Good day, and welcome to the Stora Enzo Q2 twenty twelve 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 Payanen. Please go ahead. Okay.
Thank you, Anne Marie. Good afternoon to everybody, and welcome to Stora Enso's conference call concerning Q2 results. And I will now hand it over directly to our CEO, Joko Kabril, who will give you a presentation and we will have a Q and A session after that. Go ahead, Jorg.
Thank you, Ula, and welcome, everybody. I hope you can follow the story from the web on the slides because we're going to make it a lot easier. As always, we'll try to be relatively brief. I'm here with Markus Vaurema and leave sufficient time for your questions. We go to Page three.
The news you've seen, 141,000,000, which was a few percent within a few percent of the Q1 result as guided, not very impressive, 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. Let's go to Page four, which is the graph on operational EBIT and the margin. We have now three quarters on the level of the 150,000,000 about and 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, with this picture, a graph of cash flow from operations rolling four quarters average. And if you take the fact that it's because it's four quarters average rolling, this picture actually covers anything from early two thousand and eight. And on the basis of rolling four quarters, you can see that the cash generation has been quite stable in the order of magnitude $250,000,000 a quarter. And that obviously is very, very important for us because that's the cash we need also going forward to be able to do the transformation and sales financing.
The other comment, obviously, I'd like to make is that the second quarter twenty twelve, in some ways, it's interesting. The strategic investments, meaning the Montes De Plata, the Oseleca 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 Van Nuyaburk, Makhstan and so forth, they are in the efficiency investment category, not the growth investment or strategic investment category. So that I think is quite important and that's a trend that we're going to continue seeing going forward also and that's important. Page six then in a maybe a selective metric, which is personnel to give you a bit of a status report of the transformation, where are we in the on our path.
It says mature markets personnel and growth markets personnel. The mature market personnel was shown in the order of magnitude 29,000 people in 02/2007, excludes both North America and Papyrus, so it's a press in scope, so to say. And And 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, all world personnel to 20,000, so 50% less. And at the same time, you've seen that we've grown from about 7,000
to 10,000 in the growth market, which then includes Asia, 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. And that's one metric of the transformation. Page seven, then one of the growth investments this month is the Plaster Power Pill. We're updating now the schedule. We originally thought well thought, we announced in a bit of an interesting way one date, which is 2013.
Based on 60% completion, we now believe that to have a good start up, meaning that we complete the project before we start it up, we have updated the schedule to be approximately midyear twenty thirteen. And 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. So, 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 Skukaar upgrade in Sweden in a Consumer Board, Oselek, a containerboard machine. And then on the Zepasta now with the updated schedule. And then visually, we show the 2014 with the start up of our Chinese project, the integrator which is a very large one. The point of the picture to be very honest is that in about twelve months when we are ramping up Montes Blazda and then 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. So it is not correct to think that all four projects are on top of each other.
And 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, but two, we need to also be able to solidly finance the investment. With that, if I can hand it over to our CFO, Markus Raoromo, who can go through a few of the specifics on the results. Markus?
Okay. Thanks a lot, Jalko, and 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 deteriorating situation in two of our business areas towards the end of the quarter. The operational EBIT at €141,000,000 stayed on the anticipated and guided level.
And the EPS for the quarter was boosted by $55,000,000 positive nonrecurring items that were mainly driven by the $40,000,000 tax free dividend from Pohel and Voima and $21,000,000 release of the valuation allowance on our VATs from Arapatemilia 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 €67,000,000 for the quarter. This is an increase of almost $34,000,000 quarter on quarter, and 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 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 and this caused the €18,000,000 most of this €18,000,000 foreign exchange gain and loss. Also, there was a €14,000,000 fair valuation change in our interest rate derivatives, where we have swapped or where we have swaps from floating to fixed, I. E, we are actually hedging our risks, but then 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, but there will continue to be volatility if and when rates move and foreign exchange rates move. Then 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 prices were lower.
And Renewable Packaging improved quarter on quarter, mainly due to improved deliveries. And now I will hand back over to Joko again.
Thanks, Markus. Page 12, I believe, 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 tons, thousands of tons, the right axis or the bars, many, many bars is the year on year chain.
And 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 sixty two, I believe, or sixty three months as the CEO, we had like 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 two thousand and nine. 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. We have promised to keep doing that.
And 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. And 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 in late second quarter started curtailments increasing curtailments. We've done the same in the basic wood products area, where we've actually doubled the curtailments versus Q2 twenty eleven. And 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 also in going forward in the market that is shrinking whether we like it or not. So that's not a very pretty picture, but my point again is if you look at the roll up cost that we've gone through in the past five years, I hope we can show we have shown that we know how to deal with it. Next page, Page 13 is in 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 geographies where we are investing and have invested especially in Eastern Europe since 1990s in Eastern Europe and Russia, doing 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 pork mill in Guangxi is a very good investment. The capacity increase in board there is going to be less than year's growth of the market, and it's a long term growth target. But 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 and then a bit different guidance on operational EBIT of the group. We say similar level or somewhat higher than in the second quarter. Now you could say that's an interesting guidance. I think it reflects the fact that we believe that the uncertainties and the visits are pretty high right now and the visibility is not so good, but 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 late part of Q2. We foresee them to continue weaker going forward, which means that we will do additional cost reductions and temporary production curtailments also in the second half. And to try to qualify a bit what do I mean, I will not give you any specifics of the future, but I'm not sure it's fully clear to all of you that if you look at the past six quarters in primarily in printing and reading and also on building and living, We've actually launched 10 programs in six quarters from 2011 to mid-twenty twelve with a cost saving objective of €140,000,000 per year and with a cash cost of €86,000,000 and more than 1,100 people, which is always tough. Point of the story is there is a new rhythm and we come to smaller individual programs more often, because I think that gives us the maximum speed rather than trying to combine too many things on one go.
And that's the reason we plan to continue also in this challenging environment. And 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. And 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, Jocko. And we are now ready for the Q and A session. Thank We will take our first question from Michael Jas from Chevron.
Yes. Hello. Good afternoon, everybody. I have a question regarding currency changes. I mean, we have during the past month or so seen the Swedish krona strengthen quite a bit towards the euro.
At the same time, we've seen the euro deteriorate or weaken against the U. S. Dollar. Could you give us some color how we should of think about these changes when we model the second half, please?
Yes, I can answer that. So the sensitivities, of course, are part of the package, and there has been no major change as such. So all in all, we do have increases from the Swedish krona short position on the cost side. And then we have had significant improvement from our point of view in the dollar and sterling. So these are largely offsetting each other.
And what is different now compared to last year is that last year, we did have significant hedges in the Swedish krona that we had done at the levels when we were at 10.11 against the euro in the krona. These have tailored out. So basically, now you can assume that the currency changes will hit us quicker.
Or help us quicker.
Or help us quicker as well to that extent. But I would say that for the time being, the movements in these three currencies are largely offsetting each other.
And then just a follow-up question. The last time we saw the euro hit around €1.2 towards the U. S. 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 euro increased.
Would you expect a similar development going forward if this currency rate sort of prevails?
Hi, this is Joppa. 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, but it's not a massive change.
This is the balance of it also that there's quite a bit of capacity in Asia, for example, already there and so forth. But obviously, it tends to help, But how do I say this now? The 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 Europe. 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 programs you referred to that have 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, I can middleize. It is 10 programs. It's more than 1,100 people, 140,000,000 cost target. 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 then and the other half needs to come early next year, first quarter next year kind of the final. So that's already so to say in the pipeline. But to be very clear, what I meant and I mean in my CEO comments, so to say, is not these programs. That's 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. But if you think about these 10 programs being worth, say, 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 build clearly, because 1.5 margin points isn't going to make it for anybody for that matter. But if I may Lars, I'll leave it at that, because we can't go too far. And what you don't see, by the way, the 140,000,000 is the announced restructuring programs then we obviously have as it gets all kinds of small efficiency improvements, energy savings improvements, hundreds and hundreds of action programs, which never make the public eye anyway because they're mill based and so forth.
But to finish the question, half of this is in the books half coming and a lot more has to come when we want to keep that cash engine going like we have for the past five years. That's where I stop right.
Fine. When it comes to your adjustment to manufacturing capacity, are you today looking at any permanent adjustments or is this just mothballing for now and then we'll see what happens? I guess your comments were really referred to this is a core structural, so which would imply that you probably need to take out capacity unless someone else do?
Well, Lars, as you all know, I don't think about the others. I think about my customers and so forth. And we do and I hope we have a track record that we never said somebody else. What I referred to is the 10 programs that I mentioned, they are the structural ones that have been announced and that's the way it has to work. In addition, what we've talked about today is that we increased we actually doubled the Q2 curtailment, temporary curtailments in sawmilling from the year before.
We're planning to go quite a bit up in the third quarter there. So this is all temporary curtailments. And 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 a reading of paper, if you want to call it that, late third, second quarter drove up, downtimes in temporary in some of the mills plan to do more of that in third quarter. And then on permanent new permanent capacity closures, given the structural changes in the market, yes, but I have no plans to disclose today, because it would have to happen in a different environment.
But it is clear, I guess, to all of us, I hope that when there is under the cyclical change, it's also a structural change then nobody should think that all the capacity is going to have to or can stay forever in the market. My point is trying to reduce fixed costs further so that we can drive through the cycle through temporary and then we'll do what needs to be done on the structural side when the time comes. But 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 Reports 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 on the I'd say on the packaging side, both corrugated packaging products and Consumer Reports side, which is not true. And maybe I can qualify a bit the comment on the printing and reading, even though you didn't directly ask it, but I think this would be interesting. We have pushed very hard pricing quality and cash also in the second quarter. We were and I was very willing to take curtailments even though curtailments tend to cost a bit on the short term EBIT.
But when you manage your inventories, it helps with your cash flow and so forth and does help with the pricing. And I think we're pretty stable overall in our paper portfolio and pricing for the second half, which is not what I wanted, but I think it's pretty good. And it is a balance of weakening pricing slightly in the mechanical grade and then the fact that we have announced on uncoppable tree and are pushing on the coppable tree some limited price increases. So overall, the curtailments also drive that phenomena in our world that we're willing to take some curtailments to try and to manage the pricing quality as good as we can.
Understood. Thank you.
And it got up. Yeah.
Our next question comes from Karri Rinta from SHB.
Karri Rinta, Handelsbanken. Firstly, 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's plusminus 20%. Can you quantify what a slightly potentially slightly higher Q3 EBIT would imply in percentages as well?
I'm a boring guy, Kari. So let's use the same number. Plus 20%.
Okay. Fair enough. And then maybe the drivers for the potential upside of up to 20%. Let's say you have more market related downtime. So is it less maintenance related costs?
Is it lower variable costs? Or what are the drivers for potentially better earnings in Q3?
Well, the maintenance cost doesn't help us materially that much. The volume outlook including the curtailment plans is already in the guidance. So it's not that we say that the upside will come if the market will turn around and so forth. So 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 gave a fairly wide guidance again of from about the same to somewhat higher, which we discussed with 20%. So if you want to call it a careful guidance, I will not say so when I look at the vibrations on the paper market and the sold moving market, but it is a bit difficult to guide and that's where the risk comes from.
And I can add a little bit to that, that basically, what we see happening on the variable cost side is according to what we already experienced last year. So we have easing pressure on the variable cost. And then seasonally, Q3 from a personnel cost side should be easier than Q2. So these are the things that are changing right now.
Yes. And maybe one more data point, which is not forecast. But if you look at our headcount, we actually went up, I guess, 2,200 people total in the group, but that's 2,800 up in Asia and 600 down year on year in Europe. So we are on that path of taking costs out, unfortunately, including people out still. So all those things should then help us obviously going through this challenge.
And Q2 includes a large number of then summer trainees, summer workers? Sequentially, yes.
Yes. Have the same trend as that.
Maybe a follow-up on the transition. Are you showing any of the costs associated with this 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, yes. That comes across. It's not I mean, 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 Impak acquisition. So that is definitely visible in our numbers, especially on the headcount side.
And with regards to the cost capitalization, basically, personnel costs and so on, they run through the P and L.
We're talking about a $10,000,000 $15,000,000 versus, I don't know, one year ago in higher costs, which don't yet have any revenue attached to them?
No, no, not we're not talking about that kind of the launch increase has happened already basically, And then it will be gradual as the project moves into implementation phase, if we talk about the Guangxi project.
All right. Right.
Yes. Just to finish that off, I mean, impact obviously generates revenue, too. Correct. So it's not that straightforward.
Our
next question comes from Markus Almard from Morgan Stanley.
Hi, Markus Almuth here. A couple of shorter term questions and one longer term. If we can just start out by the 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 and where pulp prices is moving down. So if you could just clarify that a bit. Then my second shorter term question is you've seen paper and you've seen paper volumes, your paper volumes going up 2% on H1 and they were down 2% year on year in Q2, which is clearly happening in the market. Is that or the European market,
so to say,
are you gaining share? Or have you seen a sharp increase in exports?
I would say, if I start from the end, we as many others took some share early this year because of the structural changes in the industry. And we have maintained that share and I think that's what we're going to do, but we're not in a market share gaining gain. So it was the early year part where we were taking some share, which you can see from our Q1 volumes. Right now, if you look at the hard data from Steffi or somebody else, the market in Europe is pretty miserable. And I would say the game in Q2 has more been, yes, maintain share in Europe, but then go find with the possibility in some exports.
But I still want to repeat myself a bit is this is not going to be a volume gain from here on. Now it's about cash and price and quality and so forth. And then jumping moving on to your first question, I guess, in some ways. And I know we don't use these terms anymore, but the publication used to be papers, newsprint, Etsy, called it mechanical, clearly tougher than fine paper on pricing. And we see that we're pushing up not huge numbers, won't give you the number.
We pushed up the uncoated wood tree and we are pushing very hard on the coated wood tree. And then we saw or we are seeing some small deterioration on the mechanical grade for the second half. On balance of it, I think, well, it's a flat half of how fast we're pretty In our portfolio, it's fairly flat picture for the second half.
I
don't know, Markus, were you asking also about the year on year on the clearly lower sales prices that you referred to? No.
was it just Q2?
Yeah, 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. And then I guess it is clearly lower, yes.
Okay.
Fair enough. Fair enough. My final question is
Wait, wait, wait. Marco, sorry, we're kind of confusing you here. If your question relates to the number we give in our quarterly release, which is the price and mix 3%.
No, I was just referring to your sales prices is kind of flattish. If I look at sales prices, is if I take the sales over the tonnage you sell, it's fairly flat on the quarter. And then you were talking about clearly lower prices and then I just got confused what exactly where you were seeing. So anyway, my question has been answered.
Okay. And for the benefit of everybody else, the lower prices reference we tried to make or clearly lower even you used the term referred it to the second quarter performance of ours. When I talk about second half, that's a forward look into what we see happening from the first half to the second half, so our sequential comment. Just that I don't confuse people even more. Sorry about that.
Okay. And
then my final question is on corrugated, because you list out corrugated in your presentation. Can you just and it's a much bigger market Will you continue do you have the Australasia investment, obviously? Should we expect you keep moving more into the corrugated area? Because it's still relatively small at least in Europe.
What should we expect? And what is your thinking in that area?
Thank you for that question. I think the answer is selectively, yes. And 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, 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. And then final comment there, I think, impact is a nice example. 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 and 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. So you can see you can think both in organic terms, selective corrugated growth, growth markets, Consumer Packaging segment, but also we can think of impact type of things going forward in Renewable Packaging.
Okay. Thank you very much.
Thank you.
Our next question comes from Johan Sverdrup from Carnegie.
Yes. Good afternoon here. Just coming back to your question about cost cutting and temporary closures. And 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 a couple.
If I understand you from your answer earlier here, basically all options are open when it comes to cost cutting for you now?
The let me answer this way. I think it's a fair question and your point I took it up. It's we've invested in the more recent years into restructuring about one margin point in the year average cash cost. And the way I look at it is in the market in markets that are structurally shrinking, We will have to continue to structurally and permanently also reduce our capacity. The decision then on when do you go temporary, which is typically a cycle demand change thing, We need to do very rationally look at the cash cost and the return.
So, there isn't really in that sense an emotion on anything. I believe in some of our businesses, we're better off now in terms of riding the cycle with temporary curtailments, 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 cut, we are more able to ride through a tactical change with temporary. But 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.
But I think that's as far as I can go now. You should not think that I 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. Because there I mean 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 not I mean from the industry.
Well, remember I am not from the industry.
I'm just working here.
Good for you.
Another question then. I mean when it comes to
the timing for an announcement of this one, I mean I understand that you the euro crisis has hit you especially towards the end of the quarter. So it's of course, what type of timing schedule would you say that you have now when you will get back to the market saying that, okay, now we have gone through our different businesses and this is what we're 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
So it's not going to be like a
Wait, wait, 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. And 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, because the issue to me is more that you have to have the plants ready for curtailments and so forth and so on every day with this dynamic. And then obviously, in parallel with that, as you may have seen in our Capital Markets Day, we have a road map on for the structural changes needed.
And the only question there is speed. If the structural change is explorable, 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 guys now and say, what are you going to do? What are you going to do? I've been calling them for a long time already.
And I can say, I mean, I've been also visiting several of our mills just in the last week's latest one yesterday. And the level of energy, the level of readiness to do things whenever needed is fantastic. And 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 Lindstrom 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 weak level. Could you provide some more detail about this? I mean, 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
apologize, but 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. But maybe I don't know where we came. Maybe we gave you a picture that wasn't too even too much the upper right thing it should be.
Where did you pick up that? Did I say something or did you see No,
I was just reading I mean previously announced plans at Skookal to mitigate cost increases and adjust capacity to lower demand.
No. Schuylkill has gone through quite a significant renewal effort, which is actually very important. It's I think it's more the Barcelona stuff, that part that is the lower Okay.
You just said lower demand. So I was
Yes, yes. Yes, yes. We have
a fair language actually. Don't take it generically. It's not all of it.
But it's good that you mentioned it because we do have we have the earlier announced actions in the places. And of course, party being the one here that is where the in relative terms, the impact is the biggest.
Sure, which is a specific customer issue as well.
Okay. So you're not describing the consumer board market as you don't see it as weak or having any problems at the moment?
I have enough problems elsewhere, but not there.
Okay. Excellent. That's good to hear. Second about fine paper price increases. Have you joined in the sort of additional increases on coated wood free, for example, that some of your competitors have announced recently?
I have not joined anybody, but we have in writing informed our customer comes at number one, the prices will increase.
Okay. And what kind of factors do you believe are sort of 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. I mean, uncoated wood free is still the best of the bad ones, so to say, meaning it's not it's the least digital media driven, so to say. And then I think the balance on demand and supply is probably better than some of the others therefore also. And then I think the unintegrated fragment independents, partially unintegrated supply base up there too. So those would be the reasons why we believe that we are able to push pricing up in a weak European economy even.
Right. Okay. Thank you. Those were my questions.
Oscar, I still have to come back actually to the earlier point. Yes, we are even in the units that are making good results and are working in markets which are strong, we go for continuous improvement. So each unit has to live up to its full potential and beyond. So it doesn't mean that we wouldn't be doing steps everywhere all the time. So in that sense, the language is spot on here.
Yes. But it's confusing maybe market and the actions, but 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 in the 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. And 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. So but 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 Parkinen from Pohlobank.
Yes. Hi. Good afternoon. I'm 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 pricing volumes are coming down and then we have seen some comments that maybe the growth rates in China are coming down. So 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. And then we will 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's a couple of good things in that way in this. I don't think it's going to go that crazy, because some of the Northern Hemisphere pulp mills with a stronger dollar are going to start hurting really, really fast, may already be hurting. On the other side of the coin, obviously, it's now with the dollar being where it is and the euro being where it is. That need to say that our famous Northern partners are in a lot better shape than they were last time, Harry, when we talked about this from a profitability and cash generation point of view. So that price bottom, so to say, I think is there.
And we 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. And that obviously has other applications also than paper tissue and so forth and so on. So I'm pretty calm there too, so to say. Thank you.
Thank you.
Will conclude today's Q and A session. I would now like to turn the call back to your host for any additional or closing remarks. Thank you. And Joergo, I hand it over now for the final words.
Well, hopefully not final on my side. But for this call, I'll make a comment about Markus, we're out of my NMAs, that's why I made the joke. Interesting times for all of us on both sides of the phone lines. 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. And then 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. And then finally, on the short term, you've seen the guidance, we'll make the best out of it. But and to support the cash flow, like we said many times already, we will increase curtailments 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 in with everybody on the phone, thank my friend and my colleague, Markus Vaormov, who was employed technically through the end of the month with the company, but I think this is actually Markus' last day and last minute is 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.
And then to the audience here in three months, we'll have Karl Henning Zumsfeld with us continuing the venture. Thank you very much. Markus, want to say a few things, too. Thank you, Okay.
I'll just say that it has been absolutely great to work with Joko. But also, it's been a huge pleasure and a big learning experience for me to work with all of you on the phone. So I want to thank you also, both Joko and everyone on the phone very, very much. Thank you.
Thank you, everybody. I hope you can go somewhere where there's a summer. I haven't found the place yet. And 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.