Good day and welcome to the Storienzo First Quarter twenty twelve Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ula Senunin, Head of IR. Please go ahead, sir.
Hello everybody and good afternoon. Welcome to Sura Answer's Q1 results release. And let me hand this call over to Jogo immediately our CEO.
Thank you, Ula. Welcome everybody on our quarter one call. It's the first one for 2012. In some ways, a quarter that wasn't that eventful I guess. But on the other side, we made some decisions that will accelerate our future transformation with the China project.
If we go to page three, we said approximately in line with Q4 when we guided Q1, well it was €2,000,000 off and I must say that was more accurate than I ever thought, but there it is. At the same time as I was trying to comment again my CEO comments, we cannot be satisfied with that because that still did not produce a return that's even above our cost of capital, which is another reason to invest in growth markets on higher return projects like Mondesa Plata or China for Ostrove. Cash flow happier with that than the EBIT I must say. And the liquidity €1,200,000,000 plus. That's the happiest number to me on that chart.
If we move on then on page four, you see now two quarters in a row a limited earnings in the $150,000,000 range. Yes, obviously we need to make sure that we improve the speed. And I must say that specifically we need to also improve our operational performance. In this particular quarter of quarter one, we had too many issues in our Nordic standalone pulp mills which limited the dramatically the BA earnings Q1 to Q1 in biomaterials. But I think that's those issues are good because those are easy to a lot easier to tackle than some of the external factors and so forth.
If you then go to page five, printing and reading had price pressure as did biomaterials. I will not go into the details, but I do want to highlight on biomaterials that the group impact on biomaterials is actually less year on year than what the segment report shows because they also include the Veracel pulp that they supply to printing and reading. So from a group point of view, it's not as dramatic as it was on the segment report. Renewable packaging actually had interesting enough a lower volume issue which then led to also the need and action to curtail or reduce inventory sorry. And that limited their performance even though again sequentially at least it starts to be in the right rhythm and clock speed and I'm pretty positive going forward on that one.
Billing and living, fourth quarter in terms of earnings, But I think strategically when we get our high value added products a little growing a little faster there are ways to go and show there too. Cash flow liquidity we talked about. And rather than me talking about profit improvement actions, think you start to see a more and more frequent news from store ends over individual business areas or even mills start announcing that they're going to improve productivity cost and so forth. On a think about it every morning basis so to say. And the China investment decision I'll get back to that.
If you go to page six, yes, you can see the fixed cost per sales still improves, but too slow. I think we need to accelerate this somehow. And I think the best thing we can do is that it happens more and more in the operations rather than on a corporate level and so forth. Page seven, personnel costs. There you actually see that Q1 to Q1 we stopped improving.
And I could explain that yes, but this includes impact and the other one didn't. Well, let's leave that aside. There is another thing that we need to continue to improve in the future. Page eight, cash flow always important. No, especially important given the large investments that we are building or how we have decided to build.
And there you can see that in Q1, which is a short window obviously, it is the printing and reading and renewable packaging generated with the cash generated. The other line is quite a bit driven by the working capital and so forth. But the point of the story is, yes, we generate not EUR 200,000,000 in the quarter, not EUR 200 We're million in spending the money. The good news is we are spending the money on clearly higher than our existing assets base. Let me hand it over to Markus now for a minute.
And then he can walk you through numbers. Thank you, Markus. Thanks, Jakob. Moving to Page nine, I'll go through some of the key figures that have been highlighted on this slide. Sales as guided stayed on the same level as Q4 almost spot on.
We've highlighted the operational EBITDA and EBIT change. So on the EBIT, we were up €2,500,000 but on the EBITDA up €20,000,000 And this is due to that Barevic and Tornator results went down, but we don't record the EBITDA from them whereas BAs went up. So they contribute additional EBITDA. And on the business area and Barevic Donato side, the EBIT impact offsets each other. So the operational EBIT stayed approximately the same.
Joko already pointed to the good cash flow from operations. Even when the result came down €110,000,000 on an annual basis, cash flow from operations improved by €60,000,000 compared to last year. Debt to equity has increased due to our investments into our growth projects and also the valuation side fair valuation of ratio and so on. But the gearing is on a good level improved by one point quarter on quarter and up eight points on a year on year basis at a good level giving us the strategic flexibility that we want to have also going forward. And this added to the €1,250,000,000 of liquidity giving us the possibility to continue to implement the strategy and the easement options.
Then turning to page 10, going a little bit into the changes by business area. The business areas collectively improved their results quarter on quarter by 24,000,000 And maybe the one thing I'll highlight on the business area side is the seasonality in Renewable Packaging. So Q4 is a low seasonal quarter and Q1 is a more normal one. On the line other, we're down €22,000,000 as explained already on the previous slide, Berivica and Tornator being the main contributors to this change. We had a good quarter in good real estate sales in both in Q4 and the net sum of these changes is then €2,500,000 up then on the EBIT quarter on quarter.
Then I'll turn over back to Joko for the strategy. Good. Thank you. I'll be quick because I hope many of you were at our Capital Markets Day long ago. The money approved deck.
Slide 11, growth markets. Yes, we're building capacity and business in markets that grow. Typical example is the Chinese integrated growth is now which on its own is worth less than one year of in the Chinese specialty board market. So there's definitely space or definitely of the earnings of renewable packaging and biomaterials. Renewable packaging.
Our competitive paper is important for us because it is as you saw earlier also in Q1 the cash engine one of the cash engines that needs to finance our transformation into a higher return company in renewable materials. We then move on to page 12 to characterize a bit the project. Many people say packaging. So we're saying actually pretty selectively packaging. High end carton board, liquid and food packaging very much a needed product in the Chinese market and supported also by the government because of the issues of food and drinks and so forth.
We have the strongest customer relationships I can imagine in this industry with customers who are interested or partners and I think that's an important factor in a high value investment like this. It's a scalable thing. As you know, we're building and integrate with to start with one board machine, but it's pretty obvious that we're designing all the architecture such that one day we may be able to expand it if we if the market still allows is an integrate which I think has its own value. Most of the virgin fiber in China or a lot of the virgin fiber in China is imported. I think that we don't want to do with this.
We believe we got the lowest cost solution as well on that. And we do think there's a lot of opportunity for innovation. And a lot of challenges, Sustainability, corporate responsibility, we need absolute focus resources efforts to do every day better the complex environment with land in China. And others NGOs with us in Guangxi to make sure that we are a welcome partner for the next tens and tens of years. But I'm confident we are doing good things for the local people and with that we'll do good things for our shareholders.
Page 13 is just a photo shoot and it's a computer generated image. We haven't built the mill yet, but that's how it's going to look like a bit. And as you can see, it's 450,000 tons of consumer board with the 900,000 tons on total power plants and auxiliary facilities. Goal is towards the 2014 to start it up. Page 14 outlook for Q2.
You may think that we're boring, but we're still saying slightly up on sales. And again we say operational EBIT approximately the same as in Q1 twenty twelve. As stated on page 14. Maintenance of business in several of the European mills will impact mainly biomaterials and it's a bit driven by the fact that we had quite a few operational or production issues in the Nordic pulp mills in the Q1, which obviously limited the operational performance of bioreferrals. But we do want to run through two of the maintenance stops to make sure that we get the reliability and all that stuff up to the good level.
And then yes, we're seeing in my personal opinion too slow, but anyway the impact of deflation coming through actually means variable costs start to improve. Last slide, page 15. Quarterly performance as expected or I guess I should say as guided in February, but that takes nothing away from the fact that I'm not happy with it. We need to improve And that's why we say that we need to keep moving faster and faster like we are meaning accelerate just the same way or in a similar way at least as we accelerate the Montes De Plata pulp mill and Chinese pulp and packaging pulp mill investments which will in the next few years really transform the company. Thank you.
I think it's now time for your questions.
Yes, please. Could we get the instructions for the Q and A?
You. Our first question today comes from Marcus Alamod from Morgan Stanley. Please go ahead.
Hi. Markus Alamud here from Morgan Stanley. Could you just talk a little bit about both prices and demand and also about wood cost going forward? You usually have these arrows in your presentation. Just if you can just give some light on both printing and reading and also on Consumer Board what you're seeing at the moment please?
We're trying to decide who's going to start answering. Markus will start because I'm his boss and then we'll all take it from there then.
Thanks.
No. Yes. On the realized side, if we look at on a quarterly basis for Q1 Printing and Reading slightly down. Then pricing for biomaterials quarter on quarter slightly up on the softwood side a lot more on the hardwood though of course we are a net buyer there at the moment. Bidding and Living sequential pricing down somewhat Consumer Board slightly up Corrugated somewhat down and that's about it on a quarterly basis we do for the not realized.
Give you to be very clear and transparent, we used to give all the arrows by paper grade going forward for the next three months and we have now with the new segment reporting stopped that. So the right or wrong you only get the sales slightly up and EBIT approximately in the range in Q2. But I think Marcos' explanation gave you a flavor of that. On the cost side, I can say maybe continue on that a bit. For example, if you take the typical key raw materials, we believe there is going to be a deflation and there is a slight deflation already in Q1 on some of the raw materials.
For example, RCP is clearly lower than it was a year ago. Purchased pulp is clearly lower as you can see from our biomaterials. And then on the wood side, pulpwood tends to be deflationary or whatever you call that, but SOLUX sorry are still higher than a year ago. And when we go forward, think well, we have to keep pushing the overall inflation to a deflation faster and more strongly to improve our earnings capability.
Okay. Coming back
to the wood, we saw some of your competitors announcing the other day that they are taking wood cost they are decreasing wood cost especially on the softwood side. Do you have any comment on that? And also if it's an inventory issue or if demand is poor or what you're seeing? Or is it an oversupply of sawmills or what the reason for that?
I'm sorry. Maybe I didn't understand. What was the point of the other company? What were they doing?
Were decreasing wood prices.
How do you decrease wood prices? I don't understand the question.
Okay. To ask in a different way, could you say anything about do you expect wood prices to be largely flat going forward?
I wouldn't expect and again mixture point being that I would not expect any big trauma either way. Okay. Thank you very much. Obviously It's on noise level the chain. I have to figure out other ways to improve my earnings short term than that.
Okay.
And can you say anything about demand both on the board side and on paper? If it's I mean we have seen a bit of stability and a bit of improving trend at least during Q1 and we've seen a stabilization at least from what we saw in Q4. Has that continued? Or do you have any comment on where we're going if you see any improvement or
Well, like I said, we don't give you guidance, but I can say that I tend to read like you probably do to all these actual trend reports. And one of them is the SEPI report that they share with the Board. And it seems the first good news is this is nothing like the 2000 and late two eighttwo and nine. It's a lot more subtle change and so forth in Europe. And therefore, I think it seems at least that the ability to continue to operate on fairly good operating levels is still there.
So going to be boring, but I think that's a bit like the Wood story. It's not hugely traumatic. It isn't like that we're losing huge amounts of demand overnight. It's stabilizing at least one and two. This is not a forecast.
This is what I see in the already happened reports from the few sources.
Okay. Okay. And on the board side, you say in the report that in Q1 you saw a bit stronger slightly stronger demand in consumer board and is that continuing?
I can comment that. I think in Q4 the drop on a year on year basis in demand, let's say, was probably bigger than what you'd see from the from a trend point of view. So I think we interpreted that as also customers managing their inventories at the year end. So there was seasonality combined with that. And I at least my feeling is that Q1 is more reflective of a normal level.
Thank you. Minus $20,000,000 on total group and a significant part of it. Well, I was wondering it's about half, but I'll say in the order of half of it at least is in the two mills that we're going to maintain in biomaterials, two of the Nordic mills. So that should give you enough hopefully on that. And sorry what was the second part of your question?
I missed it now. Yeah. Don't think we give you a number there, but unless Markus you want Yes. No, I don't think we'll give a number, but of course we have the best pulp mill in the world in the segment. So it was a significant impact on the biomaterial side.
Jocko the last one was the aerosol dissolving. Oh, aerosol dissolving. Let me put it, it's an interesting small experiment. It's not going to have a material impact on the group level this year. Okay.
Thanks.
Thank you. Our next question today comes from Lars Kjell from Credit Suisse. Please go ahead.
Yeah. Hi. I got three questions. Starting with the Printing and Reading where you obviously are gaining market share. Do you want to comment a bit what you've done differently?
You talk about efficient sales. How have you changed and what have you done?
Okay. The Printing and Reading overall, I must say that when people in a business like this with this margin level start talking about market share, I get very hesitant in my own company. Yes, selectively when you have an opportunity to get a good margin addition of course we do compete fiercely on the markets. Then I think the bigger part of your question is well what are we doing differently? Let me suggest that we don't but we're not great friends of economies of scale, meaning that you have to be the biggest in the segment because market share means less than customer share in a commodity business like this.
Customer loyalty is that high one. Two, we believe that we through several methods we have pushed and will push more of the fixed cost variable cost meaning outsourcing of maintenance meaning a few other things meaning that we are not necessarily the great friends of the traditional belief that every machine has to specialize into something that you never change because that will kill your flexibility. And then I finish my story by making a claim that we are very competitive. When I benchmark which I can do obviously because I know my internal numbers using other people's reporting structures, I think we are maybe we don't have the latest Ferrari every place, but I think we're very competitive right now. And I can assure you that Mr.
Yuha is going to make it even better. That's end of the speech.
Very good. On that metric, I mean you mentioned clearly at the Capital Markets Day about accelerating the pace of internal measures to improve profitability. You mentioned a number of times today as well. Can you give be any more concrete? What are we what should we be looking at over the next couple of months or year?
And try to be any specifics on any sort of quantitative metrics that we should be looking at?
Very, very good question, because I think there is a communication challenge also, because traditionally we too in my first couple of three years we did every I don't know twelve to eighteen months a big bang with hundreds of millions of cost provisions and so forth. And now you start seeing several times a quarter a BA or another BA saying we're going to post that shop and we're to do this. We're going to improve the maintenance function in Sweden on and on it goes. And then it doesn't look as dramatic. But the truth of the matter is if I get my will true there will be even smaller things and things that we may not even disclose because I'd like every mill to think about that.
So at the end of the day, I think the best metrics will be and it will take some time to look at the earnings capability and the cash generation capability of our Printing and Reading business area versus competition. Because everything else all these announcements about are we going to save $50,000,000 and the onetime cost is this, I think it doesn't really you can't add it up anyway. So I'll have to ask you to watch the earnings performance and cash generation performance of our business fees as the best metrics I can come up with. Sorry for the long answer.
Okay. That's all right. Obviously, already touched about maintenance costs. Can you give us any sort of sense of what we have in store for the second half just for modeling purposes so we get some sort of guidance if the renewable packaging mills are going down etcetera? What should we expect on a delta from H1 to H2 for maintenance overall?
Yes. I'm afraid I won't be able to give you a number, but I do happen to know that both a couple of our super guns Imatra and Skooka will both be think one in each of the second half quarters will be have a maintenance stop saw. Well, here's another thing that one time we want to be fully transparent, but obviously it doesn't help you a lot if every quarter we have one or the other and so forth and so on. But like I said, if you look at some of the earlier quarterly announcements, I think you can get a flavor on what does it mean when we take a school call out or a month out for maintenance stuff.
Sure. All right. Thank you.
Thank you.
We will now take our next question from Johan Sverberg from Carnegie. Please go ahead.
Thank you very much. Just could you quantify these production problems during Q1? How much what type of negative impact that had on your operational EBIT?
I'm trying to think let me see what versus slide of the segments. Would suggest that I would say that the impact on the segment result, we show that biomaterials result was down 20%.
But you had also bad
Wait, wait, wait, driven by the pricing that then benefit some of the other BAs. But let me say this, I won't give you a number, but the production problem issue was a material part of that delta.
Sorry, it was what?
A material part of that delta of 20,000,000
Okay. And also I mean looking at you mentioned RCT prices down year over year, but they are now starting to move up here especially for O and P prices here. How do you tend to tackle that? I mean the demand for newsprint has not been great this year, but are you preparing your sales force now to start to raise prices as of Q3 would you say when most of your newsprint price contracts are expiring?
It's rather than I always say that before I tell you or the media what we're to do with our pricing, I better tell my customers. But let me put it this way that we do understand that also in even though the return on operating capital in Printing and Reading was kind of in the range of cost of capital, but with the cost inflations risks and opportunities and the fact that I do agree with you that there is coming pressure on RCP then we will try to do our utmost on improving pricing quality further when the summer comes.
And if you look at Fine Paper where I mean more impacted by the pulp price, what is your what have you been saying to clients there?
Coated was more media driven more difficult, but on uncoated side was not media driven pushing very hard up. Right. And Johan maybe one more comment on the old newsprint and old corrugated containers. So I think we definitely acknowledge the problems of being in the markets and competing maybe even on a global scale. And that's why we have been going towards solutions where we then have our own collection system where we have our own sorting systems where we can buy mixed waste and get the costs lower with that.
And that is also the basis for our machine investment in Ottralenko that we have the existing collection system we can increase that. And there is a lot of weight or of the paper that goes to dumps today that we can get our hands on with our systems. And of course, we are the closest buyer. So we should always be competitive, but we have to find ways and we work with that in Germany, in Belgium, in Poland.
Just a final question. Just coming back to an earlier question about your cost cutting here. Mean, did you the Analyst Day you were saying that most of your machinery is in the first or second quarter when it comes to cost efficiency or cost curve here. I mean, one way to lower the fixed cost would obviously be to shut down capacity, but that we didn't get any signal during the Capital Markets Day that you were about to do that. And I guess is that picture still the same?
Well number one, I believe if I may this is Jocko. I think what you have said there is that the majority of or clear majority of our present asset base is in the better quartile. We also said that we are doing quite significant things in some of the assets to move them to the first and second quartile. We did not signal anything in terms of specific capacity reductions. The truth of the matter is that I think it's quite a bit of the market dynamic that drives that demand supply balance and so forth.
And without giving you any schedules or signals, we have a picture in our mind on asset by asset machine by machine, whether we produce at the lowest cost for any specific market or even customer. And that will then drive when the times come what will stand still temporarily or permanently. And unfortunately almost we've had quite a bit of practice of that if you remember in the past few years where we took the Yes. Capacity out.
Got it. Thank you very
All right. Thanks. Thank you.
Thank you. We will now take our next question from the line of Larsson, SEB Inscalade. Please go ahead.
Thank you. Reports in pulp markets are mixed as always. What is your view? Do you expect pulp prices in the second quarter to be on average higher or lower compared to the prices as of today?
Higher. Does that go for both short and long fiber?
Yes. Excellent. And then coming back to the maintenance cost topic, I'm not sure I understood the answer fully. Would you say that the first quarter or the second quarter maintenance cost level is more representative for the year as a whole?
I think second is kind of more representative because yes we did have Veracel in Q1, but we have now a couple of the Nordic pulp mills and then we have some stoppages in printing a reading too. That's more the typical grain size.
Would you say that there is some ease if you compare Q3 to Q2 on maintenance costs?
I think we'll comment that once we come out with the Q2 numbers. But all in all, the idea here is to give light on the things that we can say in advance. And the typical variance is let's say 15 to €25,000,000 variance between the quarters. But of course the underlying maintenance cost grows on, so the big part happens on a very regular basis. And depending on which mills we have this can be the variance roughly.
If I may add footnote to that Markus' good comment and that is that obviously we have to get the annual cost further down which is one of the reasons why we're doing what we're doing in Sweden now. So if I can say €20,000,000 every year that's more important somehow to the future than the exact quarterly variances so to say.
Sure, sure. And also on your CapEx guidance, noticed that you're guiding for €580,000,000 of CapEx this year. Do you have a number for twenty thirteen? And also relating to this, how much of the China investment is in 2012, 2013 and 2014 respectively?
Yes. We actually changed our CapEx guidance now due to the China investment. So the CapEx guidance range, we put a range because we don't know the exact timing of the procurement process how that goes. But 700,000,000 to $750,000,000 CapEx for this year and then €150,000,000 of equity injections into our other projects. And for 2013, we will then guide that once we get there.
Okay. Excellent. Yes, I said the wrong number there. But of the 700 to $750,000,000 how much is China?
The whole change attributed to that. So the change from the earlier guidance to this number that is China. So 130,000,000 to 180,000,000 if I calculate in my head quickly. Okay.
And also maybe if I may give it another go on the wood costs. Do you have any number there for Q2 versus Q1 and any form of quantification?
Let me try again. I think Q2 to Q1, don't worry about it. It's not going to help. It's not going to hurt. It's very marginal.
If you look at fiber cost meaning the totality for us in terms of RCP, sawlogs, pulpwood, call it flat if you want within the accuracy that we can estimate or you can estimate.
Great. Great. And just as a very final question in order to prevent any misunderstanding. When you're guiding for second quarter EBIT to be approximately in line with the first quarter, would you care to put a range on that in order to prevent any misunderstandings in percentage terms or otherwise?
Okay. Plus minus 20%. That's what we mean approximately in the range. That's pretty wide. Yes, I know.
But you asked for it.
Yes. I appreciate the answer. Thank you very much.
Thank you.
We will now take our next question from Michael Jatt from Chevron. Please go ahead.
Michael, this is Ulloa here. Before you start, we have an AGM coming soon and please limit your questions to one from here on. I'm very sorry about the delay. I can take them later today, but please ask only one question from here onwards.
Okay. So then I'd like to ask a question regarding to the discussion we had at the CMD when you outlined that you have these two potential trends for future paper demand decline and then you said that you had your map outlined there and you currently were sort of expecting to be between the two extremes in terms of the future demand decline? And then my question is simply based upon the latest data and the latest visibility that you have, do you see any reason to upgrade what you said about the future demand development on the CMD?
Well, this is Jakob. Thanks for the question. The short answer would be no there's no reason to change. Let me try to give you a bit of flavor of that. And obviously within the short time window since the CMD like has extract so to say seasonality and economic cycles from it.
But when I look at the data I see of the realized Q1 market behavior and our forecast Q1 believe it or not it seems to follow amazingly well the five year trend that I showed. But the past five years where the printing paper market in Europe has lost one fifth of its size. We're still that mathematically turns to about a 4.5% plus per annum believe it or not I did the math myself that's 20% in five years. So we seem to be on that track for time being, which by the way also means that because it's driven by economic cycles and we're still in that two scenario world and I keep telling Yuha like twice a day that nobody will ever know with how fast this is going to go. So he better be ready for more than one scenario like we said in the end.
Okay. Many thanks. Thank you.
Thank you. We will now take our next question from Ross Gilardi from Merrill Lynch.
Yeah. Good afternoon gentlemen. I just I guess it's one question. It's kind of a two parter. But can you explain really what happened with your Nordic pulp production?
And you had operational issues as I understand in the first quarter and now you're talking about maintenance downtime in the second quarter. Are they is the maintenance downtime to fix the problems you had in Q1? Or are they two separate issues?
Okay. There was a price negative pricing impact on biomaterials year on year in Q1, number one, okay? And then we have production problems. Now to answer your question about why are we doing what we're doing, not that we somehow scrambled through Q1 and put chewing gum into the mills and now we're trying to fix them in Q2, But it is that we want in this maintenance stuff when we shut the mills down anyway, we will do a review and make sure that if we need to improve some of the mechanical parts and so forth and so on. So one of the goals of the maintenance always is to improve the technical reliability of the mills and especially after this experience, yes, I'm going to be particularly particular about making sure that we get the reliability of the improved.
Can you just elaborate a little
bit more though on what the problem is?
There isn't a problem. We had different it's free mills. We had different production issues. We slept because we used Zoom because we couldn't get the production of the premium quality out. But it was different products in different mills.
And I would plea that number one, don't I couldn't explain. My pulping capability is still limited. And number two, even though we're so particular and open about it, you should not read anything more into it than what we said. We had some issues in Q1. We'll have maintenance stops in two of the three mills in Q2.
And on that business as usual and the pulp price is going up. Okay. All right. Thanks And very yeah. Okay.
We have a similar when we have spoken about operational issues. When we do minor rebuilds and so on with the start ups of these investments, there are start up curves. Things are not always working as they should. So nothing terribly complicated, but still issues that we have had to deal with.
But this is on the this is for paper grade pulp. This isn't tied to starting up NSL?
Some of the issues. But remember again this isn't like the some of the production tuning issues or whatever were tied up into the solvent power production start up and changes and so forth. Believe, but I that's all I can say. Again, can't get any more specific numbers. Right.
Okay. You.
We will now take our next question from Antti Korviv from Danske Markets. Please go ahead.
Yeah. Hi. Thanks. One question on the pulp market. We see local prices in China down in mid April and some comments about Chinese buyers taking a freezer ahead of capacity increases.
What's your take on that? Do you how do you see the Chinese buyers behaving right now? So far they've been pretty good. And then the question always is Chinese buyers for us in our particular services, it would be the long fiber pulp. And the long fiber pulp I think is going to be favorably impacted actually because of the famous delta between the short and the long fiber.
I couldn't really say too much about the more than that because on short fiber pulp as a group even though it will hurt biomaterials BA right if the short fiber pulp goes down the group total net is positive. So in an interesting balance see my point that when we gain when this long fiber pulp goes up and we gain when the short fiber pulp goes down if you see what I mean. Yeah. Just the positions long and short so to say. But I would not want to speculate more than that on the Chinese pulp development.
There's always a concern obviously that people and we've had it now for what two summers where towards the summer the Chinese buyers have slowed down and then we all talk to each other and saying is it inventory buildup? What are they doing? What are they doing? And it then turns out the way it turns out. So that's all I can say.
All right. Thank you very much. Thank you.
We will now take our next question from Karri Wiener, SHB. Please go ahead.
Yes. Thank you. Karri Wiener, Hans Vanken. I have a question and a clarification Firstly, if I when it comes to the cost deflation, in the first quarter we saw that variable costs were still up year on year, but still during the call you have mentioned cost deflation quite a few times. Are you shooting for a full year cost deflation?
And if so can you give us a rough sense of the magnitude? This is for variable costs. Variable costs and let me be very explicit, because I think it's important that we communicate clearly. Our variable cost went up in Q1, but that was driven by higher energy uses and chemical uses in some areas. And yes, there was some also which is a separate metric unit cost inflation in specifically I believe in chemicals and fillers still whereas the energy was pretty flat.
And so first things first, I'm trying to say when we do a unit cost inflation or deflation analysis that then truly is based on the way the purchases we do what happens to cost. And I do see or we do see clearly a limited deflation for the full year. The good news is that I would we'll see how Q4 is going to be. It's a bit far, but I think it's coming through more and more through the year obviously. Takes some time before we get it to the P and L when we do purchase and whatever.
But there is going to be a deflation, which is very important after latches unit cost inflation. And then that's one side. The other side is that we have to be more efficient, meaning we can't use more energy and more chemicals like we did a bit in Q1. Okay. Thanks.
But you don't want to put a number on this word limited like you did with the second quarter guidance? It's a lot less of a deflation than it was inflation last year I think. So remember what we I don't quite remember exactly what we said about deflation. We said I guess 4% above inflation So last this is a lot less than asset deflation that that was inflation. So we won't get everything back.
Maybe that helps you. All right. Fair enough. Thanks. Thank you.
As there are no further questions in the queue, I would now like to turn the call back to Mrs. Ulla Fujianen, Head of IR. Please go ahead.
Okay. Thank you. Thank you everybody for this call and we will then speak again in July when we come out with the Q2, but I will still hand this over to Joukou for final words.
Good.
Instead of repeating like I always do what I already said three times, let me share a thought with you. I was in a media press conference an hour ago here in Finland just before the AGM and this and so forth. And one of the fairly senior editors said, Joko you've had this 13% return target forever. Your predecessor didn't make it. You haven't made it.
Should you give it up? And I said, no. I just started. But I did share with him and obviously with you now is to get there and stay there we do need execute very well on what we have on these cash engines. But like we said in the CMD too, we also need to implement and execute these high growth high return investments in Uruguay and China.
So in some ways I hope in the coming quarters we're going to be relatively boring because we're going to tell you that we do what we promised and we build what we promised. And then it is more and more the results not in quarters, but quarters and years that will show that we're worth what we're saying. So thank you very much for your attention today and talk to you latest in three months. Thanks a lot.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now