take one more question. Now we go to the back. Sorry, Lars, you have to
Thanks. Michael Roos, DNB. Just wanted to ask about the CapEx allocation on the paper side. A key competitor says that the maintenance CapEx is about EUR 50 million, what's needed. You have smaller capacity now, and you still need somewhat above this EUR 50 million for 2017. Why do you have to invest relatively more?
Well, I cannot, of course, comment what our competitors are doing. It differs also a bit from year to year. As you know, in our industry, being capital intensive, when you do some maintenance works and investments there, in some years you have some bigger maintenance works than you have had in the previous years. I don't know what the competitors are doing, but that might explain some of the difference. Roughly, as I said, it's about 2% a year, 2.5% a year. That is the maintenance CapEx also. They're sort of all over the place on rough terms. If you want sort of rule of thumb to use, for instance, for modeling.
Thanks.
Okay. Thank you, Seppo. Now before we start the coffee break, Kalle will share us with concluding words, and then I will still give some practical advice or instructions. Don't leave the room before I'm back here again.
First of all, I would like to thank you for being with us so far. We're going to go into phase 2 now with the breakout sessions. I think what we have been trying to convey to you today is that since we met last time, we know what we are doing. I think we have had what I call a solid performance so far, and we are going into the next step. There are a number of areas that we are pointing out that we need to focus on. It's about sales and innovation. Even in business that you might have thought was very low innovation or low tech, I can tell you this is not low tech, how you get exactly the right log out of the forest.
The areas that Juan was talking about, the possibilities of using the side streams of a mill or construct new kind of mills to be able to go into biochemicals. I think what you have seen so far is that we have improved in basically all areas, and we have been giving you a guidance about CapEx for next year. We've given you breakeven in the first quarter of 2018 on EBITDA for the big mill in China, and we are ready for the next step. Before doing that, I would like to share with you another thing, and that is what a tree can do.
Have you ever thought about what a tree can do for the way we live, the environment, the planet? Too much of what we consume today is made from non-renewable materials. We can recycle some of them a few times, but we can't renew them. These materials contribute to global warming, threatening growth, prosperity, and our everyday lives. Consumers all over the world are demanding change. They want solutions that will help them take better care of the planet. Imagine that everything you bought came from material that is not only recyclable but renewable. Regrown year after year, where the only gas that's emitted is pure, breathable oxygen, absorbing carbon dioxide from the atmosphere instead of releasing it. Trees. We've been using them for ages. They keep us informed. They keep us warm. They keep us protected. Over time, we've innovated and made new discoveries. Trees.
Today, we can break the fibers down into tiny microfibrils and separate the components of wood. Tomorrow, we'll be rebuilding them into new materials, like strong and light carbon fibers, that in turn can be turned into cars, planes, windmills. We'll even be replacing oil-based plastic bottles. You might think that a plastic bottle is not a big deal, but you could build a tower to the moon with all the plastic bottles used in just one year, 25 times over. More people living in cities means more of those bottles. It means more food packages. It means more housing. Think about making all of these things with renewable materials. Not only that, we can make materials intelligent. Packages that tell us where they've been, where they are, what's inside, and if it's fresh.
Soon, we'll see a range of new inventions pop up from all sorts of places. Transparent wood, programmable wood that can change shape or form depending on the needs, paper that can store energy, and solar panels from trees. Trees can slow down global warming. In order to do that, we have to take care of them, grow more than we harvest, and get the most from every fiber in every one. Have you ever thought about what a tree can do? We do, all the time. Stora Enso, the renewable materials company.