Hi, good morning everybody, and welcome to Stora Enso Capital Markets Day here at our Langerbrugge Mill. It's great to see so many of you here, and let's have a good day today. I'm Ulla Paajanen-Sainio, Head of Investor Relations at Stora Enso, as most of you know. If anyone doesn't, I just wanted to make note of that. We will have various presentations today, and we really want this day to be interactive, so please be active and ask questions. I'm sure that will happen, but some of the people don't want to have questions during the presentation, and they will notify you about that. We are today going to address some of the key issues that are floating around the market today.
There are issues that people want us to be the consolidator of the industry, but after Tuesday, when we announced our investment to China, we have shown that we will take the route that we want to go and grow in growth areas in our growth businesses. We will also talk about what is the role of paper in the company, which is also of great interest to many of you. Until Tuesday, there was quite a lot of discussion about what we will do with our balance sheet. There was a headroom to go ahead with various avenues, but I think that after Tuesday, that topic is less relevant, even though I want to emphasize we still have a very good cash flow after this investment even. We will start the day in a way that Jukka will talk about strategy, about our cash and growth engines.
Our mill manager, Chris de Hollander, will present the mill, and after Chris' presentation, we will have lunch outside in the corridor or in this lobby. After the lunch, there will be a mill tour, and after the mill tour, we gather back to this auditorium where the head of our business areas will address their strategies and their aspirations in the business. Just to remind you of some of the practical arrangements that are involved today, this is a webcast event, so please keep your mobile phones switched off courtesy of others and of course the webcast. When you want to ask questions, please raise your hand, and we will get a mic for you so we can get the sound also to the webcast. State your name and the bank you are representing so it's easier for the people on the web to follow the conversations here.
We have some water here for the presentations, but otherwise we would ask you not to bring any food or drink to this auditorium, and be also aware of these steps. They are a bit slippery, made out of wood, but Hannu will talk about the qualities of wood more, that it can be a bit different than slippery. Also, if you start feeling unwell during the presentations for other reasons than what we say in them, we will ask you to notify us, and we will get some help to help you out with that condition. In the case of fire, Chris de Hollander will take the lead and guide us outside of this room and to the safe area, the grass area outside. Before we start the day, I want to introduce all our hosts today, and let me start with our CEO, Jukka Härmälä.
Hi everybody.
Our CFO for some months still, Markus Rauramo. Head of Printing and Reading, Juha Vanhainen. Head of Biomaterials, Juan Bueno. Head of Building and Living, Hannu Kasurinen. Mill Manager, Chris de Hollander. We have a Senior Vice President of Corporate Finance, Anders Bergqvist, who has been very deeply involved with the investment in China and can answer certain questions here and be assistant for the rest of us. We have our Head of Renewable Packaging, Mats Nordlander, up there.
Just in time, fresh from Nanjing, China. Welcome, Mats.
I will now leave the floor and give it to Jukka.
Thank you.
Who will talk about our strategy.
Welcome everybody, thank you so much for taking the time to see us today. I think you know this, but you just landed at the best paper mill in the world. You're going to hear it so many times when Chris gets there, but I think it's quite remarkable, and I think you're going to like also what you see beyond the PowerPoints. I will tell you stories, as always. The focus is going to be what next. Because the thought I try to wake up every morning with, and I'm trying to make my team just think about it, is that we actually haven't done anything today. Every morning we have to think today is day one. Here are the stories. We need to accelerate what works. We'll talk about the different engines of the company to transform ourselves to the future.
How do we plan to self-finance this transformation? I move on to, I think, a bit of a different view on the future, which starts from the consumer. It does not start from the forest. Move on to talk about ecosystems, and this isn't going to be mobile digital ecosystems. It's going to be different ecosystems. I'll finish the day, meaning my part in the next 30 minutes, on talking about building value. What are the alternatives and what are the priorities? If you insist, you can interrupt me, but I'll try to be quick, and if you can hold on to your questions, I'll try to be then ready to answer them.
We, in the industry, all industries, we love to talk about the five years and how hard it was and how miserable the environment was, and every time the cycle goes up, we tell that's because of us. When the cycle goes down, we say, no, it's the environment. Out of the six hours today, I'm trying to spend 60 seconds on history. Not more. Start with the customers. Net Promoter Score, if somebody doesn't know, school scale, a customer that gives on a scale of zero to ten, a nine or ten, he's a promoter or she's a promoter. Seven and eight, they're passives. Anything from one to six, they're detractors. As in everything as we do, I don't care so much about today, I say, I'll be better today than yesterday. This is the change.
In the last one year, we have a quarter of more promoters who give us a nine or a ten, slightly less of the passives who moved to the promoters and the detractors. The one to six team, half of it. You'll hear a lot more about this from the BAs. Why is it the key tool for us? Why do we believe in this tool rather than the traditional customer satisfaction metrics? Fixed cost, you've seen this before, indexed. Yes, on an absolute level, we've taken 20%, a bit less, but you can also see on the fixed cost of sales, one key thing we relate in 2009 when the crisis hit. Speed is of the essence, and even though we thought we're fast, we weren't fast enough. Variable cost, nothing so dramatic.
If you spend a lot of time reading the graphs, you'd see that yes, we've beaten the inflation, but there's not a structural improvement there, and we need to work more and more on that. People cost, personnel cost per sales, indexed again beyond 10% in the five years, and I think the more important metric is significant, significant productivity improvement. Working capital, again indexed in absolute value, close to EUR 1 billion converted from working capital into cash that we will use to build our future. Here's a different graph, so let me spend a bit of time on this. The total length of the bar from top to bottom is the EBITDA margin of the five years of the group. The bottom green is how much we spend money in terms of margin points on CapEx, meaning investing in our existing revenue base.
The next one there, which is about a margin point, that's how many margin points average a year we have spent on restructuring. We have invested, and I use that term, invested about a margin point in the five years in restructuring. That's the cash restructuring cost. You get to the net cash from operations that we obviously use to pay dividends and other things. There's an interesting claim called investment to the future. Those are the investments of the past five years that we have done for items that generated zero revenue in that time period and even 2012. Once we get to the BAs and the time graph, you see that is quite an important notion because you start seeing where have we invested and what the trends are. That was a little more than 60 seconds, but anyway. What do we need to do now?
Operationally, we need to accelerate what works. The upper curve is real life. That's the rolling four-quarter fixed cost per sales, and we've highlighted there the various group restructuring programs. You can see the pump in early 2009 when the volume sticker hit, and you can still see there is a clear improvement trend, but there's a problem there. It's too slow. If a large group like us, if our improvement is based on group-level improvement programs, we're always late. I think I have proven that a couple of times in my past five years. We need to change the rhythm of the music and have every BA manager, every mill manager wake up every morning saying, "Can I do this better?" Because then the improvement happens every day, every quarter, not every six months or every one year.
You know better than I do what the impact on that is. The green curve is not a promise, don't write it down. It's just the thought that if we don't make the improvements in steps, but if we can get the engine to move every day, you can see there's a significant opportunity there. The other factor we need to think is we need to stop looking at the same industry-wide flat cost curves in paper. I will not tell you where is Mill A or B or C. These are our mills, and you can see a couple of important things there. Mill A, Mill B, Mill C, look at the delta in logistics cost. There's 10 margin points delta based on location. Then there's variable cost, fixed cost, and the top part is EBITDA.
I believe, and we believe, that when you look at your marginal cost, when you look at the cost delivered to customer, there's a significantly steep cost curve opportunity. Juha will talk about it more today. The point of the story is where do you invest in? No, you don't share the pain. You invest in mills that are the mill type A. If you want to guess, Mill A could have been called Mill L. I'm still not going to tell you which one it is. Mills that we can make Mill A type mills through capital investments, the others we will not spend too much money on. That's the rhythm. Accelerate what works faster every day, every quarter, and more selective than ever before. Engines, you might say, we're not in the engine business, but we are actually. Let's recap our strategy.
Growth markets, that's from 2008, same thing as it then. We said fiber-based packaging, now it's called renewable packaging. We said plantation-based pulp. We now have renamed it to biomaterials. You will get the stories today. We had a wording that nobody really liked or understood, and it was called selective paper. That's a change. Now it's called competitive paper, and I think Juha will talk a lot about what does it mean and how do we plan to make that happen. If you look a bit deeper than the segment reports, we only use the new segment reporting numbers today, obviously. Basically, printing and reading in the markets that we serve, which is essentially Europe, is a cash engine. I'll show you a bit on what they've been able to do already in the past five years. The Nordic market pulp, yes, that's essentially a cash engine.
Well invested, but relatively, let me call senior assets. Low-cost-based sawmilling. Hannu is going to have a task today to tell you how he's going to improve that part of the low cost and more cash, but that's not a growth area for us. That leaves us the growth engines: renewable packaging, plantation-based pulp, biomaterials, and then building and living, as Hannu will explain in more detail. The thesis is we have cash engines that we will maintain and improve to generate cash to fund our transformation. Two days ago was one big step in that transformation. You saw this chart, exactly the same chart. Total bar is the EBITDA, and then you see what we've done there. This is how it looks in the past five years in terms of the BAs that we have now.
Again, if you look at reading and printing, almost half of the revenue, significant CapEx investments. In the more recent years, more and more in improving the best mills, building a power plant in this place and a few other critical places. Quite some significant restructuring costs, taking more than a fifth of the capacity out. In more recent years, especially, pretty good cash flow from operations. Biomaterials, because this is in margin points, not the biggest, but look at the balance. Yes, quite a restructuring hit when we took a couple of the old mills out because of wood supply. Limited CapEx in existing operations, and then a very large investment, eight margin points of investment on their revenue level on building the future. You know the future, Monte Soplata and a few other things. Building and living, top five years.
I think the best thing I can say about this before Hannu gets going is that the more recent years look a lot better in terms of the balance than they do now. The heavy investments in the 2007-2008 timeframe, I think, are starting to pay off. Then comes our renewable packaging. CapEx pretty significant, also some restructuring, cash flow, and future investments, and then you get the group. To give you a glimpse then on not the history, but the most recent numbers, 2011. Revenue or sales, printing and reading is 46% of the sales. The other BAs, essentially growth engines, 54%. When you look at the growth, already in that one data point, you see that it is the growth BAs that tend to grow faster, also for market reasons. This may be more interesting.
Net cash from operations, slightly more than half from paper or printing and reading. Renewable packaging very solid and so forth, but look at the CapEx last year. Total CapEx, more than three quarters into the growth engines, less than a quarter in the cash engines. Self-finance transformation. We've said, and I've said it a couple of days ago, our goal is to become a global renewable materials company, primarily in growth markets. It's a long march there. Same metric again, but not in time dimension. 2007-2008, look at the heavy, heavy CapEx, especially in the early years, the green one. Pretty dramatic, and this intentionally is in absolute numbers now, because you would figure it out anyway. Big numbers also in terms of north of half a billion in restructuring, which I believe was necessary, very much necessary. You can see, I hope, a beginning of a trend.
2009, 2010, 2011, the bar above the water, so to say, gets more significant, and it allows us to invest into our future. Start with the consumer. In many of our markets, when I meet customers in this association, colleagues, we tend to talk about, there will be paper. Because our customers say there will be paper. It's not our customers who decide that. It's the consumer. We've done, and I'll show you one glimpse of the study a bit later, we've actually done a pretty thorough study on the scenarios of graphic paper use based on primarily change in consumer behavior. Not based on technology of iPads or anything else, on consumer behavior, demographic change in consumer behavior. I think that is an example of how we need to think. There's good news.
The same way, one and a half billion people in the next 10 years will be added to the consumer market who will buy packaged food, packaged liquids. This is a bigger number than some of the digital world people talk about, the next billion. Very largely, obviously, in China and Asia, but it is a very significant factor, especially, like you hear from Mats in a minute, we are in a very strong starting position. We need to change the language, though. Here's the building on the left, made out of concrete and a wood element-based building on the right. To create these new ecosystems in the new markets, we need to stop talking about tons of CO2, percentages, euros. We need to talk about years.
The building we built together with our partners in London, Hackney, the eight-story building, yes, it's lighter, it was built faster, it was cost-competitive, better for the environment, blah, blah, blah. It was built, say, 2011, add 29 years to that. What is it? 2040. In 2040, that building, after we heat it and light it, will have the same footprint as the concrete building had day one. I think with the demographic change, that's important. That's the language we need to start using so that people understand that what we do is significant not only for the company, but for the environment. Snowboard, I had a knee operation, not because of snowboarding, but we're not planning to become a manufacturer of snowboards.
You will hear from Juan to whereas we're short and mid-term, yes, we believe plantation-based pulp is a really exciting opportunity for us, and we're investing in it. In parallel, we are investing in beyond pulp, if I may call it. That will replace fossil materials with materials that have better strength than the fossil materials, are cost-competitive, and we believe will grow. Ecosystems then. Consumer in the middle, not the tree or the forest. We need to start building these ecosystems, and I believe we have many areas where we can have a significant role together with partners, more and more together with partners than alone, in renewable packaging to build that EUR 1.5 billion new market, to lead the conversion of the multi-story building market from concrete and steel into renewable materials, and the very wide biomaterials opportunity. Okay, let's talk about building value. How do you do that?
Before I show you the slide, I'll start with this. I promised that I'll only talk about 60 seconds of history. Now I break my promise. Give me 30 seconds more. This is history. What this graph does, it basically removes economic cycles from the paper demand, European graphic paper, mathematically. It removes seasonality. This is the underlying structural change. What it says is, it talks about residuals in a regression analysis. It says, as long as the graph is pretty close to the zero line, then the ancient old truth about correlation, what drives demand on European graphic paper, which if a consultant tells you is GDP, it's by the way wrong. Don't tell anybody it's industrial production. That's the best correlation you can find. Watch what happens when I joined the industry. It's not because of me, but I'm a lucky guy joining the industry.
Outside the cyclical economic cycles, one-fifth of the market is gone, and it is gone forever. You might say, isn't that horrible? I say no. It's horrible for people who say, we'll be okay, we'll be okay. It's not going to change. It's not horrible for people like us who have built not a forecast, and I won't show you a forecast, but we've built scenarios of different speeds of that change continuing. When people nowadays ask me, will there be a change in the market? I say no. It already happened five years ago, or it started five years ago. How do you then, in that environment, build value? I'll take, without showing you a slide, the famous word consolidation on the table. I have no particular emotions about consolidation, not at all.
We firmly believe that the shareholder value creation on consolidation is based not on the transaction, typically. Maybe step back, it's not created on the transaction itself because the markets do work and you will end up paying full values, typically. It's based on aggressive and rapid capacity cuts with drives in your cost position if you can do that, and the supply-demand balance. I also believe, and this is important, that the investment into consolidation, you can't ignore the fact, a couple of important things. It is the transaction value plus the restructuring cost plus possible liabilities, and you're paying for the remaining capacity. You're not paying for the purchase capacity. That's how we do the math. With significant possible cost synergies, yes, absolutely, there's shareholder value creation. My question is, whose shareholder? We've done a bit of a study, which is essentially a sensitivity analysis.
When I say we, yes, we used a very expert outside party to test our thesis. I'll show you in a minute a slide, and here are the key numbers. We assumed a six times EBITDA, underlying EBITDA multiple, three margin points of combined revenue cost synergies, lasting, say, four years, and three margin points of annual revenue restructuring cost. This is how it looks in our math. Let's cite the buyer. When you're at the left upper corner with this math, you essentially assume for simplicity that the value was paid in full and the buyer paid for the synergy, so you don't create value, you don't lose value. Now, there is a positive cost synergy, but there always is in a market with low customer loyalty, commodity products, there's always the share of wallet.
There is at least a significant risk of customer share loss because everybody else will go after your share for every machine that you shut down. You move right to value destruction. You see the dotted lines for every 2% of lost volume of the combined entity, you have to get the price up two points, not to destroy value. Right side, that's everybody else. They create value to their shareholders. They obviously will drive the vertical axis down because everybody's after the volume, so they gain share, and the green gets, how you want to call it, either brighter and brighter here. It obviously, if it works to the right, the shareholder value creation increases very rapidly for them. The interesting part here is that the buyer who takes the risk is not the one who drives the dynamics, is our thesis, and I'll be happy to discuss that.
Before you ask it, hang on, but what if the buyer makes a better deal and he only pays for half the synergies, shares the synergy value between the seller and buyer? With these numbers, the three margin points cost synergies, yes, you create value, except if you lose 3% of your volume, the value is gone. I claim at least a risk is there. That's why, to be very clear, we have been and we are all open ears and all open eyes to look at possibilities that create value to Stora Enso shareholders. That's the only metric we have. Now you get why I call it building value. We believe that we have an opportunity, a foundation, a basis, and the financial ability to build value. This is not a forecast, just to be super clear. This is just a PowerPoint mathematical exercise.
Let's assume that my brilliant BA managers will talk to you. They work very hard in the next X years, so don't even ask for the year. They can't improve their cash flow from operations, not a penny. No new ideas, they can barely maintain the same level as last year. The extra part, the bright green part, is the targeted impact on our cash flow of the already announced strategic projects. The message of the slide is not to try to calculate or measure now exactly what it is, but I claim that is a step change and a significant transformation of the company. That is before we can improve our existing business in the various areas that you will hear about more today, and a few other things that we have in mind that you will not hear about today. That is, I admit, the priority.
In that same year, 20XX, that I will not detail now, that's the transformation if you look at, for example, operating capital. From the present BA base to printing and reading, a little more than half, to about two-thirds being in the growth engine area, growth markets, geographically and product-wise, and one-third in the cash engine market. In summary, we need to speed up what we've done past five years. The heavy lifting restructuring, if you look at the trend on the restructuring cost, is leveling off. That's the daily work, not annual. I believe we need the engines, the cash engines and the growth engines to finance our future.
If you'd look at our growth engine BAs on their own, and you can do the math faster than I can, to finance only the three programs that we announced on the outside market would be pretty challenging on their own. We believe this is a strength in our portfolio. We target to self-finance the transformation of this company into the future of renewable materials globally. We want to focus and focus again, I hope you hear it a million times today, with the consumer. We believe we are about to start building new ecosystems, be it building and living, be it biomaterials, and many other things. The only thing we care about is building value to Stora Enso shareholders. Thank you. Questions.
Okay, Lars, please go ahead.
Accelerate what works, fine. You're pointing out a lot of potential. You're referring to that chart where you said don't take this as a forecast, the green line going down. When are we going to see this acceleration? You talk about the potential, but how do you actually realize that? Can you give us any sort of sense what's behind the potential you talk about?
Two questions. Obviously, we're looking at also the short-term environment. We need to do that. I think you've seen signals, not on the chart yet, but if you look at the rhythm where we used to do this multi-mill, X hundred million thing, now we've been since last year already in fine paper and a few other areas, and more will have to come. Of every quarter, a few million, so forth and so on. The battle obviously is how do you make that happen? Let me say this, one of the primary reasons why we reshape the business areas now into the four that they are is that they serve their own markets, their interdependencies. We're reducing them as much as we can. Because I've told the team, I don't want to tell you this, I'm not the BA manager anymore.
You guys drive, and this is a race, so you have to take the initiative, and the proof is in the pudding. I mean, the team is welcome to tell how they see it, but I'm convinced that there is no end, and we will have to improve, improve, improve. When I look at, by the way, within the BAs then, the best mills and the worst mills, be it working capital, overhead cost, or whatever, I think there is still a lot of opportunity there.
Okay, can you give us any sense about the pace? If I did the math on the ones you've announced so far, the various five, six, seven, at about a round figure of EUR 100 million, which is about 1% of your cost. Is this number going to be EUR 200 million over the next 12 months? If we talk in acceleration, what are we looking at?
First of all, my acceleration was more related to the biannual or annual big programs into getting in this rhythm of mill by mill, function by function, and so forth. I don't think I'm going to give you a per margin point number now to forecast. That would go too far. The best I can say is that when you look at the market chart that I gave and so forth, it's very clear to me that we're not at the end of the path, and it will include also capacity reductions because some of those mills will have a limited life. Please don't get angry with me, but I'm not going to give you a margin point number.
Fun question for me. I'm slightly confused when you talk about consolidation, what you actually meant. Essentially, the way I read you is to say we're not really interested because we can't win this on the consolidation basis. It sounded to me like you said, you know, what we have on the old side of the industry, if you say the cash machines, we're going to keep those to finance the growth. If you just want to clarify for me.
Thank you for asking the question. No, I did not. You could say it sounded like that. This was a case study or a sensitivity analysis without saying would we be the buyer or the seller. The point of the story was that the issue with consolidation, in my humble view, is that the people who drive the success, who create the, who have the best opportunity to create shareholder value from consolidation, unfortunately, are not the people who make the investment. In fact, there's a contradictory interest there if you look at the market share or the customer share development. Very clearly, let me say this, if there is an opportunity that I can say counting restructuring costs, counting negative market share synergy, I can see a valuation that gives me confidence that I can create and keep shareholder value. Like I said, I have no emotions.
The other way around, before you ask, you could say, if that's what you think, why don't you sell paper? Different answer. I haven't met anybody who would be able to offer me clearly, even close to the value that we sincerely believe we can create through our own programs in paper. I think the wrong answer is you say, you should focus. I'm very focused. My BA heads are very, very focused now. I think it's wrong to our shareholders if I say, this is a little problematic. Let's get rid of it at any cost. That's value destructive. We have to make a choice between, can we create more value in our paper, dedicated, focused paper business through the continued program, or can somebody offer a bigger value for our shareholders? That's the thinking. No emotions.
Okay,
Thank you.
Can you give it to Oskar there in front of you? Okay, thanks.
Hello, Oskar Lindström from Danske Bank. Two sets of questions, actually. The first one is on the role of acquisitions or transactions, actually, in the structural change that was a little bit alluded to in this pie chart or the two pie charts where you showed that sometime in the future, that's the structure that you were aiming for. So far, you've driven this primarily through organic investments.
Okay. Those pie charts, the 20XX pie charts, did not include any new acquisitions. That's the transformation and implementing and ramping up and fully running the three major projects with this Oslo Lake aboard machine, Monte Soplata, and the new baby of the week. I was trying to say, no, no, no, if we get smart and can acquire things, that's beyond this. On the thought of buying value or building value, first of all, I don't believe it. I believe in markets. You can't buy value. You can buy something and then restructure value out of it and hopefully keep it, or you can buy something like impact. You buy something early on and you build it. That I believe in as an example a lot because the scaling up impact is unbelievable.
It's a positive thing and you have a lot more control of your destiny than if you try to buy and restructure value. Without, again, giving you numbers, yes, we are looking in our growth engine areas for possibilities for repeat success like impact. In fact, Monte Soplata is a bit of a case like that because we bought eight years of time through the NTLN acquisition together with Araoko. It's focused on the growth engineering.
All right. Although you didn't mention it here in your presentation, I want to come back to the sort of fiber supply issue. Is that not something which holds the various business areas together anymore in your view? Is that a synergy that exists and is the synergy at the base of the group?
No, thank you for that question. I didn't address it specifically. When I came here, we had, if I may call them, very dedicated and hardworking people, but the governance model was quite a bit that wood supply was a corporate function, even globally. Where we come to now is they are, and I hate to use the word, they're services to the businesses because the only way we make a living is the businesses. The governance is based country by country, to be honest, on a small team of dedicated business area people who say, that's what we're willing to pay, that's how much we were not willing to pay, this is where the marginal cost sits and so forth and so on. We do work together. Even I am not so simple that I would try to organize four wood supply organizations in Finland.
You try to use the synergy where you can, but the philosophy is very much businesses have to more and more be clearly accountable, clearly accountable, and then earn their freedom to operate and their independence through that.
I was also thinking about, for example, a connection between your market pulp business and the plantations included in that and your renewable packaging business, for example. I mean.
A couple of things maybe, and we shouldn't get too deep into an organizational discussion. I mean, you know in the biomaterials we have now, Veracel, the best pulp mill in the world until Uruguay at least, that essentially only serves one of the printing and reading businesses, the famous OWL. Now in the new segment reporting, that's on a market pulp basis because we would like to do things. I measure business as third-party competitive revenue, not internal capital revenue, and so forth. In that sense, Veracel is a bit of a variation, but it's measured against the true market price and so forth. Again, we use that synergy. When Monte Soplata comes online, that will be true market pulp.
In the first phase of our Chinese effort, there will be some market pulp that may one day turn into a second board machine, which is a very exciting opportunity. We will have one organization over this serving our global customers in pulp and so forth at the same time. To keep things simple, we won't have two BAs running a project in China now. The simpler, use the opportunity and use the portfolio opportunity. More and more, I'm pushing these BA guys saying, you sort it out. I don't want to add corporate this and corporate that because I think the speed and the focus on customers and competitive costs and so forth suffers from that.
Thank you.
Jukka, I think here's one for you. Yeah.
Thanks very much.
We need to control that.
Coming back from the picture .
Coming back to the picture showing about the consolidation, that the main benefit was the other, the market. Can you say something about capacity closures in terms of that? That would also benefit the market in terms that you see volumes being lost. A second question to that one, if you look at your past capacity closures, there's been quite a dramatic shift still in the downturn, the paper demand. In general, do you see your own portfolio right now as optimal, or do you foresee Stora Enso to enter a new capacity closures phase, as you saw a couple of years ago?
Let me try to put it this way. That picture that was intentionally a bit simplistic, not to get to infinite details, we did look at most of the recent transactions to get the numbers and the values sensible. That horizontal axis, which is the price premium, is essentially driven, the thought is driven through capacity closures that the buyer pays for 100%, but it obviously benefits the whole industry. The vertical axis was this lost share and gain share. That's these, and I tell you we have some experience on that because of our own restructuring. You always lose some. Believe it or not, in our industry, when a paper machine X goes down in mill Y, there are customers who say, number one, if I don't get my paper from that machine, then I can buy it anywhere.
More important, when the significant consolidation happens, customer shares per individual customers skyrocket. In a commodity market, if I'd be the buyer now and say, oh, my new friend, all of a sudden your share is 70%, would I want to split my risk? I think that's the other driver that's in the interest of the guys who didn't invest, but not in the interest of the person who paid. That's the dynamic that I was trying to explain, and the risk related to the consolidation.
Okay, one more question from Ross.
I'll be here all day, all evening, so you can ask me as many questions as you want afterwards. Yes, Ross?
Yeah, thanks, Jukka. What are the financial objectives you're setting out so that we can all determine whether or not this strategy is a success?
Thank you for that. I know I'm a boring guy, but when I joined the company, the first day somebody said, are you going to change that 13% return on capital employed target? I said, nope. Same answer today. What I said in the China announcement this week, I said this investment, and for that matter, some of the two others, to get to that path, you can do the math. If the group is going to get there, then when these babies are up and running and as perfect as I want them to be, they'll have to be above. We will not disclose individual project returns or stuff.
If nothing else, from that bright green bar, yes, it's a structural improvement, and we're investing where we believe that in good markets, we have very, very good returns, but also important, in slow markets, we still have a clear and clear value creation opportunity. This is still a cyclical industry.
By when?
By when? By 20XX? Don't get mad at me. I want to be so careful and clear that we're not giving a forecast because that would be totally inappropriate. If you want to do your homework, you know pretty well the schedule of Monte Soplata, and you basically know when the first chip is going to go to the digester, then it needs to be ramped up, and the prime qualities and so forth. You know roughly now the China investment schedule, the Oslo schedule. It is still years, but it's not that many more years, if you do the math. I'm not giving you a forecast by year. Remember, that bar was based on announced investments, not stuff that I will not announce now.
Sorry, just lastly, you talked about accountability before. Is compensation being linked more heavily to return on capital?
Absolutely.
Can you explain in more detail how it works, and has it changed?
It has changed. From day one when I came, we, and then this is not my expertise area, but we had base pay, we had restricted shares, cash bonuses, options, and so forth. Day one when I came, I said no more restricted shares. Nobody gets a bonus for being on the payroll. We have a short-term incentive program approved by the Remuneration Committee and the Board, obviously for the Group Executive people. It is based on both P&L and balance sheet improvements. If you care to read my first five years, sort of 2011, you can see, because I'm personally in our annual report, you can see that it's not so easy to hit those targets. That's fine. The same is true for the Group Executive. I think we're very happy with that. It's a short-term incentive, then it's a long-term incentive, which is performance-only shares.
That award goes from zero to max based on the performance of the company. There are three-year programs on annual objectives and so forth. Like I said, if you don't mind, I won't give you the exact metrics and so forth, but it's basically profitability, value creation, if you want to call it that. We are also, in that whole context, incentivizing people to improve our supply chain further because there's a lot of money there.
Okay, good. Thanks, Jukka.
Thank you for listening. Like I said, the new rule is difficult questions, BA managers, nice ones to me. No, we have agreed that they answer anything they want, and they will delegate to me or allocate to me if they so want. Next, Chris, the best mill in the world.
Thank you, Jukka.
Yes, indeed. Welcome again at Stora Enso Langerbrugge, the best mill in the world, the best paper machine that makes newsprint in the world. The machine is running now here about 30 meters behind this wall at 1,900 meters per minute, and I guess I didn't feel any vibrations yet today. I'm sensitive to these vibrations, and I guess you didn't feel them either. We are running full speed. Let's have a little look at a short movie that shows our primary circle that we have here. We get old paper from the market, we make paper, we make a newspaper, the newspaper goes back to the reader and comes back over here. This is very illustrative. It's very international, nobody says a word in it. This is, in fact, the Gent route, that collection of material. Maximum kilometer is about 30 kilometers. They come here to the mill.
You see a lot of cardboard in between the paper. You see always this newspaper coming back. Here we do the sorting, take out 30%. In this hall, we will visit. From now on, the picture is gone. You add paper and you have a slurry, a dirty soup that we clean, put on the paper machine, have a reel of 100 tons of paper, and cut it up in smaller reels according to the newspaper pages that they need. Automatic packing and storing. Extremely small warehouse, remember the CapEx message. We give it over to somebody else. The truck brings it to a nearby printer. About 30 km from here, they use 80% of their newspaper is coming from here. Distribution done by the Belgian Post. Not the same guy and not the same newspaper because we have several customers, of course. The message is here very clear.
Give us your old newspaper, we will make a new one. The mill itself, Langerbrugge Mill, is very well located. You remember in our bus tour, I explained to you that we are here on the canal that is joining us to the North Sea. The Gent harbor is a harbor of a capacity of 50 million tons per year, which is in the smaller harbors of Europe, one of the biggest. Very soon, in 10 years' time, we will have a connection to Paris with boats of 4,000 tons, and we will be on the highway to there. We are very close to railways. We are very close to all the European highways, like we saw this morning, and they were reasonably empty. We did not lose too much time on them.
The whole story started in 1932, where you see an old power plant that delivered steam and electricity to our plant here, where we started production. In 1932, PM1 was started, PM2 later, PM3 later. We had here three paper machines, of which the PM3 is still running and making magazine paper. The paper was for our customers in the neighborhood. The raw material came from far away. Wood came from Belgium, Ardennes, came from Russia, came from the Baltics, and that changed in 2001. In 2001, luckily, Stora Enso took the decision to build here a brand new PM4 for newsprint and serve the local markets. This has saved this site. Otherwise, this site would have been closed. The mill started successfully in 2003. There was only one thing still to be solved, that was the energy. That we solved in 2010.
In 2010, we started up power plant number two, and now all our assets are there, and all our investments are done to really be successful and to be the best. The secret, I believe, that we need to solve is three things. You need your customers, you need your fiber, you need your energy. For all three of these, we have a solution, an optimal solution. Langerbrugge Mill is in the middle of Europe, very close to our beloved Brussels, where all the decisions nowadays are made, and also the decisions which are for you made in Brussels. If you draw a circle of 300 km around that place, then you have London, Paris, the Ruhrgebiet, and the whole of Holland, 80 million people. We are sure that these people still, for a long time to come, will read newspapers. Also for overseas, we are pretty near.
If you look at Antwerp here and Rotterdam there, these harbors together are still the biggest harbor of the whole world. If we are shipping material from here far away, then the ocean-going vessel is 50 km from here. All the printing plants that we serve are also very much in this region, and all the biggest titles of Europe are really printed here in this region. Second thing, then our fibers. Our fibers, we are getting also from the neighborhood. Holland has 17 million inhabitants. Belgium has 10 million inhabitants. These people are using about 200- 250 kilos per year. Bringing that all back to us, the recycling rate is about 75%. Pretty in order. We could really say that if we're collecting that material from all these households, we are talking about an urban forest.
We made a small calculation to see how big is that forest, and that's the size of it. If this would be a Nordic forest, this forest delivers the same amount of fibers in a sustainable way as the whole urban forest of Belgium and Holland together is bringing. We are using in this mill only recycled paper. Since 2005, we do not receive any wood anymore for our production on both of our lines. Now, how do we do this? We work with collection centers. The community works with collection centers. Every community is making rounds and collecting paper in various forms for every household. This is a very well-organized, very regulated thing as well. For instance, in Belgium, it is so when you put your box in front of your door, you lose ownership of your box. The ownership goes to the community that can then collect.
We do not have trucks stealing around paper. What do we do? We organize ourselves to have contracts with all these municipalities so that these trucks from the municipalities come to our sorting stations or our sorting plants. There we are taking out the cardboard. We have two sorting plants, one here on the site and a second one on the highway between Brussels and Antwerp. These two sites are delivering one-third of all the paper that we need. The rest of the paper is coming from a little bit further: Belgium, Holland, Germany, a bit the U.K., and France. The total amount we need is 700,000 tons, and Belgium alone is only able to deliver 600,000 tons. The box that you see in front and the box you see here is containing about 30% of cardboard, 70% of paper that we need.
The board that we get out, the cardboard that we get out, we sell on the market for packaging material. Now, before some of you are saying, yes, this is a very difficult market, yes, it's a difficult market because our Chinese friends are needing an awful lot of packaging material to pack all the stuff that they are making for us. We have a nice answer since this week we will grow the wood there ourselves. The other machines who are there really need, if I'm right, they are importing something like 20- 20 million tons a year to China. One-third of the Belgian paper is going there. We have a struggle here in Belgium also to convince the politics, the people in the street, to really convince them, keep the paper over here.
Do not drive with trucks hundreds of kilometers to the Rotterdam harbor, use it here in our factory. Obviously, everybody's then blaming us that we are against free trade. We have to find an equilibrium between these two opinions. What will you see now here? You will see that we have an awful lot of paper lying here. The paper goes into a washing machine, first into a big drum where we eliminate waste. What you see here is CDs, plastic, shoes, whatever, everything that people are throwing away inside their bin, that's for old paper. This represents about 1%- 2% of the total amount. A next thing that we do not ask our citizens is that you don't have to remove the staples yourself. We do that for you, and we do that in an automatic way.
This is a pretty big heap of metal that is coming out of our systems. I promised to some of you on the bus that we will also explain some technicalities and not only talk about euros. The pulp, we add an awful lot of water there. We add air, we add a little bit of soap. On the bubbles that are formed there, the particles of ink are attaching themselves and they rise. We take the foam away, and this foam we burn in our first electricity plant. These fibers that you see here have the size of about four to two mm, are going to a next stage and go from one washing machine to the other. It looks like this: very dirty, cleaner, clean, cleanest. This is clean enough to go on the paper machine.
We hardly use any agents or hardly any chemicals to do extra bleaching on this material. Having this clean pulp, again with a lot of water, we spray on these very big textiles, actually in just the same way like the Chinese did it to a towel in the area.
First, the water is dripping out of the first wet section. The next one is we pass it through a press section where we press the water out from these in between several rolls. We pass it through the dry section where, with a lot of steam, we are drying the paper out. From 98% of water where we start, we end up with 5% water. All the fumes that you see around the middle are actually water going out of the paper. Because of that, we need an awful lot of energy. If you allow me to boast a bit, this machine here runs at 120 km/h . You remember the highway where we were on? The bus was driving 90 km/h . It means that the sheet of paper would have passed us on a width of three lanes, if you can imagine that.
We do that every day, every night, every weekend. We are producing 1,100 tonnes per day. The next one, and therefore we easily say the biggest and the best, the next one is doing less than 1,000 tonnes per day. The energy, that was the last thing. First, the customers. Secondly, we talked about the fiber. Now the energy, which we solved as well. The first power plant was built here in 2003. It is using the sludge from the inking, which is, of course, a very good fuel because ink is composed out of oil. We add waste wood. Waste wood is wood that you can't do anything with anymore. It comes from construction companies. It's an old kitchen. It's an old door, whatever. Look around here.
The moment that we knock down this building, you will have quite a lot of wood that you just hack into pieces and can be burned here in our facilities. Better to do that than to put it to landfill. The next one is power plant number two, built in 2010. That one is also fueled with that waste wood, but also with some biofuel. That is a high energy content fuel waste coming from real waste then, because you smelled it probably when we drove in. Coming from the industry, coming from the textile industry, packaging industry, whatever, burned over here at a rate of 1,000 tonnes per day. These two installations today are covering 100% of our need in steam and 65% of our electricity. The rest of the electricity we are buying. For the technicians among you, the first one has a 10 MW turbine.
The second one, this one has a 40 MW turbine. We solved that again, and we are exactly where we want to be. You have to think here on the fact that this mill is considered heavy. Still, we are 100% sustainable. All material that we use over here has been in a garbage truck at some stage, except the people. All the rest we use over here, we make a prime product. We make a product for our surrounding customers where we know we still have to deliver that for a long time. Some say newspaper will disappear in five years. The other one says newspaper will disappear in 50 years. Let's make a deal. Let's make, like I promised to Jukka, let's make the last newspaper of Europe here. We still have to do that.
We are exactly in the right spot, exactly among the correct customers for exactly the right product. We solved the RCP. We are in the middle of the urban forest, and we are in a mine where we can extract our energy. This is a very nice story, I believe. For what we are extremely proud of as well, and now I'm coming to the mill tour. Stora Enso has also launched a program a year ago. Hey guys, you have to do better in accident rates. We are already pretty good. I'm sorry. In this period, 2006-2007, we worked almost 1,000 days without an accident. We didn't have any accidents so far. We are very proud of that. We wish that we will do after lunch a mill tour for you, and we wish the same. We do not want you to trip.
We will have some stairs that we have to take. If you need some assistance, we will help you. It's very nice weather. The tour that we will do is a tour that we do with about 3,000 people every year. The only disadvantage that these people have above you is that they had to pay to get in. They paid, or they have to pay with one to three kilos of old paper that they then sort themselves and put in the bin. Because it's nice weather, we will go through the hall where you see all the paper, and then we will have a look at the power plant from there. It will be perfectly safe. We will stop all traffic into these halls. We will be divided in three groups. In every group, there will be two people with a reflecting vest.
Please stay in the neighborhood of these people. When we go into the machine hall, there's a lot of noise. You will get something to protect your ears. Stay behind a very clear white line, which is painted on the floor. Do not cross the line. Don't go too near, because the worst thing that we hate here is having red spots in our paper. We now will have lunch, and then after lunch, we do the tour. Thank you very much.
Good. Any questions to Chris? Okay, Jussi, go ahead.
Okay, thanks. It's Jussi Uskola from Deutsche Bank. I was just wondering, after Jukka's presentation about the best practices within the industry, your mill obviously is one of the best paper mills in the world, or the best paper mill in the world. Can you give us some concrete examples on what you're currently doing in order to improve your profitability, and how are you learning from these best practices? Thanks. Also, what kind of cost savings can you reach from them?
Yeah. After 2010, when the power plant was running, you could say we are more or less ready with investments. From now on, the investments that we need to do are repairing things, bigger maintenance, things like that. Basically, we are there completely in order. What we do is energy saving. The old concept was in such a way that whether you were saving steam or not, it didn't matter very much. Now, with the new concept of the new power plant, every kilo of steam that we don't use, we transform that into electricity. More electricity means less electricity to be bought from the grid. You could say one day we make all the electricity ourselves. That's not possible. A nice remark, though, is that when one of the machines is down for maintenance reasons, we are actually sending the electricity into the grid.
We are a net electricity producer. You would say 1%- 2% every year we take the usage of energy down per tonne of paper. The fiber, that was the energy. What is also extra in the energy is that we are searching for suppliers. We have about 20- 30 different suppliers of that bee wood and that waste and whatever. I can imagine, you probably imagine also, this is not the cleanest world to make business in. You have a lot of players around. It's not so that we want to concentrate to only the big ones. We try really here and there to steal the cherry on the cake. For the RCP, the same.
For the RCP, we must make sure that we have the best contracts there, that our sorting plants are running very well, that we are very much present in the market, very near to the community, very near to the politics, so that we can also convince these guys, make sure that your paper stays here. A very nice story I can tell you. It's a bit sad, though. A lot of people of you know Bruges, the nice medieval city about 40 km from here. They sold their paper, of course, like they should be legally. They sold the paper, and to get your paper, you have to give there a closed envelope with a price. We were EUR 2 short. There was a Dutch trader who got the whole stuff, 30,000 tonnes. What does he do?
He brings everything together in his trucks, sends it to Rotterdam, all passing the ring of Antwerp, which is the most horrible highway to have traffic jams. We lost the 30,000 tonnes. We didn't even want them because they were too expensive. We are buying them from Breda, from the south of Holland. Our trucks are also standing in the queue, and the two truck drivers wave at each other because they are standing on the... If you tell that story, everybody agrees with you that this is stupidity. Everybody. You always have one guy who says, what about the free market? How to find the equilibrium on that? That is on the fibre then. The customers, we try to convince the customers to buy only from us. Actually, all these guys know each other, so price is discussed and whatever. I don't see a real problem there.
What I feel from the customers is that they are saying, we will not give you 100% of the business because if you have a standstill, we don't have paper and we can't bring out the next newspaper, which is a correct assessment. Luckily, Stora Enso is big enough. We have several machines in our portfolio that one can help the other. What we do, we make sure that the qualities of our papers that we have in Stora Enso and Newsprint are interchangeable. We try to take away this argument as well. I'm coming back to the three things: the customer, the fibre, and the energy. In small steps, you do the improvement. Long answer, but I'm a little bit emotional about that.
Okay. Any more questions to Chris? Okay, if not, then we will have the lunch outside here. After the lunch, we will start a mill tour. You probably have the programs, but the mill tour starts at 1:40 P.M. Good. Okay, let's start again. Good to see you all back from the dangerous mill. You must have behaved yourself when you made it here. Good. All right. Now we go to the seeger board. I was much more enthusiastic when we rehearsed this morning, but they said that I can't use those words. I had to modify my approach. Okay, we did a reorganization in the beginning of the year. According to IFRS, our figures need to reflect how the company is run. This is actually why we changed this reporting system. The big change really comes in the...
If you think about the sales and operating profit part, it comes from there that we took the market pulp out of the paper and packaging businesses and put it to the biomaterials along with the plantations. All these paper parts or paper businesses were reorganized to one business area in order to serve the customers better. Therefore, we have now printing and reading where all the paper is reported. In the packaging side, we combined that altogether to renewable packaging. That is run as a 1BA under Mats Nordlander. Then we have the new business head, Juan Bueno, who is heading the biomaterials. That has the market pulp mills and also our plantations, except Guangxi. Guangxi is in the renewable packaging. On Tuesday, we know now why. That's due to the fact that it is going to be integrated to the board machine through a pulp mill.
One of the... Then wood products, former wood products nowadays, building and living. That stays as it is. There are no changes over there. What we are going to start doing in the interim report is that we are also starting to comment on our segment other. I will talk more about what we still have in segment other. Here you can see the sales, how it's divided between the different business areas. If you look at the group total and then you look at the business area sales, it doesn't add up. It's due to the internal sales in between the various business areas and also the part of the segment other. If we go to EBIT, operational EBIT, this is the line where the group figures and the business area figures, they match. Here we can say that about 45% of the sales is printing and reading.
Over here, it's like 35% of the EBIT is from renewable packaging, 33% from the printing and reading last year, 20% biomaterials, and 7% building and living. The segment other is 5% operational EBIT. What is there in the segment other? There's the equity accounted investments, namely Berivik and Tornator, which are the forest companies. We have PVO, which is the power company, and wood supply, some of external wood sales, and then the group administration as an expense. The most interesting part, I think, for you is when we come to the operational capital. The operational capital here, I only highlight here where the changes are. I'm not going through any of those that there are no obvious changes. This is printing and reading. It is the old newsprint magazine and fine paper.
What's gone out of there is Skoolchär and Sunila, the long fiber pulp mills, which is the long position in the market pulp, not completely, but two of those mills. They are now moved to the biomaterials.
They were before in which area?
Skutskär and Sunila. Yes, they were in magazine. If we look at the biomaterials, what it actually consists of, it's Montes del Plata and Veracel, which are equity accounted investments still, but they are reported in the biomaterials. Now here appears, sorry, the capital of Skutskär, Sunila, Enocell from renewable packaging, and Rio Grande do Sul, which is the plantation in Brazil. Of course, in Montes del Plata—sorry, I keep on missing this all the time—Montes del Plata and Veracel have plantations as well, but they are integrated to the operation. When we go to the renewable packaging, here is the old consumer board and industrial packaging capital. You can see here Enocell and Guangxi. These are, of course, going the opposite of each other and totaling -EUR 6.7 million. Enocell is gone and Guangxi is back there.
You have to remember at this point, I think that there's a bit of sales of wood from Guangxi, but basically, it's not really productive at the moment yet. Then is the segment other. What's there is left. It has been there all the time, and still there is the PVO. We will have the Skutskär, Sunila, Enocell, Rio Grande do Sul, and Guangxi are gone from here. Veracel is gone and Montes del Plata is gone. This is the big change in the operating capital that is much smaller than what it used to be. If we think about what this organizational change is reflecting, it reflects the new organization. It increases the transparency of the reporting due to the fact that the market pulp is now on its own business area. You can follow that in a much more clear way.
We have allocated the capital according to the use, so we would also see a sort of a more descriptive capital employed figures and a return on capital employed. That is very important in order for you to see also the real performance of the businesses. That is very quickly about this news that we announced. If you have any questions, I'm happy to take. Jussi, please go ahead.
Okay, thanks. Jussi Juskola from Deutsche Bank. I just have a question regarding the structure. I was just wondering why you have left the integrated pulp capacity into the business units, because how I would like to personally see it is that you would be having all the pulp capacity in one unit. That way, you could really put pressure on paper units in order to improve their profitability.
Jukka wants to contribute to this.
Thank you for that idea. First of all, I can assure you that you can ask my BA colleagues here. I put more than enough pressure on them. I don't conceptually like that you start cutting, not to point fingers to anybody. I don't like building P&Ls and segments from captive internal value chains. That's too adjustable. I believe a segment is a third-party revenue in competition with others. An integrate physically, as you well know, and which then of the pipe should I cut it? Do I do it with the non-existing drying? The strategy and the plan has been that if it's an integrate, it's an integrate. If it's a sellable product to the third party, that's the borderline. That's it. We will remember to put more pressure on the paper guys.
Okay, Kari and then Juan.
Yes, thanks, Karri Rinta, Handelsbanken . When you report your first quarter numbers, what kind of information will we get for what used to be a newsprint, magazine paper, and fine paper? I.e., will we get some volume figures still according to the old structure?
No, we will have volume figures also like printing and reading, meaning the paper. It's not going to be divided to newsprint, magazine, or fine paper.
Okay, the same for renewable packaging?
Yes.
Okay, two more details. Your Veracel volumes, do you sell those to the Printing and Reading at market prices, or i.e., are all those profits booked in Biomaterials, or does the Printing and Reading still include some favorable pricing of pulp that it's buying from Veracel?
This is a treatment of the equity accounted investments. Here you can see that in what we show in Brazil is the Veracel company numbers. Then we ship it to Amsterdam, and Amsterdam sells it to the paper or printing and reading. In the same way, it is the cost plus difference between cost plus and the market pulp price. That's going to be in this EBIT, operational EBIT, EA EBIT, and cost plus market price difference. That is going to be there. That is going to be in biomaterials.
Just to be clear, you have paid a market price for Veracel pulp?
Okay, Juha, I think it was you.
Yeah, will you disclose production figures as well?
Yes, according to the new structure.
Good. Also, looking at before, you saw market pulp deliveries coming from fine paper, magazine paper, and consumer board, right?
Mm-hmm.
Right now you are taking away that from fine paper and from magazine paper?
Renewable packaging, i.e., the old consumer board. It's all in the biomaterials.
Okay, great. All right, thanks.
Okay, Linus.
Just to follow up there on that one. To understand it right, the paper division, the new Printing and Reading, will be a big net buyer of pulp. The Biomaterials division will be longer in pulp than the group itself, and the Paperboard division will be short or long or...
The thing is that it's so that Veracel pulp is internal, all internal pulp. It doesn't look, it's not on the sales line. You don't see that. The profitability of this difference between cost plus and the market pulp, that goes to biomaterials. You have paid for it.
The profits reflected in, I'm not sure I understood it right. The profits reflected in biomaterials will be higher than the profits from the net market pulp position of the group. Is that right?
Yeah, that's the difference of this cost plus and the market pulp.
Yeah, thank you.
Okay, Oskar.
Keep on asking some questions about the market pulp. Could you give sort of the tons, the long for the company, you know, after Montes del Plata or before, as you wish, and then how that breaks down, you know, net long for the company and then how that breaks down for the various divisions now in the new structure?
Yeah.
Just to be crystal clear.
Yeah, this is something Juan will be addressing in his presentation.
Good for him. Yeah, okay, thank you then.
Good. If no more questions, we will continue and I hand it over to Juha.
Good afternoon, everybody. My headline is this: Cash Engine. It's not Cash Cow. Engine is always something that you keep up and running. You maintain, you fine-tune, you trim, and sometimes you have selected profitable investments as well. That is the printing and reading business area. Let me start with this kind of picture. Our consumers are living all over the world. Basically, they have plenty of different kinds of media needs nowadays. They have plenty of alternatives: e-media, electronic tools, TV, radio. Print is one of them. We are offering a sustainable solution for those needs that our consumers are having. Our direct customers are naturally publishers and commercial printers. We need to know what they need, but we also need to know what our customers' customers are really needing now and also in the future. I will start with this underlying question of paper consumption.
During the mill tour, I was already answering to quite many questions. What do I think about paper consumption in the future? It's clear it will decline. It would be totally dishonest to say that everything is all right. Paper consumption is not declining. Yes, it is, because all the new tools, all the alternatives that are developed are heading to the positive direction, and consumers are having limited time to use various kinds of tools in order to be informed about various issues. A good example is this iPad takeoff, how successful it has been during the last quarters, actually. Ad spend. All in all, ad spend is, or actually, advertising is in turmoil. Ad spend has been declining during the whole decade, actually, starting year 2000, especially in North America and in the Western world.
Internet advertising is growing, but even that is not growing with the speed as the rest of the tools are declining when it comes to the ad spend. OECD, composite leading indicator and industrial production, used to explain paper consumption in the Western world until 2006-2007. Since that, this dependency has been disappearing more or less totally. Decoupling started, actually, as I was saying already before the economic crisis that we had in 2008. We have tried to understand which kind of world this might lead in the future. Actually, we don't have a forecast available, but we have scenarios that we have prepared. The first scenario is called demographic shift, and the second scenario is called digital life. What is the difference? Demographic shift is meaning that the younger generation is getting older.
They have different habits to use printed media, and that will lead to the declining consumption of paper. Quite obviously, it will be in the neighborhood of 1% per annum, i.e., meaning that during the 10-year time period, consumption would decline 7- 10% unit. The second scenario is, as I was saying, digital life. That would mean that actually digital tools would emerge at full speed, and that would have an extremely strong impact on everyday behavior of our life. That would indicate then the consumption decline of 4%- 5% unit per annum, i.e., during the next coming 10 years, the consumption decline could be - 50%. Quite obviously, the truth will be somewhere in between. Demographic shift is too modest, and digital life is quite obviously something which is exaggerating a little bit. Where is the truth?
We don't know exactly, but however, we have to be profitable in every scenario. Today, printing and reading is having a production capacity of 8.2 million tonnes all in all. We are very European-centric, so most of the capacity is located here. We have one production unit in Latin America, in Brazil, called Arapoti, the only LWC mill that the whole Latin America is having. We have one SCB, recycled fiber-based SCB production unit in China, in a place called Dawang. We have a wood-free coated production unit in Suzhou. Ulla was actually already showing these numbers, so I don't have to go any deeper. These are just recalculated numbers of my BA for year 2010 and year 2011. We were ending up to the level of revenues of a bit more than EUR 5 billion last year, and the operational EBITDA was in the neighborhood of 11%.
Benchmarking is always challenging because actually you don't have a comparable colleague to compare. All the competitors are having a different scope of paper products. Some of them are handling differently when it comes to the inventories. In order to smoothen the seasonal or quarterly impact, we have taken in use this kind of sliding average of four quarters, and we have followed what is our status currently when we are comparing our position towards the main competitors. I'm happy to see that actually we have been able to improve our performance during the last year quite dramatically. Actually, we have been able to take off from the group of most important competitors. It's important to know where you are and how to survive in the future. You have always a collection of assets that you need to compare against each other's.
We have taken it so that we have indexed the cost competitiveness of each and every paper production unit in a similar way, and we have given them an index where the median is at the level of 100%. Actually, when we are looking at this kind of trend or curve, this curve is pretty steep. The difference between the lowest cost producer and the highest cost producer is, depending on paper quality, one number between 35% or even up to the level of 100%. In our case, clearly more than half of our assets are located in the quartile number one and quartile number two. We have capacity in the quartile number three and four, and you might think it's bad if you have assets there. No, it's not. You just need to know how to live with those assets.
Actually, you need to take care that you have assets in your portfolio that are also aged enough, old enough. They don't have a capital employed anymore that much. If you are forced to, or you need to close them down because of the cost or capacity reasons, you don't have to take extremely high write-offs because of that. The secrecy to survive also in the future and be the best when it comes to the competitors is the fact that your cost structure has to be below the median level always. That is something that I'm highlighting every day to my personnel that we have to take care. We are always below the median line when it comes to the average level of cost structure.
You are able to see that if we have two-thirds of our assets today in the quartile number one and two, we are there today, but it's not at all a granted issue. You need to remind your people every day about that. It's not only closing. You need to improve every day your energy efficiency, productivity, supply chain efficiency, et cetera, kind of issues. Business is declining. What is then the concept to win in that kind of circumstances? Let's concentrate on the left-hand side of this picture this time. Once again, I want to mention that there is nothing wrong with the business that is declining. There are plenty of businesses in the world that are not growing, but you need to remember that the rules of the game are very, very different nowadays.
It has to be visible in your operations and in your daily life how you are operating when you don't have a growth in front of you. You use this information when you are then collecting the inputs to your actions. I'm just mentioning here that you have to be aware that you are all the time developing your product portfolio, and you have to be efficient when it comes to the supply chain. Our value proposition is indicating to our customers that we want our customers to concentrate on their own business, not to worry about deliveries or other details when it comes to the paper availability. Our paper has to be in the right place at the right time as agreed. We can even take the responsibility of that. We are acting as a service provider to our customers.
I have already mentioned cost efficiency also in the supply chain. Stora Enso's reputation is very much appreciated by customers today when it comes to the sustainability-related issues, especially. Today, we don't anymore only collect the orders from our customers, but we are rather consulting with them what is the best paper for every purpose that they might have now and also in the future. We do not think that print will be sufficiently on its own in the future, sufficiently attractive. It is always a coexistence with digital media, and you are having plenty of examples nowadays where you are combining digital media to the printed media. They are supporting others. You need to develop all the time new products coming out from your production lines. Why is that? Actually, customers do not buy anymore newsprint, this and that grammys, SC, BA, A+, etc., kind of qualities.
They are really buying the right paper for the right purpose. Borderlines are not anymore there. There is always a downgrading, upgrading taking place, and new products are breaking the borderlines as well. I have here one good example. This British Airways in-flight magazine has been more or less always in the history printed to the lightweight coated paper. Today, we are able to produce from our Kvarnsveden mill a product that is not coated and still cost level is equal to the lightweight coated grades. Customer is saving. Price is a little bit cheaper. Our production costs are cheaper, but still we are paid better than SC paper normally. Actually, it's a win-win solution. We both win this very case. We share the benefits together with our customers.
Radio Times, what was there mentioned a short while ago, the very first issue this week is printed to exactly the same paper, and it used to be printed in history for LWC paper. There are plenty of these kinds of similar examples, especially in the area of book paper, but I just wanted to highlight this one in this discussion today here. We have been speaking about net promoter score as well. Once again, we are asking from our customers one simple question: do they promote us or not? Do they act as passives or detractors? It's a pretty comprehensive study every year. You are able to see the number. Last year, we were conducting close to 1,400 interviews. At the same time, we are asking, who is the customer in your mind when you are comparing us?
We are also getting information, relative information, where we are compared to competitors. I'm happy to see these numbers. There is always room for improvement, but we are heading to the right direction. We are currently, let's say, the most perceived paper supplier of most of the customers. The right-hand side of this very same slide, yes, there is no growth. Absolutely, rules of the game are very, very, very different nowadays. Actually, it's better to be profitable than have high market share or size. You need to be extremely strict when you are deciding for what you are investing today. Once again, as I was saying, you need to have assets that will let die one day. You shouldn't invest for those assets. If profitability is disappearing, you just have to accept that as well. You don't pump the money to those kinds of assets.
You take the drastic decisions, and I think our history is proving that quite well. We have also ongoing restructuring measures, and I'm just willing to mention here the coated sector where we recently launched a new program where actually, with the pretty limited investments and pretty limited restructuring costs, we are able to gain rather big annual savings. You have these kinds of cases on the table every day as well, and we need to let those happen. Once again, you have to be critical for what you are investing, at least the big money. Sales value per employee is an important metric. Joke already showed those numbers at group level. We have a sad history when it comes to the 2009. We were not waking up at all at that time.
Of course, it was the most serious downturn that took place at that time, but we were not prepared for that. That was, of course, triggering pretty drastic actions in our end. We took a lot of restructuring, every kind of efficiency improvement steps, and I'm happy to see that already year 2010, the work was paying back. We started to be back at the level of 2007, 2008, and last year, we were at a higher level where we have never ever been any earlier, despite the fact that prices are still at the level of 2007, 2008 as an average. Once again, we need to concentrate as well the orders to the production unit where the order is cheapest to produce. That is an important issue.
It has been very, very difficult to accept for, let's say, mill-centric people of our organization, but that is the part of the life today. Langerbrugge is a beautiful example of a very, very efficient unit where actually, I'm not saying if Langerbrugge is exactly the number one or number two in the running order, but it's very highly ranked in that list. That is a part of the life that our sales forces, our operational people are doing every day, just making a justification where we should produce what order. Coming back to the investments, a typical number for this industry is that we usually invest roughly 2.5% unit of sales for the asset park. That is not enough for the stars. For the best possible assets, you need to invest more. It can be more than 4%. It can be even at the level of 6%.
On the other hand, you shouldn't invest to those assets that are in any case going to die during the next coming 10 years. This kind of classification you have to do based on the competitiveness analysis, and that is what we are doing every day. Energy, I think we have discussed today already quite a lot of energy. That has been one of those areas where we are addressing or where we have addressed quite a lot of investment funding recently. During the last five years, close to $300 million for the selected best units. I just have a couple of other examples of my stars in my asset portfolio. Oulu is naturally one of them, being the biggest or largest paper production unit in the wood-free coated sector, having an excellent logistical concept located in the seaport.
The paper we are producing there is a benchmark of the industry today, and it's integrated to the pulp mill. Similarly, Kvarnsveden PM12, our most new paper machine that had a startup in 2005 and where, for instance, this Prima Press, as I was describing a short while ago, is produced. Located close to the forest, and a good logistical concept as well. Langerbrugge, we have been discussing today already, so I don't go any deeper to that topic anymore, but just want to highlight that as well once again. As a conclusion, you have to be ready for all future demand scenarios. You have to plan your operations accordingly. I think this new setup, having one P&L, one responsible organization, is supporting that and also making it possible that we don't deliver anymore only newsprint or certain quality.
We deliver best paper for best purpose, and we don't care what is the production method or what is the raw material base. We just want to consult our customers. What do they need? What is the requirement for the purpose? What do they ask from us? Performance is always over the size and market share. I think that is one of those key elements in our decision-making culture nowadays. Last but not least, you need to focus on top assets to get them even stronger, and you let those obsolete assets die. Thank you.
Okay, maybe Lars here first. Then you can pass it to Linus, and we'll take it from there.
Hello, Lars Kjellberg , Credit Suisse. One thing that disturbed me a bit about your presentation is that you showed three of the newest paper mills, very significant investments, as your stars. Why aren't you building more paper mills then? I mean, clearly, one would expect machines that have an optimal age with less capital employed to be your true stars, right? If you want to comment that a bit.
Of course, the joint issue for all of those three units is that they all were built when paper business was still growing. Kvarnsveden PM12 has been built in 2005. Paper business was still growing at that time. We have partly depreciated already that unit. Oulu was built in 1991, 1997. Actually, Oulu is a good example of the unit where capital employed is getting already now pretty low, and we have kept that extremely well. We have been acting, as I was saying in the opening of my presentation, that engine is something that you maintain, and Oulu is a typical example of a well-maintained unit that doesn't have that high capital employed anymore. Coming back to your question, why not to build new paper mills if my thesis is right? I think it's not relevant in this case because actually now the market is very, very different.
There is no growth. It's very difficult to find the payback for that kind of investments.
You obviously claim that you have the lowest cost. We're not going to debate that. Let's assume that is the case. You're clearly not reaching your cost of capital in this business. What can you do with your asset base to really step up performance?
I think the only receipt for the success is that, first of all, you take care of your own businesses. You streamline, you streamline, you monitor and follow up that cost efficiency is at the right level. As I was showing, you need to be in that curve on the left-hand side. You have to be a cost structure that is below the level of median as an average all the time. Industry is, of course, a fragmented industry. As we all know, there are plenty of players, and we cannot dictate ourselves only the paper prices or, i.e., the profitability. I think in any case, quite often the market price is dictated by those tail-end machines because immediately when they are falling to the cash flow negative sector, prices are typically corrected. It's more safe the more left you are on that curve.
Just to clarify, you said you shouldn't be scared to be in the fourth quarter, but clearly those machines are rubbish, relatively speaking, right? Why wouldn't you shift everything down to the number one and two quarter?
I think we have been proving that we are taking all the necessary actions when something is required. I'm saying that actually, if we have 5% of the assets left in that quartile, it's already a quite good position, but still room for improvement.
In the context of Jukka's accelerate change, what's in your hands to accelerate change if you think you've already done most part of the difficult job?
Getting the best units better, and at the same time, taking care that we are taking our own role when it comes to taking away the obsolete capacity.
Thank you.
Linus.
Linus Larsson with SEB Skilda. Given the role that your division has been given as a cash engine, what financial targets have been set upon your business? Are they the same as for the group as a whole? Are they cash-linked, which would make sense maybe being a cash generator? If you could comment on that. I would be curious to know if you would like to maybe comment upon the, if you look at the metric like return on capital employed and what kind of spread you have within your portfolio.
I don't want to go to the details, but I have a tough boss. I think, as Jukka was already saying, our targets are very much connected to the cash flow-related matters and working capital-related matters. Those are the steering elements also in my case.
The second question regarding the internal differences of profitability within your portfolio, if you could comment upon, I don't know, percentage points or in any other way.
I just want to comment that they do exist.
Hi, thank you. Ross Gilardi from Merrill Lynch. I just wanted to talk a little bit more about how you manage the business in a declining demand environment. You're very open to that. Given the company's attitude and consolidation, it seems like one of the challenges with the industry is that the decision to shut capacity is usually a reactive decision. It's usually after the plant's not full, and its decision, to some extent, should have been made maybe two years ago. In this type of environment going forward, if you know that demand is going to fall 2%, 3%, 5%, 10% a year, are we getting to a point where, I'm realizing I'm oversimplifying it, but every January 1st, you're shutting 3%- 5% of your capacity just to stand still?
Do you need to do that at some point, just take a more proactive approach to managing supply to stay ahead of the curve going forward?
When you have assets that are, let's say, they're in the right end of the curve, the first issue that you need to do is to turn as much as you can fixed costs to the variables. When you are able to do that, you are able to take temporary standstills without ruining the whole profitability of the very unit. When you have enough standstill, finally, you take the final decision as well. I think the first issue is that you should minimize the role of fixed costs and maximize the variables. That provides you the flexibility to maneuver. Yes, you are right. Industry is always late. I'm just taking my own responsibility that we have been in history late as well. We won't be late in the future.
Thank you.
[Nick Trichels] from Chevron. When you talk about your two potential scenarios there, digital life and demographic shift, when you sit down and monitor that sort of development trend, what are the important factors you are looking on? Is there anything you can talk about or elaborate, or is it just the amount of the % decline per month or quarter?
That is a tricky part of the issue because there are so many different kinds of issues on the table all the time. Some of them are right, some of them are wrong. Some indicators are really telling the direct impact to the paper consumption, some of them are not. How to select the right metrics? We have tried to cooperate with the best possible partners all over the world to collect that kind of information where we are then forecasting where the world is heading. I have seen that in this kind of big organization, people have a tendency to say that actually this and that issue is not so important, so they are partly neglecting the negative trend as well.
You need to take the holistic view, and you need to select those indicators that you believe are the best way to act as indicators for the best paper consumption. I think we have been able to identify at least some of them. As you can imagine, I'm not going to say what are the indicators that we monitor because that is something which is efficiently leading our way to operate.
That's repeated because that was the follow-up question. If I were to ask you, if you had to stand here today and choose between either one of these scenarios, which one would you lean towards?
I think I already answered. It's not demographic shift. It's not digital life through this in between.
Thank you.
Okay, I think Oskar here has a question.
You're now combining all the different grades into one business area, but would you say that there are any significant or fairly significant differences in the demand outlook for the various grades, i.e., newsprint, coated and uncoated magazine, and similar for fine paper? Or are they all sort of heading downwards at the same speed?
As I was saying, there are also quite a lot of downgrading and, in certain cases, upgrading ongoing as well. Maybe it's not exactly the right way to just monitor exactly the newsprint numbers or LWC numbers because they don't tell exactly the truth. In rough terms, I think we all agree newsprint has been hit quite dramatically over the last years. Development in the U.S. has been extremely negative. I don't have any reason to doubt why we wouldn't have a similar kind of strong negative trend in newsprint in Europe as well. Fine paper has been more stable. Office paper has not been that negative yet, at least. It has been either plus minus zero or small plus when you are including Eastern Europe to the picture as well. Wood-free coated, still a small growth.
All in all, when you put everything together, we are in the minus side. You will see small differences between the grades, but they are partly also influenced by this kind of downgrading, upgrading issue.
Exports play a very important role in some of these segments from a European-wide perspective. Do you think that is sustainable five years from now, ten years from now, or are the companies that are export-oriented, I mean, outside of Europe, are they facing a situation where they need to rethink?
Export used to have a more important role in the history than it has nowadays. I think exported volumes all in all have gone down, mainly because of the fact that in Asia, they produce the volumes they need today. In the U.S., yes, you still export something to the U.S. as well, but volumes are much minor than they used to be in history. Yes, of course, export has a role when it comes to the all-in-all production volumes that you are producing and delivering out from Europe. I'm saying that role is not that dramatic as it used to be in history.
Do you think those companies or mills that are export-oriented outside of Europe will be able to continue to be so in the future as well?
Do you mean mills that are exporting to the U.S., to Asia?
Yes, yes.
Very, very difficult to identify that they are specific mills. I think almost each and every mill has in their order portfolio a certain amount of exported volumes. Maybe Langerbrugge Mill is an exception. As Chris was telling, we are so well located that mainly paper is consumed here in the close proximity of the mill. Mills that are typically located close to the harbors, I think most of them have certain volumes going also overseas.
Okay, thank you.
Okay, good. I think Harri here and Keren there], and then we need to stop the questions and go to Mars. They break them. You can still talk with you one.
Okay, yes, Harri Laitinen, Nordea. On the chart which was showing the cost curve for the industry, the first 3/4 have actually a fairly flat cost curve. I think it was in the range of 8- 110 as an indication. The fourth quarter is very steep. That was from 110- 160 or so. If we are looking at sort of structural decline, you might end up, if you take 10-15% of that market, you actually see quite a big decrease in the cost of the marginal supplier. According to some school books, it's the marginal supplier which dictates the long-term price. So would. Where
Do you see the possibilities of sort of maintaining the price levels, or in that situation where you have quite a steep decline in the cost of marginal supplier, possibly?
I think the secrecy is that we need to take care that the curve will be steep also in the future. We need to improve those units that are best units today still further, so they need to escape. When you have a fourth quartile or third quartile units, you don't invest for them. It's not only Stora Enso, but I'm assuming that the competitors are investing for those assets. They have a tendency that their construction will increase maintenance costs, for instance. I do believe that that curve will remain steep also in the future. There are always marginal suppliers available. It's better to be there in the left-hand side with your best and top assets.
Okay, let's hope that doesn't sound too steep. Just a quick one, what did you think of the comment in the first presentation by Jukka that sort of there is an accelerating speed in getting sort of businesses improved because it's your side which has taken quite a lot of cost out in the last three, four years. That's been shown in the results as well. Do you think that there is a potential for accelerated improvement in that performance or have you sort of taken out most of the cost?
I think there is always room for improvement. I would say that this has been a big cultural change among the organizations as well. People are nowadays more and more cost sensitive and quicker to react, faster than we used to be in the history. I think there are possibilities to improve still and accelerate as Jukka was saying. No doubt.
Okay, [audio distortion ] and then we will move on.
Thank you. Can you elaborate a little bit more? When you talk about that digital life scenario, can you talk to us about how you plan to manage the business through that scenario, or how you envision it in your planning when you run that scenario? The second question is, can you talk about with these different segments, how do we think about the profitability of the other segments under these different scenarios? Would they be truly independent? Can you just kind of comment on that a little bit?
You mean between the different paper grades?
No, I meant between kind of the pulp and energy segments. Ideally, maybe you sell your pulp to other people or some of it integrated. The energy, as we saw at this facility, can you truly at all your facilities sell that all into the open market so it's completely independent, or under these different scenarios, would you lose some of that?
That is not at all a simple question nor the simple answer. I think it was already discussed a short while ago that if you have an integrated pulp mill, an integrated paper mill behind the pulp mill or vice versa, actually quite often you don't even have a dryer machine. A pulp mill is actually the stock preparation of a paper machine. It's a theoretical topic if it would make sense to sell pulp instead of papers. Quite often, an integrate is also producing the energy itself. Here in Langerbrugge, if we don't have a paper machine, this boiler is not needed. It's not cost efficient only for electricity production. This steam consumption is needed. Integration is needed and integration benefits do exist and they carry each other. What was your first question?
Talk about the digital life scenario. When you run that scenario, you talk about how you plan on how you would manage the business.
What could I tell? Basically, you know, as I was saying, those two scenarios. Of course, internally we are handling them pretty openly with our organization, and we plan what would be our actions in both. Actually, demographic shift is not the relevant scenario. We are saying that development will be worse than that. We have a kind of midpoint curve in front of us, and then we have this extreme scenario. We are planning what we will do, what we have to do if the other one will take place. I don't know how to otherwise answer to that question.
Good. Okay, let's move on to Mats' presentation. Thank you, Juha.
All right, thank you.
Thank you, Ulla. That was a lot of questions, wasn't it?
No worries.
I wonder if you have anything left for me now. Let's see. I'm Mats Nordlander, so I'm heading the Renewable Packaging business area. For some of you, you know that I was just arriving here from China at the same time as you were doing. I've been occupied with a few other things than preparing this presentation, amongst a few of those things. It has been an extremely, extremely exciting experience of being involved in this China experience. I've been involved in that deeply during the last four years. It was a challenge up to the very end. Now we are there and now the rest of the work starts now. The really difficult work starts now when we are going to implement the issues here. We are really looking forward to that. Don't worry, I will come back to the China investment at the end of the presentation.
I was thinking it would be better to take it at the end than in the beginning. We need a bit of a warm-up first here. This is well known, but there will be nine billion of us in 2050. That's part of the driver for our business, I think. Partly one driver for our business going forward here. That will put an enormous pressure on natural resources and food. We actually have to learn how to get more out of less. That is also partly driving our innovations in our business. It's not just about shifting consumption from non-renewable to renewable materials. It's also about how to make more out of the materials that we have today. That's very important. If we are then thinking about packaging and the role of packaging, let's start thinking about the world without packaging for a second.
It would be a disaster because packaging is a fundamental part of our society today. First and foremost, packaging is there to protect goods, all kinds of materials, whether it's plastics, aluminum, or fiber-based products. It has a fundamental role and it will have an increasing role in the future. 30% of all food that is produced today goes into waste for different reasons. We have to solve that problem for the society going forward. It also serves as a channel of communication, a media channel here. We know from a media channel here that 70% of all consumer decisions happen at the point of sales. In order for the consumer to be well informed and make the choices that the brand owners wish them to do, the packaging material plays an important role. That is not enough.
If we are moving up the chain here, environmentally friendly, it's not enough that it has a desirable appearance. It has to appeal to the environmental consciousness of the consumers going forward. There, the recyclability plays a very, very important role. Our products are recyclable, but so are most of the products today. Plastics are very good at this, but so are we in the fiber-based material. That is not differentiating us from other materials. If we are going up to the renewable materials here, I'm normally saying that everything can be recycled, but not everything can be made from a renewable material. It's very, very important. That's the background also of the name of our business area. We really want to help our customers and the consumers to make responsible choices.
Part of the success, the way we will win in this game, is by putting customers and consumers in focus. It starts with where it has three fundamental pillars here, and it starts with the customer experience up here. It starts by us really understanding customers and consumers' current and future needs. That comes out of the products and the services that we serve for them. It also derives from how we sell and serve our customers. In the end, it's driven by our people and how we act. That's very important. We have to have our customers in focus there. The second area here is that it's product for demanding customers. We are very good in mastering demanding technologies in our business. That's where we have a leading position. Therefore, we have chosen to focus very much on segments where we see demanding customers.
That in itself also drives our innovation agenda. We are focusing in that sense very much on lightweightening, on biomaterials as two examples. Demanding segments and demanding customers is one of the success factors for us. Thirdly, of course, we have to have an efficient supply chain. That goes for both cost and capital. If we get these three things in place, I believe that then we are getting the success also. Partially, we are measuring this by the net promoter score that has been mentioned here. That's how we measure the customer loyalty and the customer experience. Here we can see that we have had now an upgoing trend. We are measuring that not only in relation to ourselves, but we are also measuring it in relation to our competitors. That's very important. Of course, it's important that we are better than competition now.
The most important thing is that we are improving every day and all the time. Ulla mentioned the new renewable packaging. These are the numbers here that you see. The returns here that we are achieving is a little bit over 30% or over 14% now. As Ulla was saying, this consists now of the capital coming from the Guangxi plantations that are into the balance sheet. We took away the revenues and the capital out of, but from this context, mostly the revenues, and we replaced the capital with the Innocell and the Guangxi plantations here. We are increasing the revenues somewhat and also the EBIT from 10 to 11. In this respect, if we would compare this to competition, and I'm deliberately choosing here consumer board, it is a little bit difficult comparing industrial packaging. It consists of quite many segments.
If we're looking into Stora Enso here, consumer board, we have since many years been focusing our, I would say, our actions in getting the returns up to a decent level. I would say we are a leader of the pack here. There are two things that I think are quite important here. First, that we are giving on the consumer board side a decent return. The second thing I think is very important here is that it seems to be a quite decent business as such, which is very important. The absolute sizes of EBIT here are quite different as well. From this respect, I think we have improved over the years and have come to a quite decent level here. Having said that, we have still many challenges ahead of us.
I could have listed many more challenges here, but I've been trying to focus on the most important ones here. We have a too small market share in growth markets. Our footprint is really in the mature markets, and this is one of the, and the growth is not happening here. We have to, if we want to be the growth engine, we have to focus on growing markets. We are competing with competing materials. PET or plastics actually grow quicker than renewable materials. PET has a market growth of 5.5% annually, and that's on a global base. That's not what we can see from renewable materials, even if it has all its advantages that we want to see. We have to find ways of competing here. When we are looking upon the packaging market, we can't just focus on the fiber-based competitors.
We have to look on the whole market and see how we can compete in that marketplace. We knew from the beginning, or we saw here that we have a non-competitive containerboard capacity. We are sitting on that today. We just have to be honest there, even if we are only a little bit integrated to a 35% degree. The share of integration, the material that we have, is not really cost-competitive today. We had to address that. We still have high-cost Russian wood into our biggest unit in Imatra. It is to a large degree dependent on Russian wood today. A vast majority of the wood is coming from Russia, and it has a too high cost. That is something that we need to address.
We need to improve it partially by our own actions, but we also have to trust that there are coming some new, I would say, legislations and tariffs in place there. We have to work on the things that we can control. It is the general cost competitiveness. That is something that we have to address every day in order to stay competitive. Some of the responses that we are taking now is that we are doing M&A and greenfield initiatives. We have the ones that we have announced, but I can reassure you that we have a number of initiatives in the pipeline, a number of initiatives that we are studying as well in order to become the growth engine of the company. I am happy to say also that we are investing in R&D quite a lot.
If I am comparing with other peers in this industry, we have an innovation agenda, and we are trying to fill up our innovation pipeline now with interesting products, interesting improvements. One of the things that I mentioned here was MFC. We have built this, I would say, test plant, not the pilot plant, but the test plant in Imatra. It is soon up and running. From our point of view, we see many, many interesting applications into the packaging area here, not at least as driving for resource-efficient products and applications. It will be extremely interesting to see what we can do out of there. I really think that we have many years of advantage or a head start of competition in this area. We have taken initiatives to reduce our supply chain cost in the Russian wood supply area.
We have to continue to work on that in order to make Imatra the cost leader as it can be. That is actually one of the world's biggest consumer board assets, if it is not the world's biggest today. It is extremely important for us. It is the daily bottlenecking, streamlining, and cost control that we are applying here. We also have a number of initiatives. We are building a new wood yard in Skutskär that will reduce the wood cost and the chip cost for the Skutskär mill. We have increased and de-bottlenecked some of the pulp drying capacity at Imatra mill so we can run the pulp mill a little bit better. As you know, we have been announcing some restructuring measures lately, both in the converting area and in the mill area.
The latest efficiency measures and restructuring measures that we announced, just a couple of months ago, a month ago, were in the mill operations in our Swedish mills, which are under cost pressure today. We announced a new concept for our maintenance operations and combined that with a general overview of our mills. These are some examples of things that we are doing to improve our position here. I want to say that we feel we have restructuring and growth in balance. We have to work with both. We cannot just work with growth. We cannot just work on restructuring our business. We have to work with both, and I think we have that in good balance today. Even if we are not disclosing numbers back from 2008 when we started this journey by closing the Baienfurt mill, that was quite a major change at that time.
Today, just to give you some numbers, like for like, we have closed two mills. We have done quite a lot of restructuring, but we have higher sales today compared to 2008 with 1,000 people less. That is the magnitude of the things that we have done. We have both growing and taking restructuring measures here. We are going to be a growth engine, and we have made some specific choices about where we want to grow. We have defined two areas. The first one, the most obvious area, is the virgin fiber-based consumer board area. We have been very specific. We want to focus mainly on the virgin fiber-based area. That is an area which we can master. It has the most demanding customers. We have the most demanding technologies here. That is an area that fits us very well.
We have an overall ambition of having a global number one leading position here. We are focusing very much in that area into the premium segments, and we have a leading position in many areas and many segments. Our ambition is to maintain that leadership position. We also see growth opportunities into the corrugated area. There we are more specific. First of all, it has to be into growth markets and growth segments. We need to see growth many years ahead. We are focusing quite a lot with our global partner customers and mainly into the FMCG area, fast-moving consumer goods area, where we see high demands of supply chain performance, high demands into the, I would say, the design and printing area. That's where we can create some value. Those are the two choices that we have made here.
If we then start by looking into the global picture of corrugated or containerboard, we see that growth is taking place in Asia, Eastern Europe, and the Middle East. In all areas, the growth is around between 4% and 5%. That means that we have the same growth rates in Eastern Europe as in Asia. These are Pöyren Stora Enso statistics now covering the timeline between 2010 and 2020. Of course, the absolute growth is coming in Asia here. This is a huge product segment, as you can see here. The responses into this and combining it with the actions that we do is that we are now doing the Ostroleka investment. It's very important. We are doing that basically in three elements. Two of them, you can see two of them here. The first pillar was investing into a new power plant. That's up and running.
It's running really well. A really important fundament into the cost efficiency here. We are currently building the new containerboard machine, a 450,000-ton containerboard machine focusing into the lightweight segment. The project is running really well. We are on time, budget, and we expect to start up according to the schedule we announced. That means the beginning of next year. The third element of that Ostroleka, I would say, the new Ostroleka is our expansion of our own collection capacity in Poland of recycled fiber. We have our own recycling collection capacity. We have our own depots, and we are expanding that to meet the new demands from the new machine here. Those are smaller investments, but there is quite a lot of work done at the moment in order to be ready for the new machine.
The second activity or main action that we took was the acquisition of Impact. We concluded that in July 2011. For the first year, we are very much focusing on integrating this privately owned company into Stora Enso. We have to set new processes, new standards, improving quite many things to the company. In parallel, we are planning for how we can utilize this as a growth platform going forward in the area as well. It was an important milestone. It was an important step when we entered into the Chinese and Asian market here. We are taking a number of other actions. As I said, the restructuring in Finland was announced in the corrugating area. We are doing a number of quality investments in order to meet the, I would say, the print demands of the future into these specific areas.
We are also increasing our capabilities in packaging design. We have just opened our first packaging studio or design studio, as we call it. That's a concept that we are planning to expand over the network here. All this is quite important. Moving over to the consumer board area, if we then study the growth perspectives going forward here, Asia plays an even more important role here, as we can see. Eastern Europe, some growth, some growth in the Middle East, Africa. Asia here, we see the growth to double in the next between 10 and 20. The total size is not the same. This is a fiber-based consumer board here. The growth rates are a little bit different depending on the market. China, 9-10%. Pakistan, quite high, 9-10% or 9%. India, 6%. The Middle East, 4%. This is, of course, very important for us.
The driver for this growth is partly the disposable income. We have to study the number of households that have an income. We see that there is a strong correlation between consumption of packed food and when your family income exceeds $5,000. When you're coming over $5,000, then you can afford packed hygienic food. That's very important. On a global scale, we see or the projections are now that there will be another 1.5 billion people that can afford packed food going forward. It's not only that. The steepest curve is coming in the span between $5,000 and $35,000. That's really when you start consuming, when you are having high growth rates, and when you start going either to the supermarket or to your local shop buying packed food. This is one of the reasons why Asia is coming so strongly into this area.
Another statistic that we follow very closely is the consumption of milk volumes or dairy products. The reason for that is, of course, that the liquid packaging board area is so important for us. Here we can see that this is the consumption estimate for liquid dairy products. It's not for liquid packaging board products, but it's for liquid dairy products. There are, hopefully, and possibly for some of you, some surprises here. India, there you have huge consumption of liquid dairy products. It's well known. It's 57 billion L in India. The growth rates are not that high. China, here we see that the consumption is very high, but the growth is also very high. The reason for that is that the Chinese are learning to consume liquid dairy products. The consumption was relatively low many years ago.
The U.S., naturally, but the fourth biggest market globally in terms of consuming liquid dairy products is Pakistan. I think that would be a bit of a surprise to you. Of course, most of the products in Pakistan and India today are unpacked, and they need to get packed. Accelerate what works, and now we're coming into that area. Every third beverage carton in the world today is produced from Stora Enso material. That's a strategic position that's extremely important for us to maintain. That's very important. We have to be where the market is and where the consumers are going to consume these products. That's the reason why it has been so fundamentally important for us to succeed with the investment that we announced on Tuesday.
I think you already know the facts behind it, but we are building here really a unique concept, a unique concept in China, and a unique concept in order to serve that market. We have an option also to, or a target to expand the paper board capacity going forward when the market can allow it. Our target is to be up and running with operations quarter four, 2014. Again, what was the driver behind this? First of all, we have a unique position. We have a world-leading position in this area. It's extremely important. We can master these demanding technologies and specifications. This is extremely difficult. That's why it's good. We know how to do it. We have a committed customer base. We have the customer base today. They want to grow in China, and so they are extremely committed to us here.
In combination with that, we have a Chinese platform for growth. We have access to a unique integrate where we can be cost-competitive on a global scale. I will dare to say that this is much more cost-competitive in China if you're even comparing with Brazilian production going to China, not going to Brazil, but going to China. We have already today an established footprint. We have been operating in this Guangxi area where we are going to establish ourselves since 2002. Today, we have 720 employees in this area. We have gradually been building up our capabilities in that area. On top of that, we have innovations in the pipeline that will fit to this concept very well going forward. This, I think, is a unique basis for this investment. Last but not least here, we have had time.
I must admit that it has taken a little bit too long to come to this point where we could announce the investment. The flip side of that coin is that we are well prepared. We have a well-prepared project here. We have been able to plan it in detail. This is now a good platform to accelerate profitable growth in China. It was, as announced, a $1.6 billion investment. We will do that with a local partner. The local partner is the local government of the province of Guangxi. Guangxi, a little bit north of 55 million inhabitants. This is a state-owned company, a company founded to be our partner in this area. That's important here. This is the mill site. I was looking for a picture that actually can show the location because that's important. It's just a few kilometers here down to a newly built deep-sea harbor.
It's hardly used today, but it's built for this industrial zone. That's very important. If we are going to North China, we will ship it out in the port, take it by sea up to North China, and in there. Very important. We have railroad, good connections, good roads, and good access to infrastructure here. Sustainability and responsibility is a very important topic for us. This will be fully based on our responsibility, the responsibility agenda of Stora Enso. We conducted an AISA study back in 2006 that was published, and many of our plans and preparations have been built on that study. We're doing an additional study now, and that will be published. Laurie, are you here? Laurie is not here, but during the spring of the first half of 2012. I'm not promising too much here, but it's under finalization.
That is something that we will study also very well. We have done quite a lot of work during the last two years in improving our operations here. With that, I don't want to underestimate the challenges we have here. We are breaking new grounds. We're learning every day, and there are a lot of things to manage when we are coming into this area. We are improving, and we are learning. In the last year, last two years, we have also set standards into our operations. We have received an OHS certificate of 18001, important. We have implemented an environment management system and a quality management system. All these are also important pillars and fundaments in building a sustainable operation here. Key takeaways, what are the things that I want you to remember now? Renewable packaging, it's a solution for the future.
Hopefully, we can grab market shares from plastics. We are focusing on profitable growth. Very important. We have our agenda set. We have clear priorities. We want to accelerate what works and where we can have some differentiation factors. We are now growing by expanding in China, serving mainly our global customer base. We have a low-cost operation here, and we can serve these demanding segments with proven know-how. Thank you.
Okay, thank you, Mats. Let's keep it now so that everybody can ask one question, so we can get more questions in here from various people. Karri, you can start there, please.
Yes, Karri Rinta, Handelsbanken . Just one, but very long question. Should I have a pen? No, no, no. My brain is not working that.
No worries. I'll just stick to the basics. You showed the profitability comparison versus your peers, and it looked good. You also showed two years ago that liquid packaging board is roughly 50% of your total business in consumer board if we focus on that. I started to think about the Imatra and the Russian wood prices or wood costs that, if I understand correctly, Imatra is, if not the biggest, then probably the biggest of your liquid packaging board plants. Do you expect that when the tariffs are cut, it will actually have a significant impact on the profitability in the liquid packaging board or consumer board business?
Two things. First, we have a wide product portfolio in Imatra. It covers the whole consumer board area. That is the first thing. When it comes to significant or not significant, I think that is a matter of definition. It will have an impact.
How much of the fiber is coming from Russia, roughly?
Vast majority.
Okay. All right. Thanks.
Okay, good. Next one. Jussi there, please.
Okay. Jussi Uskola from Deutsche Bank. I just have one question regarding the M&A view. You were focusing on that impact acquisition, but I'm just wondering, going forward, is M&A still an option? Because when I'm discussing with some of your competitors, what I'm hearing is really that the price tags in Asia have been going up quite significantly for interesting assets. Is this still something that you're seeking in order to build a platform on which to build the value add? Or is it just something that you're waiting until the market pricing gets more rational again?
We are not going to make unrational acquisitions. That's, I wouldn't say a promise, but that's not what we are focusing on.
It's a promise, Mats. Hey, don't be shy.
We are looking into both. We have expansion plans that are organic, but we have also M&A targets in the pipeline that we are studying.
My question really is that, is there some kind of a price premium that you're willing to pay in order to build that bridgehead position in different markets? Or is it just that if the price tags are where they are right now, it's totally out of question that you're going to do additional acquisitions?
Jukka will take this.
Do you want to help me, Jukka?
I have to ask me to help themselves, but I'll make it.
No, no, no. I'm from the head office and I'm here to help you.
Thank you.
Some of them love that. Anyway, I think I was trying to say it earlier. If you do a relatively limited size acquisition that you know you can multiply with all the capabilities we have, whether it's Neurary or the other growth engines, you could still pay too much. If it's a growth engine, there are ways to say, "Fine, let's get the gain together." See my point? You don't pay upfront for the dream. You just make sure that you share the gains afterwards. I know it's a bit of a funny answer, but that's the way we think about it because if you buy a, what do you call this, little tree seedling, and then you grow it super fast, it's not so critical how much the seedling costs, especially if you share the growth. Did you like that?
Yeah.
Okay. All right, Markus. I think Lars, and then we need to...
Yes, hi Markus. I'm Rizvan from Morgan Stanley. Can I just ask on OCC and the impact from the Ostroleka? You say that you're increasing collection rates and you're investing in your collection plants. What kind of disruption do you think that that machine will have on the market, and how long will it take to ride that out? Will it be enough, the collection that you do and the increase in collections? Overall, what is your view on the very rapid growth in corrugated from recycled paper prices going forward? It will be a big bottleneck.
Of course, there are so many variables here. The market when we start and the export from the market, but I'm not that worried about the impact on the OCC prices in Poland, actually. It could have a very short-term impact, but the collection rates of Poland are only 44% today. They have commitments, and it's a huge market. They have made commitments to the EU to take that up to EU average, which means that they have to change their legislations, the demands to communities and others to really increase the collection rates. I actually think that the demand and the demand on the supply to the market is matching very well to the plans that we have on the market. We are building also other systems. For instance, we are working very closely with Juha. He has a paper mill just on the other side of the border.
It's a huge newsprint mill, not very close to Poland. As you could see from the movie here, there is coming in quite a lot of OCC when you're collecting newspapers as well. We are trying to combine our resources now and are seeking synergies between Juha's business and our business. We think that we can collect also newsprint material and utilize it in our own mills and vice versa. We have many different plans in the pipeline to solve this problem.
Anything in Asia going forward?
Sorry?
The massive increase that we see in capacity in Asia going forward will naturally be big pulls. What are you seeing there in terms of collection rates increasing?
Of course, that's one challenge here that we have to meet. The way I look upon it is that Poland is probably one of the last countries. It's a long way to China from Poland, and there is much more material or density of populations in Western Europe, so it's easier to take it to Poland or to China. There is another element of that that I think is very important. This forms a natural bottleneck in order not to expand containerboard capacity too much. I actually think that is very important. If the containerboard capacity is in balance, there is a pricing momentum into this product as well. If there is a lot of cheap OCC available, of course, then it's much easier to expand the containerboard capacity as well.
This is a growth market where the end consumption grows, and these elements are, they are, of course, connected and important.
Okay, show us one from Lars.
Consumer packaging in China. It's a bit of a leap of faith. Now you're moving in with a new product into China. You talked about your committed customers. Can you share any, any sort of, do you have any contractual agreement? Are they take or pay contracts? They're actually committing volumes. They want to grow with you. There's been a bit of a debate, Tetra Pak, where they're going in terms of the packaging mix. If you want to just double up on those two and say, do you actually have physical contracts to de-risk your investment with some larger customers and the challenge of packaging mix, how do you actually see that developing in China specifically?
I cannot comment on the issues of contracts or not contracts here. We have very committed customers, and I feel that our business plan, our sales plans are on solid grounds here. I saw as late as today that a company like Huhtamäki made an investment in China just recently, and that's a very important customer as well. We have many, we don't only have one customer that we are going to serve. We have a customer base that we are going to serve in China. What I can say is that we have a committed customer base for this investment.
Okay.
Okay, good. You can ask it on the break. Sorry. We have a short coffee break now for 10 minutes. Please be back at 4:35 P.M. We will continue then with Juan's presentation. Thank you. We will continue now. Before Juan starts, I just want to let you know that you will be given these key rings, and these key rings contain our presentations on a memory stick. During Juan's presentation, Dina will distribute this for you. Please accept these. It's important. Please go ahead, Juan. Here's for you.
Thank you very much.
Okay. Good afternoon, everybody. My name is Juan Carlos Bueno, and I've been appointed recently to lead the biomaterials business area. I'm going to tell you a little bit of why we created the business area and even further why we named it Biomaterials. The first thing that we need to think about in order to answer this question is what are some of the major drivers that we live today in our society? During the presentations today, some of those things already came up, and population growth is clearly one of them. That's something that is very important when we think about why this was created. More than population growth is the implication of that growth. It is a fact that we have increasing pressures from an environmental point of view because we have a legacy, and our duty is to leave a legacy to those generations that will come.
When you combine those two things together, both population growth and that pressure, what we have as a conclusion is that we need to do more but consuming less. We cannot do the same and just think that we're going to be okay when we're 9 billion people living in this planet. We need to think different. We need to act different. Having that in mind, it translates to one single word that is very dear to what we are as a company. It's sustainability. It's how we take care of this world and leave a better world for those future generations. That is why this is not called pulp, because it's not just about pulp.
We have a duty as a company, given the resources that we have, given the expertise, the knowledge that we've created in the company, to deliver much more, to work on revolutionary technologies that can actually deliver higher value out of the natural resources that we have. We have the luxury of having access to those resources, to those plantations. We have the scientists, we have the knowledge. We need to do more with less. We need to do more with what we have. That's why it goes beyond pulp, because we need to extract higher value from what we have. I'm going to tell you a little bit of how we're going to do that. Before that, obviously, right now, the vast majority of this business area is pulp.
We're going to talk a little bit about what are the drivers of market pulp, how do they behave, how do we expect them to grow over the next few years, and what are the dynamics that we will see in this market. The first thing is to understand where is market pulp used. 55% goes to paper or paper grades, and this includes specialties. The other 45% is used, half of it in tissue, and the other half split between fluff and/or hygiene, as sometimes it's called, and packaging. Those are the major drivers. We need to understand how those different drivers will behave over time to see where this demand is growing. It's 46 million tons, and we believe it can grow up to over 60 million tons by 2025. The growth is going to be different in different segments.
Tissue stands up clearly as probably the most significant growth engine overall. It's no surprise, and we'll talk a little bit more in detail about tissue and what's the driver. This is one that is clearly fueled by population growth and by GDP. There are two very significant engines that will pull this one through. Also, packaging, significant growth, and Mats already gave some important information about how that's going to grow and where, and we'll get a little bit into that. Paper has a very interesting dynamic. It's the vast majority of the usage, as I mentioned, 55%. We have some countries in the world that are decreasing and will continue to decrease, namely the U.S., Western Europe, Japan, no question about that.
There are other countries that are going to continue to grow and will have still a tremendous opportunity to grow, and those will more or less compensate each other. We're going to talk about it a little bit more in detail. The first one that I wanted to mention, and we discount the fact that there will be some integrated capacity over time. This is not just new pulp mills coming through to source this. Some of them will be sourced by integrated capacity. If we look at tissue to begin with, it's growing, and it's growing in various parts of the world. Taking out North America and Western Europe, you have important growth rates all over the world, 4% and above. There's plenty of opportunity, of space, and we just need to make sure that we tackle the right customers and work ourselves through the right way.
This is a very technically driven market. It's not selling pulp as we sell in other markets. These are very highly technical-driven purchases. Tissue is one. If we look at paper, I mentioned that there are some great opportunities for paper still to grow. This is just an example of how big those opportunities are if we think about China for a minute and the level of print media consumption in China and the vast amount of people that are not even close to having access to that. When we think about that, it obviously brings a big question around, yes, there is opportunity for growth still in this particular market. However, as Juho was mentioning before, digital life is there, and we've looked at it in many different ways.
We've assessed some of the things that might have an impact on this growth for it not to be as high as it could be if it was just this, the reality that we saw. Some of those things, and some of the things that help us explain why that digital life happens or how it manifests itself in demand, is when we look, for example, at how is the penetration of broadband in China and what is expected it to be in the next 10 or 15 years or up until 2020. Where it will be across the different provinces in China, the same level as where it is today in Europe or Western Europe. You know the platform is already there because when you look at some of these things in China, as Matt was saying already, the infrastructure is there before actually the businesses go there.
That's the way China is being run. You go there, there's already a port sitting next to where you want to build a pulp mill, not the other way around, like we do in Uruguay. We actually have to build a port. It's different things. In this case, in China, the broadband is there. It will continue to accelerate at a very fast pace. We know that the growth of printing is not going to be as high because some of these forces already kind of bring it a little bit more down to earth. That's the impact of digital life in China. Packaging, and this is a steal from Matt's presentation because it depicts pretty clearly a very strong growth in certain parts of the world. Not everywhere, but clearly Asia with a very tremendous growth in terms of packaging.
When we put all those things together, whether it's tissue, whether it's paper, whether it's packaging, all those big businesses that consume market pulp, at the end of the day, what it means to us is that we need to focus on where is it that we want to grow? Where is it that we want to put our investment? Where is it that we want to put our resources? It's about going where the growth is and not just where we've been for many years making money. It is looking ahead and where is it that we will make money in the future. It's shifting gears, looking at markets that we hadn't looked before. Think about market pulp. We sell zero in Latin America. Now we're going to have a pulp mill a year from now right in-house. Freedom to sell and extract the value of shorter logistics.
It demands for us to focus a little bit different on some of the things that we've been doing so far. Obviously, put a lot of attention in Asia and what we can do in some of the countries within that region. That's the context of the market. Something that, as this biomaterials business area was created just a few weeks ago, I wanted to share with you a little bit more in detail what's in the biomaterials business area and probably answer some of the questions that were brought up before about capacities and so forth and integrated and whatnot.
First of all, what was incorporated from an asset point of view into the business area are three standalone Nordic pulp mills, two in Finland, Sunila and Enocel, one in Sweden, Skutskäf, plus Veracel in Brazil, partnership 50-50 with Fibria, plus Monte del Plata in Uruguay, partnership 50-50 with Arauco. Those are the standalone assets that belong to our business area. You'll see a bit of the numbers, capacities, and so forth. The Nordic pulp mills produce 1.4 million tons. When you add Veracel and when you add Monte del Plata, you almost double that amount or close to doubling, 2.6 million tons. On top of that, we do sell some of the excess dry pulp that some of the integrates have. We put there three that source on a regular basis some material for us.
We're in charge, our organization is in charge of selling that and serving customers with those sources as well, whether it's Oulu, Imatra, or Nimola. Your question earlier, it's right here. When you think about how much pulp we produce in this company, yes, we produce dry and wet pulp. It's integrated, some is standalone. The fact is it's more than 4 million tons of pulp. We're a very, very large pulp producer overall. We still need to buy a little bit out in the market, very little of both hardwood and softwood, in order to be able to consume internally and logistic-wise more efficiently in the integrated mills whenever there are some deficiencies. Basically, there's a 3.4 million ton internal consumption that leaves us with a balance of roughly 1.2 million tons of market pulp.
With Monte del Plata coming up to stream one year from now, we're going to grow that market pulp by 55%. It's going to be in the neighborhood of 1.8 million tons. You'll notice that we're transforming as we do the transition. We're transforming ourselves from being very strong from a softwood point of view into a much more balanced portfolio between softwood and hardwood, while we still keep some presence in fluff and even in dissolving pulp. A very complete portfolio not very well found in other companies. Also, when we look at where we are cost-wise, when you look at the pulp that we produce and where does it fall, whether it's softwood or hardwood, 80/20, the rule applies for both, no matter what. Softwood, 80% on the second, 20% on the third quartile. For hardwood, 80% on the first quartile and 20% on the fourth.
Needless to say, actions, as Juha mentioned and others mentioned, actions in place for those that are on the fourth quartile or third quartile because we want to make sure that we extract the highest value out of them. As you can imagine, as some of those assets are also a little bit older, they become, in essence, cash generators versus some others that are still very profitable, not only generating cash, but obviously a significant amount of profitability. Monte del Plata clearly is our most significant short-term growth driver. 1.3 million ton, EUR 1.4 billion, 50/50 partnership with Arauco. Pictures over here are as recent as late February. It's always good when you visit and you actually see that we're not digging holes anymore in the ground and things are starting to pile up in the air already. That's a very good sign.
We're already in the erection phase, 40% progress on construction and on target to meet our deadline in terms of startup. More importantly, very much focused on making sure that we have.
Excellent startup to really ramp up those volumes, because that's a lot of the profitability that we really make is making sure that that startup is smooth and sweet. At the end, when we look at a bit of the ranking on where everybody's at, and we're right now in terms of, as measured by Hawkins, we're kind of middle of the pack. We would be fourth runner-up, if you wish, with Monte del Plata. If we add the 450,000-ton capacity from Guangxi, then that puts us in a very, and this is not included in this chart, that puts us in a very strong position from a growth point of view in a very short period of time, Guangxi being end of 2014 as a startup. How do we win? That's what we have. Those are the cards that we have been dealt.
What can we do with those and extract higher value? It's a three-prong strategy. It's about the customers, first and foremost. It's about innovating. We come here to, okay, why it's not called Pulp, because we need to do something more with those resources. That's where innovation kicks in. It's about financial discipline, because we have to take care of our business and deliver the results and the cash necessary for us to grow. If we think about innovation first, one very strong concept on this is everything that has to do with biorefinery. We have four very good examples here of concrete actions on biorefinery. First, tall oil. Stora Enso is leader globally in production of tall oil, number one producer of tall oil in the world. This is a byproduct from the black liquor process when making pulp.
It goes into replacing fatty acids, rosin acids, heavy fuels, chemical business, hard chemical business. We have good partnerships with other companies that are high users of these products. Obviously, it brings to the equation a very significant component of renewable materials here, or changing other things, more chemicals, into something that's greener. We produce 130,000 tons of this in our pulp mills today. If we go to another one, turpentine. Turpentine, that's condensates, condensates out of the digester plant, another byproduct. That helps us, the uses of that particular product go into ink, goes into rubber, goes into fragrances, and some other segments. We produce 8,000 tons of turpentine today in different pulp mills in the company.
When we think about Lignoboost, another example that's in here, and in this case is dry lignin and extracting it throughout the process so that we can actually burn it and use it as fuel in either the lime kiln or even the recovery boiler. If we think about biomethanol, which we also extract from the steam process of our manufacturing sites, it is also used to replace fossil fuels in our process, whether it's in the recovery boiler or the lime kiln. These are different examples of how we can do different things and replace fossil fuels and do better and leave a much smaller footprint on the things that we do. There's another side of the equation that is not necessarily biorefinery, that's also innovation, that is heavy on resources and on R&D. This is some of the things that Mats already related to, MFC or microfibrillated cellulose.
The best example for you to keep that in mind, and going back to what we said at the beginning, we need to do more with less. Think about a Starbucks cup, if that's something that everybody can relate to, those paper cups. Imagine that cup as stiff as that one is, but with 20% or 30% less wood in it. That's MFC. That is what that brings. Obviously, this is something that we need to exploit and drive further beyond the pre-commercial plant that we have in Imatra. Biotechnology, another very important driver for growth when you think about the plantation base that we have. Just thinking about how many hectares of land we own in Latin America, it's already in excess of probably 500,000 hectares. Not all planted, obviously, because there's reserve lands. The point of the matter is we have potential to grow more efficiently our plantations.
We need to do work from a biotechnology point of view, and there's plenty of advances in that area. We need to jump in that curve. Another one, carbon fiber out of lignin. Produce carbon fiber based out of lignin, 100%. When you think about carbon fiber usage, you think about automobiles, all the aluminum parts. It's massive. It's big markets. Just the carbon fiber market, it's a $7 billion market, and it should go up to $25 billion by the end of the decade. It is aerospace. It is oil, deep oil drilling and all the hoses that go deep sea to drill oil. It is uses that go beyond our imagination and on very normal consumer goods as well. The key thing here, as well as with some of these biorefineries, is where we want to play.
Because it is not necessarily our job to go all the way downstream to the consumer. It will be, in many cases, the fact that we know how to do the raw material and that we need to play that out and work through partnerships to make sure that this gets delivered to the users, to the consumers of the product. That is a very important part of how we play this out. Customers, that was the other piece of our three-prong strategy that I mentioned. Net Promoter Score has been presented by everybody. It is not any different from us over here. The only thing is we segmented it by the different customers that we serve, and we compare against our competitors. We are doing OK in board. We are doing OK in paper versus our competitors. We have long ways to go on this side.
Tissue, we might be much better than our competitors, but we are still very poor. That already tells something about this tremendously growing business, which is tissue, what they are expecting and how badly served that segment is. It brings home messages on things that we need to focus on. Fluff, we have a tremendously high share of the fluff market, actually. Especially in Europe, we are very, very strong. Our customers are not happy with us. They are happier with our competitors. We are not afraid to say this. Those are the things that are valuable nuggets for us to take home and work on and improve. This is something that we take to our teams very dearly. Finally, the other piece of the strategy, all the rigorosity in running this business in an efficient way.
If I can put it in one word, I would say it is about an operational powerhouse. We need to run these things very, very well. When we think about the Nordic pulp mills, those are tremendous cash engines for the business. The employee capital in some of these assets is already depreciated. We have the opportunity to extract tremendous value from them. It is about making sure they work more efficiently. It is about how can we add a bit more revenue and income streams through some of the things that we talked about before in biorefineries, for example. It is all about energy. You mentioned and you heard today how important energy is for this business, obviously.
It is also the need to adjust the product portfolio if we want to get out of the risk zone in some of those cost curves that I showed where we might be third or fourth quartile. If we adjust, like we did, for example, in Enocell. We started dissolving pulp this year. That puts us profitability-wise in a very different situation in Enocell than where we were before. It's looking at opportunities where we can actually tweak things, improve our product mix, and therefore escape out of some of the danger zones. Just as we have some cash engines, we also have some things that are there for us to grow and claim a significant amount of the efforts that we put into. Monte del Plata is a clear one. The plantation projects in Guangxi are probably the best example of it. It's another one.
The partnerships that we're able to do, if we think about some of the other things that we need to deliver in the future, those innovations, those revolutionary technologies, how we bring them to life, and who's going to be our partner in that process, that needs to be in the equation. We need to make sure that we run these things in a very efficient way. Monte del Plata might be new, up and running in a year from now. That doesn't mean that it will run loose. The same requirements on making sure that we're efficient running those mills have to be there. Some things are important in terms of certified plantations and things that are very dear to us and important to our customers and even more important as time progresses. In conclusion, what I wanted to offer you is five key messages.
We have a tremendous good opportunity to grow in the very short term with Monte del Plata. That's clear. In the medium term, we have Guangxi coming through. In the long term, we have two avenues. You heard 10 days ago, we got the environmental license for Veracel. Now we have the option to exercise that one whenever we and our partners feel that it's commercially the right moment to do so, and when we can extract the right value for that investment. Obviously, the other long-term commitment, which is driving some of these R&D into real-life products that we can actually quantify and put some value into our customers' hands. Very strong customer focus.
This is something that we say very, very seriously, because we need to make sure that we keep that tie with customers throughout the process, that we really serve them in the right way, going back to some of those net promoter scores that we saw previously. Financial discipline in funding and us justifying and earning our right to grow, which is important. I finish with the same thing that I started, making sure that we have a very clear respect for the environment, that we do things respecting sustainability and our global responsibility principles. Thank you very much.
OK, thanks. Now questions. OK, Jussi first, then Kari, and Linus, of course.
Thanks, Jussi Uskola from Deutsche Bank. If I kick off with a question regarding the European assets, we are now seeing some 5 million tons capacity increase coming through in the hardwood side in the upcoming three years, or slightly more than three years. At the same time, capacity in NBSK is also increasing. I'm just wondering because this change in the low-cost capacity and the increase in that segment is quite quick. You're doing very interesting R&D, but is this R&D something that can really save or kind of improve your cost position in the European mills quick enough for that to have any impact? Second of all, you're talking about these side streams. What kind of subsidies, if any, or what kind of profitability are you expecting for those streams? Thanks.
First of all, as it comes to your first part of the question, there is no silver bullet. If to put it in your words, what can save one of these units? It's not going to be one thing that will save one unit. It's a union of factors that we need to put all together and make sure things make the drive. It's a portfolio change. It is if we can put Lignoboost in there, if we can produce turpentine, if we can do some of those things, that will definitely help. The good thing about the biorefinery concepts is that those exist today. We do not have to look for future years in order to make sure that those become or come to life. As a matter of fact, as I was mentioning before, we're already number one in tall oil in the world.
Turpentine, we're very, very strong with 8,000 tons being produced. We continue to make progress on the other two, Lignoboost and biomethanol. It's a composition of things, and it's not one single thing that will take us from one place to the other. In terms of margin and profitability-wise, these things, as they are byproducts, they're extremely profitable. I won't get into the details, but obviously, it's a byproduct. It's something that we encounter, and we fine-tune, and we extract just as much revenue almost as we extract profit from it. Those are obviously very interesting avenues to pursue for the mills. I wouldn't say that a mill will survive just because we do some biorefinery concept out of it. That would not be the case. We need to work on the operational aspects of it, and they need to run like a clock.
OK, I guess it's Karri then Linus.
Thank you, Karri Rinta and Handelsbanken . Looking at your graph on market pulp market and the importance of tissue, especially going forward, if I calculated correctly, in 2025, tissue would be about close to 45% of the total demand for market pulp. Have you put any thought into what will happen to pricing when the demand will increasingly come from a more stable product group and increasingly from Asia? Is it still the Chinese traders that will contribute to the short-term volatility in over time rising pulp prices, or should we see less cyclicality going forward in the pulp prices?
First of all, first statement, absolutely correct. Tissue growth is about 1 million tons per year, as simple as that, of market pulp. There are two components of it that I think are important to keep in mind, because tissue is a very big consumer of recycled. That's one of the big questions on where is recycled going in the future if paper consumption drops or if digital life, to put it somehow, happens. How much recycled will be there? There's a potential additional avenue of need for virgin fiber that are not in anybody's maths right now or computations right now. Everybody assumes kind of recycled will be there as it is now. The truth of the matter is the Chinese players will continue to have a significant impact on this. I don't see the cyclicality of the business going away.
I think we're in that curve, and we'll have to be prepared for those years where the prices are low, and we will see those. It is no surprise, and everybody speaks very openly about the amount of pulp mills that everybody's saying that are going to be constructed. Almost every company is saying that they're going to do one of their own. Everybody puts a stake on the ground saying, I'm going to be first, and so forth. We know that dynamic. The risk of that is clear in terms of our supply, and we prepare for that. When we do our calculations on profitability, on the investment, on whether we should do and we should not, we do them considering that we will have some of those years in which this thing will flow the negative way. That cyclicality, in our mind, will remain.
Chinese players will still remain a very important part of how that plays out.
Would you say that the demand cyclicality will be lower in the future, that it will be more supply-driven, the supplies, or yeah?
Yes.
OK, thanks.
We're going to see those curves on supply capacity around the high 80s, and yes, we'll see those things, no doubt.
OK, Linus, next.
Thanks. It's Linus Larsson with SEB Skilda. Coming back to European pulp mills and the repositioning that you might do or are actually doing. In Enocell, what is the run rate to how much dissolving pulp are you making? What's your intention? Secondly, when it comes to Sunila, you were very close to shutting down Sunila not long ago. You decided to continue. Could you maybe say something about your thinking if you are intending to reposition that mill as well? Thank you.
Absolutely. Enocell dissolving. We started, the first batch of dissolving pulp was produced in the third week of the year, with very positive results, being the first time that we actually produced dissolving pulp. In a matter of days, we were able to get to the grades that our customers were requiring from us. Our plan is to produce 80,000 tons of dissolving pulp during this year. Capacity-wise, we could produce 150,000 tons if we dedicate the line exclusively, and we don't switch between one and the other. The flexibility that we built into Enocell is precisely one of the values of it, that it allows us to swing between one and the other. The investment that came in to do that was so little. When you think about the investments that everybody thinks about when putting a dissolving pulp mill, everybody talks about EUR 20 million or something around that.
We didn't even spend EUR 2 million. I think we're at one point something. The investment is very low, gives us tremendous flexibility. Obviously, it puts us in a cost situation where we can deal with that in a very good way. When we think about Sunila, Sunila has had some rough years, as you mentioned before. The truth of the matter is we have a tremendous cash engine out of it. We need to drive it for cash. If we're able to find an alternative usage or product mix, as we're doing with Enocell, we would go in that direction. In the meantime, we need to make sure that this is driven the right way for cash, because it runs well from that point of view.
OK, Marko, next.
Hi, thanks. Marko Järvinen, FEI. I was just wondering, coming back to Sunila and Enocell and Skutskär, just from a technical point of view, with lean and focused CapEx, how long of a life can we think that those assets have?
I think it's a matter of keeping those things running the right way. If I take a little bit of what Jutta was mentioning at the beginning and some of the things that he presented, if those machines are running and are delivering the cash, we need to make sure that they run and run well. It's not a matter of how much money we're going to invest in those. It's making sure that we can extract the right value from them. One of the things that obviously we keep looking at is fluff for us is a very interesting product. We need to do better. We need to get better at it. We still have opportunity to improve. There are clear drivers for improving our performance already with what we have. That's our task.
Good. OK, thanks, Juan. Hannu is next.
OK.
Last but not least.
Ladies and gentlemen, once more, growth engine building and living. We've been talking about megatrends, growth, us being 9 billion on this planet Earth. This will obviously influence how we will live. Urbanization is clearly a driver. This will mean that there is going to be more multi-story buildings, also more social housing. It's said that in India, they need to construct better homes for half a billion people. This also means public buildings, daycare centers, et cetera. There are a lot of possibilities. Sustainability has been the key criteria in all of our operations. The same applies to building and living. First of all, you might know that the manufacturing of steel and concrete is the single biggest consumer of non-renewable resources. Wood is actually growing more than we can consume it, and it's a renewable material, something that we should obviously appreciate.
Recycling and reusing are issues that we are very much aware of. However, I'm not sure if the consumers really understand what the impact is in their daily life. We, as an industry, have to tell this story much better. You might have seen the picture before. It's about the carbon footprint, and wood is obviously outstanding. When you are manufacturing one kilo of wood-based construction material, the footprint is clearly less than with the competing. If you apply the lifetime impact, i.e., the carbon sink, wood is obviously outstanding even more positively. This is not enough to win the game. There is no single consumer that's going to buy wooden products because only the sustainability. What needs to be there is the financial and then technical features. We have it now in our CLT, and this is very important. Jutta was already talking about wood being obviously very light.
It can be built in any format, very accurate. Our CLT here, we can cut it in 1 millimeter accuracy. Think what the concrete guys can do. Three centimeters is good enough for those guys. We actually are pretty good, and wood actually feels warm. People like it. There are lots and lots of good things with wood. The title of the presentation was meant to be "Saving the Planet." I was getting prepared to wear some kind of a Superman T-shirt or whatever. As always, we named this as "Growth Engines." Actually, I think the title, "Saving the Planet," wouldn't have been too bad, because if we were to build European homes out of wood, there would be a significant impact on the consumption of natural resources, minus 70%, consumption of manufacturing energy, as I said, 40%. The CO2, it's actually 60% or more. The story is pretty convincing.
There are certain countries, like France, that have already said that in all public buildings, there needs to be a minimum portion of wood applied. Something interesting is also the Russian government. When they were preparing their kind of forest products agenda, wooden construction was one of the top items. Clearly, the governments are waking up. This is very important, because the governments are the key players in this value chain, because these guys are setting up the construction codes. Unfortunately, the codes are varying from one country to another, in some of the countries, like in Finland even, and from one city to another. Anyways, we are on the right track. Markets, you all know that it's been a rough ride. The good thing, though, is that whatever we've been losing on the new build side, it was a crash landing. Now we are gradually recovering.
The segments that were really holding nicely were actually the renovation. This is obvious, because people have less money. They still want to fix their homes. Renovation has been the one that has been really saving us. Also, the civil engineering, public building has been holding relatively well. Now, we don't have the stimulus money anymore available. I don't really expect too much support there. The question is how we can then get more exposure to the renovation. With our product like window components, this is interesting, because components and windows are something that is normally changed when you're entering into renovation. Another thing is with the CLT. We can actually use the mega CLT elements when we are renovating 50-year-old concrete buildings by taking a concrete element away and replacing this. It's actually rather attractive. Another interesting thing is that CLT is light.
When you are entering into renovation of a multi-story building, quite often, the money is the limiting factor. The inhabitants simply don't have the money to do it. What we can do is actually build a few additional stories, because this is light, sell the apartments, and actually, we can finance. We are offering also interesting solutions. In our innovation and thinking, I think there are plenty of possibilities. How does then the global construction market look? The good thing here is that we have roughly an annual growth up to 5% by 2020 globally. There are significant regional differences. Europe, obviously, is only half of the global growth. In Europe, there are significant regional differences. East Europe is clearly going fast forward, Nordic, German area, quite OK, whereas Western Europe is obviously struggling. The other major regions, U.S.A., let's see when it recovers.
Once it recovers, there's a significant growth in South U.S.A. China is strong. Japan, which is a big market to us, is now struggling. However, the next two, three years, they are OK because of the tsunami impact. Other markets like Middle East, North Africa, important to us, grow roughly the same as the global. A few words about raw material. I promised not to talk too much about logs and sawmills today. This is important, because after all, this is 70% of our cost. Is there going to be enough of wood? The issue is that today, the British Columbians are actually supplying the growth in China. They are utilizing these pine beetle-killed logs. They get it actually for free. They ship them, low-quality timber, to China, or they send the logs.
Obviously, the supply chain is very efficient, because the containers are practically empty on the way back to China. This part is over by 2015. When the U.S. recovery comes, the Canadian and U.S. focus will be the South U.S.A. The strategic question is, who will supply then the Chinese growth? The natural answer is obviously Russia. They have the forest resources. The access to these forests is very, very difficult. I don't really have a great belief that we will solve this problem in the near future. The risks of political sustainability issues are quite huge. In our home turf, yes, there's enough of wood. However, are they available on a continuous and cost-efficient basis?
The big problem we have is the fragmented forest ownership, especially in the Nordic countries, less so in the Baltics, Central Eastern Europe, where there are big institutional forest owners who have to sell every day. Talking about the timber and the high-quality wood we have in our hands, just as an example, we have a French customer who has a mandate now to build a new soccer arena to need serving the 2016 European football competition. A good example is that with our quality timber, you can build rather interesting and complex constructions. This is what our quality timber can do. If you would be using a fast-growing radiata pine from the Southern Hemisphere, no go. Rethink. Something we've been now focusing a lot on, like much was customer experience, trying to understand what really are the needs by the customers.
Also, when we were renaming our BA into Building and Living, the 20-year-old or 20-year-serving sawmill managers were asking, what the hell is this? I can tell you that if your focus has been in the raw material into production and not in the end user and customer, it becomes quite a challenge. What we've done, we've really shaken up the organization. Out of our top 100 leaders, 50 have now new positions and more is to come. We really have to push the people in order to get wheels moving forward. Net Promoter Score, here you have a snapshot from the three years. Clear improvement, 2010. Obviously, passives were the majority. Last year, it was roughly 50/50. The interviews, only 200 we've completed this year, are showing good, good improvement. This looks good.
However, I'm a little bit skeptical about this, because once we start to push our customers out of their comfort zone and really start to ask them that, what do you want to do differently? Put more and more kind of effort and focus into the relationship, I think. When we are starting to sell them new products and innovations, the risk of failing will come through. These results might temporarily go weaker. That's the cost we have to take. A few words about financials. Our sales have been remaining pretty stable at $1.6 million level. We can say that roughly 15%- 20% of our capacity is not utilized. This is more or less the industry average. On the profitability side, after the heavy restructuring, we've been now able to climb on return on operating capital basis above the weighted average cost of capital.
10%- 12%, I think it's kind of a minimum satisfactory. The market conditions are tough. Obviously, we have to improve. There's no doubts about it. Exactly the same as the other BAs. A clear focus on the fixed cost reduction, more variable costs. I think that's really the continuous improvement in every unit, every day, being it then working capital, being it our health and safety issues. That needs to be also something that the mills have to deserve in order to get any development funds. How do we then rank in the comparison with our peers? The problem here is that there are only a few listed companies, and therefore, data available. Also, the smaller players who might be the most profitable are not visible. In this league, we actually stand out.
During the last four quarters, we are the only ones who have been able to stay every quarter in EBIT positive. That's obviously a nice position to be in. I've said to my guys that, don't become too comfortable. We might be the champions of third division, but we will not play in the Champions League. Let's not get carried away with this one. Products and innovation, clearly an improvement area. We've been spending less than 0.3% of our sales into innovation. Obviously, it doesn't make too much sense to innovate the 2x4s. The segments that I'll go into in a moment that have the possibility to win market share from competing materials are the ones that we will put a lot of money and resources into. This picture actually is pretty nicely telling what we've been doing so far. Let's start from the components, window components, doors.
We used to actually sell 2x4 timber to our window customers. They were then, you know, preparing the components. Now we are manufacturing them. We've been able to take nice market share. What's rather interesting is this Jutta like 2x4 to you?
4x1.
OK. This is a product called Q-Treat. It has been integrated with the liquid glass. It's very, very hard. You can actually use it against the moisture. This has wonderful possibilities. Like in the components, we can easily replace the plastic window components with this one, or we can put it under the decks wherever. Actually, the wood is against the moisture and environmentally friendly. This is competitive against tropical hardwoods, no sustainability issues. Obviously, the expansion possibility is really good. CLT, we've been discussing. The focus has been in the single-family houses. Now we go into multi-stories. What's it going to be in the future? We are looking into issues like hygiene and well-being. The indoor quality is getting not only in this room, but in general, a little bit worse when we are building kind of very, very tight buildings because of the passive energy houses.
What actually wood can do when it's used in the walls and on the floors, it kind of stores moisture, and then it re-releases. It's not kind of only on a hypothesis, but wood is very friendly. The other interesting feature is that wood actually is very good against bacteria. It's been tested that bacteria have a much shorter lifetime on the wooden surface. The emissions of the wood are killing the bacteria faster. Think when you put that into hospitals and other, like, you know, schools, daycare centers. Again, you have wonderful possibilities. Obviously, we have to make sure that the wood in that application is not burning, but that's possible. To give you guys ideas what kind of possibilities we truly have. Earthquake. I was in Japan two weeks ago with Sumitomo, who's our biggest customer. These guys have their own housing manufacturing, and they were testing CLT.
Thank God that the building didn't collapse. This shows that customers are getting ready. Obviously, the social housing issues and needs I was referring are clearly on our agenda. How do we win this game? First of all, we have to take care of the base gas engine. We have a challenge up in the Nordic. We have clear synergy with our pulp mills. There's a reason to run these sawmills. What we are doing today is that we are rather prudent. We've taken capacity down, like Copperforce, have been allocating the volumes to other sawmills. We are now trying to apply so-called swing thinking that if we have like three whitewood sawmills and there's not enough orders, we let two run and then one rest. This hasn't been really what our mill managers have been traditionally doing. This is something we have to focus on now.
Baltic, Russia, rather high profits. It's a low-cost production platform. We want to develop it further for the raw material reasons, but also from the fact that the growth for our products is in the East. Central Europe has been the real gas engine, strong concepts. We've been now improving them with CLT investments. The critical thing here is that we keep the profitability and cash flow to secure our growth. A few words about growing, working with our customers. We have a significant overseas and distribution operation. Roughly 40% of our goods are traveling to remote locations like Japan, Australia, Middle East, North Africa. Traditionally, we've been only selling our own products through this network. Today, actually, we are more than happy to combine such competitor products to our offering that makes our customer then happy, i.e., we are acting as a trading company in this respect.
We are also then able to take cost out from our supply chain by being the preferred partner there. Industrial components, as said, there's a lot of possibilities through innovation. Normal 2x4 has a price of EUR 150. This stuff has EUR 1,000. It gives you a bit of an idea of what's the value creation. The challenge is that we have kind of grown outside of Nordic. Our market shares are high. Therefore, we are aiming to go to Central Eastern Europe, Baltic, together with our current customers. As said, take market share from competing materials by the modified products. I think this is the biggest thing we have and the biggest possibility we have in the industry. Building solutions, and we built 2,000 single-family houses out of the CLT, mainly in Central Europe. That's going to be another focus area also in the future.
However, the big money and the big potential is in the urban multi-stores, because there the market share of wood is next to nothing. We are geographically now focusing to win the game in Europe and then gradually move over to China and Japan, because our customers are doing it as well. Our target is to double, I would rather say triple, the sales by 2015. What's possible here? We've actually illustrated a scenario that if we would have a further 10% increase in wood construction, what would it mean? The focus is now in the kind of residential building, excluding industrial and public. This would actually mean that if we would be able to increase our market share by another 10%, we would be able to consume 2 million cubes of CLT in about 80,000 apartments. In the single-family, dual-family homes, 3.4 cu m .
This would actually increase the use of CLT from current 600,000 cu m- 6 million cu m. If we were to maintain our market share, we would be talking close to a EUR 1 billion business for us. Again, I'm not saying it will be done, but at least according to this, it is a possibility. Jutta was talking about the Bridgeport and the 29 years of head start. I'm not going to go into details. The message is that we need to have now these pilot buildings. Bridgeport is the first one. There are many others to come. The value and the importance of these buildings is significant, because the people in the construction value chain have to become comfortable. There are obviously lots of doubts that we need to overcome. A few words about the portfolio. How does it look today?
We have roughly 2/3 of base sawing goods, 1/3 of value-added concepts. We've obviously improved since 2007. Our target by 2015 is to have 50/50. Even in the base sawmilling, each sawmill needs to have a very clear concept. We are not necessarily looking at significant top-line growth for the whole building and living. What's most important is the top-line growth will be in these segments. The conclusions: construction continues to grow globally with significant regional differences. We have a possibility to win with wood, but it requires right solutions, continuous cost improvement every day in every unit, cash flow generation from the low-cost sawmilling, and growing with building solutions, components, and modified wood. Here you get a clip of our portfolio by 2015. Thank you.
OK. Thanks, Hannu. Questions for him? OK, Harri, please go ahead.
Yes, just a couple of quick sort of market-related questions. First of all, if you look to increase the value-added component to 50%, is that CLT? What else is included in that part?
It's CLT, the industrial components, and then obviously our glue laminated bolts and beams, like the business in Japan, et cetera. It's in general glued products.
OK, how about the sort of the downstream components and things like that, sort of going downstream in the processing? Is there any of that in there, moldings?
Yeah, I mean, moldings for sure. Let's say that all of that, but it actually plays a rather marginal role.
OK. On the supply-demand, how would you characterize the sort of how much overhang there is from the sort of the sawmilling investment in Europe? Just a word on that, please.
When we are comparing the use of wood during the peak years 2007 and what's then the consumption today, I think we are talking 20% less use. Obviously, there's quite a bit of capacity available. Another question is that, does it make sense to operate? You can add kind of two shifts five days a week. That's the sweet spot. Thereafter, you start to lose your competitiveness. 15%- 20% might be the number.
Thank you.
OK, sorry.
A question on the outlook for wood supply or timber supply in the Nordic region, sort of medium to long term. It seems almost every other forest land owner is announcing increased long-term harvesting levels. For the sort of pulpwood, I guess there's a whole bioenergy that might pick up some of that. On the timber side, it's the timber sawmilling industry. What's your view on this topic?
We actually have rather mixed feelings, because as I said, there's plenty of wood available in theory. What you have in practice is on the cost-competitive basis. The challenge, obviously, is for the whole industry that the most valuable part of the tree is the timber log that we are buying. If we don't have the paying capability, then it kind of puts the whole equation under a lot of stress. The most important thing is that we are able to develop our wood market so that the ownership is not so fragmented. There are more forest owners who have to sell wood every day. Whether different countries and governments are willing to put kind of incentives to activate the wood market remains to be seen. It is obviously something that we are rather worried about.
The situation is much better in those Central East and Baltic countries where the state forests are the biggest owners, because these guys obviously have to sell every year in order to fulfill their budget requirements.
OK, you were talking specifically about the situation in Finland, I presume.
Obviously, with these institutional forest owners of Central Europe as well as Baltic.
OK, thank you.
OK, good. All right, one more from Karri, and then we'll conclude.
Yeah, on the demand, some of your smaller competitors have made some sort of initial optimistic comments about the demand. The sawmill tends to be early cyclical. Have you seen any of that? If so, do you also share the Euroconstruct's view that the new residential construction would be recovering? Have you seen any of that, some of that?
Yeah, I would say, first of all, that there's a lot of hype in this industry, that everybody is talking about long-term potential outlook, U.S. recovering, and then the European overcapacity will be redirected to the U.S. That might be the truth one day. When? We actually don't care, because we have to kind of restructure our operations so that they are cost-efficient enough during also times like today. What was your second?
That was more if you have seen the, because Euroconstruct seemed to be quite optimistic about the pickup in new residential construction. Have you started to see that?
I mean, I think it's fair to say that the financial crisis that is influencing Europe, it puts a lot of pressure. In our own planning, we are very, very down to earth. That's the brutal reality.
All right, thanks.
OK, good. Thank you. Thank you, Hannu. Jukka, I give the floor to you and the conclusion.
Good, thank you. Isn't it amazing that we were like 40 minutes late, and now we're five minutes early? That's like the business. Every morning you wake up and you feel you're late, you're late, and then you better not be late. Anyway, before I show a few slides more, any burning questions that you want to ask so that everybody hears them? We will obviously have time during dinner and drinks and individual talk. OK, that's amazing. Let's go. I will reuse and recycle slides, no new slides. Some of them are mine. Some of them are from the team. We've had very specific business area by business, market by market stories, and so forth. These business areas actually serve different markets. At the end, they are all focusing on the consumer. That's the first common theme. We want to continue to turn the company inside out.
We want to think consumer. We want to be a part of an ecosystem together with partners, present partners, and new partners to understand early how can we add value and how can we build new markets, like Hannu just was talking about. Sustainability, not only in biomaterials, all over the place. We as an industry, I think, have totally failed to make the consumer understand that this is actually important. It's not important for us. It's ever so much more important for our children and their children and so forth. There's another aspect. We tend to talk about always about the environment. We're very good at that. We get all the lists and the stamps and what do you name. From an investor point of view, we're very good. We cannot put wheels on Monticell Plaza or the China project.
When we build it there, the community has to be happy and like us for the next 50 years. There is a real strategic business need that we're very early, very deep, very much locally driving global responsibility, as we tend to call it, not only environmental, but also the social part. I think it's important that we understand that you cannot disconnect the two anymore. It's one important factor. Go where the growth is. Whereas we talked about growth engines and cash engines, when you deep dive into the businesses, everybody has cash engines too. The direction is common to all the BAs. We will invest where the markets are geographically or product-wise growing. That's where we want to grow. I'll spend a little more time on this one. This was the slide that I, without asking permission, stole from Jutta. This one is valid for every business area.
Within the business areas, there are markets that are at least not growing. What's for sure is every business area has competition that's moving forward. You know this. This is like driving a bicycle. If you stop, you will fall down. I think it's quite important. Many people rightfully ask, how many % can you do more from various BAs, and how much faster and so forth? I will not start telling you the percentages now. I'd like to repeat what happened in the past five years a bit. Watch the music. You will see more and more of the fine paper last spring, coated mechanical. Remember the numbers that Juha showed. The payback of that project is six months. People asked about Sunila. Can it survive? It was kind of nice, because Juan wasn't even working for us when I made my first unrestructured decision.
We had bought the other half of the mill for very little money. The payback on that acquisition of the other half was less than a month when we turned the mill on. This is a bit of an extreme. You have to get creative. Sunila has been told that they need to figure out a way to run a pulp mill like a ski resort. Why? The first action we take when the down cycle comes is we'll turn it off, and then we'll turn it on. I believe with the innovation ideas, lignobus and a few other things, it can have a long, pretty bumpy, but long ride as a good cash generator. We have to be focused on the earnings, the cash, not the tons, not the volume. That's, I think, very important.
If you go outside that, in shrinking markets like the European graphic paper, we know that we will have to reduce more capacity. I'm sure you understand that we could not put a map of Europe here with every paper machine and tell you what the order is. That would actually not be right. We have a map. Juha has a map. The beauty of the map is that the only thing we don't know, we've talked about digital life and demographics, the only thing we don't know is the speed. We know the change is coming. We better have the plan ready. I hope that with the track record this team has, give us the benefit of doubt, we can continue doing it and doing it and doing it. One question you hadn't wanted to answer about, how steep is the true cost curve? I actually had that slide.
Within our own mill portfolio, we showed a 20 margin point delta between the best and the worst. You can build on that. Then, accurate what works. I know. I've said it 17 x. The guys have said it's more. Watch us going forward. Engines, I believe it's beneficial for the company to have the portfolio of the cash engines and the growth engines. To do this pretty dramatic growth of the already announced projects would be relatively difficult without the basis of the cash engines. Yes, we believe we can run, we will maintain the freedom, and we will self-finance our transformation. Consumer, I said already, building the ecosystems. Every day, build value. It doesn't matter whether we're big, whether we're the number one in size or markets or whatever it is. Nothing runs in our company with negative EBITDA unless I approve it ahead.
Thank you very much for listening. I have one wish for the dinner. I know you're going to ask all the questions that you didn't get to ask. Can you also tell us what you liked, what you hated, what you thought was incredibly exciting, what was unbelievable? This is and has to be also a learning experience for us. How do we communicate with people like you? I think that would be really, really exciting. Now, without Hannu's permission, would you want to live in an eight-story wood building with your kids and family? No, no, no, answer, because you're wrong. You would. Hannu will demonstrate something which will make you change your mind if you don't love that idea already now. How's that, Hannu? Thank you very much.