Good day, and thank you for standing by, and welcome to today's Q3 2021 Stora Enzo 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. I must advise you that this call is being recorded today, Tuesday, 20 October, 2021. I would now like to hand the conference over to your first speaker today, Ulla Pajanen.
Please go ahead.
Thank you, Jules, and good afternoon to everyone. As Jules said, this is It will be presented by our CEO, Annika Breski and our CFO, After that, we will have a
Q and A session. So Annika, please go ahead. Thank you, Ulla, and good afternoon to everyone. I'm very pleased to be here today and present yet another quarter with robust growth and profitability. Our strategic transformation program is progressing really well, and we have a powerful foundation for growth going forward.
We have seen that we have been delivering solid results, and many divisions have had record high Deliveries and results this quarter and our top line growth in our key focused areas, packaging Materials, wood products and biomaterials have been very strong. Also, our forest assets are yielding very well. We also today announced an investment in expansion of the attractive end user segments of packaging to accelerate our growth for sustainable packaging underpinned by a very healthy demand in that sector. And we are in a very strong position to end this year on a high level, and I'm very happy for the strong performance that we have shown this quarter considering The market conditions. So moving over now to operational EBIT and our results.
A few highlights. Our profits are trending up, so we more than doubled our results compared than last year. And our sales have increased by 24% year on year, excluding paper almost 33%. Our operational return on capital employed, excluding Forres, is above our long term target of 13%, reaching 20% level. So all in all, we are trending in the right direction.
Moving on now to the impact of some of the input costs that we have had in logistics, energy, fixed Costs and other variable costs as well as fiber, you can see here that we have been able to offset that impact Very well through the quarter through our increased sales prices and improved product mix. So that is all in all building up our results for this quarter. On our strategy execution, we are taking decisive to grow our packaging position following a very strong demand in sustainable packaging. The long trend here is very favorable. Our pilot production of Ligno is progressing according to plan.
We are here evaluating The different options of partners that we have to be able to scale up are and industrialize this opportunity. With the restructurings that we have done the latest quarter, we will move towards An impact of totally 10% of total sales after the closing of Weitzilotto and Kvanswade and Seitz is terminated. And we did that at the end of this quarter. We also divested our Saxon paper mill last quarter. So all in all, paper business will have a very small impact on our overall sales and results going forward.
I'm also happy to say that our remaining business in paper has an improved position on the market. It is competitive, and we can see it turning around. We also see that due to the actions that we have taken, We and other players on the market, the balance in supply demand is more favorable for paper. And we're also implementing a decentralized operating model, which will I'll come back to in a few minutes. Looking now at one of our key areas of growth, sustainable packaging, we today announced that we want to invest close to €100,000,000 at our Skogalp Mill in Western Sweden to enable and accelerate growth in high margin business.
This is supporting the ambitions that our customers have, and Skunkhouse site in Sweden is a key strategic asset for us With a very competitive position and a global quality leader. And the segments that we are aiming for is liquid packaging and other The debottlenecking of the existing production line will be completed by second half twenty twenty three, and it would yield about 100,000 tons of additional board grades to the market. If you remember, we initially communicated a total investment level of €800,000,000 to €850,000,000 based on us also doing a pulp investment, but we have decided not to proceed with that at this stage. Since our ramp up in Oulu Mill in Finland has been very successful, we delivered EBITDA breakeven 3 quarters ahead of the plan, and we've already reached the quality demands on the market. We want to capture the strong growth In those in the packaging board grades, and therefore, we have decided to proceed with A review of the 2nd idle line that we have in Oulu.
And this is to capture the opportunities we see on the market and drive market share in Packaging Board grades. Coming back now to our decentralized operating We want to strengthen the execution of the strategy and achieve customer intimacy. Our different businesses have different roles. Some are growth, some are value creating and to empower them and get more agile and quick Decision making closer to the market. We are driving an organization where we have focused functions, focusing on Scale areas across the company, and then we drive performance culture through our different businesses through business specific processes and closer to customer decision making.
We have also communicated today that we have set ambitious targets for 2,030 and the goal that by 2,050, we want to be 100 As you know, EU Commission has a very ambitious climate agenda, and we fully support that. This is an opportunity to transition to a low carbon society. And we, as Long term owners of sustainably managed forests and having renewable circular products, we are part of the solution to reach these ambitious Target. By developing products that not only reduce harm, but also are positive from biodiversity, circular economy and CO2 footprint, we are taking the lead in this area. And if we'd look at what that actually means in concrete steps up to 2,030, it means that we align our CO2 print through science based targets with the 1.5 degree scenario.
We do that by reducing the CO2 to emissions not only in our own operations but also with our partners and suppliers. We look at our products and design them for circularity, and we want to have circular design guidelines by 20 25% 100% of our products should be recyclable by 2,030. And in the biodiversity area, We have a detailed action plan towards 2,030 to achieve a restoration in biodiversity. And we do that by having 15 indicators on ecosystem, landscape and species level. We will transparently communicate our indication to show indicators to show progress in these different areas and have an outside in perspective and a science based approach to this.
And through these three Major steps, we want to take the lead and be leading in the sustainability area also going forward. And before I hand over now to Seppo to give you the details of the financials, I guess you're all aware that the European Commission has conducted Did an unannounced inspection at several member states and premises of several companies acted in the wood pulp sector. Stora Enso was one of these companies, and we had an inspection at our headquarters in Kannavarante in Finland last week. We are fully cooperating with the authorities and sharing all information enabling this inspection in every possible way. EU Commission carry out such inspection, but that does not mean that the companies are guilty of anticompetitive behavior or that this is a prejudgment of outcome in any way.
We are under strict confidentiality, so we can unfortunately not share any more details on the proceedings of this investigation. And I just want to stress that as a company, we have zero tolerance to antitrust and anticompetitive behavior. Having processes in our company and making sure that our employees understand what this means through constant education. And with that, I would like to hand over to Seppo to take you through the financials. Seppo, over to you.
Thank you, Annika. And I start with the financial key figures from the report that we have published today. Sales for the quarter were up 24% year on year and reached €2,577,000,000 Operational EBIT more than doubled and was €410,000,000 and earnings per share €0.38 Return on capital employed, excluding ForEx, was clearly above targeted 13% level, reaching 20%. We continue to generate good strong cash flow from operations. And we had in Q3 this year €485,000,000 Operative Cash Flow.
This is thanks to good profitability and good working capital management. Also, our debt has been coming down as well as our EBITDA going up. And thanks to that, our net debt to operational EBITDA is down to 1 point 4 at the end of Q3 this year. Then moving to divisions, and I start with Packaging Materials, where we had excellent quarter. Sales were up 28% year on year, reaching all time high.
This was driven by higher deliveries, mainly thanks to ramp up of production at Oulu and higher prices. As communicated earlier, Oulu ramp up is moving ahead In good order, very well and ahead of the plan as announced earlier. Operational EBIT was up 37% year on year, and this is also all time high at €153,000,000 This is thanks to very strong containerboard performance as well as good performance at the Oulu kraftliner mill. Higher sales were partly offset by higher variable costs. Operational return on capital was at 19.5%, and this is close to long term target.
Yes. I want to remind that even though that always ramping up well and performing financially better than expected, it is still at the ramp up phase And the full effect is obviously in the balance sheet. So going forward, that improvement should be visible here when it comes to return on capital. Then moving to Packaging Solutions, and there we can see that strong growth continues. Sales were up 24% year on year, reaching €180,000,000 Sales were driven by prices as well as increased sales in innovation and services.
And these are following steep increases in containerboard raw material prices earlier during the year, and those are still going up. Operational EBIT was at the same level year on year, but we are catching up with the price increases to close the gap between higher containerboard prices and our own selling prices. And this is visible as input margins in corrugated business. This is somewhat offset by increased investments in the new businesses that we are developing and higher fixed costs related to that. Operating capital was at 12.6%, and this is still below the long term target.
In Biomaterials, we had reported quarter despite some global logistics challenges that we are also facing here. Sales were up 40% year on year, and this was record high 3rd quarter. We can see clearly higher prices currently, And European market has been holding quite well. Partly good sales We're offset by slightly lower deliveries due to global logistics disturbances, and we saw some volumes moving from Q3 to Q4. Operational EBIT was at EUR 111,000,000 at EUR 118,000,000, And that is 2nd highest 3rd quarter.
These were partly positive sales prices We're partly offset by higher maintenance costs due to changed maintenance schedule. And operational return on capital was at 19 point 6%, clearly above long term target. In Wood Products, we also had All time high results. Sales were up 48%, reaching €503,000,000 and prices were at record high level. We saw slightly lower classic sawn deliveries during the quarter.
Operational EBIT was significantly up Year on year, 228 percent is also all time high at €123,000,000 We had extraordinary high profitability due to record high prices in that business. These were partly offset by higher raw material production costs. And return on capital was at 76.5%, which is significantly over the long Sales were up 19% year on year, also at record high level for the quarter. And this was driven by higher deliveries, especially in Sweden and Finland as well as increased wood prices. Operational EBIT was up 21% year on year, also at the record high third quarter level.
It's thanks to higher margins in our old forest assets and forest operations. Group's forest assets remained at €7,400,000,000 level, So no major change there this quarter. But yes, I want to highlight that in Q2 and Q4 is when we make The bigger revaluation of the assets. So that is coming in the next quarter. Operational return on Capital was 3.9%, and this is also about the long term target.
Then Paper division, Their result still impacted by restructuring and high input costs, but we can now see that remaining business is turning around. Sales were down 6% year on year at €141,000,000 and this is mainly due to structural changes in the business increased by €85,000,000 mainly due to higher deliveries. Operator EBIT was down and was at €31,000,000 This is driven by clearly higher input costs related to energy, pipe and logistics as well as lower prices. We also had some Cash flow to sales of the investments was negative 7.7%. Then let's take a look at the long term financial targets and day development.
First, if you look at the Group long term financial targets, as you can see on top of the traffic lights, they all are green. When it comes to especially our debt metrics, net debt to EBITDA And net debt to equity, we are clearly within the maximum limits set. And operational return on capital, excluding forest was at 20%, So clearly also about 13% targeted level and clearly up from 7.8% a year ago. Look at the divisions. There are Biomaterials, Wood Products and Forests reaching the target and being above the target level and Packaging Materials Only a bit short of the 20% targeted level.
And here, I want to remind us that earlier, Thor is still at the ramp up. And data at negative 7.7% versus compared to target And Packaging Solutions, where we have target of 25%, they are still working on Price increase is to close the CapEx in higher containerboard prices and our selling prices, and that's why we are still at 12.6% level when it comes to return With this, over to you, Annika.
Thank you, Seppo. And taking now a look at the outlook, We reiterate our outlook. We see that we will end the note end the year with on a high note. Global economic activity is continuing to be on a healthy level and favoring our products. We have a strong demand for our key focused areas and our businesses, and we have a full order book for Q4.
We continue to work with what we can impact to mitigate input costs and make sure that we can continue to deliver to Despite the logistics challenges around the world. And I think we have proven that with the strong quarter 3 that we are able to do that. So all in all, I see that the end of the year is finishing on a high note. So to close-up, I'm very pleased with this quarter. It is actually the best quarter we have had since 2,001.
We are proceeding with high pace in our strategic transformation program. We continue to see strong underlying demand and Good growth for our key focused areas. We are proceeding with investments in high margin areas to accelerate our growth. And I think that we see the end of the year with a strong order book and a healthy demand to end on a high note. So with that, I hand back to you, Ulla, and for the Q and A session.
Thank you, Annika. Yes, we are starting the Q and A session now, and I would like to remind you that please limit your questions to 2. We have usually a lot of interest, and therefore, we want to give a chance to as many people as possible to ask the question. So Jules, please Give the instructions for the Q and A session.
Thank Our first question comes from the line of Justin Jordan from Exane. Your line is open. Please ask your question.
Thank you and good afternoon everyone. I've got 2 questions if I may. Firstly, on I suppose topic de jure of energy costs. I know from the very detailed that you get All the updates every quarter that energy was approximately 6% of group operating costs in 2020. Can you really learn an inflationary world?
Can you give us some help as to how we should think about energy costs going forward, not just in Q4, but 2022, hedging that may be in place? And I'm thinking particularly in both the Packaging Materials and Paper divisions, clearly it's probably less of an issue in Biomaterials. And then my second question is on wood prices. Clearly, in your bridge, you have €155,000,000 of extra fiber costs Now we're all familiar with rising OCC costs. But looking at your forest revenues, it would appear like wood prices are up Like 9% to 10% year over year.
Is that what you're actually is that the actual fact as it were? Because that would seem to be slightly higher than the previous inflation that you've seen in recent quarters. Thank you.
Okay. If I start with the energy costs. So I think first of all, I want to remind that our self sufficiency rate is relatively high. If you look at the total group, this is something like 67%. And in FEMA alone, it's 90%, thanks to our ownership in PVO, where we get the energy at cost.
As far as hedging policy, we hedge About 80% of the current calendar year, 70% of the following. And then coming years, 50% 30%. So in that sense, we are in a relatively good position from group level. But obviously, that can be a bit different for divisions that as we are then Internally pricing electricity at the market price, obviously, when we are moving it forward. Inevsi, close development with the rest of the year, we don't expect any serious increases anymore during the Q4.
And obviously, next year is something we come back later when we give further guidance for the coming year, but that we are not doing today. But for the rest of the year, that is Very much higher than what we have seen so far. On the Wood Coast, they are in Q4 higher compared to year ago. And we expect them to increase also in the coming quarter compared to previous. Solar costs have been clearly higher year on year, and that has been the case It's the beginning of the year.
While our cost development is expected, that has been more stable. That has been balancing the total of the total picture.
Great. Thank you, Sperin.
Thank you. And our next question comes from the line of Linas Lachan from Saab. Your line is open. Please ask your question.
Thank you very much and a good day to everyone. My first question is on capital allocation and your Decision not to go ahead with the big investment in Skogahal and rather focus on Oulu. And my question is, well, if you could talk a bit about the background for that. Was that is it the market strength that has caused that, that altered focus away from pulp and increasingly to paperboard? And secondly, given that you have Dan, work on in a previous feasibility study on the Oulu site.
Could you talk us through the time line and how soon Would we potentially be in CapEx phase and start up with that 2nd machine at Oulu. And maybe also in connection to that, if you could share some thoughts What that would imply in terms of CapEx for 2022 potentially?
Okay. I can start with the market side and say that we have for a long time seen the sustainability trend in packaging really picking up, And this is the chosen growth areas that we have that we have communicated also earlier that will drive significant growth for the company. So the decision to prioritize to accelerate packaging growth both in Oulu and Skokal In sense that in Skogal, through the big revision we made, we saw that we wanted to debottleneck one line and Grow with our customers within liquid and food packaging. And in Oulu, we decided to do the pre feasibility Earlier than we had expected, if you remember, we have 2 machine lines in Oulu. We chose to start up 1 and convert 1 first.
That conversion and the ramp up has gone better than we expected, both in terms of Quality and reaching design capacity of the Oulu line. So that gave us the confidence to proceed quicker than With that, we prioritize our CapEx allocation to from the pulp mill to getting bored on the market quicker. And in terms of pulp, we are long in pulp already as a company. So this reprioritization made sense from that perspective. If we look then at how quickly we get the board to the market, it is for Skooka, the second half of twenty twenty And for Oulu, provided that the pre feasibility study is ending beginning of Q1 Next year, we will come back with more details on when we what type of product mix we will be running and also how quickly It can be converted in the beginning of next year.
Yes. Then about the capital expenditure, so I think first of all, in the case of Oulu, like Annika said, we have to remember that this is pre feasibility study that we are starting now. And we expect to be ready with that early next year. And after that phase, we are able to comment more on phasing of the CapEx as well as total CapEx And that obviously will depend on end product and once we are also more clear on potential infrastructure related needs, etcetera. So that's something we have to come back to.
Then with the Skokal investment, this €97,000,000 we announced today. Typically, 1st year when you start the project, the capital expenditure is not so high. You make the down payments, etcetera. Year after, 2nd year Is that when the major part of the CapEx takes place and 3rd year typically when you have the last payments then from the project After testing and acceptance of the machinery agreement has been done. So no major effect See for the 2022 CapEx from that.
Typically, as you know, CapEx has been, say, around €600,000,000 excluding any major Development projects. And this year, we are guiding, say, around 700, as you might remember. So that's something we come back to. Obviously, then we are coming with Q4 report and your guidance on CapEx. But currently, we don't have any sort of major things in the pipeline on top of what we have announced already now.
But that's something we have to contact later. But no major effort on SCOR
But I mean, even in a fast paced process, it's hard to see that There would be much CapEx at Oulu in 2022 and not much at Kvaernerstwiden either. So is it fair to say that 2020 to will have clearly less CapEx than 2021 where you have a midpoint of guidance of EUR 700,000,000.
As I said, we will come back with a more clear guidance in Q4 reporting. So that's when we don't comment it. But like I said, we don't have any Major project in pipeline for the coming year as such, where with the rebut our cash outlook.
Okay. Thanks. And then Maybe just to check, you didn't mention much on the Ligno project in your report, could you just give us a quick update if there is anything to say? And what's What's the sequence of events? What's the potential news flow in the next months and quarters, please?
Yes, I can comment on that. So what we are doing now is that We are we have verified the technical parameters of the product in Sunilamil. So that project is proceeding very well. We are looking for the partners and having those discussions, signing up our collaboration partners, and we'll come back when we have more transparency on that. And then it is about the setup of the legal structure that we are considering to enable a as quick ramp up as possible to industrialize this.
So In the coming quarters, we will be able to disclose more information as we proceed with those 2 key focus areas.
Great. Thank you very much.
Thank you. Our next question comes from the line of Johannes Rommelius from Kepler. Your line is open. Please ask your question.
Yes. Hello, everyone. This is Johannes. Can you hear me?
Yes.
Perfect, perfect. Yes. So if you could help us a little bit to understand the big moving parts in the Q4 because it's such a Moving part market or volatile and so forth market, you were successful in mitigating the higher input cost In the Q3, I mean, the picture on Page 5 in the presentation, Kit, is very useful. I mean, how should we see this in the Q4? Should we expect less cost inflation quarter over quarter?
Would you say then in the Q3? And what's your feeling about mitigating or even Get more compensation on the sales price. Could you talk about that? Thanks.
So if I start The market, of course, we constantly review the contracts that we have with our customers. And depending where we are in the cycle of contract negotiations, We are also able, of course, to mitigate input costs as the contracts are being renewed. Different businesses have different cycles. We are quicker in, for instance, containerboard in compensating, More stable in Consumer Boards where we have a longer contract period. And you have seen even though that is the case, Consumer Consumer Board has delivered really well in quarter 3 and has a stable outlook also for the coming quarters.
If we look at Wood Products, we have a split between the sawn area where prices Typically move up and down quicker, but having Building Solutions as part of our business, we have more stability and long term contracts with customers. So if we look at pulp, here it's about how efficient we can run our production units And supply our customers in the logistics. So all in all, I see that and I think Q3 is a good testimony that we are able to mitigate costs and work with what we can impact. If you remember, we had our profit protection program that we finished some year ago, making sure that we have a sound cost structure as a fixed cost structure as well.
So yes. Then maybe just Adding on cost inflation, so if you look at the key cost drivers for input costs like energy, Wood Coast Chemicals. In Q4, additional cost coming from cost in present day. It's In the case of each item, we are talking about some single million effect for the remaining year. And maybe good to remind also that, as I mentioned, so we had some transfer of volumes from Q3 to Q4, And that obviously is also positive for the coming quarter.
And that was because logistics issues that we and many other companies are faced. So that helps also going forward.
Yes.
And suppliers, of course, for input materials like chemicals and so on. We also have kind of long contracts that somehow help us in this situation when there are quick moves.
Yes. Okay. Very helpful comments. Thanks for that. Can I just follow-up on wood?
I mean, it's kind of difficult to know For us sitting on the outside to understand how the pricing will develop short term, maybe even more complicated for 2022. But what's your feeling here? What do you hear in the discussion in terms of price pressure on these extremely favorable pricing?
I think one of the things to remember is that through our ownership of Tornador and our own forest, we are able to balance Also, by using our own forest to drive wood to our operations. So this is one of the areas where we can impact, of course, how much we source from other forest owners and how much we choose in our own forest.
Yes. And during this year, harvesting conditions have been quite good. So we have not had any issues with that. Now obviously, when autumn and winter is coming and now it's getting wet, so then the key is that how fast the ground gets frozen So that we can continue to harvest also during the wintertime. That will be, I think, critical for the coming months.
Okay.
That's helpful. But I was actually thinking about the pricing for wood products and sawn goods for the Do it yourself markets and the construction, builders, etcetera. What do you see there in terms of pricing at the moment?
What we have seen in the current quarter is that the Prices of U. S. Market have gone down, but the markets of Europe, Australia and overseas, Japan, We've had a very healthy demand and a quite stable situation so far. And as I tried to explain, we have chosen a mix of Customers, that gives us more stability in the long run. This is favorable when there are big moves of the prices up and down in the sawn goods.
And our Building Solutions Part of the business is giving that stability long run. We have 600 projects ongoing in the Building Solutions part. So staying with the customers that we have and not being opportunistic when the prices move on the markets And having a good market mix, that I think is key to deliver good results in Wood Products.
Okay, thanks.
Thank you. And our next question comes from the line of Lars Kjellberg from Credit Suisse. Your line is open. Please ask your question.
Thank you. A couple of tidy up questions. When you're looking at Skogal and Olo, Two investments. Skorkalikos, you pulled out of the pulp project. Just thinking about The 2 mills, will you have sufficient integrated pulp at both sides post these sort of expansionary or potentially a total expansion reinvestment.
And I appreciate you didn't call out specifics in terms of the grades you plan to produce at all on the second machine. Would that be back to what you I guess the first pre fit disability study, which was some sort of CUK grade. Is that what you are contemplating? That was my first question, if you can address that first, please.
Yes. What we see is that both sites are highly competitive. So from that perspective, we will be able to have a very competitive production Even though Skookal is not fully integrated or Oulu is not fully integrated. So we have taken that, of course, into account, and we have internal Hope in our business, as you are aware, since we are long in pulp. So that helps us.
Both of the sites are positioned in areas where we have good wood availability and the closure of Baisolotto in Northern Finland enables us to direct the region that would support the project. Then the second question, if you can find
It's great.
Oh, which way? Yes. Of course, we want to have a Machine that is flexible, but the exact product mix, we will need to come back to. And this is what we are contemplating now, looking at kind of the full product portfolio that we have in Consumer Board and Container Board, what makes most sense. So bear with us 1 quarter more.
We'll come back in beginning of next year with a more precise plan.
Okay. And my second question comes back to what you talked about, sustainable packaging, you're seeing strong demand. Could you help us understand what that means in your portfolio and how that contributes to your growth in what areas?
If we look at the strategy, packaging as a whole, both packaging solutions and packaging materials, is what's in that area. So this is just the steps that we're taking now in a very structured way to make sure that we It can grow with our customers. Liquid is growing well. Containerboard is growing well, driven by e commerce, for instance, and Long term sustainability drivers where a lot of products in plastics are being replaced by paper packaging. So we are taking advantage of that.
All right. Thank you very much.
Thank you. And our next question comes from the line of Cole Hathorn from Jefferies. Your line is open. Please ask your question.
Afternoon, thanks for taking my question. The first one is following up on the capital allocation point that was asked earlier. I mean, If I look into next year with not doing Skook Haul, your CapEx is likely going to be lower. If I look at where consensus is and that the implication for your net debt to EBITDA next year, if consensus Right. Then you'll be approaching one times net debt to EBITDA.
So it brings up the question, what are you going to do with the higher free cash flow? How are you thinking about that? Is that going to be Your dividend policy, is it going to be potentially some M and A or other capital returns to shareholders. If you could just talk about how you think about that before you go into further CapEx into 'twenty three, 'twenty four, at 25 if you approve, Oulu and your lignone projects is the first question. And the second question is around demand.
Anika, you made the comment that your order books into the Q4 are good. Are you referring to the packaging materials or the wood products? Just a little bit more color around kind of the near term order book and demand environment? Thank you.
If I can start with the market side. We are fully booked actually on all our products. So it's a very good situation that we see on the market. And as I said, also the paper business has a much better balance. So also there, the competitive remaining mills that we have left are full.
So I think that it's a healthy market environment for us generally. And then if we look at the CapEx allocation, of course, the ramp up of Lignode is something that we are doing the coming years, And we are looking for partners to share that investment with us, but it is part of our growth agenda. In Packaging, we have these two steps That we are looking at today and we have announced today. And then, of course, as you very correctly said, we have taken down our net Debt, this opens up opportunities for acquisitions in Wood Products and in Packaging Solutions. There are targets that we are looking at long term.
And this is part now of our transformation, as we have communicated before, that we are moving from Phase of restructuring into a growth phase. And of course, M and A is a part of that. If there are attractive opportunities out there, we will be in a position to utilize that opportunity.
Would buybacks fall under the capital allocation agenda or not so much at this stage if there were no attractive M and A opportunities
It's Seppo here. It's true, like you said, that our balance sheet is getting stronger and our net debt to EBITDA ratio has clearly improved, and we believe that we will continue to improve it going forward, thanks to good cash flow and improved Profitability. When it comes to I think you referred to potentially higher dividends or share buyback programs, etcetera. But I think Those kind of things are up to the Board and shareholders to decide and not something that we as management comment.
Okay. Thank you.
Thank you. And our next question comes from the line of Hari Taittonen of Nordea. Your line is open. Please ask your question.
I remember when you talked about it first, I think there was one motive was That will be kind of renewing the power line and that there was a little bit of maintenance nature in that way. But Do you see that, that will come relevant at some stage? Now in any case, if you now decide not to sort of address the pipeline? That was my first question, please.
Yes. Of course, pulp mills are maintained every year. The annual shuts that Have is to maintain the pulp mill. So from that perspective, it's not something that we see in the immediate future. We take care of our pulp mills to make sure that they are in good shape.
What we do want to do now is because of the Quicker ramp up of Oulu, we could push forward a conversion that was further ahead in our plan. We wouldn't have done the second line of Oulu until much later. So this is we'll take advantage of that
Okay. So there's no kind of urgent need or sort of near term need for modernization there at Skokholt. That's how I Should understand it. That's great. Well, if I have another question left, let's see what which one I choose.
Maybe on the Packaging Board, I mean, deliveries were just a little bit down in the quarter compared to Q2, practically unchanged. But then you wrote that there was sort of Slightly demand was weaker in, I think, recycled fiber based grades. But is it something what was kind of behind that Comment there was a genuine kind of weakness or was it sort of seasonality or how would you sort of characterize that Comment in the report.
In the recycled side, we see a strong demand. So I don't recognize that there was a weak demand. And if we look at the Consumer Board, if you compare quarter on quarter, The you have to remember that Q3 is a maintenance quarter. So therefore, the deliveries cannot be directly compared with Q2. And also Q4 is generally a maintenance quarter for many of our pulp mills and seasonally weaker quarter.
I think that Strong container performance actually in the report if
I check the text. Yes.
So liner are we see a very strong demand for both kraftliner and testliner on all our markets.
Exactly. I just wanted to double confirm that because I was just looking at the sort of the result from a demand Q3 versus Q2, and that's why you said that the recycled fiber based container Guatemala was a bit weaker, but that should be Purely understood as seasonal factors.
Seasonality effect. So you're right about that.
Okay. Okay. Very good. Thank you.
Thank you. And our next question comes from the line of Lars Kjellberg from Credit
You are breaking up Lars. We cannot hear you.
Apologies, sir. His line disconnected. I'll connect The next question comes from the line of Oscar Lindstrom. Your line is open. Please ask your question.
Hi, good afternoon. I have two questions from my side. The first one and both of them are on the outlook for your business. The first one is on Saum Timber operations. And you mentioned weaker pricing and demand in North America, but pretty good in So Europe and Asia.
And I was wondering if you could comment also on sort of some of the key export markets Such as the UK and North Africa, what are you seeing in terms of momentum for prices That was my first question. And my second question is on market pulp. We've had Some news of paper and tissue producers reducing or closing production Due to high energy prices or lack of electricity in some regions, are you seeing any impact of this on demand for your pulp. So two questions.
Yes. If I can start with the pulp. In China, there have been operations that have been Our own operations have not been contained anywhere, neither in pulp nor in other products in China. And if we look at our own kind of portfolio, we have transformed ourselves out of the graphical health demand. So We are in the areas of packaging and hygiene and specialties.
So there, we see a strong demand. And as I said, we are fully booked for the coming quarter. And if we then come back to Swankeamper, North Africa is not a big market for us. We are focusing on Asian markets, Australia and Japan for Because that's where we see building solutions, for instance, driving a lot of projects. I can mention Singapore, for instance, Wanting to be the world's most sustainable city and building their whole university area with CLP wood, for instance.
We also see in Europe that EU is taking very decisive action in promoting Building with Wood as part of the solution for The construction industry's climate footprint, construction is today 40% on CO2 footprint globally comes from construction and here replacing other products or other materials with wood to the extent that It's something that is favored in the EU strategies that are being promoted. So From that perspective, Europe has stayed strong. We also know that globally, there is a backlog of renovation and infrastructure projects that needs to be done. And building on the good is such a small part of the total construction market. It's Only about 10% totally of the construction market.
So therefore, even though the construction market
Yes.
Okay. So you're not seeing any signs of price weakness outside of North America?
Well, I think we have seen peak prices there. As we said, it's been an exceptional quarter this quarter 3. And probably, there are going to be spillover effects. But as said, our pipeline is strong, and we think we will end here at next quarter Liverpool.
I think our case is going to be a reminder that we have a significant share coming from Building Solutions, And that is obviously balancing our portfolio compared to some other participants in the market.
Sorry, what share is Is that roughly in terms of operating profit?
You know comment share of different business of the operating profit, It's roughly Tilishol is roughly 1 third of the total sales.
All right. Thank you. That's good. Thank you. Those were my questions.
Thank you. Our next question comes from the line of Lars Kjellberg from Credit Suisse. Your line is open. Please ask your question.
Thank you. Hopefully, you can hear me now?
Yes. Yes.
Good. Very good. Thank you. Now just my question was about the logistical challenges that you called out in the I guess in the pulp business. Is that the only area you're seeing this?
Or is it wider spread? I was thinking more on the board side where you do have some material export side with Zoom. But also if you can call out the quantity we're talking about in volumes that may have been pushed into Q4?
I can comment on logistics in general, and I think we are all aware that the last year has been a difficult year from many perspectives globally for the supply chains. And we have proven that we can deliver as Q3 shows, even though there are challenges And if we look at the outlook, the expectation is that the bottlenecks that we see in logistics will continue also next year. But we have proven that we can supply our customers. In the pulp side, for instance, we see that inventories have gone up. And one of the reasons for that is that there is a lot in transit.
So the lead times might be a little bit longer. The material are on the boat before they can be offloaded. Many harbors have been congested or closed or So there are a lot of queues before both. And that was what happened actually for one boat that Missed the quarterly day and ended up in Q4 for Biomaterials So it will impact positively the result in Q4. But we have shown that we are able to handle this situation,
What about what are you hearing from your customers about their capabilities To move product and as such, which could impact your business indirectly.
Yes. In For instance, we are used to working with inventory management. I think contingency and robustness having Several sites being able to supply materials such as we have interchangeability and having this active dialogue with our customers, We have proven that we can deliver and have high results in packaging, for instance, despite these Challenges in the supply chain. So I don't see that being a problem going forward. We sort it out.
Very good. Thank you.
Thank you. Our next question comes from the line of Robin Fontabiata from Carnegie. Your line is open. Please ask your question.
Yes. Thank you very much. So if I look at your Q3 and listen to you now in this Call. Obviously, your performance seems to be quite good, and you're also calling out a quite good outlook. Now still, if I read the outlook statement that you have changed that since Q3 stating now that you The resilient demand, I think you said very healthy demand in the last quarter.
Where can you see sort of a change or a weak demand or outlook Now compared to last quarter.
Well, we see a continued Healthy demand for next quarter. And we have annual guidance. And I understand that We are performing better than last year and trying through going through the businesses like we're doing now to comment and give more flavor to this. As I've said, our order books are full. The demand looks healthy for our products.
And managing that is about choosing the right markets, The right products, the right customers and making sure that you have a very active dialogue. That is what is bringing the results at this
All right. Thank you. And then related to China, seems to be a Bit of a tricky situation ongoing there. What are you seeing when it comes to paperboard Sales and your pricing in that market, what is the competitive environment When it comes to production, inventories, etcetera, in paper bores and also related To pulp, what are your customers saying at the moment in China.
Well, we know that there have been paperboard and paper producers that have been curtailed Due to the energy situation, we have not been curtailed. Our board mill in Beihai has been producing. We know that China, of course, has a big impact on macroeconomic levels. So a slowdown of China means Impacts in the rest of the economy. For pulp side, of course, if board machines or paper machines are closed Down in China, that means that pulp consumption is lower.
But as said, quarter 4 is also Tight from the perspective that many of the pulp producers have their annual maintenance shuts during both Q3 and Q4. And as the logistics make predictability of when you're going to get your material more difficult, that means also that customers So it is a tricky situation. I agree to that.
Thank you. And then a final one. Looking at Paper, you have done a great job driving down capacity and increasing capacity utilization in that business. And As you say, it seems to be turning around now with likely higher prices and lower fixed costs for you guys. Are you considering strategic options now when it seems to sort of profitability Outlook is improving.
What could those strategic options be if you do consider any of those?
Well, we have our 3 strategic options, and it's becoming now a very small part of our total business. So when we are finished with The restructuring total, it's going to be close to 10% of our sales. So it doesn't become significant anymore. But our options are still that if we have attractive to convert, we will do that. Oulu is an example of that.
Varco is an example of that. And there might be others. The business that is remaining, we make sure that it is competitive and has good products and for the customers in paper. If there is a better owner for some of the sites, we will divest like we did with Saxon, and that is considered an option also going forward. And of course, with improved profitability, those opportunities become better for those choices.
And if we cannot find a better owner or we cannot Then we will take action if the market balance is not in our favor like we have been doing. So I think We are moving to a much better position for paper going forward.
Thank you.
Thank you. That does conclude the question and answer side of the call today. I would now like to hand back to the speaker, Ulla Petron. Please go ahead. Your line is open.
Thank you, Jules. And I just want to thank everyone for my past almost 20 years and To Albiens' Head of Investor Relations at Stora Enso, it has been a great journey. I have enjoyed it thoroughly. This is a great company, and I hope all the best to it and its owners. So some of you I might see in the future, but otherwise I say goodbye and thanks for all these years.
And now we conclude the phone conversation.
Thank you. That does conclude today's conference. Thank you for everyone who's participated in today's Call, you may now all disconnect. Thank you, speakers.
Thank you. Thank you.