Good day and welcome to the Third Quarter twenty thirteen STORA Enso Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ulla Pazan Senjom, Head of Investor Relations. Please go ahead.
Hello. Thank you, Silke. Good afternoon on my behalf. It's Ulla Pazanen here. Welcome to our Q3 twenty thirteen conference call.
I will hand this over now to our CEO, Joko Kaverin, who will give you a presentation. And after Joko's and Jurek's presentation, we will have a Q and A session. Please go ahead, Jyr.
You, Ola. Good afternoon, everybody, from sunny Poland this time. We'll try to be brief on our slide show and make sure you get enough time on for your questions. Exceptionally, obviously, we have preannounced the key results. Now we came with a little more competitive story.
The operational EBIT of 184,000,000 yes, it was better guided and what we expected in July when we gave the guidance, essentially driven by strong performance in Renewable Packaging, which is both cost a bit also revenue driven and also Building and Living segments bouncing back through their cost improvement program that they started late twenty twelve. The reported return on capital employed 9%, if you take the growth investment now slightly above 10 I think to me always important solid cash flow, $331,000,000. And with that, also a strengthened liquidity at $2,100,000,000 and an improvement on the net debt to operational EBITDA. Go to page four, I believe. There you have the graph of cash flow from operations, fourth quarter rolling and operational EBITDA.
And I think there's two messages. One, yes, the cash flow trend is good. And two, when you look at the EBITDA levels, it's very obvious that we need to keep on running and going on our cost improvement program, also including not just the capacity closures, but also the resale program announced in April where we have promised a $200,000,000 fixed cost reduction on its own. Page five, the one graph that we've seen too many times and it's a graph that has no news. Essentially, structural decline has continued in the third quarter.
As before, there is variances in obviously the grades between printing plates and non printing grade coat office paper. And then the bigger thing was we also stated in the title is that there is overcapacity already or now with the exception of newsprint and that is driven by the fact that, for example, we've taken three machines out in the last twelve months. Next page, increase in fixed cost. This is the total fixed cost picture. The quarters obviously on the scale jump around quite a bit because of seasonality and so forth and so on.
But if you look at the kind of the late part of line, which is a four quarter rolling average, you can start seeing that we're heading to the wrong direction. And I would say from a cost takeout perspective, meaning what actions have we actually completed in the reshape in terms of taking fixed cost out on the program that we announced in April, we are at 40% now, pretty close of the actions to reach that target. And that's the actions completed meaning that the negotiations and so forth have been completed and the agreements have been reached. The P and L impact comes with some delay because of local laws and then how long people stay on our payroll and so forth. And based on that, we confirm the target and say we're going to make it happen in the 2014 as promised.
Page seven, projects. We've given you a little more color on the Monza splatter situation, start up during first months of twenty fourteen. So against the previous targets of September, we are more than three months late obviously and we won't give you the exact date, but the important thing I think for your analysis is that we estimate now based on this target that we will produce about 500,000 tonnes for store answer purposes in 2014, so a total of 1,000,000 tonnes. And that obviously does require a couple of things. One, as I pointed out in my CEO comment, we need to have the piece at the site continuing so to say with labor relations.
The last six, seven weeks have been very good. And given the fact that we're 93% complete, I think all stakeholders on all levels do understand that we need to complete this mill because it's a great mill, but it's a great mill only when it produces pulp capacity. Then Guangxi consumer board mill and this is obviously now called consumer board mill now because we reached a fast project into two pieces starting with the consumer board machine. We have basically no news there. The start up date for the board machine is 2016 as before.
There's a little time there. The Movcom approvals we expect to receive by the 2013. Maybe the other thing is that, yes, we practiced and rehearsed a bit locally there at the mill side leveling and so forth and so on. But there is really no more that much more details in that context given where we are today. One more slide from me before I hand over to Jyrki.
The transformation from half paper to about 40% paper in our revenue stream at the end of third quarter. And then if you zoom it down to European printing paper, it's obviously even a bit less, I'd say roughly one third. It's still significant and it's an important source of cash flow for us and so forth. So we need to stay on that case as well. Let me stop there and if Jurgen you would please go relatively quickly through the financials and then I'll summarize at the end.
Sure. Thank you, Joko. Our sales were slightly lower some 5% year on year and sequentially operational EBIT was slightly higher year on year and some €60,000,000 higher quarter on quarter. That is equivalent to zero point six and two point six margin points respectively. Our operational EBIT generation was year on year relatively stable.
The big picture is that the sales prices and mix in addition to volume declined decreased the profit, but it was more than compensated by decreased variable and fixed costs. The biggest EBIT contribution for the quarter came from Renewable Packaging. That segment improved clearly both from year on year and sequentially and the improvement was due to lower costs. Building and living improved significantly from year ago and decreased somewhat quarter on quarter due to seasonality. Printing and Reading operational EBIT improved sequentially some €30,000,000 owing to lower costs and slightly higher prices.
Compared to year ago, the result was roughly three quarters lower due to lower volumes and prices. Biomaterials result decreased significantly owing to the Enosil pulp mill annual maintenance stoppage and the unfavorable currency impacts and additional costs, including write downs of capitalized costs at the Veracel Pulp mill. With that, I hand this call now back to Joko. Thank you.
Okay. Let me then get to the guidance, which is quite important actually because there's two drivers here. We said it's going to be clearly lower in fourth quarter twenty thirteen than fourth quarter twenty twelve. One reason is, yes, the weak European paper market. But then I think it's important to try to describe also that two of our segments namely Renewable Packaging and also Building and Living they're seasonally both a bit different than the others.
Meaning their fourth quarter and if you look at that in Renewable Packaging as example, they make between 80% and even 90% of their yearly profits in the first three quarters. And also billing and living is a bit more seasonal than the others. What's different this year is that if you look at the year to date numbers in the first March, the contribution of these two more seasonal segments is actually clearly bigger for obvious reasons than a year before. Rough numbers this year, I think year to date about 70% of our operating EBIT seasonal segments, whereas a year ago they were like half or slightly less. Point of the story is this content change actually makes the group earnings Q4 also more seasonal than maybe traditionally.
And the reason I tell you that is that there's no drama in the outlook. It's just this the structure of the earnings and the fact that we need complete our cost improvement programs and get them to the P and L, which is going to happen more than next year than this year. If we go to the final slide, the summary slide then. Yes, it was not only significantly higher than we expected, it was very, very slightly higher than a year ago. The cash flow was solid important for us.
The fixed cost savings as I said are proceeding and I want to emphasize that these are fixed costs identified as fixed costs not fixed and variable. We stick to the commitment that we will in addition to that compensate for inflation. So it's not going to eat that. And then the fourth bullet obviously says the obvious is really, really important also in light of the fact that the European paper markets in our view remain weak as they have been. And then final point, yes transformation is proceeding admit with the delay of a few months more in Montes Del Plata, but I think the important message there is a great investment.
We need to get it up and running and so forth. I think with that, I would hand it over to Ulla and you for your Q and A please.
Yes. We will start now the Q and A first.
Thank you. We will take our first question from Swayamathan of Merrill Lynch. Please go ahead.
Everyone. Kartik Swayamathan from Bank of America Merrill Lynch. Thank you for taking my questions. My first question is on the Packaging segment and the guidance. Just to understand this a bit better, you've reminded the market that the segment typically books around 85% of the year's operating profit during the first March implying that Q4 will be about 15%.
But I'd also assume that we'd also have to add on the benefit of Australasia year on year if it had started to contribute meaningfully from Q4 onward and perhaps also some volume and price benefits. So a bit of clarity on that will be helpful and whether the guidance is actually a little bit conservative.
Very good. I'll try to answer as clearly as I can. As you know, we're not guiding segment by segment, but your point is well made. Yes, the seasonality analyst, I mean, it's not 85%. It's actually varies between eighty percent and ninety so we can number in the middle.
So that's one inaccuracy in that calculation one. And two, the Ossuleka machine, I've seen it with my own yesterday and I've been reconfirmed that the guidance we've given on the fourth quarter margins EBITDA margins is still valid. So that will help. I mean, it's not a huge help, but it does help. I think then I don't know much more to say.
I mean the pricing and all that I wouldn't say anything very significant there.
Okay. In which case just to understand your potential price cost squeeze during the fourth quarter, could you remind us whether you're long or short containerboard? And what your rough net sales volume or purchases will be?
We're net short. We were a lot, lot short until we invested the machine. I think our level is 60 plus percent now self sustaining, okay?
Okay. So you're actually purchasing quite a substantial proportion in the open market. And finally, I just wanted to understand what was the dynamic be it price cost or volume that surprised you with respect to the Renewable Packaging segment in the third quarter because you clearly revised your guidance from slightly above to flat quarter on quarter into Q3 to substantially above and renewables are contributing factor. So a bit of color on that would be helpful too.
The underlying factor is costs. And I say both fixed and variable costs. So cautiousness in forecasting the improvements in fixed cost development in the original guidance and then also the fiber costs was turned out to be more favorable estimated in July. So those were the primary drivers of the great performance.
Okay. And just a couple of quick questions as well. So similarly on the Building and Living business, again you pointed out seasonality, but I'd also expect you to benefit year on year from your cost cutting program. So just to understand sequentially, mean was that a lot of that already baked into Q3 numbers? And do we have anything further to come through to fully
Yeah. They've got some to do and I won't I apologize I won't give you the exact number, but the I guess I would let me try to describe it this way. That team started their ReShape program about quarter and a half before four, five minutes before the rest of the show. So they're further in the progress more of it is already in their P and L than is true for the others. But there's still some more to come.
And there always has to be some more to come obviously.
Okay. Understood. And my final question is on CapEx. So you seem to revise down your CapEx guidance quite substantially. Does that imply that the balance will be taken into 2014?
Or whether you have any kind of visibility on how we should reject the schedule?
Sure. I mean Jyrki here. I mean when it comes to the project related CapEx, for example, the Chinese board machine that obviously is then transferred over to 2014 and 2015 as well.
Okay. So should I take it that there is no CapEx into China this year and you'll actually start your schedule from 2014 onwards?
No. We have guided 40,000,000 to €80,000,000 that we estimate that we are spending on the Chinese project this year.
Okay. That's great. Thank you very much.
Thank you. Thank you.
Will take our next question from Lars Kjellberg of Credit Suisse. Please go ahead.
Good afternoon. I had a couple of follow ups on the cost takeout. Jokic, you mentioned that fixed cost takeout the €200,000,000 program is over and above inflation. You obviously had another bunch of smallish programs. And when I last looked that added up to about €100,000,000 in incremental cost savings from Q4 onwards.
Is that what you meant when you're talking about those small things offsetting inflation and that's why you're to keep the €200,000,000 to the bottom line? Or there something else that we should be looking at?
The way we track this thing internally is that we look at division by division, BU by BU, mill by mill and unit by unit cost takeout, is which obviously euros and also people. That's reshaped. So that does not include the earlier announced capacity reduction programs. And my logic Lars has been that when you take capacity out, take revenue out and then you get to the spiral well how much do you need to do what? And the reset specifically is only fixed cost without capacity takeout.
And we just said that in addition to that the people have to find ways to compensate for inflation, because what I don't want is that the cost takeout then gets deflated so to say by people saying, yes, we saved X, but it's not coming through. So we try to keep the three things very separate inflation and then the earlier capacity reduction programs, which we have announced and disclosed them separately Does that make sense?
It does. The next question I suppose when it comes to the actual P and L impact because now you're obviously saying you're 40% done the P and L effect isn't there. And you say by Q2 next year you'll be done with the program. But can you give us any color when you actually expect the P and L effect? When should we see this?
Well, we need to see it in the 2014.
You're going see all of this stuff? Has to be
well that's what we promised.
Okay. So it's not just the program is done and then the read effect comes later.
Quarter. JOSE I'm sorry.
So it's not like the program is then done and then the cost effect comes after?
Well, sorry, I'm talking over your voice. I apologize. But the point I was trying to make before I answer your last question is the impact on the P and L first and then on balance the cash flow impact obviously comes later. And it doesn't come as a step because depending on the country and the contract and the ruling, we take the P and L essentially when the people leave physically and that varies country by country. So gradually you start seeing benefits obviously.
You've seen some already in the third quarter, see more in fourth quarter. And then we better see a lot more in first quarter and so forth in the second quarter. So we're trying to well, we're not trying to we internally only look at the actual, we also forecast by quarter and so forth, but I will not give you the quarterly forecast. But Lars, you have one more question. I apologize.
No. I was asking the question because you basically said that the impact in 2013 will be limited and you've made 40%, which means 60% is still to come and yet you say it's going to be fully in place in 2024 from the second quarter that's why I asked. But I think you clarified that. One final question or two small if I have one big one and one smaller one. In any shape or form, have you changed your view on your participation in industry consolidation?
You obviously mentioned that cash flow is paramount for the printing and writing business. And I'm sure you're well aware of all the rumors have been flying around with various new constellations. You communicated a fairly strong view where you didn't see the merits for this for Storrenso specifically to participate. Is there any change in direction how you think about that? And final smaller question of course is the capitalized cash cost in Vernacell what sort of amount was that?
Well, Jorg can take the last one, while I'm trying to answer the first one. Whether you call it a change in direction or whatever, I will not obviously comment any specific cases on consolidation, but I say this. One, what I'm telling my own people is run your lives. Don't assume any consolidation or any other miracle to save you or save us. So think the way that every day when we improve, it makes us better, it makes us a more valuable partner for any potential consolidation case and so forth.
Because the worst thing I can see is that we will start getting some miracles or my people who work in the paper sector and paper segment would do that. So their working assumption is make it on your own. At the same time, obviously, I as the CEO have to be open and consider any alternative solutions and structures also technical structures on that would enhance our shareholder value. And as you can guess Lars that's the end of my answer on that one. Good.
And on the Veratel, I mean, it's one time costs and they are around €10,000,000
Thank you.
Good. Lars, let me I thought I should have tell you told you before when I asked it about the progress. When I say 40% completed, the actions are completed. So the agreements are in there with unions and people and so forth and so on name by name and so forth. There is another significant number that's in negotiations and in progress.
So I won't give you that number, but I just want you to understand that it's not that 40% is done 60% is nothing. There is a significant symphony in that I will not quantify why because I don't want to quantify before we have disagreements with our counterparts and so forth. That's why I'm saying that's why I'm repeating my 200,000,000 commitment for Q2. Anyway, sorry for a late answer.
Thank you. Thank you.
We will
take our next question from Johan Sverdrup of Carnegie. Please go ahead.
Yes. Hello there. Just returning to the cost cutting program here. In the Q2 figures you were referring to net fixed costs being SEK 7,000,000 lower and that was like 14% of the targeted SEK 200,000,000, which I assume gave effect during the second quarter. Now in the third quarter, you're talking about 40% being of the program being dealt with.
Could you say how what was the impact in the third quarter from this cost cutting program?
Well, if it's okay, think what we to be clear because it's quite important if you can pull the number. The net the fixed cost change Q3 to Q3, I think you can SEK 26,000,000. Euros €6,000,000 In a simple manner. If you do the simple that's total fixed cost reduction. And remember, quarters fluctuate and blah, blah, but the point of the story that gives you a flavor on if you multiply it by four that impact now is so.
Okay. That's a quarterly impact.
All right. And also looking at the Multibel Plata startup, you earlier said that that will have a negative impact I think in 2013 by €7,000,000 Was that is that correct? And what is the new figure now?
There is no new figure. Okay. 7,000,000, but that one
I should assume at the 2014 or?
Yeah. And that number was what we already told before was the impact of the delay in the 2013 books effectively fourth quarter books. And the reason why it's such a small number is that even in the earlier schedules the ramp up takes still quite a bit of time and you don't get too big contributions in the first weeks and months. Gets bigger.
And when do you see this mill being contributing to biomaterials EBIT as of the second quarter?
Take it this way. We say two things. We're starting in the 2014 and we said that we expect us Ministora Enso half to be 500,000 tonnes or 5,000,000 tonnes, which is a reduction of 150,000 tonnes against the previous schedule. So there you can do the typical 40% EBITDA market price impact on the schedule change. And I think you can get a flavor on the 2014 EBITDA impact also roughly at least from the 5,000,000 tonnes.
Okay. Good.
So, I'm sorry, Virgo. All right? All right.
Yeah. That's perfectly clear. And final question also regarding your asset divestment program. Can you give an update on how things are progressing there? I think I asked the question earlier and you I think you responded Juuko that you expected to see some divestments during 2013.
Otherwise you would be disappointed if I quoted you right here.
Correct. Thank you for reminding. Same answer today. Okay.
All right. Thank you.
No, it's getting closer, but I won't change my answer.
Good. Thanks.
Thanks.
We will take our next question from Linus Larsson of SEB. Please go ahead.
Yes. Thank you very much and good afternoon. Joko, you mentioned overcapacity in the context of the exception of newsprint where you have been addressing the overcapacity very aggressively yourself. Wonder how you look at the rest of the graphic paper segments. We're approaching the end of the year and the price negotiations.
Is there scope for price improvement from these very unsatisfactory levels given the supply demand that you're seeing today? And if not, what can you do to change that in the frame of just a bit more than two months until the year has ended?
Well, we start with the operating rates. I think the Q3 operating rates the way we read them are very good in news 94%. Why? Well, you know why and thanks to whom. On SC, we're still kind of in the 90s percent, 90% something, wasn't that bad.
On the coated sector, it is clearly below 90% and that's problematic. I do understand after my six point five years that this has a significant implication on the pricing situation and so forth. The only thing I would not say, because I can't predict what everybody and anybody is doing in the last couple of months before the pricing negotiations happen. But how do I say this now? Yes, in the coal feed sector there's a clear operating rate problem driven by the structural demand change.
And I think I have that answer there. So I don't want to speculate And ahead of
just practically speaking from your point of view, you have programs running as we speak. Is it even a theoretical possibility for you to do something before the end of the year? Or is that for practical purposes not doable?
In terms of capacity reductions, Well, curtailments and all that we obviously do all the time and so forth. I have to be careful. I would not want to speculate forward looking on permanent capacity reductions because you know very well as they do the legislation and so forth. So we would have to announce the program separately to our own people and the unions and so forth and so on. How do I say this?
We're watching the situation constantly
every day. What's the update on for instance Korbehem? What's happening at Korbehem right now? Is there anything
SUNDSTROM:] what's the status there?
Complex process. I've been pushing it even myself and met different stakeholders and so forth. No news to bring yet, but let me put it that way that I put a lot of time pressure on both my own team and the other stakeholders, because we need to complete that process. Not to be specific that I could say this is the one divestment or whatever that we're going to do this year, but the point of the story is for the sake of the good people there who really fed up with us with the time going on and on, but also because of the financial performance of the site that's one way we need to get done pretty quick. And I'm working on it a bit personally too.
All right. And the plan A for that mill, is that repurposing into something which would not directly compete
comment because we signed a few too many non disclosures and so forth and so on and so forth. Looking at more than one alternative. I don't want to That's fine. Anything more.
And then just one detail coming back to the discussion around CapEx. You also changed your equity injection guidance to €75,000,000 for the current year. Should we assume the balance of your previous guidance in 2014, I. E. Around €35,000,000 for 2014?
Yes. That will expect to happen in 2014, yes.
Great. And then lastly, pretty general question on Renewable Packaging. Volumes have been pretty strong. If you look at paper and board deliveries up 8% for you year to date and for the industry as a whole. Can you describe what's driving which market segments end users that you see strength and maybe also weakness?
In packaging. Exactly.
Sure. Interesting enough and I won't be able to go to geographic and sub segment and product line and so forth and so on. But if you just kind of look at our packaging consumer board and corrugated packaging, I would say that the low single digits demand growth has been consistent in throughout this year in 3%, 4% kind of a thing in Consumer Board, which includes not just leave all of it. And on the corrugated side, it's been actually relatively flat if you look at it. We have to remember also that because we tend to do this year on year comparisons.
Last year fourth quarter was actually very, very quite a strong growth in Consumer Board demand. The comparison becomes a little more difficult in the coming fourth quarter because just because of the mathematical impact. It's a healthy market, slow growth maybe you can call it, but it's certainly growing. And as you've seen now throughout the year, it's a clearly value creating segment for us. But there isn't a big boom in any way to say.
Okay. Thank you. Thank you.
We will take our next question from Karri Rinta of SHB. Please go ahead.
Yes. Thank you. Three questions. I'll start with the paper volumes. They were a bit lower than I had expected.
And I do understand that you closed capacity, but I had thought that you would be able to move those volumes elsewhere. So did you lose market share in the process of closing capacity? Or don't you have a place on your existing facility to take those volumes? Or what where did my logic go wrong when I had expected better volumes for you in paper?
Kari, I'm not there to say that your logic is wrong, but let me tell you what my logic maybe you tell me that my logic is wrong. If you look at the market structural demand change in most of the case, we talk about the 456% run rate. And if you look at our paper volume development that wasn't that different. And then when you say, okay, we closed capacity, while the whole carousel that improves profitability isn't actually based primarily on the item, never been. And we take a machine that we close and we take all of those customers to a lower cost asset.
So it's not a let's get operating rate up only. It's actually quite a selective process and I think a big part of the return has always been that we try to select the good margin strategic customers, if you want to call it that, and from the to be closed machine and move them to lower cost assets, but they also replaced volumes from those assets that we don't think are attractive in margin. So they how do I say the math is net not gross. See my point, Kari?
Yeah. I see your point. All right. That's helpful. Thanks.
Then a follow-up on the on paper, of course. In the second quarter, you had a slide in your presentation package, which showed that you had a strong cash flow from paper, think roughly SEK 100,000,000 in operating cash flow. Now you don't have that slide anymore. So can you give us a sense of what was your cash flow from paper
Sure. In Absolutely. If you hang on for one second, I'll take the number out without slides, especially cash flow. Okay. Give me one second.
I'm trying to yes. Okay. The segment cash flows from cash from operations. Renewable Packaging $194,000,000 Climate of 31,000,000 and Building and Living 42,000,000 and Printing and Reading 56 So it was lower, but it was still clearly better than the obviously the profitability level. And the important thing here is, well here you see why we need to take costs out specifically in paper, so we can keep that cash engine going.
But now you have the number at least.
All right. Thanks. And just to clarify this is before CapEx, right?
Yes. All right.
Then a final question. If I look at your again your Paper division, had sales down 10%, volumes down 8% and costs down 7%. So you have taken out costs, but you have at the same time given what's happening structurally and what's happening to prices, the cost takeout doesn't even match the what has happened to volumes and sales. And if I look at EBITDA down 44% year on year in the first nine 2013. So my question is that, I understand that internally you need to communicate something to your employees, but my question is that how long how much patience do your shareholders have for let you to continue with these internal actions when you see that it doesn't really play a role?
I mean, you can take out all costs you need, but at the same time when prices drop your EBITDA goes down by 50%. So when will you start taking action which actually will stabilize prices?
Well, I'm sorry, Karim, but now I have to push back a bit. If you look at the past six point five years, you look at the number of assets we've taken up with a good cash return, if you at the number of years that this business has been a cash contributor and still is then I would plead that it's not a question of whether when we will start taking actions. I think we started a few years ago. Second point, which you also understand very well is when there is a structural change or amplified by these weak economic development in Europe where the demand development in the first half of this year was clearly faster than the structural average. Then yes, what did we do in April?
We announced another €200,000,000 program fixed cost. We took three machines out and so forth. And I'm sorry, yes, we could not get all that cost out in the 2013. But I would suggest that this unfortunately happens also that the cost takeout in the legal environment we're in takes a bit more time than you or I would like to. And I will not then go back to the structural discussion, but I would express my view that we've done a few things and we are doing quite a few things now too,
all right? All right. Helpful. Thank you.
We will take our next question from Antti Kokravi of Danske Bank. Please go ahead.
Yes. Thank you. Firstly, could you elaborate a bit about the sawmilling and wood products businesses? I mean, the volumes seem to be up year to date quite I mean 3% and then price even more. Where is this positive market impact coming from talking about geographically wise?
What's your view on that market? Is that the indication that the strength will hold? Or what do you see?
Well, okay. Thank you for that question. I think the first point I want make before I talk a bit about what I think we've seen in the market demand and so forth is actually that there's always a kind of a risk that we think things are getting great when we compare with a very, very, very poor quarter a year ago, right? Because the percentage when you compare with the whole, yes, it looks better. So I would claim that the market development in this year's quarters has been pretty good, but I would not kind of say it's really that brilliant in anywhere.
And we've had specific Japan is important for us and that's been very helpful for us. I'm a bit we'll see how long that will hold on that thing in the cyclical industry. Middle East Africa, which is important. Well, we all know those issues there was has dampened that demand a bit and Europe is Europe. So I would still claim that percentage wise the third quarter looked good compared with last year in demand, total demand in Building and Living, But that's mostly because we're comparing with the big haul.
And therefore, I would suggest the key reason for the profitability improvement isn't pricing or volume recovery. It's essentially majority of it is cost improvement that they started early. Self help.
All right. Thanks. Then follow-up still on paper side. Looking at newsprint you talk about the better market balance. Is there any reason for us not to believe in improving profitability in 2014 in newsprint?
If you don't ask me to quantify it then and which I won't. Obviously, a 94% operating rate as we speak even in the shrinking market is very helpful. If you look at the margin levels, which we don't disclose by grade, they're miserable. And therefore, the push has been on and is on and will be on heavy duty to improve pricing obviously because the returns are not sufficient. So that's a very long way to say yes I guess.
Yeah. Okay.
All right. Those were my questions. Thank you.
Thank you.
We will take our next question from Sven Weir of UBS. Please go ahead.
Yeah. Good afternoon. It's Sven from UBS. I would have some specific follow-up questions on Montes Del Plata. I was just wondering if you could give us some color what is actually still missing to be completed on the mill?
What kind of equipment or logistics you still need to complete? And then you said I think in your initial comments that you've been making good progress over the last couple of weeks. So I was just wondering if you could update us if that 93% completion has now moved even higher? And then the last question is just how you think about penalties in the contracts with your suppliers? Do you think the blame is all with the suppliers?
Or is there also some blame with you? Those would be questions. Okay.
Let me start from the end. I will not for obvious reasons discuss any of the contractual relationships and or negotiations with our key technology partner in this forum. I apologize, but that's not something that I think would be appropriate. Then on the completion, the 93% is kind of the summary of the summary of the summary, because as we all understand that is an aggregate number of many, many areas from all the different parts of the actual mill site to the harbor and so forth and so on. And mill needs to be complete in all critical areas.
It doesn't help if everything is complete except one part is missing and so forth. I would not want to go and I probably don't even have the documentation here to go in the specific parts of the mill. I think the good news is that we all understand all stakeholders including the local authorities and the people there that it's a great mill. We need to complete it. And we really need to complete it in good shape, because by this time I've said also to our technology partner very clear that the quality of the completion and the quality of commissioning, which is actually ongoing in many, many areas already is mission critical, so that the ramp up when we put all the cost there and the capital there is then a good solid good quarter and so forth.
And I think they share that thought with me. The estimate we gain now was conditioned on early twenty fourteen. As I said in my CEO comment, I think and I hope everybody is totally focused on completing the mill right now and not arguing about anything else. Then we did also say that it is obviously at this late stage quite dependent on that our main technology supplier can maintain the labor relationship, the labor piece that have been very obvious in the past five, six weeks. And I think that's all I can say about that subject.
And at the moment there are no more strikes? Anybody on strikes still? Or is it all up and running now again?
Well, I don't check the strikes daily, but I would say that from all sources I hear, it seems that the critical issues that have caused quite a bit of the issues for our technology supplier in terms of progress and the revision of their schedules, The past six weeks my reading from my people in Latin America is that it has gotten significantly better, but that's all I can say.
Thank you very much. Thank you.
We'll take our next question from Lars Kjellberg of Credit Suisse. Please go ahead.
My question have been answered. Thank you.
Thank you. As we have no further questions, apologies we have one follow-up question from Kartik Sharmaanathan of Merrill Lynch. Please go ahead.
Hi, there. Just a brief follow-up question, if I may. I just wanted to double check how much of the output of volume in your Renewable Packaging division was classified as consumer board versus containerboard? And whether if you could just make a quick comment on price and volume momentum for Consumer Board going into Q4?
70%. Hang on. I'm checking the number for what it means before I read it. 70% is consumer board, yes. And what was the second part of the question though?
I missed it.
Sorry, price and volume direction into Q4?
I'm sorry. We I guess I said that there hasn't been a big drama on either Consumer Board or whatever. It's been kind of healthy, we don't actually give a guidance on going forward segment by segment. So you have to extrapolate a bit from my previous year to date discussion sorry.
Thank you very much.
There are no further I would now like to turn the call back over to your host today for any additional or closing remarks.
Okay. Thank you everybody for attending this call and Joko will say the final remarks. Thank
you very much everybody for your interest. It's thank goodness rarely that I get to announce same quarter twice. I think it was a great quarter. And I can only assure you that by all means organic and others we try to make many, many more of great quarters where we can not only have your attention, but also impress you. Thank you very much.
That will conclude today's conference call. Thank you for your participation ladies and
gentlemen.
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