Good day, ladies and gentlemen, and welcome to the Q1 twenty thirteen STORE and SO's Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ula Payenan, Head of Investor Relations. Please go ahead. Thank you, Martini.
Good afternoon, everybody on my behalf and welcome to our Q1 twenty thirteen conference call and some of the new restructuring that we announced today. And I will hand this now over to Joko, our CEO. Please go ahead Joko.
Thank you, Ulla. Thanks everybody for joining us today. A new day, a new quarter and we want to do new things to keep the momentum going and move forward the company to the future that we all want to see. I start with slide three. First quarter performance, yes, it was as expected very much so in a structurally declining European paper market.
Operational EBIT $118,000,000 And as we opened this close, there is a land sale gain there of total 10,000,000 Cash flow from operations, 101,000,000 that's important not a number that I'm happy with, but color will in a minute go through on what specific reasons are there. The fact that the EBITDA went down 9% is maybe the number that I'm least concerned about. Liquidity quite happy at 1.7 return on capital employed 5.4% even with the ongoing construction projects obviously not happy. I think it's important also to then look at slide four, which gives you a bit of the dynamics. In EBIT margin four quarters rolling, you can see that we have come down quite a bit almost three margin points in the recent quarters, which is not acceptable.
We understand that. Interesting enough, the four quarter rolling cash flow, we have been able to maintain at a decent level. And if you would look at the six year history, think that has been the most stable number. And as you all well know, given our transformation that is the key number that we need to find ways to keep going. Slide five, which is the working capital.
There was two specific reasons why the working capital went up actually. Higher wood inventories and you won't believe I say this, but that's because of weather. And the serious point is the very long and cold winter that we all enjoyed or most of us actually has given us an extraordinary good harvesting season. So we decided to use that opportunity and do quite a bit of harvesting, while everything was still frozen. That was about $50,000,000 The higher trade receivables essentially is that the sales in the last month of the quarter March were quite high.
So the receivable collection then flipped over also because of the Eastern location into April. The good news is no it's not overdues. The overdues are actually low level even compared with December. So that was the limiting factor on the cash flow. European paper demand, slide six, nothing new updated short of the hole in 02/2009, it is straight line.
We have now as we always do looked quite a bit again on this development by freight and there are differences short term. For example, coated mechanical strength more based on published data in Q1 than for example newsprint and so forth. The overall simple rule of 4% to 5% structural decline is still there, which I think says two things. One, the capacity reductions we announced in February, Those plans are very much necessary, but also the new plan we announced today of €200,000,000 fixed cost administration cost simplification out of the company very much necessary to keep this train going in the right direction. If you then would move to slide seven, I'll try to be clear what does it say.
We took our own recently announced permanent capacity cut plants as well as other published permanent capacity reduction plans that the other industry players have announced. And then we did a relatively simple math. We said, let's calculate the capacity utilization assuming that the European demand early this year plus the net export is then played against the European capacity meaning capacity in located in Europe. The black bars by crate is essentially what the capacity utilization was in first quarter. The I don't know whether the green or gray bars is when you take into account the announced permanent capacity reductions.
So think about it this way. If we could reset the clock and all the newsprint capacity that has been announced in the recent months and couple of quarters would have been implemented January 1 that would have actually meant that the capacity utilization rates would have been 103%. Obviously, with the market development and the actual timing of these capacity reductions is not going be 103%. But the point of the slide is in newsprint and in SC, the already announced capacity reduction will have a significant impact on this demandsupply balance, which is obviously what we want and need and so forth. Less so in Coated Mechanical, where the utilization rate is low and there hasn't announcements.
The only good thing I can say about that that segment is relatively smaller for us. And then you see Woodfree Cottage and Office Paper no big news there, but a bit better utilization rates anyway. So I'll park that thought with you. And if we move to slide eight, some of you if I do a thirty second history recap, I joined the company six years ago. We essentially took half of the corporate headquarters structures out, took a layer of the organization.
And if you look at the volume productivity in the existing assets, we've actually had a very good development throughout the six years in terms of getting more sales per person out and also we have gained in fixed cost revenue ratios. That's the good news. The bad news, it's all history and the world continues to change around us and that's the essential reason or one of the two essential reasons why we are announcing the briefing of our structures. Before anything else, this will not have an impact on the segment reporting. You will have the same transparency different markets as before.
There's no issue there. But we do need to resize or rightsize also the administration always structures on all levels whether it's group management, divisional management country to the new reality. Why? Well, because of the strategy. We need to keep the cash coming in, so we can continue and complete The other reason for the effort, which I think is actually very important is that if you look at the portfolio of businesses and I'm sure you understand we've done quite a bit of that is Throughout the past six years, we've been able to get fairly simple.
We have very little shared assets. The customer overlap between the BAs is very small. Essentially, it's resources like wood supply, logistics, IT and then the Famous Group management that pull these businesses together. In this change where we combine Building and Living and Printing and Reading under Kala's leadership, the focus is twofold. One, if you look at the track record of renewable packaging, but also especially when we get Monteserr Platte up and running biomaterials, those businesses need to grow and grow profitably.
And I don't want them to be slowed down by the reality on the other side where we have lots of issues on the market and obviously issues also with the fixed cost ratios and so forth and so on. We expect $200,000,000 cost savings. We will not detail them today in terms of countries or functions or anything like that. I can assure you I will not come out with the number without a pretty thorough understanding jointly with my Board that we will get there. We will communicate then in a few months the details, so you get a bit of more accuracy there and obviously then you also get an understanding of the one time costs related to it are.
If we move on to slide nine, Kalle after his relatively short time as the CFO of the company will now take over almost 60% of the company revenue. Yes, part of the thinking is with his broad experience from other industries there will be quite a bit of rethinking on how do we make that a success. We won't change the renewable packaging of biometholes, so Masno Landor and Jocaros Buena will continue there. And to be very specific, this is not a capacity cut program. This This is to make the overhead cost of the company more fit to the reality and give our businesses, our mills and sales organizations a better chance to make money on the market.
We will look at shared services in terms of outsourcing where it makes sense. I won't list what we will or will not because I'm not quite there yet. But there's a twofold objective there. One, if we can through get economies of scale and cost benefits good. But the other factor is that in this world, I believe that we need to move more of our fixed cost variable, because that's how we can ride through some of the cycles also and so forth.
And yes, I will not give you a list of non core assets. Maybe the only definition I'd give you today is we need to get more clear on which businesses or assets do we continue to believe in on a longer term strategic basis and invest in them? And are there some that we'll have a better home with somebody else? And that's a question of not only the future of those assets, but it's also a question of focus, because we need to get more focused. We need to get more agile and fast.
The effective date of the organization is July 1. And I say that specifically because obviously we will now immediately launch a selection of our next Chief Financial Officer and that's why we take that time to do the detailed plans, which we will then disclose also in the coming weeks and months. Page 10, Guangxi. The news is there is no news. I was two weeks ago with the President of our nation Finland as a part of a business dedication in China to meet the new leadership.
I had a personal chance to discuss our project with both the Head of MOFCOMM, Minister Gao and the Vice Minister responsible for this area in NDRC, Vice Minister Chang. And I can only report that obviously, yes, I promoted our project as did others. And I must say, I felt very good about the response in both ministries in terms of yes, they believe our project is good. They also understand it's very big specifically not just financially, but also in the implication on the society with the plantations and so forth and so on. And I said to many media people, we're going to China for a very, very, very long time.
And given the way the capital commitments have worked which is that we haven't made them yet, I'm not in a hurry today. I think it's very important for the future and the success of the project that the Chinese administration on all levels feels comfortable to say, yes, we approve and we encourage this project because then when the implementation and the operation for tens and tens of years starts that we have all the support on all levels national and regional, many back to China in couple of weeks to meet some of the new leadership in Guangxi, because I personally believe that I do need to continue to spend time and build relationships there and so forth. We've also done not just waiting for something, but we've tried to use the time in the past nine to twelve months to get more ready, mitigate issues risk and so forth. We've tested the wood supply in various areas of the plantations. We've done a lot of training for mechanical harvesting.
We have continued to discuss the capital equipment. No commitments made, no selections made just in case one of the suppliers would listen. But obviously, we believe that that all gives us two benefits. One, it gives us a better chance of making the right choices and it also gives us speed when the time comes to hit the ground running so to say. And then very important, which we tend to underestimate sometimes is, I've had a chance to meet many of these great people, mostly Chinese, some experts, but lots of Chinese people young, very well educated and very eager to do a great job for us.
So waiting time is so long, but I think it's actually not that bad. Page 11, the strategic projects, Ostroleka, six weeks ahead start. As we kind of expected a few technical issues in between through the quarter, but still today ahead of the original schedule, so good there. Ula Shah, now we say it's going be completed in Q2. No drama.
It's things just take a bit longer. I reviewed project today with my Board and my final words were it's still a very, very good project. And I believe in the strategy there. Then on Montes De Plata, we wanted to get a little more explicit. You all understand that the first day the chip goes to digester is interesting, but not the most important day.
We wanted to report to you that we have started already some time ago to commission and test and verify some of the main equipment, while we're finishing some of the more mechanical works and infrastructure works and so forth. Now we say start up to start during Q3 twenty thirteen. I will not give you a date, but I'll give you a priority. I believe financially it's very important that we are complete before we start up the mill, because the first day of the mill with zero revenue and all costs isn't a good day. It is the day when we ramp it up and get full premium quality product out of it.
The press release discusses it and Karl can talk to you about what does it really mean terms of the 2013. And then when do we expect the full blast of all that EBITDA coming back from Uruguay to us. Page 12, a different presentation, but same story. The delta between the two curves, what does it say? Well, it's saying that we're rebuilding the company.
We're investing in things with zero revenue to some significant effect And especially in renewable packaging, I think it's quite important to realize that the burden is there. On biomaterials, before anybody asks you could say, well, why did the delta between the two curves in Q1 go smaller? Well, that's the land sale and Gullah can discuss that in more detail. The point I'm trying to make on this page is, yes, there is a price to be paid right now to rebuild the company, rethink the company also in terms of transformation. But I am convinced it's a good strategy and we need to just responsibly implement it and then it all will be very different.
I'll stop with that. Kaleb, Q1?
Okay. Thank you, Joco. So if we go to the next slide called summary financials, I would like to highlight that we came in basic at the same level of sales as in Q1 twenty twelve. We came down about 0.9 percentage point in operational EBITA and at 9% versus 9.9%. And we came in with an operational EBIT of 118% or 21% down versus Q1.
I would like to highlight that we are disclosing in this 118% on page eight in the release that this is including the land sale that Joukou referred to of $10,000,000 $7,000,000 out of Montes De Plata and $10,000,000 out of Thailand. We came in with a return on capital employed of 5.4% and excluding the transformational investment is 6.2% and a cash flow of 101%. And it's important here to say that we had slightly lower EBITDA, but more importantly late sales in the month of March plus taking advantage of the good harvesting season by increasing our inventories by €50,000,000 explaining why the working capital has eaten up some of the cash generation. Net debt to EBITDA on a rolling twelve months €2,700,000 versus 2,500,000.0 at Q4. If we then go to the next slide, I will try to explain a little bit what have happened between the quarters.
And I think I will start with the Q1 twenty twelve versus Q1 twenty thirteen, because it more reflects the seasonality pattern of our business. It's important to understand that the price decline in Printing and Reading of around roughly more than 3% versus a year ago period caused €41,000,000 in EBITDA EBIT loss. Then we had some around one percentage point in Renewable Packaging causing €15,000,000 So all in all that is €56,000,000 less EBIT due to pricing. That was compensating basically by lower variable costs and of which 13,000,000 is actually lower fiber cost coming in. If you do the same comparison versus Q4, the picture is slightly different.
We have a $12,000,000 or 1.4 percent price decline in Printing and Reading. We have higher variable cost, which is both logistic and energy. We have lower fixed cost basically because of lower maintenance of around $27,000,000 We have less profit from the forest associates of about 11,000,000 And then we have FX and other things causing about 13,000,000 explaining the difference of €40,000,000 versus the Q4. If we then take the next slide, which is the guidance. So what we are doing now is that we are saying that sales are expected to be slightly higher in Q2 versus Q1 and the operational EBIT in line or slightly higher than Q1 twenty thirteen.
We also provided, if you go to the next slide, some additional information regarding to our strategic transformational projects and that is Austrolika PM5. It materially impact to group sales. This is basically a replacement and it's an internal sales, but EBITDA margin is approximately 20% during the 2013. When it comes to Montes De Plata, sales impact 2013 limited and slightly negative operational EBIT impact for the full year. Group sales in 2014 is basically the 650,000 tonnes and that's the Raenso share.
And full positive EBITDA impact in the latter part of 2014 provided that the current market condition prevail. And with that, I would like to go to the last slide, which is the summary slide. So the transformation as Jocko mentioned continues. The short term focus is to create this platform that Jocko mentioned for the transformation, making sure we get the divisions ready with clear accountability, focusing on growth and cost competitiveness, because we do have those dual challenges and simplify the corporate structure and make sure we can deliver the $200,000,000 in planned cost saving. Montes del Plata has initiated the commissioning of the main equipment and expecting to begin the mill startup process during Q3 twenty thirteen.
Bule Sha, our joint venture in Pakistan to be completed in Q2 twenty thirteen. And last but not least, the focus on cash flow continues. With that, I hand over to Q and A.
Thank Our first question today comes from Michael Jaffe from Chevron. Please go ahead.
Yes. Hello, everybody. I have a question. Although you said that you would not give a list on potential non core assets, but I wonder if you could give us some color and flavor how we should think about this given that should we think about it in terms of businesses? Or should we think about it as non core assets being let's say providers of raw materials like for instance electricity that you perhaps do not no longer need as demand for your paper products are declining?
Okay. Yes. Thank you for the question. This is Jocko. Like I said, I won't go too far because even if I don't give you a list if I go too far on the question then you make the list and I think it's a bit early for that.
But think about it this way. It can be several different things. I mean, we just announced a land sale on a small scale of in Uruguay and Thailand. It could be resource bases we don't need. It could be assets, manufacturing assets where we see that they have a better home somewhere else.
You know our core strategy. And the worry I have is all the big companies that you kind of need to put together the part of the chart what's important. And what my worry is if we don't get a little more decisive, a little more dedicated resources in looking at this is, we will under invest in some assets and they will lose value. And therefore, I guess the to summarize my very vague answer I admit is, we will look at both manufacturing assets and some resource assets. And the guiding star or principle shareholders?
Is it to keep and develop and invest in them? Or is it that we find somebody else who can make more value out of them? If you forgive me, I'll stop there. I'm pretty sure you already wrote the list, but anyway.
Okay. Thank you very much.
Our next question comes from Lars Kjellberg of Credit Suisse. Please go ahead.
Good afternoon, gentlemen. A couple of questions. On that note of reinvesting in growth assets versus maintenance CapEx, can you give us any sense what you think is an appropriate ongoing CapEx level from you outside obviously the large China project?
I think we've given a number earlier in the order of a couple of margin points to use a simple number. Two margin points as the keep the asset in shape and so forth.
But you mean that that actually then includes the growth investments in those assets that you want to improve?
No, no. But if you turn I mean when I sorry Lars, maybe I'm slow or confused, but what I essentially you can translate a couple of €100,000,000 a year not to play against with percentages. And that is the supporting the existing asset base is not including if we would do on some of our core assets significant, I'll use in the historical example, if we build a power plant in somewhere like we did past years, let alone the strategic investments. That's outside the €200,000,000
Understood. In today's release, obviously the €200,000,000 you are basically saying that's incremental 170,000,000 because 30,000,000 is from the Building and Living. Is that correct? Yes.
That's true.
And then but then you look at the you're talking of course the printed media have shrunk and that will most likely continue to do so. You also mentioned that this is not a capacity program, which I appreciate is completely different structure to that. But what does that do to your view on further restructure on the asset side? This is obviously overhead costs if you like. But reflecting what you said about you've shut down some of these assets after the bad events have happened and relating to the newsprint chart etcetera.
Does this change your strategy in assets in terms of productive assets what you do with them?
I hope I understand the question correctly Lars. The Quanzweil and Hiltze and Chew Hiltze actually in recent couple of quarters, that's how we take capacity out in terms of responding to the structurally declining market. So that's one story. This is more about and actually solely about how do we adjust the overhead structure of the company that in totality serves a market that's not well, 60% is right now serving shrinking markets because even the building and living base market is a bit shrinking because of the European economy. So it's more rightsizing if I may use the English term and it's done with the thought that we've done it before.
02/2008, we took multiple margin points out of fixed cost. Now we have to do it again with the footnote Lars. And we also understand that it has to become an ongoing event or ongoing process because obviously when the market keeps shrinking, we need to make sure that we don't burn the remaining capacity or business with an ever increasing overhead cost. And without going giving you specific numbers, overall the group has done pretty well actually on volume productivity of the existing assets actually quite well in the past six years and that's the good news except its history. On the printing and reading side, we need to accelerate that adjustment because that's the area that's shrinking on the market.
So sorry for the long answer, but that's where the thought also comes that we need to think again about outsourcing and moving fixed cost to variable, so that when the market shrink, we can shrink the cost and we don't end up with too many events every two years and so.
Sense. Oynif, readjust now. Good. Final question for me. When you're looking at your second quarter guidance unchanged to slightly up EBIT, I would assume that the very significant contribution from favorable wood harvesting in Q1 is not going to repeat it in Q2.
And secondly that we should exclude land sales from that guidance or if you just wanted to clarify?
Yes. So and that's why we were so we wanted to be very sure that we included that on the page eight the land sale. So that's not included repeat of land sales. And the second one is that, no we don't expect to have the same contribution on the Finnish and the Swedish wood supply.
The winter is finally over. Thank God.
The winter is over.
Very good. Thank you. That's all for me.
Thank you.
Our next question comes from Johan Sverdrup from Carnegie. Please go ahead.
Thank you very much. Just coming back to the
SEK 200,000,000 in terms of fixed costs. I understand it's overhead, but you have to get a feeling for how big is the overhead cost in your company?
So when we talk about overhead, we talk about nonproductive people in a way. So and I would like to say it's overhead on a corporate level, but also on the BA level and the subdivisions underneath that as well.
Yes. And how big is that in terms of cost? I mean just to get a feeling for the SEK 200,000,000, how big portion of the overhead cost is that to factor?
Double digit percentages. Yes. Intentionally big enough, so it won't be a cheese slicer obviously. So we have to select what we do or what we don't. And I can yes that's one point.
And the second point is, it's not so huge that it would take forever to make happen. This is why we gave the guidance that we better be done in twelve months and so forth. And final comment which you didn't ask, do I because I was quite involved in doing it kind of round one in 2000 whatever 02/08 and 02/09, I am convinced we can do it again. It's amazing what you can find in these big companies.
Okay. And also when should we expect these or the positive impact from the lower fixed cost to come through for you? In which quarter would you say?
We talk about in the release about annualized savings by Q2 next year.
Okay. And during the second half of this year when will we start to see the impact on the income statement would you say?
You would say some minor impacts Q3, Q4.
Okay. So the full okay.
To do with the co determination negotiations and when it comes to people and some other things.
Okay. That's fair. Just a final question also. When it comes to tax rate, can you give an update there? What do you expect for twenty thirteen, twenty fourteen?
So for statutory tax rates, we expect 24% to 26% and effective tax rate somewhere between 1416%. Okay. Great. Thank you very much.
Thank you. Our
next question comes from Antti Koskivari of Danske Bank. Please go ahead.
Yeah. Thanks. I find most of my questions already answered. But maybe still on the Q2 guidance and Printing and Reading in particular. Now with the finalized price negotiations in mainly in the newsprint side, they seem to be quite late this year.
So my question is whether should we expect your average prices in Q2 lower than in Q1?
Okay. Jocko here. I tried to answer you in hopefully clear terms. The way that worked is that there is a, let me call it, winter negotiation for the specific the publication grade pricing that has been completed in the early part well, I shouldn't say early part during Q1. And there is a specific color in those negotiations which is that we have very intentionally limited to the possible extent the pricing agreements to six months agreement meaning midyear.
So that there is a discussion midyear again and therefore the whole capacity demand discussion is very relevant. And then by logic you can say that pricing agreements of Q1 are essentially the pricing agreements of Q2.
All right. So we should be all right. Okay. Very good. Thanks.
Thank you.
Our next question comes from Karri Rinta of SHB. Please go ahead.
Yes. Thank you. Karri Rinta, Handelsbanken. My questions are related to the decision or potential combination of building and living and printing and reading. I guess I could start by asking that how have they slowed down the pulp and packaging
As you alluded to that you don't want anything to slow down the pulp and packaging units. So how has the current structure worked against this ambition?
Well, let me be first of I didn't say that it has slowed down. It's more saying that think about it this way, biomaterials, especially once we get once spot up and running and very much renewable packaging with investments in impact, Buleshaw, the China project with existing assets good returns, growth markets and above current asset targets for the new investment returns. If we start there, where would you put the focus of those teams, grow those businesses profitably, find new opportunities whether it's small acquisitions or new customers or whatever. Yes, they need to be cost efficient, but the cost efficiency productivity improvements is it's a different game when and if you can grow. Then on the other side of the aisle if I may call it with this vast majority of building and living still the basic sawmilling business where the European market actually is down year on year in Q1, let alone the printed media paper market that we talked about.
And what I'd like to see now is with very strong division heads that also the group management which I guess at the end of days also means that I can rebalance and make sure that the so to say the quality now they run their productivity improvements, their overhead fixed cost improvements, the necessary capacity adjustments pretty independently, because I'd like to spend actually also a bit of more my time and the Group Medicine time on pushing the other side of the aisle on growth, new opportunities, innovation, marketing, be it the design studio concept in renewable packaging, being some of the R and D programs we're doing and so forth. So I do claim that from a market point of view, from a company return point of view, on one side we need to put a bit of a gas pedal down, where on the other side it's well, least it's a different gas pedal. That will be my answer.
Okay. And then a follow-up on the sort of the overhead between or the overlap between building and living and printing and reading. How much shared overhead can there really be? Because the manufacturing sites there's not that much overlap and the customers are very different. And guess you can't have the sawmill operator running the paper machine and vice versa.
So how exactly and how much will you reduce that overhead? You are taking your sort of not sort of, but you're a very competent CFO and putting him in charge of this project. So this must be very important, but I would like to have
Yes, my very competent CFO. I agree Karoly, but also with a pretty strong business experience in Ericsson as a division head building a different business. And to answer your question because this isn't only about the divisional management team and so forth, the numbers are so big. We're going to have to rethink all levels of administration from mill level to divisional level to group level and so forth. And even though I will not give you an exact answer you asked for is, I think in the pre work that we've done in terms of saying how do we simplify on who does what, what can we stop and so forth.
I think the $200,000,000 is yes, it's a significant number, but I can assure you that Kalei and I had that discussion before he took the job that we will make it happen. You just have to wait a few weeks now until we come out with the more specific splits on where and how many people and what one time cost we have. And that's by design because speed is obviously of the essence Curry. And now that we announced a big number or the base number as of tomorrow morning if not tonight, we can launch with dedicated people then the work to find every euro out of the €200,000,000 very, very fast. But it also leads to the point that I won't give you exact numbers on by division and so forth.
Then final comment, yes, you're right and we've actually done that. We looked at customers' channels, resource base, asset base. I'm actually proud that in the past six years we've been able to dedicate our assets so that we don't have 1,000,000 shared sites and so forth. So I think it's good. Focus is always good.
But the point of the story is the dynamic is more existing assets above cost of capital returns, big growth investments, how do we make sure those people focus on making them a success and grow the existing renewable packaging business, whereas the other side is fighting a different war, if I may call it the digital war. And I'd like to maybe I say it this way dedicated focused people, but also that the group management meaning me also can spend a little more time growing the good parts, the growth parts, the value creating parts. That's the concept. It's not that we would have said that things are totally overlapping. And that's one of the reasons why we keep the segment reporting also, Kari, because I want full transparency and so forth.
The fact of the matter is wood supply, IT and logistics are kind of the physical common denominators in the company now. It's not customers or channels to your point, okay?
All right. Fair enough. Thank you.
Our next question comes from the line of Larsson from SEB. Please go ahead.
Yes. Thank you very much and good afternoon. I would like to continue on the topic of the creation of this interesting division. And my impression has been that these mature parts of Storenza have indeed supported the growth projects in packaging renewable packaging and biomaterials. Could you talk a bit about if there is a scenario?
And if so when these two parts of the companies could be separated? So at what stage could the growth that you are looking to have in packaging and in pulp be made without the support of what you have referred to as cash engines in the past?
Okay. Thank you, Nimnesti. First of all, I must need to admit that the cash engine was a bad choice or worse. I did it, but it's not a very smart thing to for the brilliantly good people in these two businesses. So I've asked Carlo to come up with the new name, which he hasn't yet, but mature was a nice word anyway.
Right now the first priority and the only priority is not to speculate about what if and so forth. It is to prove to all of you that starting from the second half of this year slowly, but anyway and by the second quarter twenty fourteen, we make the $200,000,000 happen like the Swiss clock. That's the priority, because that is going to continue and secure the completion of our transformation. So that's point one. Point two, when do well, let's pick biomaterials.
When will they not need the so to say the cash engine divisions? Well, without going into the detailed numbers, while we need to get Monsters Platte not started up, but up and running and returning a lot of the cash we've invested in it. That's critically important. If you go to renewable packaging on the existing projects, well you know the China project is where it is and so forth. Maybe final comment is, I have a few other ideas that we could maybe do, which I will not get into details.
And in that context, keep telling Karl next to me that as much as I love him as the CFO, I love him more now as the division head because I need that cash engine to keep running and running and running for many years to go because we can do some other exciting things there.
Okay. And that's good. If I follow-up on that, at what stage would you contemplate, if at all, combining your mature businesses with external parts in industry? Could you find a way that you could do that and maybe reach some synergies while at the same time get the benefits of cash flow into these potentially additional few ideas of yours?
Even though I'm old we've only been six years in this industry, but the one thing I have learned is I would never dare to say no never to you. But I do want to say that for the good of company and our transformation, the primary focus is on the things that we can get done rapidly ourselves. And any other opportunity in any of the spaces, yes, I'll be all ears, but that's not something that I want my team to focus on right now because it is and I don't have to tell you, it is really, really critical we keep that cash engine going. If you look at printing and reading past few years, it's actually a bit amazing. We've been able to keep the cash flow from operations in printing and reading in the $400.500 range every year when the market shrunk 25%.
But that's history. So that's call us back now to make sure that that thing keeps ticking. Very good. Thank you very much. Thank you.
Our next question comes from Martin Melbaei of ABG. Please go ahead.
Yes. A nitty gritty question. The net financial items of SEK56 million, how is that split interest expense and FX loss?
So
the interest expense is 50,000,000 And then we have the FX is 5,000,000 And then we have a other P and L effect of 2,000,000
Okay. And the 50,000,000 is that the run rate going forward Yes. Okay. Thank you.
Our next question comes from Kartik Swamathan of BoA. Please go ahead.
Hi, there. Kartik Swamyathan from Bank of America Merrill Lynch. Just had a couple of questions if I may. Firstly, on China, I wanted to ask about the potential positive strategic benefits of pushing back the project. As intuitively you'd be getting a little bit of alleviation from your CapEx pressure and maybe even helping to realign supply and demand because we've seen in recent other trade publications that there is quite a lot of capacity coming on stream over the next few years potentially overlapping with liquid packaging board?
Secondly, I also wanted to ask for a bit of qualitative color on how the mills in the paper segment outside of Europe are faring I. E. The plants in emerging markets. I think I recall you have a few assets in China and Latin America. And my final question is how important do you believe the dividend is?
And if we take a broad consensus view that the group will not necessarily be covering its payment if you put in a full amount of CapEx for China over the next few years? How much flexibility is there on existing debt facilities to draw down on those and continue to pay it? Thanks.
Okay. I think call again maybe get to do it in question and so forth. So first of all, logically the fact that Montes De Plata plus Ostroleco plus Skuco is not exactly or the China process isn't exactly calendar wise on top of each other. I don't mind specifically because of the fact that I like I said that the cost of preparing for China is in that queue, so it's not even really material for us. And everything we do now is obviously going to de risk and lower the risk for China and so forth and so on.
That is driven by the approval process. It's not driven by any kind of capacity demand supply considerations. We believe that the plan is based on a very sound market strategy. If you look at specifically liquid and food packaging in China, the market growth is in the one place on earth is very encouraging. I mean, you can use a number of 25% growth per year on number of Chinese families who start buying packaged food.
You can use the more specific packaging material growth rates and so forth and so on. So I don't think if look at the market size in this segment, high quality consumer board, liquid and food, the 450,000 ton machine that we're planning to build there is in the order of magnitude of, I don't know, one year of market growth. So it's a different dynamic, I think, than most of the other places. But like I said, I think the fact that these big investments don't all come in the same twenty four month window is actually not bad at all. We need to get Uruguay up and running and so forth and that will make life a little simpler for us.
Karl, you want to take the dividend question?
Yes. I
mean, a dividend policy.
Yes. So I don't want to comment your estimate about our cash flow generation, but I would like to say that we have and we will continue to generate cash flow. As Joko said, we've been delivering out of the printing and reading assets 400 to 500 operational cash flow per year. You heard Joko saying that we had some sort of a maintenance CapEx level at around $400 sorry about 200,000,000 And we are actually also taking actions to increase the profitability and the cash generation as announced today in the announcement of the cost savings. And in all scenarios we are planning, we have not touched the dividend policy.
And I would like to say that touching the dividend policy is actually an owner question. And the dividend policy is 50% of profit over recycle.
Thank you.
As there are no further questions, I would like to turn the call back over to Ulla Payenen, Head of Investor Relations. Please go ahead. Okay. Thank you, Martin. All right.
Thanks for this call on my behalf and Joko will say now the final words.
Well, I never say the final words. The only thing that doesn't change is we need to change. You've seen that for a few years now with us. And I guess the one comment I do want to make is that I know we're giving you just a number and that's intentional, but we will obviously in the once we have the detailed plans in place, we will report to you more details, including the people impact and the onetime costs. But I will also say that we will keep reporting very transparent then on our progress, so that you can see that we not only talk about it, but we do what we say.
So with that, thank you very much for your interest and I'm sure we'll talk again soon.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.