Good day, and welcome to the Q2 twenty thirteen STORA Enzo Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ulla Peyennen Semio, Head of Investor Relations. Please go ahead.
Thank you, Rhonda. Welcome everybody to Torrance's call. And today we have four people speaking in this call. It is of course our CEO, Joko Karvinen and also our previous CFO and currently Division Head of Printing and Living, Kalle Sundstrom and then our acting CFO, Jurgita Sivivoy. We will start now with Jokod and Kalle's presentation and after that we will have a Q and A session.
So please go ahead, Jokod.
Thank you, Ulla. Thank you everybody for joining us on a summer Friday afternoon. I appreciate your interest. Let's go straight to page three. Second quarter results as expected or I guess the specific term is pretty exactly as we guided in our outlook in April €124,000,000 Cash flow that's the good news €344,000,000 We're back to our rock solid cash flow generation, which we obviously need for our transformation, strong liquidity and okay net debt to operational EBITDA.
Diving into it then, Renewable Packaging, good performance improvement, very good improvement in Building and Living and to be very totally transparent there, half the improvement we believe was our own doing with the streamlining efforts that started in the 2012 in Building and Living earlier on than the others half the market upswing. The big disappointment and the one number that I'm very unhappy with is the printing and reading loss. That is acceptable. The good thing there obviously is that we have launched the streamlining program in April. And before you tell me, I can tell you, yes, we should have started maybe even earlier, but at least we have started it.
We're in the implementation as you will see in a few pages. The point of the story is very important that we don't lose time. We don't hesitate. We need to keep moving in this difficult market situation. We need to be sure that we get ahead of the curve and nothing else.
Page four. There you see both the EBITDA development four quarters rolling, which in the past few quarters has come to a low level. At the same time, you see that we are able to keep the cash generation going. And I do as you do understand that that gives you a bit of a time delay, but the message is the same. We have to get our cost in shape, because only a solid EBITDA generation longer term is what brings you the cash that we want.
On page five, we then actually show you the cash generation from operations before and after investments. And there you can see that in Q2 even with the very disappointing printing and reading results, the cash generation was significantly good and obviously also important for our company. Moving on page six, What's the news here? The news is that we still believe that the structural transformation of the market, the digital transformation as we quoted in the printed media is continuing and we believe it is in the 4%, 5% a year. What we see now specifically in the Coty grades is that the weak economic situation of Europe, EU and also our customers have turned into an additional fuel reduction.
The point of the story is that in coated grades we talk about almost a 10% reduction year on year. Point of story, we need to speed up in improving our cost base and our competitive base. Let me get to page seven with our first progress report and I'd like to spend some time on the streamlining and structure simplification program, the 200,000,000 program we announced. First point, the target to the team is euros 200,000,000 annual net fixed cost savings, which means that any inflationary pressures have to be compensated. In addition to that, we're not going to come back in a year and say that we saved, but the inflation a half of it €200,000,000 is $200,000,000 We will now start and show you a progress report every quarter.
We saw the takeout of the cost, which is the program impact. And we say show also separately other impacts on fixed cost. Point being capacity reduction programs, other programs announced earlier that still have an improving impact, but also if we start a new business like the China announcement and I'll talk about it, those we show separately. I think it's really important for us and you also that we are very specific that when we say we're going to deliver €200,000,000 cost out we deliver that in this program. And the simple very early progress reported, if you do the simple 7,000,000 times 4,000,000 that's about 14% of the run rate savings happened in Q2 due to the program, whereas there were other savings obviously because of other things.
We also will show like we show today the year on year actual fixed cost reductions or fixed cost in 2012 and 2013 on a year on year basis because we also believe that we need to show you what we take out. But the only interesting thing is that what's there is competitive enough. So this will be repeated many times. Moving on page eight. First a few progress reports.
Monza to Plaster, we now say that we estimate to begin the start up end of Q3. The April announcement was during Q3. We know now better because we're closer to 90% complete. And the closer we get obviously the better we know where we are. And both Sora Enso, Arauco, Montesplat and our key partners that's the target that we start at the end of the third quarter.
There is no other news in that context. This year it's going to be a slightly negative impact. Next year we're going to have we expect to have the full 650,000 tons which is our half of the volume coming out. And then once we really get the premium quality, the design capacity and so forth in the latter part of 2014, we expect the full positive EBITDA impact from the project. Page nine, Postuleka, the new board machine on plan, proceeding according to plan and so forth.
And then we expect the 20% above 20% EBITDA again in the latter part of this year. So that will come soon. Then I hope and I claim the good news from China, many good news. First of all, we have received in the recent very recent weakness of written stamp approval final approval from the Chinese NDRC, the National Development Reform Commission. The second good news is that maintaining our original targeted returns, internal rate of returns, we're now implementing the project in a different sequence than before.
The original plan was basically build the whole integrated on one go. That was the $1,600,000,000 number. Now we're saying, no, we start with the board machine and the related industrial investments. And then that should be ready in 2016, which is about a year earlier than we could do it in an integrated fashion, which is great for our customers and our market access and it will help obviously with cash generation. When we implement the second phase, which is the chemical pulp mill.
And that obviously then has two implications. The balance sheet impact is significant, because we're talking about half the investment in the first phase and half in the second phase. And I will now be super clear to you, we're the project is still an integral project. It's a difference in the implementation sequence. Nothing else changed.
And we repeat here that the project will clearly exceed the famous 13% target. Very good I think for our financial capability and to be honest gives us a lot more opportunity in that sense. But it also from a responsibility point of view is very good, because now we don't have to rush so to say in ramping up the forestry operations and all those things and even land expansion because of the fact that we'd have a pulp and waiting for wood. Now we can do it in a controlled cost efficient and responsible manner. And I think for the company it's also very, good news.
If you ask what do you mean launching? Well, I'll tell you. An hour ago, I approved the very small capital investment to start leveling the mill site. So this is for real. This is not any more PowerPoint.
We're off and going. The next page 11 is a different clearly a lot smaller financial investment, I think quite a critical sign of what we want to do. Accelerate innovation is a what we call biorefinery at Sunilan, which many of you know as a relatively old pulp mill. We invest $32,000,000 And what do we do? With good contacts already with global customers and tests even, we will start producing lignin to replace fossil materials in insulation foams, in adhesives.
And in the second phase, I'd call it more a bit later also replacing fossil materials for carbon fiber, which is a very exciting opportunity. I will not tell you the IRR of the project, but you can imagine the value of these products is in a different class than the traditional forest industry product. So it would be unfair to talk about clearly exceeding 13% because it's so much more. Target to start it up in twenty fifteen Q1 and the most important thing to me is we believe that we have know how and capability that will allow us to replicate this investment in several of our existing pulp mills and who knows even become a technology provider one day. Okay.
So that's the news so to say. And now I will hand over to Kalle as the CFO of Q2, but specifically because of the trauma and challenge in the printing and reading area.
I've asked Kalle
now to comment specifically in his new role as the Division Head for Printing and Living also the earnings situation in Printing and Reading. It is a poor result. We're not going to explain anything else. But as before, we need to act and I asked Carlos to talk about what are we doing about it not what are we only planning to do about it. And I am convinced that with Kala's leadership and his team and with the tough program we already launched in April, we can significantly improve our performance.
So with that, Karl over to you.
Thank you. So before I go in on the group financials, I will spend some time on what happened in Printing and Reading. I think this slide is pretty self explanatory. It is as we have said a structural decline market and we continue to follow that down. We have taken out basically 110,000 tonnes of capacity with the three closures of one in Kvaernesfjord and two in Hiltea.
But what will happen is that if you look upon the sales price and the mix and the volume impact, you're talking here over €60,000,000 of profit disappearing while we basically haven't had any improvement in the fixed costs. That's not sustainable. So what in reality is that we are very much focusing now on going through this cost reduction program that Jocko mentioned. And obviously, the majority of the announced €200,000,000 is coming into Printing and Reading. So that is very much in the focus to have a speedily execution and focus on cost and productivity.
It is also I think an area where we need to continue to work is to increase the flexibility to change between fixed and variable costs. Also it's very much about simplification and differentiation. But last and not least, we also need to decide of how we do business. Not all customers are equally profitable. And with that, I would like to hand over to the next slide, slide 14.
And this is the summary financial of the group. I think you've all studied it and knows it as probably as well as I do right now, but I would like to point out a couple of things. So sales were basically on flat level even with movements between different business areas on a year on year level. And we have the sequential increase which is the traditional seasonality in the business. I also would like to point out that on the operational EBIT, it is a some 70 basis points lower than a year ago period and it's up to 120 basis points compared to the previous quarter.
What I would like to highlight is also when it comes to the cash flow from operations and our liquidity situations, we are now having $1,800,000,000 which is $100,000,000 up from last quarter in liquidity. And that is despite the dividend and despite the seasonally high payment of interest in the second quarter, however, supported by the selling of the Tornado and the Bergvik debt that we did during the quarter which is part of the release. With that, I would like to move into the next slide, which is an explanation basically what have happened. And the headline of the slide is that fairly stable despite the challenging paper market. And if you then look on and have an understanding that the sales and pricemix of minus one point five one point four percentage points on the year on year figures, it's $40,000,000 and over 95% is actually coming out of Printing and Reading.
Volume are minus 0.3% or $8,000,000 That is basically slightly more than $20,000,000 coming out of Printing and Reading. However, compensated by increased volumes mainly in Renewable Packaging and Biomaterials of totaling €17,000,000 plus variable costs or €25,000,000 lower or 0.9 percentage points. And that is basically explained by lower fiber cost wood, recycled paper and pulp and chemicals that is cheaper than the year ago period. But it also includes a $15,000,000 increased cost of energy, which is coming from green certificates, but also that we had some issues in certain plants with boilers, so we had to buy. So we had some of the mix of the energy that we have bought.
It's been more coal in this period than expected. And then you basically have a fixed cost variation of 0.4 percentage points or €10,000,000 and that's a number of smaller items. And if you look on the sequential, you have the sales and pricemix increase of 300,000.0 or €9,000,000 That's almost everything coming out of Building and Living and is part of that seasonally strong quarter that Building and Living had in Q2. Volume minus 300,000 is 9,000,000 and that is basically coming out on a slightly lower sales from printing and reading and biomaterials. Variable costs are lower and it's the same thing if the fiber supply about $26,000,000 or one percentage point.
If we then move into the next slide that is the guidance. So we guide for Q3 or the next quarter sales expected to be slightly lower operational EBIT in line with or slightly higher. And then if we take the summary, so the result came in as we guided. We had a solid cash flow. We had strong liquidity.
We are advancing with a 14% realization so far on the $200,000,000 fixed cost savings on plan. European paper, we need to get ahead of the game. And as Joko said, maybe we started too late, but we started at least and we are actually under implementation. The other one that I think is very important to turn out is that we have an acceleration in our transformation, especially with the approval of the Guanxi investment and the Samula biorefinery, but also that both MDP or Monte De Plata and Australika are getting into traction. With that, I hand over to Q and A.
Thank you, sir. The question and answer session will be conducted electronically. We will take our first question from Michael Yaffe of Kepler Cheuvreux. Please go ahead.
Yes. Hello, everybody. Good afternoon. I have two questions. The first one is more relating to the paper division.
And I read yesterday in a trade magazine that paper pricing of publication paper seems to be going up in Europe for the second half. If you please could comment on that? And then the second question is on the Building and Living. You say that you've seen a seasonal uptick there in profitability. And then my question would be should we expect then that to sort of fall back again during the second half?
Thank you.
Okay. This is Jocko. Hi, Michael. Let me try to respond to that. And before I give you any numbers, let me be very explicit.
I will comment things that we have actually agreed with our customers or we have informed our customers of our intent. I will not talk about some of the other pricing initiatives we have that we have not communicated to the customers, because I think it's inappropriate to try to communicate with this channel. Long story short, if I start with newsprint and specifically standard newsprint, yes, we have agreed on the open volumes for an increase I'd say in the order of magnitude about 3% for the second half. I think it's a start to be exact if you look at the numbers. The operating rates after the capacity reductions are very high and so forth and so on.
We have informed customers on SC and uncoated wood tree or office paper for say late third quarter initiatives to improve pricing in those segments, but that's where I stop. The overall fact is in my opinion that if ever now this cost rates we're on and implementing the reshape and streamlining faster than ever is mission critical. So those are the data points I can share with you Michael on that one. On billing and living, if it's okay, I'll give you a short version. We had a good quarter and we were very open to saying, well, let's not let's take credit for what the team has done, which is about half of the improvement because they started fourth quarter their cost rate.
That's coming through more and more in the coming quarters still because they're not it's not all true. So that will continue to support their earnings. But there is really a seasonal thing also Q1, Q2 the construction summary if you want to call it and that way and so forth. So let me summarize that answer that I'm really glad we started in the fourth quarter the effort and we're not done there either. So there's some of the EBIT in Q2 is seasonality, but I don't expect to go back to the situation for the past three, four, five quarters where I was very negative on the total lack of profitability.
I hope you can make something out of that.
Okay. Many thanks.
Thank you. Thank you.
We will take our next question from Johan Sjoberg of Carnegie. Please go ahead.
Thank you. Could you give an update on the impact now, I mean, from this big cost cutting program? It's fully implemented as of the second quarter twenty fourteen, but when should we see that come through in your P and L, would you say?
Well, and then try to be clear here. The one table on the slide where we show the overall fixed cost went down if you go back to page seven, 26,000,000, but us being the honest transparent people would say only 7,000,000 of that was the program impact. Then you multiply it by four you get a 14% impact already now. And it's going to continue now more and more every quarter Q3, Q4. So it's a ramp up so to say of the impact and it's not a linear ramp up.
So the important news is it starts being more every quarter, but the big impact, I'd say, is in the first last quarter of this year and especially first quarter of next year because come second quarter we have to have all of that SEK 200,000,000.
I assume that this minus SEK 7,000,000 now in Q2 is related to the SEK 30,000,000 program within Building and Living announced in conjunction with the Q4 figures, isn't it?
So, I would say of that seven percent, around 50% is coming out of the Building and Living announced and 50% is coming out of what we're doing in Printing and Reading.
Okay. And also
I think it's very important that we are trying to have this format that we have on the slide seven. Because it's also depending because this is a negotiation according to the laws of the co determination that you have in Finland, Sweden and Germany, which are the main countries. So depending on how we get to an agreement with our counterparts, But we are very confident that we will deliver this and we will show it like this quarter by quarter.
That's great. And also just coming back to your slide on number 13, like commenting upon the printing and reading tough environment. I mean normally I mean we are spoiled to see normally Q2 being better than Q1. I understand this is a nice bridge year over year. However, looking quarter over quarter, it's hard to understand how the underlying EBIT can drop by SEK 19,000,000 quarter over quarter.
I mean, normally we see some type of seasonal uptick or is it what am I missing?
So both volume and prices were ticked down in the second quarter.
Okay. All right.
And then we did not have any reduction in reality in costs. So it's very much volume.
Yes. All right. And also a final question. Apart from being a Head of Printing and Reading and Building and Living, you're also in charge of divesting non core assets. Could you give us some thoughts upon what type of assets we are or you just give an update on that situation?
So what we are doing and I will hand over to Jouk on this question, but it's important. I need to spend 120% of my time on making sure we change out the cost and getting back to be working in a different way how we work with customers. So a lot of the divestments I would actually make sure that Joko and Jyrki are actually going in. Maybe you want to
say Yes. Something on No, no, David. Thank you. Vasa said, love having Karl as the CFO that was over June 30. He is the division head speeding ahead now to solve this issue for us.
The assets that we're planning to exit from, that's a group level effort for all the BS essentially. Have put and are putting a small team together with both M and A type of people, but also business people into that dedicated team. So if you don't like what we get done in the coming quarters then you should call me in Akkale. But on a serious note, Gorbahem that we've talked about openly before difficult to do it in a way that minimizes value destruction or maximizes value creation if you want to be more positive. We are in the process and my guidance and I've been quite involved myself is, yes, we definitely want to finish that project, but I'd rather take a few more months than do something silly.
So I don't want to solve my problems with too much money on it. The others, which I will not name now, I'd say a couple of more in the works, more positive ones also. And I hope you forgive me that I won't name them or give you more specifics. But trust me both me and my Board are very focused on getting that simplification done for the company. And you just have to give us a few quarters to show more concrete results.
Okay. But would you is it fair to assume that the ambition is to have something on the table during 2013? Or do we have to wait until 2014 would you say?
I'd be very disappointed if it's not this year.
Okay, great.
Thank you very much.
Nothing this year I'd be disappointed. Let me answer that.
All right. Great. Thank you.
Thank you.
We will take our next question from Karri Rinta of SHB.
Thank you. Karri and Aderspunken. First, China, a decision which I think is smart, but I would like to understand the background of it that initially you were planning on building a pulp mill that is double the size of the packaging machine that you have. Now you are delaying the pulp mill. So I want to understand if that's a reflection of how you see the pulp market developing I.
E. It might become oversupplied in the next few years and you don't want to contribute to further oversupply in the market or is this a reflection of something else? That's my first question.
Okay. Thank you for the question, Kari. It's a very good question for the conference call because it's based on some kind of a demand supply pulp scenario. It's based on making a great project happen with the original returns getting onto the Consumer Board market a year earlier than with the Integrate significantly reduced financial risks and also reduced responsibility risk because they're not being rushed there. The concept is still a full integrate, which means a board machine CTMP and a chemical pulp mill with the option to add another board machine in the future.
So if you think about it, you could say, well, I'll put it this way. I love it because you might say we're building backwards, but I think now we're actually building the right sequence. We get to the market, build our market position, the customer relationships, it will have a great impact on it. And we can buy pulp from the market. In fact, we have our own pulp coming soon more, but that's not the point.
So it has nothing to do with that. It's a derisking, making sure that it works in an attractive financial way and it also works in a responsible way. That's the only reason. And the
other thing that we are convinced that long term plantation based demand pulp will continue to grow. And we and I understand when there's a lot of plantation based pulp coming online in a short period you get volatility. But this is for those BROEK:] reasons that Jocko mentioned.
So, but long term we believe in plantation based pulp.
Absolutely. All right. Fair enough. That's helpful. Second question relates to the cash flow generation, especially in the printing and reading.
How much of that came from a working capital release that was released from the paper machines that you closed down? Was that a meaningful contribution was to the second quarter cash flow from printing and reading?
JOSE Printing and reading generated as you saw on Joko's slide early on in the presentation almost €120,000,000 of operating cash flow. But the effects as I said on slide number 13 from Korn Fijn and Hylte is very limited, very limited. So this is basically that we managed to keep the working capital over sales at the same level basically at the end of the year. We've been working very hard with that. And obviously a lot of the targets that we work with in Printing and Reading is cash focused, because profit wise is nothing to be very proud of.
But the cash flow the people have worked hard on. Do you want to add something Jyrki?
No. I think that's a very fair summary. So impact of the closures is small.
And I'm sorry, but Jakob wants to add something. I think it's an important point again. I think because obviously when you say cash engine focus on the cash and that also means that we would never produce into inventories to compensate for the weak EBIT. Cash is king.
All right. All right. Then finally on the Sunila project, I'm not an expert on the Lingmin market, but how much is this in tonnage that you expect to produce in Tunila when you're done with the biorefinery or when you're up and running with the biorefinery? And can you talk about this being scalable and can be replicated at your other mills? Is there a risk of that you disrupting the market?
I just want to get some numbers, some understanding of the size of this market.
Tons, know, I don't like tons. I like euros. So but to try to understand that the first phase looks really like the revenue is in that space. It's less than $100,000,000 when we're up and running. But then we which essentially means that within our own opportunities longer term, the revenue will be hundreds and hundreds of millions.
But the more interesting thing to me is that the value of the product with multiples of the traditional products, the figure I look at is the margins and the profit contribution of these things and that's meaningful. It's significant for us. The interesting part is then that because we're replacing polyols and phenols and later on carbon fiber raw materials is that the market is so it's just so big that that's not going to be a problem, because when we can at or below the fossil alternative cost producing with the same quality of product then in that type of a business scenario, there is no demandsupply issue because we're such a better alternative without subsidies also in terms of the actual running business. And this is why I'm all over this very interested in this business concept because everything we calculate in terms of the business returns on this business well they're not based on an EU subsidy on like on biofuels or wind energy or something like that. This is real business and I happen to think it's the foundation of a healthy investment.
So you'll hear more about this in the coming quarters. I think it's very important.
But did you have a number on the tonnage in '20
No, don't. Actually I don't, but we can get it to you. The sales is slightly under €100,000,000 when we're up and running from the similar investments with very good margins.
All right. Thanks.
We will take our next question from Linus Larsson
I'd like to come back to your guidance statement for the third quarter. And if you could maybe add some detail to it. For instance, when we try to bridge the EBIT from the second to the third quarter, what kind of maintenance cost change will we see other costs price volume aspects that you would like to clarify as well?
Jyrki, you want to take this or you want to
take I'll try to decide which one of my two CFOs is going to answer. I think Jyrki will take this one.
Yes. But basically the maintenance on the third quarter is on the same level as on the second quarter.
Okay. Good. And I take it that, I mean, in your guidance as you've put it, I mean, that includes certain price improvement Is that right?
Yes. I'll take that. Yes, does. But remember the it's a limited impact, which I told you about the newsprint situation, you have agreed upon, which is improving. But newsprint is in is so to say in this difficult situation one of our best anyway.
And the others either come later or I won't talk about them yet. So the pricing impact in totality of the company is obviously still limited in Q3. Better be more next year.
Okay. And on the for instance variable or fixed costs any pointers to share?
No. We expect the same historical pattern as previous years.
Okay. That's fine. Thank you very much. And then on the coming back to the discussion about non core asset divestments, could you provide any ballpark enterprise value on the assets that you are at least considering to potentially divest?
I and fully appreciate that you're interested, but I won't be able to give that to you. And if it's okay, you'd have to just wait until the news comes out and I promise they'll come out as soon as possible. So I have a great interest in getting this part of the journey done too.
But I have to be very clear. We are not talking about Verivico to Natur. That one I would like to clear because there's been some speculation about that.
Excellent. And also in relation to this given what you announced today about the changed pace of the Chinese investment, does that change your eagerness to sell noncore assets? Or is that a completely separate topic?
That's a completely separate topic. It's we're absolutely not selling we were never thinking of selling non core assets in a fire sale to finance China, not my cup of tea anyway. It's more my thinking is very clear and has been. We either have to invest in business and make it more successful or exit it because the worst thing we can do and there's some sad examples in our industry, You sit with marginal businesses and you destroy them because you don't do anything with them. So that's the thought process there.
Right. Yes. That makes sense. I would also like we talked quite a bit about supply demand in paper. When we look at pulp, there is also a potential supply demand issue coming up and you are contributing to growth in supply yourselves.
Are you contemplating any capacity closures in connection with your additional of supply into the pulp markets?
Well, let me tell you, I'm working day and night personally to add capacity to the short fiber pulp market right now from Uruguay. So that's the focus there. And no we don't have any specific capacity reduction plans. You've seen that we've done some changes for example in our wonderful also we went for dissolving pulp and so forth. In Sunilai interesting enough, maybe I should say it more clear this lignin effort also not only reduced the CO2 footprint and all that, but it actually improved the profitability in terms of breakeven points and so forth.
So we're trying to become more competitive in this area, but nothing further.
Great. And then finally coming back to Printing and Reading, you talk about the importance of staying ahead of the game and being ahead of the curve, etcetera, and that has been a recurring theme. And I just wondered during the course of your rethinking process, if you have also reevaluated the merits of consolidation through M and A in the context of European graphic paper?
Short answer is yes. I am thinking about it not every day, but every few days. But my fundamental view as it has been is twofold. One, everything we do to improve our cost position, competitive position is going to be positive and valuable to our shareholders if and when, if we find a consolidation opportunity one day. And the other side of that same coin is, what I don't want now Karl and his team to spend even a day on is waiting for some miracle to happen to solve the problems.
Not my cup of tea again. And then final comment, because you're too polite. I am a bit upset with myself because I've been to be honest I've always thought that I'm not the slowest CEO in the world. But on some of these streamlining things I say we should have moved earlier. So I'll try to learn from that.
Anyway. But in principle, you think there's nothing wrong with your apart from the pace and one can always debate how fast one should pursue things. In principle, you think that you have the tools in place and in principle, you are addressing the problems of the paper industry in the right way that's your conclusion?
Don't take this negative. I'm not trying to solve the paper industry problems. I'm trying to make sure that we solve the store answer problems. And what I'm trying to say is everything we do including this streamlining program, which we could have started earlier, but we've been going full speed capital down now that will support any possible structural solutions in a positive manner to answer. And then I think the risk is and I've said that openly before is if this magic work consolidation becomes too overwhelming then I'm worried that we lose momentum and speed.
And that will be fairly dangerous when like back to the second quarter when you have demand erosion of 5% to 10% year on year. We don't have time and we need to move on, move on. And the more we can the better we can get ourselves, I assume the more attractive talking partner we'd be to anybody.
Absolutely. That's great. Thank you very much.
Thank you.
We will take our next question from Kartik Swamy of Merrill Lynch. Please go ahead.
There. Thank you for taking my question. Kartik Swamy Nathan calling from Bank of America Merrill Lynch. First question was a little bit more color packaging side of your portfolio. We've seen some announcements from some of your peers raising test line of price increases.
And I was wondering whether Stora is considering participating in that and what you believe are the chances of success given the focus has been on increasing prices in the middle of summer? The second question was the guidance on your capital return target for China seems to have a little bit of variability, so above 13% return on capital. I was wondering what stops you from putting a more concrete higher target on it? And where do you think the risks are? Is it supply?
Because daily we see some news of capacity additions in China potentially not directly in the niche that you're focused on or whether it be demand on the macro front and uncertainties there? And my final question is on your plans to convert a mill into kraftliner. I thought that the supply demand dynamics of the kraftliner market seemed incredibly compelling and there was probably little to stop you from doing the conversion and getting a very good return on capital. So is it more that you're putting in place a review period in order to evaluate whether you could do it on a technical basis? Or are there still some doubts on how supply demand could evolve?
Okay. If I can do this backwards a bit. The conversion plan, we've done a pre feasibility study, which I liked a lot. And then what you do next is you do a feasibility study, because still you need to do the process correct. And assuming that result is as good as the pre feasibility study, Well, I'll tell you what we do then and we convert.
Because that's other benefits also in our uncoated wood free portfolio and so forth and so on. So that's the first thing. It's just a process and a disciplined process to do a project like this. On the China project, clearly exceeding the famous 13%. At this stage of the project that's all we say and it's more a practice that we don't individually start plotting out profitability or return targets project by project.
You see now in a smaller case in Osuleka that we actually once we get closer we will give you an EBITDA approximate EBITDA target so forth. So it's a bit of a timing question. On risk, very evidently this two phase implementation is dramatically lower risk not just the fact that you spread the CapEx over a longer period of time, But building a greenfield board mill and CTMP is a lot simpler thing than building a full integrate on one roll. So if there are risks, it's a lot better now. I sleep a lot better now.
Anyway, on your first question on containerboard pricing and I obviously won't comment what competitors are saying. Specifically, I won't comment that. And therefore I'll just say that what's true in paper is true in containerboard and everything else. Pricing quality is the key interest for us. And it's I hope you forgive me that's where I'm going to stop.
Okay. Thank you.
Thank you.
We'll take our next question from Lars Kjellberg of Credit Suisse. Please go ahead.
Thank you and good afternoon. Most of my questions have been answered, but I just want to come back to China. The regional plans you talked about, obviously, the pulp mill and that was a critical component to getting the right quality, etcetera. And at the time, you said it's not really doable with purchased pulp. That seems to have changed.
I just wanted to hear your thoughts on that. Secondly, on the pulp mill, when should we expect that to start up? And has the budget in any way changed for the total I. E. The €1,600,000,000 that you talked about in the past?
Okay. Hi, Lars. So the budget total budget hasn't changed. That's not the point. And I'm not obviously been in all the discussions.
Using imported pulp that hasn't been It's been essentially a reality calculation where a lot of the value of if you because we've trust me we've broken the returns in the value chain into the species and the original plan which was based on upfront local pulp is based on a very good contribution from the local plantations and so forth and so on. So if you think about it this way, the only so to say incremental cost if you want to call it that is that we will have to then recertify the fiber for the products once we move in the second phase to the local pulp. We are very comfortable in using imported pulp in the first phase and actually will make it quite a bit simpler because you don't have to deal with ramp ups of a pulp mill and a board mill and everything and then trying to qualify the quite critical qualifications of fiber for Consumer Board. So that is there.
And then from an overall return and profitability point of view, the fact that the pulp mill will come a few years later on the total life cycle of the investment no big deal. And final detail, when we now go forward we have agreed with our partner that we start practicing harvesting. We will actually sell wood from our existing forestry base, which is a good contribution too in the first phases, because it not only gives us a chance to do it efficiently and responsibly, but it starts supporting slowly also our cash balance in the company there. I hope I answered your question.
Yes. Just to be clear, the pulp maybe we should expect to start up towards the 2018.
I'm sorry, I'm sorry. I apologize. We gave now early twenty sixteen board machine start up and to hopefully make a good job. I've decided not to ever again give you an exact day when I start up something like I did couple of years back when we talked about the Uruguay mill that I have to change. So we won't give you an exact date.
But essentially, we want that coming up and producing world class board before we would launch the second stage also because of the cash generation and so forth and so on. So if that if the board machine starts 2016, you can do the math thereafter and then what it takes time to build gives you the kind of time frame. 2018, 2019 would be kind of the time frame and if you look at normal two, two point five year implementation. Is that okay Lars?
That's fine. If you can give us some guidance on what's the full year CapEx for this year and what you expect for 2014, just to clarify with this revised plan? I
will tell you I'm going to read the numbers, so I don't have to say approximately. This year, including China now in The CapEx and the equity injections combined is in the $540,000,000 to $610,000,000 is actually in the release on page seven and that includes about $90,000,000 this year for Guangxi. And then going forward, we'll update you more about the schedule, but you can do the pretty much the math if you see that the first phase is about half of the investment $798,000,000
And Lars, then in the separate press release on Guangxi, you have a schedule of some of
the
CapEx expectations for the Guangxi project.
Which is pretty much halved relative to your previous guidance for the combined project. Yes.
It. All
right. You got it. So we're trying to be transparent here.
Very good. Final question. You talked about newsprint. You talked about open contracts. Is there a significant part of your newsprint business that would not have been up for negotiation going into H2?
Be honest, I don't have do you have the right number, The rough number? So
it's about the quarter that has not been contracted.
Okay. Thank you.
There are no further questions. I would like to turn the call back over to Ula Payenem Senio for any concluding remarks.
Okay. Thank you everyone for attending the call and let's be again in touch in October when we come out with our Q3 results. And Jochen will now have some final words here.
My words are never final, but I want to thank you again on a summer Friday afternoon for your interest. And I think one thing I can promise you that we're never going to be a boring company. We will do things and we will do difficult things. We'll do great new things. And I just hope that I'm going to talk to you latest in about ninety days with some great things to discuss.
Thank you very much for your interest.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may