Good day and thank you for standing by and welcome to the Q2 2021 Stora Enso Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. For your information, this conference is being recorded today. Now I would like to hand the conference over to your speaker, Ulla Paianen.
Please go ahead.
Thank you. Good afternoon, everyone, and welcome to Stora Enso's Q2 2021 earnings call. I'm Ulla Paianna, Head of Investor Relations at Store Enso. And with me here today is our CEO, Annika Breski And our CFO, Stefko Parry. And we will start with presentation and have a Q and A after that.
So Annika, please go ahead.
Thank you, Ulla, and good afternoon to you all. I'm very satisfied with the strong performance and the solid growth that we delivered this quarter. It is a proof point of our own actions and of very good market conditions for our products. So if I now move on to some of the key highlights of this quarter, we see a healthy demand for all our core businesses and also improving market conditions for paper. So the outlook for the coming half year looks positive as well as the result of this quarter.
Our result is driven mainly by biomaterials, wood products and packaging materials. And biomaterials and wood products, They deliver all time high quarters on the back of very good operational performance, good pricing and a solid and strong demand. We reached the majority of our financial targets, and some of them we also over Which is very rewarding to see. Last quarter, we said we were back on track, but now we are also providing solid proof points that our strategy is executed and it's delivering. We also have concluded our profit Protection program delivering on our promises, which is very rewarding, especially since last This year was a very volatile year.
So all of the actions that we have done here have really supported our result. Our strategy execution is proceeding at very good speed. All the Kraftliner investment is ahead of the schedule. We have high speed in new business innovation and restructuring and investing in our paper division makes me confident that we see a turnaround the coming quarters and that we will have a much more focused and competitive paper moving forward. So all in all, I have a positive outlook for the coming quarters, and we reiterate Our expectations of this year to be better than last year.
Moving over now to some of the key financials. We can see that our sales increased by 23% 28% for our core areas, excluding paper. And this really shows, 1st of all, the resilience we had last year in our core businesses and now our Growth transformation moving in the right direction. Our operational EBIT increased to EUR 364,000,000 more than doubling and excluding paper to EUR 413,000,000. Our operational EBIT margin increased to 14%, which is above our target levels and excluding paper to 19.1%, so very healthy margins for us.
Forest asset value increased further both quarter on quarter by EUR 229,000,000 and compared to a year ago by EUR 2,000,000,000. So now our market valuation is EUR 7,400,000,000 for our forest assets. We have a strong cash flow from operations, EUR 463,000,000 and after investments, €339,000,000 So also here, we are delivering a strong performance. I'm also very pleased that we are getting our net debt down, and our net debt to operational EBITDA is at 1.8, which is under our target of being lesser than 2 times. And we have decreased our net debt by more than EUR 300,000,000.
And last but not least, our returns on operating capital employed, excluding Forest Division, increased to 18.1%, Which is very good levels and above our long term target. So we can see Now what is driving the result that it is own actions being able to push through sales Price increases, having a good product mix, delivering on performance of Our operations, so production efficiency and then also good cost control. So we have been able to more than mitigate the impact of variable cost inflation. And if I stay on a few highlights on our strategy execution, I'm very pleased of how we have ramped Our Kraftliner production at Oulu. We are ahead of schedule, delivering EBITDA breakeven, 2 quarters ahead of plan.
The commercialization is proceeding ahead of plan. We have reached design capacity, and technically, We are where we should be. Also, costs are lower than expected. So a very good job done here and supported, of course, by a strong demand on the market. Other areas within packaging supporting our growth is the commercialization of products Utilizing new barrier technologies and here our investment in Forshagia is commercializing new barrier technologies that support the growth of packaging and making sure that we have good recyclability of our products.
We are together with Tetra Pak, one of our key customers taking the lead in ensuring a circular bio To support EU ambitions, so together, we jointly invest in recycling of used beverage cartons in Eastern Europe. And I'll come back to that in just a few minutes. We are also partnering with packaging technology company, pulpx, To industrialize productions of eco friendly fiber based bottles and containers, this is an area where we see very good opportunities to grow into new applications. Our feasibility study at Skokal is ongoing at good pace. And as I've said before, we will come back with a decision of how we proceed by the end of this year.
We've also started the production of Ligninode, Carbon for energy storage that is used in batteries for enabling e mobility, And that has started in our pilot plan, Sunnula. And I'll come back with a few details on that as well. In Wood Products, Our new CLT production line, Astires, is proceeding as planned. Construction is ongoing. So we will meet the targets There of a start up in 2023.
And I'm also happy to say that after the ongoing Structuring, we would see an improved performance for paper division, and we will end up with paper sales that would be slightly above 10% of group sales. So here, we are transforming to a more focused and competitive paper division that will be able to serve our customers in a very good way. One topic that's been kind of highlighted lately is, of course, EU's ambition within climate neutrality and the Green Deal. So here, we are confident that sustainably managed forest And Renewable Circular Products, they are part of the solution in reaching EU's ambitious climate targets. And we are well positioned as a company.
So we support the EU's green deal as an opportunity to transition to a Society that's much less dependent on fossil materials and that is low carbon. And this is an absolute necessary transition. So we are actively engaging in policy development in promoting ambitious climate targets. And with our renewable products, we can really help achieve the ambitions that EU have. In terms of EU taxonomy, that was published in April, and we see that we are well positioned there to fulfill all the criteria related to sustainable forestry.
The Fit455 package and EU Forest strategy, they were published just a few days ago last week. So here, we are evaluating the initiatives. We are constructively engaging with the EU to make sure that it advocates not only climate but also industrial innovation to support the transition to a circular bioeconomy. And I will just showcase now 2 examples of innovation where we see that we contribute to EU reaching these goals. First of all, it's Lignode, wood based carbon for batteries.
So the market for these carbons is growing by more than 30% annually. And it is driven, as you know, by electrification of vehicles, consumer And large scale energy storage systems. So here, we have a leading position to really support the need of more than 450,000 tons of carbon material needed in Europe only by 2025. This is a strategic material, these anode materials, for which Europe today does not have a local supply. So 90% is imported from Asia and based on coal mines.
Here, we have a product which is bio based. It is renewable. It is fossil free. So we think that we have a good opportunity See a business of its own in the ranges of EUR 1,000,000,000 sales potential already by 2025 for us as a company. So we are, as we speak, ramping up production of Lingnode in our pilot plant in Sumila.
So here, we want to replace conventionally used graphite from coal mines with our bio based materials. It has Lower carbon footprint, it is cost competitive, and it's also high performing in terms of rechargeability of the batteries. So our ambition now is to explore strategic partners that will help us accelerate this scale up and commercialization. Another area which is of great importance is to Take the lead in circular bioeconomy. And here, together with Petropak, we are jointly investing in The recycling of beverage cartons in Central and Eastern Europe.
We want to more than triple The recycling capacity in Poland being able also to take in material from the surrounding countries. And we're investing together in a new recouping line at Ostoleka Mill in Poland, where we, as a company, will recover the carbon fibers and use them in our board products. And Tetra Pak will recover and recycle polymers and aluminum to produce new products And give a second life to those materials. This is another proof point how we can support EU's transition to more sustainable packaging materials. The annual recycling capacity will increase to 75,000 tonnes in Poland and Contribute very actively in the creation of a circular economy.
And with that, I would like to turn over to you, Seppo, to give us a little bit more flavor on the financials.
Thank you, Annika. And I start with the key figures from the report that we published earlier today. So top line grew 23% to about EUR 2,600,000,000 in the Q2 of this year. That is a significant increase from the previous Yes. Operational EBIT was doubled and was €364,000,000 and EPS basic increased 40% to EUR 0.26 per share.
Operational return on capital, excluding ForEx, was at 18.1% compared to 7.8% a year ago in the 2nd quarter. And cash flow from operations continued Strong and cash flow was €100,000,000 higher than a year ago at €463,000,000 And like Annik already mentioned, net debt to last pelma's OpEx EBITDA was reduced to EUR 1.8 billion from EUR 2.5 Yes. It is now coming down below EUR 2.0 billion that we had defined as a long term target. And it has been above that due to the restructuring of Bergvik's group ownership a couple of years ago. And now we are back on track here as Yes.
Moving to our profit protection program that is now completed 2 quarters earlier than originally planned. This was a 3 year program, as you might remember. Total savings achieved were by €510,000,000 Out of which, EUR410,000,000 are continuous change. This is a great achievement by the organization and our personnel and shows the full commitments for the continuous improvement as well. That will be also going in focus going forward.
And we stop now reporting of the profit protection program as we have reached €400,000,000 continuous sales. Then moving to divisions and I start with Packaging Materials, where profitable growth continues And we can see healthy demand for all products. Sales increased by 20% to EUR 1987,000,000 during the quarter, And that is a reflection of clearly higher prices and deliveries. Also, pressure on EBIT increased by €31,000,000 to 144,000,000 There we see higher sales, partly offset by higher production costs. And operational return on capital improved to 18.4%.
This is partly still burdened by all kraftliner mill ramp up as we are now reaching the breakeven there. Ramp up of capital production at Oulu is proceeding ahead of plan, both technically as well as commercially. And we have now reached operational EBITDA breakeven during the 2nd quarter, at least 3 quarters ahead of the initial target. We originally communicated target of Q1 next year when it comes to breakeven to be reached. We have also launched new products, tray former, a new wood fiber based product, which has low carbon material for micro rail for ready meal Trace was introduced during that quarter.
Then moving to Packaging Solutions, where we can see very strong growth, But profitability is challenged by continued increases in raw material costs. Sales increased by 21% to EUR 170,000,000 Thanks to higher European corrugated prices and deliveries, but there is slower business activity in China and some delays of the launches of our key customers. Operational EBIT decreased by EUR 6,000,000 or EUR 2,000,000. This is a reflection of continued sales price increases that we are taking to mitigate higher raw material prices, But the raw material prices continue to increase and have done so since October, November last year. But we are confident that we will be able to catch up As we move forward and once the price increases of container port stabilize, then we can be able to close the gap.
Actually, the new business impacted operational EBIT also negatively by some €4,000,000 and temporary higher costs in China during the quarter. Operational return on capital was at SEK 3.6. Then in Biomaterials, where we had record results in a strong market. Change increased by 57% to EUR 453,000,000, Thanks to clearly higher pulp prices and deliveries. Operational EBIT also increased by EUR 127,000,000,000 And we have reached all time high quarter of EUR 145,000,000 Operational return on capital exceeded clearly the long term target of 15% that we have set for Fire Materials and was 24.4%.
And we have launched Nea Linda, a fully fire based finder during the quarter to provide healthier indoor and working environment. Then in the case of Wood Products, there are strong sales with record high profitability and operational return on capital has continued. Debt increased by 38% and was €77,000,000 a bit thanks to all time high prices, Also strong global demand, especially in Classic Son, has been helping the development. Operational EBIT increased by EUR 74,000,000 to all time high of EUR 100,000,000, but at least thanks to higher prices and volumes that were partly offset by higher raw material costs. Also, return on capital was at record high level at 60 5.8%, and that exceeds significantly long term target of 20% for Wood Products division.
Forest, their solid financial and operational performance continues. Debt increased by 13% and was €586,000,000 There we had higher wood deliveries in Finland, Sweden and Belgium. Operator EBIT increased by €6,000,000 and was €60,000,000 The highest solar prices were partly offset by higher volume for fixed costs. And operator return on capital remained above the long term target of 3.5% at 3.7%. And in the quarter, we also joined new WWF Platform Forests Forward.
Then, beta division, where restructuring has continued as planned, and improving market Conditions together with the restructuring are triggering a turnaround during the coming quarters. Sales were flat at €46,000,000 Clearly lower prices were offset by higher deliveries. Operational EBIT decreased by EUR 10,000,000 to negative EUR 49,000,000, but we have seen the global market The global paper market demand is improving. Variable costs, however, are not yet mitigated for price increases and lower fixed costs. Cash flow after investing activities to sales ratio was negative 2.7%, but the work continues to come back to the targeted We have taken actions to restructure as well as to invest to make our paper division more competitive.
We are working to have more agile and more independent organization To take better into account the challenging market conditions in the paper business, we have finalized restructuring at the Ute Mill, Final steps since end of last year announced capacity closures there. And we are planning to close Wakeshilotank once during the Q3 this year. And we have announced divestment of Saksen site as well in German. And we have also decided to make some investments for the competitiveness at Amialla Incaronen as well as Nynula Mills, And we are investing EUR 45,000,000. Then looking at the long term financial targets development, As you see, it's turning more green now when it comes to dividend growth as well as debt ratios and return on capital as commented earlier.
On the divisions, packaging material is still slightly below the targeted 20% level. But as mentioned, it is still in the Q2, burdened by the Oulu ramp up. Packaging Solutions clearly below at 3.6% And Biomaterials, Wood Products and Forests above the long term target level and say that there continues to come back to the targeted And then over to you, Annika.
Thank you, Seppo. And moving now to the annual outlook, I see a positive momentum continuing also for the second half of this year. So we reiterate our positive outlook for this year to be better in performance than last year. Global economy is recovering strongly from the impacts of pandemic, and we have a very healthy demand for Most of our products and the market for paper is improving on the back of restructuring that are being delivered not only by us but also by other companies. So supply demand situation will improve for paper Products.
We're moving into quarter 3 and quarter 4, which are more maintenance intensive. And here, We have impact on the costs in terms of cost inflation, and also we have some work that we during the pandemic impacting the total maintenance cost level. If we look at the profit protection program, as Seppo said it is now completed, so we will not continue to come back to that. But of course, we will continuously work with constant improvement. And that is a key area of our focus to have good cost control and good sales and price excellence.
Oulu kraftliner unit reached operational EBITDA, as we said, 3 quarters Ahead of our initial target and of course, the cost spend for the ramp up were lower, landed at EUR 20,000,000 to EUR 25,000,000 of total negative impact below our previous of €40,000,000 to €50,000,000 for the full year. So this is also a very positive result of the work that the organization is doing. So in terms of any continuous reporting, we will now discontinue that for Oulu. So if I would summarize, I'm very satisfied. We have profitable growth.
It's driven by our own actions And good market conditions. We have healthy demand for most of our products and improving conditions for paper. We've reached the majority of our financial targets. Our strategy execution is proceeding at good speed, Both in terms of innovation, in terms of cost control and of our key investments, And there is a turnaround in sight for paper, which will improve the competitiveness of the division as such. So all in all, I'm now open for your questions.
Thank you very much.
And before we go to the Q and A session, please remember only 2 questions per person. We have many people wanting to ask questions. So please go ahead and give the instructions now.
Thank you. We'll take our first question from the line of Cole Hathorn at Jefferies.
Good morning. Thanks for taking my question. If you could just start off with the Wood Products division, which has had a phenomenal performance this quarter. Could you just give us an update of where you see demand and prices have been rising? What is the supply outlook for this division?
Is are sawmills able to ramp up supply further or will prices be higher for longer in the wood products is the first question. And then moving on to packaging materials, we've seen increased announcements for folding box board as well as on the containerboard side. When will those higher prices that we're seeing in the market could be reflected in your Packing Materials division. Will folding boxboard only be kind of a 2022 story with containerboard likely being second half of this year and into 2022 if prices remain at good levels? Thank you.
Thank you for the questions. In terms of Wood Products, I think we see a continued strong demand, both in Europe and overseas. We have many Products, construction projects in our pipeline, the renovation spree is continuing. Also, if we look at EU and the long term ambition to for green buildings, building with wood is really supportive through the directives. So short term, if we look at the coming quarters, I see a Continued good outlook for Wood Products.
And the supply demand situation is somewhat There are not a lot of inventories out there. So I think that even if we would see In half a year or so, the fundamentals of growth in this area are there. And we have to remember that wooden based buildings, they are only constituting a few percentages of all construction. And we see many schools, many offices, many actions in terms of building with wood that are in our pipeline. In terms of classic sawn, we know that market is more volatile, but our Building Solutions business is more stable.
So they are balancing each other in a very good way. We have assigned more shifts to our production already in the beginning of the year. So I believe all sawmills are running at their Capacity at now. And then if we move over to packaging, we are fully booked On all machines, we have a very healthy demand, both within consumer board and container board. So For containerboard, the inventory levels are really low.
There is a tight supply demand situation. So Therefore, we have seen continued price increases both in kraftliner and in testliner. So And of course, this is reflected in the results of corrugated, where we have been able to pass on some of the inflation in the raw material But by far not all. So within corrugated packaging, we will continue to push for price increases, and we will see an improvement in the coming quarters. As I see it, all our areas are supported by growth that our customers have, both liquid packaging board, folding box Board and the container boards.
So I'm quite optimistic.
Great. Thanks very much.
We are taking our next question from the line of Robin Santavista at Carnegie.
Thank you very much. Now first of all related to the paper business, you talked about turnaround. And I was wondering if that is More related to the demand and the price outlook you are seeing now for the end of this year and next year or then The restructuring you have. And also related to the paper division, are you considering is this a part of the company That is in any way core? Are you considering some structural measures to get rid of this business in the midterm?
So that's the first question.
So if we look at the demand supply balance, it will improve, and that is because many companies have announced restructuring actions. And as they are implemented, you would see a tightening demand supply situation where it's adapted to the new base line that we have seen now after the pandemic. So as we said also, our own restructuring with Kvanswerten and Veichelotto, The mills will be stopped in Q3, and that's when the capacity actually disappears from the market. And the same has been with the other actions That other players have done. So year on year, what we see now is that the demand is improving since many economies are coming back.
So there is a 22% demand increase in quarter to year on year. And this year, the demand will improve by 3% for the full year. So This is the fundamentals that need to be in place in order to be able to push through price increases. Still, we do not see it in the result this quarter. We are not yet fully mitigating the increase of raw material costs such as PFR, paper for recycling.
But the prices for paper for recycling will also normalize. And we, in the coming quarters, are pushing through price increases to compensate for that and mitigate this inflation. So our restructuring efforts will create a more focused and streamlined paper division, as we And we will see the impact in Q3, Q4. So I'm optimistic for the coming quarters for Paper.
And then Paper's position strategically within Yes.
Well, I think I've gotten this question many times, and we will continue to work as we have been working. It's going to be a Smaller business for us. After this restructuring, it's only going to be 10% of our sales. And I said before that if there are interested parties out there that would like to acquire our paper business, we are interested to have a dialogue like that. Also, In the meantime, we will work with improving the performance, getting back on track and delivering on Our key financials for Paper division and with the actions that we are taking, I'm confident that we are creating a much more competitive and good division For the future.
So this is where we stand at this point. But in terms of core businesses, We have our growth businesses, which are packaging, wood products and biomaterial innovations, and then we have our value creation areas such as forest and biomaterials. So in those terms, paper is no longer A significant part of our sales.
I understand. The second question I have is related to China. We've seen Some weakness in the pulp market and also in the consumer board market now this summer. Is this in your view more of a seasonal pattern? What do you expect going into the high season in the autumn related to consumer board in China and pulp.
Yes. I would agree with what you say. July August are seasonally weaker months for China. We know that the market then picks It's up ahead of Chinese New Year. The fundamentals for growth in China continue to be there.
And long term, both pulp and packaging grades are growing significantly in China. So I would see this as a temporary thing. And we know that the Chinese market is more volatile in both packaging and in pulp. But what we see in Europe is as the economies kind of start getting back on track that we have increases in prices in Europe for pulp and also for our packaging boards where we are pushing through price increases. So I think here it's important to have a balanced portfolio, which we have.
Good. Thank you very much.
We're taking our next question from the line of Harry Teitunden at Nordea.
Yes, good afternoon. Thanks for taking the questions. Maybe just sort of on the packaging side and on this material increase in delivery Is there some sort of is this an absolute maximum now for the deliveries, At least sort of looking at the sort of the shipments against the new level of capacity, it looks like it's very fully utilized at the moment.
Well, we are fully booked, but there is always operational equipment efficiency that you can improve. So I see here that we are taking actions in debottlenecking existing assets. We have still potential in all our machines, I would say. And we are driving both kind of targeted investments where we can take bigger steps, But also this day to day constant improvement of production efficiency. We've targeted investments in our pulp mills to improve Performance in debottlenecking our board machines to support kind of the growth.
So I think it's both the long term strategic, but also this day to day work that we're doing in Better operational efficiency. And then I would like to say that we the last 1 to 2 years have put a lot of effort in are start ups after the annual maintenance shuts. And here, we have improved our performance significantly. So it will be very Interesting to see now this autumn and our ways of working and processes if we can keep that trend.
Okay. And then the second question was the is about the new products and related, particularly looking at the sort of Lignard Pilot plant. And just how long do you think how long does it take to take this sort of To commercial scale, I mean, when could there be a decision? And what could be the typical investment scale When that time comes? And I know that you have some other final planned stage, for example, in BioThoams.
But which what sort of product area in this Sphere of new products, would you say that is the closest to getting to commercial scale?
If we look at the big kind of footprint, it is Lignard that has the Potential to be a significant growth engine. And with the Sunnila investment, we will be able to Test and commercialize at the same time because even though it's a pilot and it is small scale at the start, It is commercializing the product that is kind of happening with the pilot production in Sumila. So as I said, I would say that the coming 5 years is when we will co invest with other partners and drive the acceleration here. It's too early to discuss what type of CapEx levels will be needed, but we will work with our customers. And that is the key point of commercialization, that we do this in partnership with our with the value chain key players to enable this Accelerated scaling up.
So we are now just proving The technology needed, how we will construct the bigger site and then that will happen during this year, And then we are ready to go for a full scale up.
Okay. That's very good. Thank you.
We're now taking our next question from the line of Lars Kjellberg at Credit Suisse.
Thank you. Anke, I just want to come back a bit to your outlook. Of course, you're already above last year's level, and you're optimistic for H2, as you called it out. Why not be slightly or can you share any more color on what you really think? Because again, you're already above your Or met your target of being above last year.
And then I just wanted to come back a bit to Wood Products. To your point, Classic Son, you mentioned that as a principal driver for the profit improvement. And then you talked about the stabilization of the more Sort of value add products, but also in the presentation you talk about or I guess in the prepared in the sorry, in the Results note, you talked about strong growth in the construction business. So I just wanted to understand what is really driving this profitability? How big a portion is the construction of that improvement?
Or are we just looking at volatile classic stone timber going through the roof, which To your point, it's volatile. Those were my questions.
So if we look at the outlook, I cannot give more flavor than to say that we see a continued strong demand. I do not See any major drivers that would create a setback for quarter 3 for the businesses that are growing and that are kind of having a good profitability. So in those terms, I cannot quantify kind of more. It is a positive outlook. I've been more conservative before, as you are aware.
So in this terms, we see that we can deliver on, I think, a good level also for the continuing half year. And if
we If I may add, I think that It's fair to say that assuming that COVID-nineteen remains sort of under control, vaccinations move forward as they seem to be and are effective and trust intent that global economic continues to Recurrence stays strong. There's no reason why our performance would not continue to be strong like mentioned by Annika.
Yes. And then in Wood Products, if we look at what is driving the [SPEAKER JEAN FRANCOIS PRUNEAU:] There are several areas. One is, of course, that there were very low inventory levels in U. S. Last year.
The booming renovation and also construction industry, there is a lot of historical how should we lagging in projects of construction that U. S. And many other countries, also in Europe, there is a demand for renovations. Then of course pandemic, there was an uptick of do it yourself projects [SPEAKER JEAN
FRANCOIS VAN BOXMEER:] In many countries.
And the inventory levels going in were low. There have been some Logistical supply chain challenges of transporting, which has also impacted pricing. But If I look at kind of the construction side with wooden buildings, there the pipeline of projects that we have is very healthy. It is not as volatile as sawn timber. I do not see for storm timber anything indicating that quarter 3 would be different.
There is still a restricted supply for sawn goods. So for the coming two quarters, I see a continued Strong performance for SOAR and Timber. And then on the construction side on wooden building solutions, There are a lot of projects in the pipeline, schools, it is football arenas, it is offices, it is multi storey buildings and in many countries, in Asia as well as in Europe. So if you have noticed in Finland, for instance, there are clear kind of projects of wooden cities and so on. And this is a trend that I expect Will continue.
So having a balanced portfolio where sawn timber is more volatile and then having an area in Building Solutions also growing with our new project in Sterec Having more capacity and the ramp up of Gruben site, that will give a good condition to continue growing within Wood Products.
And also we see continued positive even more positive momentum, thanks to For instance, last week, we announced EU forest strategy as well as climate package.
Thank you. I have a few more questions, but I'll get back into the queue. Thank you.
We are now taking our next question from the line of Johannes Drumsleus at Kepler Cheuvreux.
Yes. Hello, everyone. Just want to come back on the interesting thing, carbons for batteries. You open up a little bit more there or Speeding up, I suppose, the ramp up concept here. But I mean previously, you have indicated 35% EBIT margin For these activities, is this still true?
Or have you done any changes on this lately?
No. We still see a very, very strong margin business here. Okay. And I was also curious,
Okay. And I was also curious about you mentioning partners. Could you say who are they? I mean, I Those industrial partners are the battery manufacturers or other industrial partners?
Both battery partners, of course, which are the direct Customers, but also the automotive industry and energy storage industry, which are setting their requirements. So I think for these types of innovations, it is about true partnership in the value chain. And we are exploring that now to set A partnership collaboration business model here to be able to ramp up local supply in Europe. And I think there are many interesting companies, both in the automotive industry in Europe and also battery customers that want these materials. And there is a restricted supply for components for batteries in large.
Okay. Yes. If I may ask just the final question, and that's on UOLO. If you could give some flavor how we should think about this for next I know what the capacity is here. Will you be able to run this at full capacity for next year, would you say?
And could you help us to have perhaps provide Any indication of the OpEx per ton or something like that or a ballpark earnings level for Oulu that we can think about?
I will not provide you with any earnings levels for Oulu, but I will say that We have only run the mill now for 2 quarters. So of course, commercialization of the high end and premium product is still ongoing. So this is why I'm so positive with the achievement that already now we see kind of a very solid earnings performance and that will improve going forward. There is always more capacity to get out after design capacity. So if you are good at what you're doing, you will be able to get excess production out of the site.
But at this point, we stabilize, we have a stable production level, which is the best precondition to make sure that we can drive the Quality improvement now that we have for the highest grades and fully kind of getting the product mix that we want on the machine. And that is the focus for the coming half year.
Okay, got you. Thank you very much.
Thank you.
We're now taking our next question from the line of Linus Larsson at SEB.
Yes, Thanks a lot and good day to everyone. It's pretty clear from what you're saying that you're seeing very Strong markets in your various areas of operations. How do you see input costs developing in the 3rd and fourth quarters, variable costs in general, but maybe wood costs in particular?
Well, we do not see any Significant kind of impact here. We have been able to mitigate already in Q2, and we will continue to do So we have very good sourcing processes. Our major kind of input costs are fiber costs. And here, we have been able to push through price increases to our customers and not only maintain margins, but Actually improved margin. So of course, we constantly monitor what is happening on the logistic market and So on there, we have been we have had to take kind of cost increases, but then we have been able to Reduce costs in other side.
So good cost management is kind of what we are doing here, and we will continue to do that. So I don't see anything kind of alarming going forward.
Yes, greetings, Annika's comment. And I would add that Biggest pressures are, as you said, Linus, on wood side, especially log prices, but that is balanced by pulpwood prices. And energy costs are somewhat up as well. Logistics have been stable now in Q2, but there were increases during the 1st March of the year because of the increased volumes globally and shortage of especially containers and some small pressures on chemical side. But I think they are very manageable, like Anders already mentioned.
Great. That's helpful. And then maybe something completely different on the EU Policy that you touched upon and I appreciate this is to a large degree work in progress And a lot still has to be said about it. But Could you maybe discuss with us a bit already today what the practical implications may be As for Stora Enso from this set of different EU policies now being proposed, I mean, with the EU taxonomy, to start with, you say that you're very confident that you comply with it On the forestry side, do you also see other areas where you comply? And when it comes to the fit 455 and the forest strategy, how do you see that impacting harvesting levels, wood Availability and potential cost pressures and your Possibilities to operate.
And again, I understand it's still early days, But what's your thinking at this stage?
If we look at EU taxonomy as such, I think it's tougher for smaller private forest owners. There is increased reporting of climate impacts and so on. But we as a large company, we're able to we have the processes and that in place so we can manage on those levels. And in terms of being a green business, we are kind of fully in line with our sustainable forest management. In terms of Fit for 55 And EU Forest strategy, it is very early days.
This is just a this is a directive. So we have to remember, it's not legislation. So we are looking at the areas where we do have concern, and it is making sure that Forest management, a sustainable forest management is acknowledged in EU as a driver for climate benefit. And here, we are driving a lot of advocacy in making sure that our position as an industry and solution provider for achieving climate Positive climate impact in EU is fully acknowledged. So I think It is early days, and we would need to come back to this topic once we have analyzed a little bit more what possible implications it may be.
And kind of wise of own experience, we have seen many changes in these directives over the years. So this is just the first Kind of starting document. But I will need to come back on this a little bit further ahead.
Sure. I appreciate that answer. Thank you very much.
We're taking our next question from the line of Justin Jordan, Edexan.
Good afternoon, Annika and Seppo, and well done on a strong Q2. I've got 2 separate questions. Firstly, on packaging Q2, where you described the outlook as healthy demand for all products. In the 13.4% growth in deliveries in Q2. Can you help us understand clearly that's benefiting from the successful ramp up of Ulla, which clearly ahead of schedule.
But in the sort of more consumable type areas, you just give us some sort of quantification of what the organic volume growth you've seen in whether it's first half or Q2 specifically has been? And in North America, in particular, we've seen price increases announced in areas like the UK and folding boxboard. Is there scope for that secondly In Europe, in your view? And then secondly, I guess coming back to your slide 7, the EU climate change and forestry policies. There's an interview on Bloomberg today from Sapo talking about the essentially 655, when it comes to board and paper based product, the substitution effect is not fully recognized.
Can you just help us understand what exactly you're referring to That comment, please. Thank you.
Yes. If I start with packaging materials and The demand there, it is clearly very strong. And in folding box board and in liquid packaging board, we are growing with our customers. And here, as you know, the contract structure is a little bit more stable. So pushing through price increases and compensating for increased The variable cost takes a little bit longer, but we see that our major customers such as Tetra Pak, SIG, liquid packaging, they have very healthy growth outlooks.
So I'm quite confident that we will be able to continue with that. And then if we look at EU Forest Strategy, I think there is a recognition of packaging materials as being a solution to replacing other materials Such as plastic components or plastic packaging in the society. But what is not fully recognized is the forest's role as a driver of climate mitigation that Forest management and the products that come from forest are part of replacing fossil based materials. So we need to make sure that we do not just look upon the forest as a carbon sink, But rather make sure that it is fully recognized in Europe and in many countries where Reforestation needs to happen, and that is one of the initiatives that's very good in EU, that it's now also targeting reforestation.
But that
you can see that forests, if they are sustainably managed, they can both mitigate climate change but also provide products that replace less eco friendly products on the market. And here, we are just in the beginning of That transformation, I believe, in both packaging, in construction, where a lot of the materials used today, like concrete or steel or plastic have enormous CO2 footprints. So this is what I mean when I say that it is not fully recognized that there is a big potential for our industry to really enable EU to reach their targets and at the same time protect biodiversity and have growth in forest. So this is not a contradiction per se, and we have proven that in the Nordics, where we have had or practices for sustainable forestry for quite some time. But as I said, This is a continuous discussion with EU where we are engaging and have a good a lot of good dialogue.
So I'm confident that we will see the impact coming forward in a positive manner?
Yes. That's just for continued success in the Discussions on lobbying. I appreciate it's a marathon, not a sprint.
Sorry, I didn't catch what you
So I was just going to say best of luck with the lobbying with the I appreciate you have material forest assets in Sweden, Finland and then Streamy, well pledged to benefit from any EU climate change and forestry policy. So best wishes on that in coming years?
Yes. Yes.
We're now taking our next question from the line of Mikael Doepel at UBS.
Thank you. First off, on the graphic paper side, just to clarify the numbers you Annika mentioned there in the beginning, you talked about 22% demand increase in Q2 year over year and that the full year demand should improve by If you could just clarify, is this on a global level? Is this a European level? Is this for Graphic Papers overall? Who's doing the estimation for the full year and so on.
Just a bit of a clarification there, but also on paper, I was wondering if you could give some indication of what kind of Price hikes you have been able to achieve for mechanical papers in particular going into the second half of this year? That would be my first question.
Well, the demand is overall, so it's Not European demand. It is global demand in food bank. So and it is for all of the segments within graphical paper in general. So that is kind of the foundation for those for that data. And if we look at commenting kind of price increases looking forward, unfortunately, I cannot do that, as you know.
But we have had several price hikes during the end of quarter 2, And we are pushing through that to mitigate the raw material cost increase. So that is unfortunately all I can comment at this point.
Okay. And then my second question would be on the pulp markets And maybe on Europe in particular,
if you could just talk a bit about what you see
in the European markets Right now in terms of demand for pulp, in terms of customer inventories, producer inventories, and in particular, Price trends, what you see in Europe now? I mean, we've seen, as you pointed to yourself, price volatility or declines Actually, in China, Europe seems to still hold up fairly well. Just wondering what you're seeing in the European pulp markets right now, please?
We have seen a continued demand increase through the quarter, so and price Increases there. So the supply, if I look on a global level, because it is like China and Europe, it's all interlinked. It's very difficult to kind of separate the one area from the other, but the supply is tight for kind of pulp on the market. And it's driven by a few factors. One is that quarter 2 was quite maintenance heavy.
There were many companies that had Postponed maintenance activities during the 1st year of the pandemic, and now they took a chance to kind of prolong their maintenance shuts during quarter 2. There have been logistical challenges in kind of supplying pulp to the many corners of The world, as you are well aware, with everything going on in logistics side. If we look at inventory levels, the global inventory levels, they are for hardwood, for instance, they are 8 days below the 5 year average. So and for softwood, they are in line, the global inventories, with the 5 year average. So Moving then forward to quarter 3, which is usually a maintenance intensive quarter, supply is going to be restricted again.
So I see that for Europe, there is a continued healthy, Balanced supply demand situation also going forward the coming two quarters.
Okay. Thank you very much.
Thank you. There are no more questions from the line. Ulla, please go ahead.
Okay. Thank you, Andrea. And thank you for everyone participating our Q2 earnings call and lively discussions and good questions. And I will now hand it over for Annika for final words. Please, Annika.
Thank you, everyone. As I said in the beginning, this was a quarter that we are Proud of and I'm satisfied with our performance. We have strong performance and solid growth, both It's year on year and quarter on quarter. And I see we have a positive outlook going forward. And I'm excited to talk to you again in quarter 3 report.
Thank you very much, and I wish you all a nice summer.
Thank you.