Good day, welcome to the Stora Enso Q2 2012 financial results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to the Head of Investor Relations, Ulla Paajanen-Sainio. Please go ahead.
Okay. Thank you, Anne-Mari. Good afternoon to everybody, and welcome to Stora Enso's conference call concerning Q2 results. I will now hand it over directly to our CEO, Jouko Karvinen, who will give you a presentation, and we will have a Q&A session after that. Go ahead, Jouko.
Thank you, Ulla. Welcome everybody. I hope you can follow the story from the web on the slides, because it's going to make it a lot easier. As always, we'll try to be relatively brief. I'm here with Markus Rauramo, and leave sufficient time for your questions. We go to page three. The news you've seen, EUR 141 million, which was within a few percent of the Q1 result as guided. Not very impressive, I must say myself. I think at the same time, the strong continued cash flow, and I'll talk about the cash engines a bit more in a minute, and the strong liquidity, I think we should be pretty happy with. If you go to page four, which is the graph on operational EBIT and the margin.
We have now three quarters on the level of EUR 350 million about. That obviously is not a very good level and we need to continue to work, as I'll tell you in a second, to improve that, because as you have seen already from my comments on the quarter, as always in my five years, I don't expect the market to make our life any easier. We have to fix our own problems going forward also. Page five then, which is a picture, a graph of cash flow from operations, rolling four quarters average. If you take the fact that because it's four quarters average rolling, this picture actually covers anything from early 2008. On the basis of rolling four quarters, you can see that the cash generation has been quite stable in the order of magnitude EUR 250 million a quarter.
That obviously is very important for us, because that's the cash we need also going forward to be able to do the transformation and self-finance it. The other comment, obviously, I'd like to make is that the Q2 2012, in some ways it's interesting, the strategic investments remaining the Montes del Plata, the Ostrołęka and so forth and so on. About the first time were larger than what we call the efficiency and maintenance investments, which are the investments that we do to the assets which generate revenue today, unlike the strategic investments which don't. For example, the power plants in Vanjöbruk and [Markta] and so forth, they're in the efficiency investment category, not the growth investment or strategic investment category. That I think is quite important and that's a trend that we're going to continue seeing going forward also. That's important.
Page six, in maybe a selective metric, which is personnel, to give you a bit of a status report of the transformation. Where are we on our path? It says mature markets personnel and growth markets personnel. The mature market personnel, which is shown in the order of magnitude 39,000 people in 2007, excludes both North America and Papyrus. It's a present scope, so to say. You can basically see that we've gone from close to 30,000 to 20,000. If you would include my starting position, we've actually gone from 40,000 people in the, if I may call the mature market, old world personnel to 20,000, 50% less. At the same time, you're seeing that we've grown from about seven to 10,000 in the growth market, which then includes [ACL] , obviously China, but also Eastern Europe and so forth.
I think the important message here is when the announced strategic projects have been completed, without giving you any exact numbers, I think the balance is going to be majority in the growth market. That's one metric of the transformation. Page seven, one of the growth investments is Montes del Plata power plant. We're updating now the schedule. We originally thought, we announced in a bit of an interesting way, one date, which is end of Q1 2013. Based on 60% completion, we now believe that to have a good startup, meaning that we complete the project before we start it up, we have updated the schedule to be approximately mid-year 2013. I can also add that I think it's a very good project and with the updated data we have, we're materially well in the original return target still.
We're not too worried about the updated schedule, but obviously the pressure is on to stay on that schedule and do a superbly successful start up then. Page eight gives you a timescale of future. It shows timing of the announced strategic project, the Skoghall update upgrade in Sweden, in our consumer board, Ostrołęka containerboard machine, and on the Montes del Plata now with the updated schedule. Visually we show the end of 2014 with the startup of our Chinese project, the integrated mill, which is a very large one. The point of the picture, to be very honest, is that in about 12 months when we are ramping up on the Montes del Plata, and obviously all three of these projects are starting to generate positive cash flow, we still have spent clearly the minority of the cash into the Chinese project.
It is not correct to think that all four projects are on top of each other. I can assure you that we schedule and mitigate very carefully our cash flow, because we do understand that, one, this is what we need to do to transform the company. Two, we need to also be able to solidly finance the investment. With that, if I can hand it over to our CFO, Markus Rauramo. He can go through a few specifics on the results. Markus.
Okay. Thanks a lot, Jouko, good afternoon to everyone on my behalf as well. In the summary financial slide, I'll highlight a couple of things. Again, we were able to improve our cash flow and maintain our very strong liquidity year-on-year, even though we had a deteriorating situation in two of our business areas towards the end of the quarter. The operational EBIT at EUR 121 million stayed on the anticipated and guided level. The EPS for the quarter was boosted by EUR 55 million positive non-recurring items that were mainly driven by the EUR 40 million tax-free dividend from Pohjolan Voima and EUR 21 million release of the valuation allowance on our VAT from Arapoti Mill in Brazil. We had some negative EPS impact as well, which you can see then on the following slide from the net financial items, which totaled EUR 67 million for the quarter.
This is an increase of almost EUR 34 million quarter-on-quarter. There are a couple of drivers for this. First of all, the net interest expense stays on a quite a stable level. You can still use as a proxy about 5% on our net interest bearing debt. The things that were volatile between the quarters is the foreign exchange gains and losses. This was mainly due to the fair value change of our euro-denominated loans in our Russian and Polish operations due to the local currency depreciation. This cost most of this EUR 18 million foreign exchange gain and loss. There was the EUR 14 million fair valuation change in our interest rate derivatives, where we have swaps from floating to fixed, i.e., we are actually hedging our risks, we get the fair value volatility of these instruments in the net financial items.
I would just say that these are positions that we are very happy with. These are in line with our business and risk mitigation, there will continue to be volatility if and when rates move, and foreign exchange rates move. I move over to page 11, operational EBIT by segment. From the segment results on this slide, you can see how the market deteriorated in Printing and Reading, as well as Building and Living, which is quite visible year-on-year. Biomaterials, on the other hand, improved quarter-on-quarter due to higher prices and steadier production. Year-on-year, their results deteriorated considerably because the price is well lower. Renewable Packaging improved quarter-on-quarter, mainly due to improved deliveries. Now I will hand back over to Jouko again.
Good. Thanks, Markus. Page 12, I believe, which is the Western European paper demand 2006 through May 2012. It's a seasonally adjusted picture. The line is the demand on the left axis in thousands of tons. The right axis or the many bars is the year-on-year change. I guess you can say that since I joined the company, with my perfect luck, it hasn't been an easy ride. We've had out of my 62, I believe, or 63 months as the CEO, we had six where the year-on-year change was positive, and the only reason it was positive was that the comparison point was the deep hole of early 2009. The message being that we have learned the hard way to deal with a market that is deteriorating. We've taken early action, decisive action, and we have promised to keep doing that.
I believe that what we say now is that the European economic issues, if you want to call them that, have started to add to the structural issue, which we obviously have discussed quite extensively with the market through digital transformation. That's why we have clearly now said also in our Printing and Reading world that we are willing to take curtailments. We have already, late second quarter, started curtailment, increasing curtailments. Done the same in the basic wood products area, where we've actually doubled the curtailments versus Q2 2011. To be frank, the plan in both of those two areas is to increase curtailments further in Q3. Why?
Because through pushing pricing quality and making sure our cash flow stays strong, I think that has worked before and it will work now as we've also been going forward in the market that is shrinking, whether we like it or not. That's not a very pretty picture. My point, again, is if you look at the rollercoaster that we've gone through in the past five years, I hope we have shown that we know how to deal with it. Next page 13, is then the good news. Also motivation on Renewable Packaging. Why is it so important to transform the company? Eastern Europe and Asia, those are the two geographics where we are investing and have invested, actually, in Eastern Europe since the 1990s, in Eastern Europe and Russia. In more so 4% growth. In Asia, 4.4% growth. This is something we want to continue, definitely.
Page 14. A sample liquid packaging or dairy product market in Asia, 9% growth in China, 7% in Asia. This is why we believe that the investment in the pulp and board mill in Guangxi is a very good investment. The capacity increase in board there is going to be less than a mere stroke of the market, and it's a long-term growth market. We also believe that from a cost/quality point of view, the concept we have there is pretty unbeatable. Okay. Looking forward short-term, Q3, page 15. About the same level of sales on the group level, a bit different guidance on operational EBIT of the group. We say similar level or somewhat higher than in the second quarter. You could say that's an interesting guidance.
I think it reflects the fact that we believe that the uncertainties are pretty high right now, and the visibility is not so good. I can say that I believe we're very well prepared also to go through that in Q3. Final slide, 16. European paper markets, both through the structural change and now the cyclical change, and the wood products have clearly weakened in the late part of Q2. We foresee them to continue weaker going forward, which means that we will do additional cost reductions and temporary production curtailment also in the second half. To try to qualify a bit, what do I mean?
I will not give you any specifics of the future, I'm not sure it's totally clear to all of you that if you look at the past six quarters, primarily in Printing and Reading and also in Building and Living, we've actually launched 10 programs in six quarters from beginning of 2011 to mid-2012 with a cost-saving objective of EUR 140 million per year and with a cash cost of EUR 86 million. More than 1,100 people, which is always tough. Point of the story is there is a new rhythm, we come from smaller individual programs more often because I think that gives us the maximum speed rather than trying to combine too many things on one goal. That's the rhythm we plan to continue also in this challenging environment. The final bullet. Yes, the investments are happening. They are for markets that grow.
They're for markets where we believe we can build a competitive position and defend it. Like I said before, in not that many years, I hope to be able to report to you that we are majority a growth market company. Thank you very much. I think it's time for the questions now. Back to all.
Okay. Thanks, Jouko. We are now ready for the Q&A session.
Thank you. If you wish to ask a question at this time, please press the star or asterisk key followed by the digit one on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star two. Again, please press star one to ask a question. We'll pause for just a moment to allow everyone to signal. We will take our first question from Mikael Jåfs from Cheuvreux.
Hello. Good afternoon, everybody. I have a question regarding currency changes. We have, during the past month or so, seen the SEK strengthen quite a bit towards the EUR. At the same time, we've seen the EUR deteriorate or weaken against the U.S. dollar. Could you give us some color how we should sort of think about these changes when we model the second half, please?
I can answer that. The sensitivities, of course, are part of the package, and there has been no major change as such. All in all, we do have increases from the SEK short position on the cost side. We have had significant improvement from our point of view in the U.S. dollar and GBP. These are largely offsetting each other. What is different now compared to last year is that last year we did have significant hedges in the SEK that we had done at the levels when we were at 10, 11 against the EUR in the SEK. These have tailed out, so basically now you can assume that the currency changes will hit us quicker.
Help us quicker.
Help us quicker as well to that extent. I would say that for the time being, the movements in these three currencies are largely offsetting each other.
Just a follow-up question. The last time we saw the EUR hit around 120 towards the US dollar, that was in 2010, if I don't remember wrongly. At that point in time, we then saw that exports of, especially paper out of EUR increased. Would you expect a similar development going forward if this currency rate sort of prevails?
This is Jouko, hi. I think yes and no. We have also in the past cycles, moved fairly early, and to be honest, we've done a bit of that already. It's not a massive change because there's the balance of it also that there's quite a bit of capacity in Asia, for example, already there and so forth. Obviously it tends to help. How do I say this now? European industry or we cannot plan that to be the solution. It can help us a bit, but not be the solution because it's not going to be so big even with the weaker EUR.
Okay. Many thanks.
Thank you.
Our next question comes from Lars Kjellberg from Credit Suisse.
Yeah, good afternoon. Just a couple of quick ones. Clearly in this environment now, as you stress yourself in your own comment, the cost takeout becomes an exceptionally important aspect to it. Could you just brief us on the progress you referred to that has been announced, what they compound to? I appreciate that you are obviously doing gradual things continuously, but could you in any way sort of inform us about what sort of potential you're seeing in your system to remove further costs and try to quantify that?
Okay. The first one, which is the easy one, and middle large. It is 10 programs. It is more than 1,100 people, EUR 140 million cost targets, and they are the announcements in the six quarters. The impact of those programs, I'd say ballpark half of the benefit was in the Q2 books, half still to come, and the other half needs to come early next year, first quarter next year, kind of the finals. That's already, so to say, in the pipeline. To be very clear, what I meant and I mean in my CEO comment, so to say, is not these programs. Thank you very much. That has to happen on track, like I said, but we need to figure out more. For many reasons, I can't talk about any permanent structural changes at this point because of many reasons, and therefore I can't really quantify it.
If you think about these 10 programs being worth, call it a margin point and a half, then if the outlook and the market, because the European economy are as tough as this, I'd say whatever it takes going forward, we need to find more still, clearly. One and a half margin points isn't going to make it for anybody for that matter. If I may, Lars, I'll leave it at that because we can't go too far. What you don't see, by the way, the EUR 140 million is the announced restructuring programs, then we obviously have, as it gets, all kinds of small efficiency improvement, energy savings improvement, hundreds and hundreds of action programs which never make the public eye anyway because they're mill-based and so forth.
To finish the question, half of this is in the books, half coming, a lot more has to come when you want to keep that cash engine going like we have for the past five years. That's where I'd stop, Lars.
Fine. When it comes to your adjustment to manufacturing capacity, are you today looking at any permanent adjustments, is this just mothballing for now, then we'll see what happens? I guess your comments would really refer to this as, of course, structural, which would imply that you probably need to take out capacity unless someone else do.
Lars, as you well know, I don't think about the others. I think about my customers and so forth. I hope we have a track record that we never said somebody else. What I refer to is the 10 programs that I mentioned. They are the structural ones that have been announced, that's the way it has to work.
In addition, what we talk about today is that we increased, we actually doubled the Q2 temporary curtailments in sawmilling from the year before. We plan to go quite a bit up in the third quarter there. This is all temporary curtailment. One of the benefits I think hopefully we already have is because of the structural changes. We can ride through quite a bit with temporary curtailments, because in most countries, not all of them, we can do fairly efficiently temporary curtailments. Same is true in Printing and Reading of paper, if you want to call it that. Late second quarter, grow up downtimes in temporary in some of the mills. Plan to do more of that in third quarter then on new permanent capacity closures.
Given the structural change in the market, yes, I have no plans to disclose today because it would have to happen in a different environment. It is clear, I guess, to all of us, I hope, that when there is under the cyclical changes also a structural change, then nobody should think that all the capacity can stay forever in the market. My point is trying to reduce fixed costs further so that we can ride through the cycle, go through temporary, then we'll do what needs to be done on the structural side when the time comes. I have nothing new to announce there, as you can guess. I couldn't do that anyway.
Fair enough. Final question. You mentioned, of course, that the noticeable weakness emerging towards the end of the quarter in Printing and Reading and Building and Living. You've seen quite volatile demand on the Consumer Board side in particular. Can you give any sense what's going on in that market, where you stand?
Stable. Stability is the name of the game, I'd say, on the packaging side, both packaging products and Consumer Board side, which is not true, maybe I can qualify a bit the comment on the Printing and Reading. Even though you didn't directly ask, I think this would be interesting. We have pushed very hard pricing quality and cash also in the second quarter. I was very willing to take curtailments even though curtailments tend to cost a bit on the short-term EBIT. When you manage your inventories, it helps with your cash flow and so forth, it does help with the pricing. I think we're pretty stable overall in our paper portfolio on pricing for the second half. Which is not what I wanted, I think it's pretty good. It is a balance of weakening pricing slightly in the mechanical grade.
The fact that we have announced on uncoated woodfree and are pushing on the coated woodfree some limited price increases. Overall, the curtailments also drive that phenomena in our world that we're willing to take some curtailments to trying to manage the pricing quality as good as we humanly can.
Understood. Thank you.
It got up. Yeah.
Our next question comes from Karri Rinta from SHB.
Yes. Thank you. Karri Rinta, [inaudible] . On the third quarter guidance. After the first quarter, when you guided for roughly unchanged second quarter EBIT, you quantified it by saying that it is ±20%. Can you quantify what a potentially slightly higher Q3 EBIT would imply in % as well?
You know I am a boring guy, Karri, let us use the same number.
Okay.
Plus 20%.
Yeah, fair enough. Then maybe the drivers for the potential upside of up to 20%. Let us say you have more market-related downtime. Is it less maintenance-related costs? Is it lower variable costs? What are the drivers for potentially better earnings in Q3?
The maintenance cost doesn't help us materially that much. The volume outlook, including the curtailment plans, is already in the guidance. It's not that we say that the upside will come if the market would turn around and so forth. I think it's just, if you ask me, it's more the issue of how the market demand and pricing develops, and that's why we give a fairly wide guidance again of from about the same to somewhat higher, which would discuss the 20%. If you want to call it a careful guidance, I will not say so when I look at the wide variations on the paper market and the saw milling market. It is a bit difficult to guide, and that's where the width comes from.
All right.
I can add a little bit to that basically what we see happening on the variable cost side is according to what we already experienced last year. We have easing pressure on the variable cost and then seasonally Q3 from a personnel cost side should be easier than Q2. These are the things that are changing right now.
Yeah. Maybe one more data point, which is not forecast, but If you look at our headcount, we actually went up against 2,200 people total in the group, but that's 2,800 up in Asia and 600 down year-on-year in Europe. We are on that path of taking costs out, unfortunately including people out still. All those things should then help us, obviously, going through this challenge.
Q2 includes a large number of then summer trainees, summer workers.
Sequentially, yes.
Yes.
We have some trends like that.
Maybe a follow-up on the transition. Are you showing any of the costs associated with these growth investments on your income statement, or are you capitalizing all of it, i.e., these new employees that are already there working for projects that are not generating any revenues? Are we already seeing that in higher fixed costs in your income statement?
Oh, yes. That comes across. The change is not huge because we have been gradually growing our organization in China already, in South China for quite some time. On a year-on-year basis, there is an increase due to the impact acquisition. That is definitely visible in our numbers, especially on the headcount side. With regards to the cost capitalization, basically the personal cost and so on, they run through the P&L.
Yeah.
Are we talking about a EUR 10 million, EUR 15 million versus, I don't know, one year ago in higher costs? Which don't yet have any revenue attached to them.
No.
Not that much
We're not talking about those. The large increase has happened already, basically. It will be gradual as the project moves into implementation phase, if we talk about the Guangxi project.
All right.
Yes. To finish that off, impact obviously generates revenue too.
Correct.
It's not that straightforward either.
Yeah. All right. Thanks a lot.
Thank you.
Thank you.
Our next question comes from Marcus Almerud from Morgan Stanley.
Marcus Almrud here. A couple of shorter-term questions and one longer term. We can just start out by your comment on clearly lower sales prices. Could you just elaborate on which segment you're seeing that? You say it's both paper and board at the same time, we've seen fairly flat paper prices in Europe, where pulp prices has been moving down. If you could just clarify that a bit. My second shorter-term question is, you've seen paper volumes, your paper volumes going up 2% on H1, they were down 2% year-on-year in Q2, which is clearly happened in the market. Is that, or the European market, I should say, are you gaining share or have you seen a sharp increase in exports?
I would say, I start from the end. We, as many others, took some share early this year because of the structural changes in the industry, we have maintained that share, I think that's what we're going to do, we're not in a market share gaining game. It was the early year part where we were taking some share, which you could see from our Q1 volumes. Right now, you look at the hard data from CEPI or somebody else, the market in Europe is pretty miserable. I would say the game in Q2 has more been, yeah, maintain share in Europe, go find the possibilities in some exports. I still want to repeat myself a bit, is this is not going to be a volume game from here on.
It's about cash and price and quality and so forth. Moving on to your first question, I guess, in some ways. I know we don't use these terms anymore, the publication used to be papers, newsprint as the coated mechanical, clearly tougher than fine paper on pricing. We see that we're pushing up, not huge numbers, I won't give you the number. We pushed up the uncoated woodfree, we are pushing very hard on the coated woodfree. We are seeing some small deterioration on the mechanical grade for the second half. On balance of it, I think, well, it's a glass half full, half empty. In our portfolio, it's a fairly flat picture for the second half.
Then-
I don't know, Marcus, were you asking also about the year-on-year on the clearly lower sales prices that he referred to?
No.
Only Q2.
Yeah. I was just referring to your comment on clearly lower sales prices, and that is, I guess, yeah, that is year-on-year that you're commenting.
Yes.
I guess it is clearly lower, yeah.
Exactly.
Okay.
Backwards.
Fair enough. My second question is
Wait. No, Marcus, sorry, we're kind of confusing you here. If your question relates to the number we give in our quality release, which is the price and mix 3%.
I was just referring to your sales prices is kind of flattish.
Yeah.
If I look at sales prices, that is if I take the sales over the tonnage you sell, it's fairly flat on the quarter.
Yeah.
You were talking about clearly lower prices, I just got confused what exactly, where you were seeing. My question's been answered.
I want to, for the benefit of everybody else, the lower prices reference we tried to make, or clearly lower, even you use the term, refer it to the second quarter performance of ours. When I talk about the second half, that's a forward look into what we see happening from the first half to the second half before our sequential comment. Just that I don't confuse people even more. Sorry about that.
Thank you.
Okay?
My final question is on corrugated, because you list out corrugated in your presentation. It's a much bigger market than consumer board. You have the Ostroleka investment, obviously. Should we expect you keep moving more into the corrugated area? Because you're still relatively small, at least in Europe. What should we expect? What is your thinking in that area?
Thank you for that question. I think the answer is selectively, yes. What do I mean selectively? In market segments that are growth segments. Eastern Europe, Asia type of things geographically, but also from an end-use point of view, more interested in consumer type of packaging with the possibility to connect to brand owners, differentiate products through packaging, rather than just plain mass-produced transport packaging, so to say. I believe that's a great opportunity. Then final comment there, I think Impact is a nice example of what I like, which is that you buy a relatively small unit, meaning somebody who's started a company and run for a few years. You don't invest hugely, then you go in and you accelerate the growth of an existing business.
I like those type of actions because I think the returns in that growth scenario are a lot easier to manage than some others. You can think both in organic terms, selective corrugated growth markets, consumer packaging segments, but also we can think of Impact type of things going forward in renewable packaging.
Thank you very much.
Thank you.
Our next question comes from Johan Sjöberg from Carnegie.
Yes, good afternoon. Just coming back to your question about cost cutting and temporary closures. I understand that it might be hard for you to answer all the questions around this, but since you brought it up, I have to ask you. If I understand you from your answer earlier, basically all options are open when it comes to cost cutting for you now.
Let me answer this way. I think it's a fair question, the point I took it up. We've invested in the more recent years into restructuring about one margin point in a year, average cash cost. The way I look at it is in markets that are structurally shrinking, we will have to continue to structurally, meaning permanently also, reduce our capacity. The decision then on when do you go temporary, which is typically a cycle demand chain thing, you need to do very rationally, look at the cash cost in and the return. There isn't really investment and emotion on anything. I believe in some of our businesses, we're better off now in terms of riding the cycle with temporary terms because the asset quality is better than it was five years ago, average.
Through some of the efforts on whether it's maintenance outsourcing or overhead cuts, we are more able to ride through a cyclical change with temporary. There is no change in my mind. There will need to be permanent capacity reductions. We will always do them through planning and the appropriate co-determination discussions when the time comes. I think that's as far as I can go now. You should not think that. Let me finish with this. I have said five years. I will never say that we've done so much, and now it's somebody else's turn. I don't worry about that. We do what needs to be done, period.
Okay. There's always a blame game saying that if you were to hypothetically close capacity, that you're pointing fingers or the industry is pointing fingers to someone else that should close before, because their machinery is poor and things like that. That has been something which has been addressed, at least, I mean, from the industry.
Well, remember, I am not from the industry. I'm just working here.
Good for you. Another question then. When it comes to the timing for an announcement of this one, I understand that the Euro crisis has hit you, especially towards the end of the quarter. Of course, what type of timing schedule would you say that you have now when we get back to the market saying that, okay, now we have gone through our different businesses and this is what we're going to do, and what's the time, would you say?
Well, that I cannot give you. I think what I can tell you is that business area by business area
It's not going to be like.
Wait.
In Building and Living, and Printing and Reading, they've taken action already. Like I said, Building and Living doubled their curtailments in Q2 already. The paper guys started to increase curtailments in June, clearly. Then going forward, I watch them and I grill them, vacation time or not, on an almost daily basis on, okay, how do you respond to this demand scenario or that demand scenario and so forth. The issue to me is more that you have to have the plans ready for curtailments and so forth and so on every day with this dynamic. Then obviously in parallel with that, as you may have seen in our capital market day, we have a roadmap for the structural changes needed. The only question there is speed.
If the structural change is actuarial, then we need to move faster on the capacity and so forth and so on. Let me assure you, it's not that I call the BA heads now and say, "What are you going to do? I've been calling them for a long time already.
Cool.
I can say, I've been also visiting several of our mills just in the last week, latest one yesterday. The level of energy, the level of readiness to do things whenever needed is fantastic. The spirit is really good in the sense of understanding the urgency and being ready to react to whatever comes. It's on a fantastic level.
Okay. Thank you very much.
Thank you.
Our next question is from Oskar Lindström from Danske Bank.
Yes, hello. Good afternoon, gentlemen. A couple of questions. First, on the consumer board segment. In your report, you write that demand remains stable, but I guess at a weak level. Could you provide some more detail about this? Is the weakness a result of new capacity or is it mainly lower demand? Any change in exports? Do you see this as a cyclical issue or more of a structural issue? Any specific categories or segments?
I apologize, you have to help me. I don't think it's in a weak level. I think we actually had a pretty strong quarter, also from a market point of view, stable in consumer board. Maybe, I don't know where we came, maybe we gave you a picture that it was even too much yoga-like than it should be. Where did you pick up that? Did I say something or did you see-
No, I was just reading previously announced plans at Skoghall to mitigate cost increases and adjust capacity to lower demand.
No. Skoghall is going through quite a significant renewal effort, which is actually very important. I think it's more the Barcelona stuff, that part that is the lower demand.
Okay. It just said lower demand.
Yeah. We have bad language, actually. Don't take it generically. It's not all of it.
It's good that you mentioned it because we have the early announced actions in the places, and of course, Páty being the one here that is, in relative terms, the impact is the biggest.
Sure. Which is a specific customer issue as you want.
Okay. You're not describing the consumer board market as, you don't see it as weak or having any problems at the moment?
No.
Okay.
I have enough problems elsewhere, but not there.
Okay. Excellent. That's good to hear. A second about fine paper price increases. Have you joined in the additional increases on coated woodfree, for example, that some of your competitors have announced recently?
I have not joined anybody, but we have, in writing, informed our customer, come September 1, the prices will increase.
Okay. What kind of factors do you believe will enable you to increase those prices given the very weak demand in Europe for wood-free papers?
I think first of all, it's all relative. Uncoated woodfree is still the best of the bad ones, so to say, meaning it's the least digital media driven, so to say.
I think the balance on demand and supply is probably better than most of the others, therefore also. I think the unintegrated, fragmented, but partially unintegrated supply base helps there, too. Those would be the reasons why we believe that we are able to push pricing up in a weak European economy even.
All right.
It's not media free, but rather
Okay. Thank you. Those were my questions.
Thank you very much.
Oskar, I still have to come back actually to the earlier point. Yes, even in the units that are making good results and are working in markets which are strong, we go for continuous improvement. Each unit has to live up to its full potential and beyond. It doesn't mean that we wouldn't be doing steps everywhere all the time. In that sense, the language is spot on here.
Yeah. It's confusing maybe the market and the actions, Markus' point is important because the truth of the matter is that the ones that I beat the hardest are the best units, the highest margin units, because they are the ones who need to stay on a path of productivity, cost improvements, and so forth, because that's how they earn their right to get more CapEx and improvements and so forth. That obviously is, that's how you make money in the company. It's not by spending the money on units that don't make any cash. Consumer board market, to the earlier point, we are not unhappy about right now.
Okay. Very good. Thank you.
Thanks.
Our next question is from Henri Parkkinen from Pohjola Bank.
Yes, hi, good afternoon. I am coming back to your comments regarding market situation. You say that you are fighting against clearly weakening market conditions. Well, I worry about the pulp market at the moment because if in Printing and Reading, volumes are coming down, and then we have seen some comments that maybe the growth rates in China are coming down. What should we think about the pulp market when going forward the end of this year? Thank you.
Thank you. Very good question and fair question, obviously. You know we all watch the inventory levels and so forth. I think on the softwood side, if I may try to answer that. We expect a minor, slight, gentle decrease in Q3 versus Q2. I think there is a couple of good things in a way in this. I do not think it is going to go that crazy because some of the Northern Hemisphere pulp mills, with a stronger U.S. dollar, are going to start hurting really, really fast. May already be hurting.
On the other side of the coin, obviously, is now with the dollar being where it is and the euro being where it is, let me just say that our famous northern pulp mills are in a lot better shape than they were last time, Henri, when we talked about this, from a profitability and cash generation point of view. That price bottom, so to say, I think is there, and that's one reason why I'm relatively calm, if I ever am calm about anything. On the short fiber side, I think there isn't really that much to report short term. That obviously has other applications also than paper, tissue and so forth and so on. I'm pretty calm there too, so to say. Okay?
Okay. Thank you.
Thank you.
That will conclude today's Q&A session. I would now like to turn the call back to your host for any additional or closing remarks.
Okay, thank you. Jouko, I hand it to you now for the final word.
Good. Well, hopefully not final on my side, but for this call. I'll make a comment about Markus Rauramo in a minute. That's why I made the joke. Interesting times for all of us on both sides of the phone line. I think I feel very good about the fact that I think we have a clear strategy. We're executing on it. Everybody understands the story from board to all my good people, that this is now about execution, both on the cash engine side, but also on the growth engine side. Given the interesting five-year history that I happen to have in this market, we are never comfortable, but very focused, and we believe we can ride through a few challenging cycles, too. Finally, on the short term, you've seen the guidance. We'll make the best out of it.
To support the cash flow, like we said many times already, we will increase curtailment as needed, and then we'll look at longer term, too. I'd like to leave it that with one exception. I would like now with everybody on the phone, thank my friend and my colleague, Markus Rauramo, who's employed technically to the end of the month with the company. I think this is actually Markus' last day and last minute he's really working. He's going to spend some time with his wonderful family for the next few weeks. Markus has been a great partner and great colleague. He's gone through quite interesting times with me, and I think not only myself, but all of Markus' colleagues now in front of you, we want to really say thank you very much and all the best in your new ventures.
To the audience here, in three months, we'll have Karl-Henrik Sundström with us continuing the venture. Thank you very much. Markus wants to say a few things, too. Thank you, everybody.
Okay. I'll just say that it has been absolutely great to work with Jouko. Also it's been a huge pleasure and a big learning experience for me to work with all of you on the phone. I want to thank you also, both Jouko and everyone on the phone very much. Thank you.
Thank you, everybody. Hope you can go somewhere where there's a summer. I haven't found a place yet. Hope to talk to you, many of you way before then, but latest in three months. Thanks so much. Bye-bye.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.