Good day, and welcome to the Q3 twenty twelve Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ula Payanen, Head of Investor Relations, Stora Enso. Please go ahead madam. Thank you, Kiara.
Good afternoon everyone and welcome to Stora Enso Q3 conference call. And here today with me is our CEO, Joko Karvin and our new CFO, Carhenrik Sundstrom. And Joko will start the presentation and then we will in the end have a Q and A session. Please go ahead, Jocko.
Thank you, Ula. Welcome everybody on Q3 conference call. We'll do the conference together with Karl. I'll start and then I'll hand over to Karl Henrik in a minute. If you go to page three, three key messages.
The operational EBIT was what we promised and a bit more meaning that is on the upper end of our expectations and guidance. Second, which I think is maybe even more important robust cash flow and liquidity, $312,000,000 continuing on the multi, multi year path where the quarterly cash flow has been typically in the €270,000,000 range on the average. And then through that and the bond issues recently, we have raised our liquidity to €1,700,000,000 which we believe is the right thing in a situation where we are spending money to transform the company. Third, even if we can say that at least from a cash flow point of view, it was a good quarter. You never forget that to keep that going, we need to continue and that's why we have announced today a string of capacity and cost improvement program plan.
And that we need to do to keep this cash engine going also in the future. Page four, the EBIT. And if you want to be positive, I don't know what you do. Yes, the third quarter EBIT was slightly better than Q2, but I do understand and we do understand it's still on a relatively low level. The point of this chart is actually if I use a different metric return on capital employed is, we are burdened today by about €900,000,000 of capital tied on our balance sheet that produces zero revenue.
Why? Because that's the transformation strategy. So we have Ostoleka, Uruguay and so forth already burning the capital. And it actually has an impact of almost 200 basis points on our return on capital employed. And obviously, when we get this up and running, it will change the tide and then they will improve the ROCE rather than burden.
Having said that, on the segment results, it is obvious also that if you look at Building and Living that highlights the reality. We not only must implement the plans we have announced, but it is very clear to us that we need to do significantly more to correct the underlying weakness of that particular business. Page five then gives you a summary on the new improvement plans announced today. Annualized cost savings SEK36 million with a relatively limited, if I may say, cash impact of €28,000,000 in OneGo and €14,000,000 write downs. So if you do an investment calculation on that, it's actually not that bad.
Obviously, very bad for the good people in this unit. But I also think that the level or the string that we do now is better for the people because the reemployment possibilities are better if it happens early and not late. You might say that SEK36 million isn't that much. Well, let me remind you that since the beginning of only 2011, we have a total of almost SEK180 million net cost savings in these programs. And I do want to repeat that that is a string or a path that we are on and we will have to continue to be on.
Page six then, the other news very specifically and accurately worded, we're entering the examination of possibility of selling the Corbijem mill, a mill that has been restructured in the past. It's now a single machine of 330,000 tonnes of LWC. The product range there is actually at the light end and which is actually not our focus area in LWC anyway. Right now what we do is we will investigate the potential of finding a buyer as the local requirements are in full cooperation with the local unions and employee representatives and the local authorities. And we'll do that without very specific limitations, which is also quite important in the French situation.
We would prefer that the future business of that mill will not be hugely overlapping with ours as you can imagine. We will not now or even the Q and A speculate with any alternatives we cannot like what if we cannot sell it and so forth. The task for the team is now make this happen and make the best out of it for the company also. If we then move on to page seven, the world map, I'll be very brief. You know the Monte De Plata, Skokao, Ocelet and Guangxi.
The new one now is the Bula Shaft Packaging Limited. I think a very interesting opportunity, not a huge investment, which actually I think is good given all the other investors make, but I think a very significant opportunity given Pakistan is the fourth largest dairy market in the world. We know the partner well and I've had the honor to meet them, I think very highly of them in terms of their business practices, their whole understanding of the business and the Pakistani environment and so forth. So this is a bit like the impact, plant a small tree and grow it fast, if I may use the parallel. Page eight, Monte De Plata.
If you don't like the picture you can blame me. I took it ten days ago myself on my mobile phone camera. So I think it's pretty good. Just to give you an idea of what's going on there, it's like building a small city 6,000 people at site 73% complete right now moving rapidly into the erection phase from the civil work phase. The schedule is as it was mid-twenty thirteen startup.
And as you can get from the picture also when I was walking around and driving around the site very busy right now. Then moving to page nine, Guangxi China project, obviously in a lot earlier phase and that's fine. What we're doing at full speed right now is building resources. We have about 800 people in Guangxi, which you could say, wow, that's a lot. Well, actually it is in.
At the peak of the construction, it will be towards 10,000. So obviously, understand through very specific campaigns, we're attracting people not just expatriates, but specialists, but also very good very well educated local Chinese people. In parallel, we're doing what I call detailed planning. And detailed planning includes then that you do risk assessments, you test your plans, if you think about logistics or wood supply or whatever, and look at how do you manage risk in the implementation of a very large complex project. That's all very beneficial I think and good.
The final permits we said a few months ago, guess half a year ago that we expect to receive the final, final NDRC NOFCOM approvals in the 2012. It's still 2012. And we also want to tell that we as of today have not received all permits, which actually I think is relatively understandable given the leadership changes and so forth in China. Part of the story is that's okay with us. The cost right now of carrying the project is very, very marginal.
And we do everything we can to prepare and get ready. And we feel we are very ready then once we get the permits to go forward. And with that, we will we also say today that we will confirm the more detailed time plan once we have received those permits. I think I stop there and hand it over to my new friend, Karl. Go ahead.
Thank you, Juuko, and good afternoon and good morning to everyone on the call. I would like to highlight a couple of things on this page called summary financials. First of all, as Juuko said when we started, we came in as promised and a little bit better. And basically with the same sales levels as we had in Q2, it is basically due to sequential improvement due to lower cost and an underlying strong performance and improvement mainly by renewable packaging as well as biomaterials. The other thing is that we came in with a sequential improvement in cash flow from operations and also sequential improvement in cash flow after investing activities.
We ended the quarter with a very robust liquidity of 1,700,000,000.0 mainly due to two bond transactions that we did on very favorable terms. And then I would also like to highlight the operational return on capital, which is 8%. However, we need to take into consideration what Juuko said that this is included here in the capital employed is over SEK900 million of investments that we've done in the strategic transformation projects, which basically taking the operational roofs, the percentage down by 200 basis points. And then if we move to the next slide, this is the power of our cash engines. And we continue to deliver a solid cash flow from operations, which for the last quarter since actually since 2009 has been around two seventy and we improved it sequentially.
This is a very important fact to bear in mind because this is the engine that will actually finance our transformation, combined with the strong liquidity that we have taken right now to make sure that we are prepared for the future. And if we then go to the next slide, which is Slide number 12, focusing on the balance sheet. As you can see, the last twelve months net debt over EBITDA went to from 2.7 to 2.8. But if we only look at the isolation and annualize the third quarter, it is actually a net debt to operational EBITDA of 2.5 with the last twelve months, we have a couple of bad quarters, which means that we are turning the wheels and turning the trend. And the other one I would like to point out is that we also came in with an EBITDA just below 10%, 9.8.
Moving to Slide number 13. Here is actually the return on operating capital for the different businesses and compared to the average of the company. And as you can see that we are in value creation or strong value creation for renewable packaging and some value creation in biomaterials. The important part here is those SEK 900,000,000 in working capital that are invested in both in building and in biomaterials and renewable packaging, we move the 14.2%, if we take them out of Renewable Packaging to almost 18% and also doubling the 9% in biomaterials from 9% to almost 18%. That demonstrates the underlying power of the transformation that the Renzo is going through.
Moving to Slide number 14. This is another way to describe where we have the cash focus and investment focus. The areas, the Printing and Reading and Building and Living and Other are basically generating 300,000,000 in nine months in net cash flows, while biomaterials and renewable packaging is basically breakeven on cash flow. And this is the way we are driving the businesses. And it also demonstrates the strength of the new business area approach implemented in the beginning of the year.
Moving to Slide number 14, I will here just go through the guidance. We believe that sales roughly similar level than Q3 twenty twelve. Operational EBIT in line or slightly lower than Q3 twenty twelve. Mill maintenance will have a negative impact of Renewable Packaging and Biomaterials during the quarter. I also would like to give you a little bit of a CapEx update.
The previous guidance was 700,000,000 to $750,000,000 The new guidance for CapEx for full year 2012 is $550,000,000 to 600,000,000 The reason for that is that we see less of investment coming on this side of New Year's versus the other side of New Year's in relation to our investments in China. And with that, I would like to go to the last slide. So we are in a transition to transform to a value creating growth company. And I would like to say that Q3 came in as promised and a little bit more. We have a robust liquidity prepared for the future.
We are the masters of our destiny. We are taking whatever measures that is necessary to keep the cash and the profitability at certain levels. And the transformation to a value creating growth company, we have a couple of proof points. We have three projects soon finalized, and that is the Skogal, Woodyard. We have the Ostroleka and we have Montes De Plata.
On top of that, we announced a joint venture in Pakistan that will be up starting in the 2013. And then we have the Guangdong, China proceeding. With that, I would like to hand over to Ulla to open up Q and A.
Thank you, Carla. Kiara, please open up the Q and A session now for our audience. You. We'll take the first question from Lars Kjellberg from Credit Suisse. Please go ahead.
Good afternoon, gentlemen. Very strong cost performance in the quarter, Walter. Could you go through with us a bit how much of this is to if you do bridge from Q2 to Q3 in terms of the impact of your own actions to multiple programs you have been running and the variable cost? What's the split there in the cost improvement on a sequential basis?
Lars, Joko will start and then I'll give color every time to maybe give you more detail. Basically, vast majority of the improvement is variable cost in this particular situation. The fact of the matter is that if you look at total group, the so to say the fixed cost overhead cost was flat. The interesting part obviously in my opinion is that at the same time where we grew like 400 people globally year on year. We added 1,000 people in China and India, which means that we reduced about 600 people in the old world.
So the point I'm trying to make is the I believe that the European existing asset costs are a clear part of the improvement, but it's then balanced by the investment in the growth areas also on the P and L. Karl, do want No. Clarify what I
I think another way of looking compared to it's actually compared to the same period last year. And sales and volume was basically causing a negative of 110,000,000 and then getting back to a result that is like SEK 50,000,000. It's all driven by cost action. Part of that is variable, but it's also really the action of fixed cost. Okay.
And if we'd be looking forward, I mean, been very kind in listing all your cost initiatives. If I may, a couple of questions on that. You have the biggest single item is the coated magazine restructuring, which initially, if I recall correctly, was supposed to be completed by year end 2012. Now you're saying it's the full impact by Q3 twenty thirteen? And the other one, the Hill Tilti closure that you announced today by year end, but it doesn't seem to have an impact until Q4 twenty thirteen that makes no sense if you want to clarify.
Help me out because the first one
CODA magazine, it should have been completed by year end 2012. Now you're saying it's the full impact in Q3 twenty thirteen?
Okay. 2013 is the right number. I have to we'll get back to you on that because I'm not sure where did you get the other number. If
That was the initial announcement. That was the initial announcement in Q1 you talked about year end 2012. We'll Never mind.
No, but we'll get back to you in a minute.
Okay. Should we be concerned about currency at all again referencing the strong Swedish crown? You haven't really mentioned that at all in today's release. Is that an issue going forward or not really?
Obviously, if it's enormous swings, it will be issues. With marginal swings, we have seen that the sequential movements that we have had between Q2 and Q3 hasn't had any impact at all. But what we are trying to address is trying to get to more to a natural hedge in our business and also have hedges. But for minor movements shouldn't have any implications. Huge movements will have implications.
Okay. If I may just two things then finally. Could you give us a year but you've reduced your CapEx for the current year. What would you expect now for CapEx for twenty thirteenfourteen? And given the what appears to be somewhat slow progress with the permits in China, is there a risk that this project drifts into 2015 before completion?
Lars, I'll take it. We specifically said that we'll confirm the detailed schedules once we have the permit because welcome to China. I mean, don't want to start guessing with the leadership change and everything even though we still are in the window of the that we announced in the spring. I would like to point out though that two things. We've been there ten years.
The absolute cost of running it as is right now is hundreds of thousands a month. And as well as I do that about twenty four months after the major capital commitments that cost will ramp up very quickly. So the point of the story is I'm less concerned about the month or a quarter at this stage. What is very important for me and I think our shareholders is that by the time we launch and start the construction and especially making big capital commitments that all the prerequisites are there and we don't get stuck once we type the capital. So point of the story, I won't give you a new schedule now, but we will confirm the schedule once we get the permits.
But if I had to guess an investment level well above 1,000,000,000 for next year, that's what one would expect?
We will
as Juuk will say, we will give you indications once we have the permits.
I think that is I
appreciate that. Sorry. Thank you.
We are now taking a question from Linus Larsson from SEB Ameski. Please go ahead.
Thank you very much and congratulations on these good Q3 numbers. A few follow-up on the previous questions. Actually, just to confirm the CapEx guidance that you're giving that is excluding the Montes Del Plata part of the investments, right?
So when I give the CapEx guidance of $550,000,000 to 600,000,000 that is excluding the CapEx that we are doing to our associated company Monte de Plata. So that is CapEx. The other one goes through equity accounting.
JEAN Excellent. And that is still €150,000,000 is that correct?
And 31,000,000
130,000,000 Excellent. Good.
Yes.
Perfect. And then also on the variable cost improvement that you saw sequentially in the third quarter, could you break that down for us in any way? For instance, if you look at fiber costs specifically, how did they move for you in Q3 beyond Q2?
Between Q3 and Q2
Q3 and Q2, sorry.
Q3 and Q2, we had a positive impact of fiber cost. It is not the biggest of all the costs, but it's one of the bigger variables.
Okay. And what are the other significant variable cost movements in the third quarter versus
the third
quarter? Logistics and all of it.
Okay. It's really across the board. Yes. Good.
It's a little bit variable.
Yes. Okay. Excellent. And we talked about FX. Did I hear correctly that you said that FX is not a major factor comparing Q3 and Q2?
That's correct.
Okay. Good. And may I also ask about the restructuring program and the closure of Hiltep PM1 that you announced today? I just wonder how we should look upon your perception that the structural decline in graphic paper is 4% to 6% per year, yet at this point in time anyway, you're closing down one single machine rather than anything more. Should we view this as you will come back relatively soon with more capacity closures?
Or how do we get these two statements to match?
Okay. This is Jakob. If I may take that. First of all, is the fifth newsprint machine Sora Ens is closing in my short tenure. So we can start now.
And to and I know you understand this, I could possibly not start pre announcing any further plans, but I hope the past track record demonstrates that when the demand does go down structurally 4% to 6%, which I think we were the first company to demonstrate as a fact then we will take appropriate actions in the future. But that is unfortunately maybe as far as I can go if you can live with that answer.
Sure. I
can live with that. Thank you very much.
Good. Can I go back to Lars? Because you asked about this previous COVID magazine or magazine paper restructuring, which we announced on the February 8. Actually, it wasn't an error. The original press release that I have it now in front of me says the full impact achieved from the 2013 onwards.
The same release actually Lars said that the proposed restructuring measures would impact about 110 people and these actions will be complete by the 2012. But see the point is the profit improvement program is not just the people reduction program and there are some other things that will continue. So the just wanted to make sure you don't feel that we're delaying it or anything. It's just that there's some investment smaller investment type of things that we need to do to get the full benefit of it. Okay?
You're all right with that Lars? Okay. Next question please.
The next question comes from Erik Thalson from Aker Capital. Please go ahead.
Yes. Hello. I had a question on pricing. What are you seeing what did you see in terms of prices sequentially on paper on the various grades in Q3 over Q2? And also what is your best guess as to how prices will develop in the fourth quarter?
Thank you.
I would say, it obviously kind of varies grade by grade. But in rough terms, I'd say pretty stable in Q3 sequentially. The issue is more, if anything, I'd say that's very much true, especially in Europe. What is a bit of an impact is the mix change because exports from Europe have grown given the weakness of demand in Europe. And that tends to that mix change tends to put a bit of pressure on price.
But nothing that I would lose sleep at night on right now.
And best guess on Q4 over Q3?
Well, I'm sleeping well. Good. Sorry, I don't want to go further than that.
Okay. Thank you very much.
Thank you.
We now have a question from Jaend Khandalam from Lukor. Please go ahead.
Yes. Hi. Basically, I just had a quick question on the cost savings slide, which is I think Slide 19. It's basically on the earlier announced cost saving programs. I'm just trying to match what was earlier answered to Lars' question.
And I think I'm just getting a bit confused on some of the some of the timelines because if you look at the aspect of logistic restructuring, it says it's announced in Q2 twenty eleven, then the saving fully visible starting Q1 twenty eleven. I think it must be 2012, if I'm not mistaken there.
Yes, that's a printing error.
Sorry about that. No, you did find an error. We don't do it backwards, obviously. Sorry about that.
Sure. And if I get you right, and if I look at the new profitability actions, so basically, you're you're kind of seeing that some of the plans which you have here announced and some of the new profitability action plans, both of them could start taking simultaneous effect towards the 2013. Is that right to assume? Is that to take a mixture of some of them?
Yes. I think it's a good basic assumption. And I mean the other way around if you look at it if you really talk about the run rate savings, it is maybe one years point typical payback period kind of a thing.
And remember, this is in the Scandinavian context. We have not reached agreements with our labor unions about the timing. So this is our proposal.
Yes. Good point.
Okay. And a couple of other quick questions. In terms of the number you quoted for Montez del Plata equity injection of $130,000,000 that would be basically for 2012. And you kind of mentioned you have already spent about 100,000,000 So the rest of the money out for 2012, rest
of the year would be
$30,000,000 roughly, right?
Some in that ballpark. We haven't given exact guidance on it, but it's in the ballpark.
Okay. And that would be the total amount, right? I mean, are they or is there going to be any more equity injection or capital investment in 2013 in this regard? As
far as we understand, there's no more decisions made for any additional, right, on top of that.
Great. And one last question, if I may. Basically, just wanted to have a rough understanding of the cash interest cost with all the moving items in terms of the new bonds and some repayments done recently. Would you be able to kind of give pro form a cash interest number which we can plug into our models? Thank you.
The cash interest cost will be around 5.25.
Sorry?
5.25% percentage points.
Okay, 5.25%. But do you have would you be able to kind of provide a cash interest figure, I mean, like absolute number, a pro form a number?
Yes.
But you see the extra funds that we got in the third quarter will distort that. That's why I'm giving you an interest rate.
Okay, great. I'll figure it out. Thanks a lot. Thanks a lot. Those were my questions.
We are now moving to Michael Jafner from Chevron. Please go ahead.
Yes, hello. Good afternoon, everybody. I have a question more of a general one. I mean, now you will probably or you will start up your Montes Del Plata project next year. And we also know that there are other projects, I think, out of which one is in the process of starting up.
On all of these three are in short fiber pulp. Could you perhaps say a couple of words on how you view the short fiber pulp market in the short to mid term?
Well, let me first take the short short term, which is right now kind of the I mean, Gord, there the short fiber pulp is more challenging in terms of the demand supply balance than long fiber, which right now I actually love because effectively we're net long and selling market pulp on long fiber where we've seen a quick stabilization of the pricing, so to say, after the pretty bad third quarter, so to say, when the Chinese came back to the market, there is actually an increase in the recent moments. The short fiber pulp, we're pretty much net zero there. So it's from a group point of view, it's not so meaningful even though it has an impact on the BA report. Then longer term, if longer term is then six to nine months, twelve months, yes, there is one capacity coming up before us probably. I am not quite sure when.
Not right now, I don't think would be my guess. And then at the end of today, I guess, I'd say once we get once the flat top running mid next year, we do believe that our cost base is such that, yes, it will be cyclical, but that mill will do pretty well in essentially all the cycle parts. And when we look at the strategic view on the demand of short fiber pulp, I'm not too worried because I also see that many of the talked about projects or even announced projects may not happen anytime soon. So the mountain isn't as big as one might think. I don't think I can say too much more.
Okay. Many thanks.
Thank you.
We are now moving to Gari Rinta from SHB. Please go ahead.
Yes. Thank you. Garri Rinta, Handelsbanken. First a clarification in terms of this restructuring program. This €36,000,000 figure, does that include the lowered cost from the units that will be shut down I.
E. Ahuyote 1 and Roavesi corrugated plant?
Yes, it does. But as you well know by now, Karri, when we take capacity out, it's the same carousel that it's been through the years. We take good margin business and move it to lower cost assets. So that impact is not in the number. This is a pure cost saving number.
But we obviously drive as hard as we can also the margin improvement through the improved mix. So we try to give up ex low margin business rather than good margin business when we take capacity out. But that we have not calculated so to say in And this
then in terms of your guidance for the fourth quarter, you typically if that can be said about the industry, you typically see stronger seasonality in fourth quarter, I. E. That the earnings dropped more than slightly that you are now indicating in the fourth quarter. Is typical seasonality being offset by continued declining variable costs? Or is life there something else that is maybe supporting earnings more than what you typically see in the fourth quarter?
Well, we're facing a year on year slight inflation deflation, oops. But the deflation is improving year on year in the second half and in the fourth quarter. So that's one driver. The second driver, which I'm not very proud of is that I think the comparison point in Q4 twenty eleven wasn't very brilliant, I have to admit. So I would say a couple of those things are there and then obviously volume outlook helps too.
If you would look at on a business level because you have you're indicating that the maintenance cost in Renewable Packaging will be higher in the fourth quarter, and I see that you have produced quite a bit of the inventory in the third quarter, which would imply probably related to maintenance, but also some pressure on the fourth quarter margins. Is the other business then doing even better in the fourth quarter? I don't know I know that you don't want to give business level guidance. No, no, but
don't give segment level guidance, but just to give you a couple of factors. Printing and Reading is seasonally stronger in Q4, which is not true for Packaging. And then the second comment I'd like to make and I'm looking at color here, so he agrees with me. You said inventory increases. I think the clear reason for the inventory value increase is more FX now than actual physical inventory.
So you shouldn't necessarily read that we have everything in store and we can't produce in Q4.
We got a lot of revaluation going into the working capital. It's basically the whole increase is due to revaluation of currencies.
Okay. I was just looking at the volumes in your Renewable Packaging, where the production was eight twenty in the third quarter and deliveries were seven eighty to you. So yes, it's not a big deal. All right. The Printing and Reading seasonally better fourth quarter rather than Q3.
All right. Thanks a for all my questions.
Thank you.
The next question comes from Antikos Kibori from Danske Markets. Please go ahead.
Yes, thanks. I would have two questions. Firstly, still on the cost just to get it right. You're saying that fiber cost is one of the drivers at least in sequential improvement in variable cost. Is that the biggest driver?
And does it come from the recycled side? That would be the first question. And the second question is about the maintenance downtime you're saying that you will have in Q4 in Renewable Packaging and then Pie Materials. Could you give us a figure about the impact what you will see in Q4 from these? Thanks.
So when I said that fiber was the biggest variable cost savings and it include RCP and everything and wood supply. It's all of it. And when you asked me about the maintenance, that's an impact somewhere between million to R15 million dollars
All right. Thanks. Very helpful.
We now have a question from Nati Dias from JPMorgan. Please go ahead.
Good afternoon, gentlemen. I had three questions. Two of them are clarifications. And the first clarification is when you said your interest cost is 5.25%, should we assume that as a percentage of your gross debt or your net debt?
On the gross debt.
Okay. Thank you. The second question was on the EBITDA. If I add your operational EBIT and the depreciation, somehow I can't get to the operational EBITDA that you report. Can you help me understand how you reconcile it?
I'm happy to take the answer offline if
do Yes. Do that offline. But this is a methodology where we actually include what we get from the associated companies. So normally, you would actually think that EBIT is lower than EBITDA, but in our case it's not. Yes.
So why we take that offline, okay? The third one?
Yes. The third one is on newsprint. Given that recovered paper prices have declined significantly, and I know you I guess, trying to read between the lines from Yoko's comments, prices should be somewhat stable into Q4 on a sequential basis. But is there an expectation that you should see some newsprint price declines heading into the first quarter or the first half of next year given the raw material price declines?
I'll take the question because I gave the previous outlook. And I can't actually answer that. You know very well that we're just about to enter the pricing discussions with our customers, and it would be inappropriate for me to start communicating through this channel. The only thing I can say, as I always say, like a proper record, pricing quality is mission critical for us. And as happy as I am with the cash generation of Printing and Reading, I think we need to be very, very focused on that pricing quality.
Sorry, I can't give you a better
That's all right. I can understand that. Thank you very much.
Thank you.
We have a question from Linus Larsson from Seven Skills. Please go ahead.
Thank you. Just a follow-up on the news about Corbyhem today and what you said Joko about potentially selling this unit to someone and you said something about you would prefer to sell it to someone where the competition wasn't overlapping too much. Does this mean that you would not sell Cobre Hem to someone who intends to produce publication paper grade?
I actually said everything I can say already, but I'll try to be even more clear. The way the trends set up is that we have to announce now openly, not only to the public, but also to our employees and our unions that we intend to sell the unit. And we cannot really start saying for this or that or anything else. The business logic says that from Estora Enso and our shareholder point of view, obviously, we should minimize the overlap with our remaining business, but that remains to be seen. And then the second point that I was trying to make is, not that you asked it, but before you do, I cannot speculate with anything in terms of what if we are not successful or this or that.
This is the plan now and we have to start implementing it, which we can only do after we announce it. I know I didn't help you a lot, but I tried.
Okay. Yes. Then just one follow-up on that. If you could comment in any way the financial performance of that mill
at
this point in time or in recent history?
If you forgive me, you have to make your own conclusions. I won't give you any direct guidance on a single mill, sorry. But I'm sure you can try to draw your own conclusions.
All right. Okay. Thank you.
We're now taking a question from Kashyyyemin from UBS. Please go ahead.
My question is regarding the Bundesha Mill. And my question is how the management what is going to be the role of Sora Enso in this Buleshah mill? And secondly, how you're going to make the operational turnaround because if you look at the Buleshaw mills, right now it's a loss making entity. What operational changes you're going to do to make it a profitable entity?
Okay. Sorry, give me a minute. Sorry, somebody was trying to tell me something, but I can hear. The answer is many changes. It's like our own textbook.
So you know that we're going to we are the global number one in liquid packaging board. We already have a team of people preparing to introduce our know how, our product and quality capabilities with some investments to introduce world class liquid packaging board and a few other high grade materials in that mill. So it's the combination of our global knowledge and our capabilities and then the local capabilities of our partner. And I think it's a perfect fit.
Right. The cost of sales is going to be down because of the biomaterial costs, you will introduce? Or it's going to be something else?
There is a few specific actions. I don't think I even have the data. There is also investments that will improve the total cost and so forth and so on. But if you forgive me, I don't have enough details with me now to be explained to that. But you can imagine that for us to make the investment into the joint venture, we obviously that's based on a very detailed plan on how do we get the cost right.
One example I can mention is the power plant that we need to do to improve the energy cost and so forth.
What do you think why Bundesha is a loss making entity right now?
Well, that I think would be inappropriate for me to comment on my new partner. Like I said, rather than trying to adjust the current partner situation there, I think the actions that I mentioned, not just the overall capabilities and knowledge of making very profitable liquid packaging for elsewhere in the world, but also the investments in power plants, the fact that we have our own pulp supply, which will make at least more steady and so forth will help. So if you don't mind, I'd leave it at that now.
Do you see any export potential from Malaysia, if you get into that business?
I'm sorry, what potential?
Export, did you say that?
Yes, potential.
You said growth potential. Absolutely yes. Potential
Export I mean potential export.
Export. I apologize I misheard. Well, it might be a few quarterly calls ahead when you need to ask that question again. First priority to point make your point is, let's get it right. Let's make it very profitable through the actions that I listed and our capabilities and make sure we win profitably on the domestic market.
I think there's a very significant growth opportunity right in Pakistan. Obviously, if we later in the game see other opportunities of good margin business, I have no objections. I don't actually look that much on the that thing. If we when we have created a very cost efficient high quality unit, we'll be happy to serve any market. But we will always start at home, which already has a significant growth opportunity.
Thank you.
Thank you.
There are no further questions at this time.
Okay. Very good. Thank you everybody for taking the time to listen to us and ask good questions. We'll go back to hard work to improve further earnings and cash flow and cost and productivity. And I look forward talking to you early twenty thirteen the latest.
Thank you very much.
This will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.