I'm Ulla Payanen, Head of Investor Relations here at Stora Enso, and welcome to our Q1 2021 result announcement call. And with me here today is our CEO, Annika Breski and our CFO, Seppo Farwy, that will give us first a presentation about the results before the Q and A session. So Annika, please go ahead.
Thank you, Ulla, and thanks for joining us this Friday afternoon. If I start by summarizing this quarter, I would say that we are back on track on many of our financial targets. And this is due to improved performance in our company, but also recovering market conditions. We have seen a good growth of our core businesses, 14%, and we can also see An improvement in our operational EBIT by 82%. And the backdrop is that all our growth businesses are moving in the right direction, and we have had A good cost management within the company.
As you are aware, this week, we also announced the closure of 2 paper mills. And of course, this is very difficult news to deliver to all our mail personnel. If we look at How this impacts our paper business, this will, of course, improve significantly the profitability of our paper business and our long term competitiveness. And at the same time, our footprint within paper business will be reduced. So after Completed negotiations, 90% of our group sales would come from our core businesses.
And this is, of course, the direction we are going in the execution of our strategy. Olomil, which was one of the significant steps of transformation we took last year that we started ramping up in the beginning of this year is Performing very well. We are delivering our products to the customers. We have reached many of the quality demands, And I'm very happy to announce that we are reaching our operational EBITDA breakeven earlier than planned Already in quarter 3 this year. And last but not least, we reaffirm our outlook for Yeah, where we say that we expect our operational EBIT to be higher than last year.
So all in all, I would say that Stora Enso is back on track and that we see traction in our growth and core businesses. So if we move now over to some of the high level financials, our sales increased by 3 Percent in quarter 1 and excluding paper, as I said, by 14%. Our operational EBIT increased to 328,000,000 and excluding paper to EUR362,000,000. And of course, we need to remember here that we have The impact of our forest sales in Sweden on EUR 74,000,000 All in all, Despite this divestment in forest sales, we still have a very strong underlying result. Our operational EBIT margin increased to 14.4% and excluding paper, to 19.4 Which is a very good level, showing the strength of our businesses in the growth segments and also our core businesses.
Cash flow from operations landed at €185,000,000 and after investments at minus €9,000,000 Our net debt to operational EBITDA is at SEK 2,300,000,000 on the same level as a quarter ago. And operational return on capital employed, excluding our forest division, increased to 12%, which is quite close now to our financial long term financial target of 13%. If we now move to the bridge showing what impacted our results, you can see here that It was mainly driven by performance in our growth businesses and also good cost management on top of, of course, the forest land sale. And the impact of paper has been quite significant. And as you can see here, the market is still very demanding, and sales prices are low in the paper business.
But we have, through the other businesses, been able to increase our sales, increase our volumes Despite challenging supply chain situation around the world and also deliver on our reduction in variable and fixed Cost and our Profit Protection Program. So all in all, we are moving in the right direction. I'll say a few words now about the market conditions for our businesses. And we have seen robust Performance in Packaging Materials, that was the case also last year. This year, we see that we are fully sold out.
There is a high demand, and our capacity for the division is very allocated right now. Market situation in China is continuing to improve, which is also driving our results in that division. For Packaging Solutions, there is a solid demand for e commerce, and this supports, of course, our corrugated packaging. The prices here are yet to catch up because they have been quite steep with the raw material price increases in containerboard, But this will adjust itself as we go along. Classic sawn as well as CLT and LVL has been Extremely strong in Wood Products result.
We have seen a very good performance there with All time high levels of EBIT margin, operational EBIT margin. This is a very strong testimony of the direction of our wood products in terms of building with wood. We have a continued healthy performance for our Forest division. The harvesting conditions have been excellent. So our Forest division has been able to supply this increased demand for all our other businesses.
Of course, we have also seen the improvement in Biomaterials. And As you are all aware, the pulp prices have moved in the right direction since already last quarter, and now They are fully they are shown in our books, which is good to see. Demand is expected to Stay strong for this year. Last but not least, as we have said Many times, the paper demand is still very much challenged and will continue to be so. But we have taken significant steps now in our company to adjust our capacity to meet this new reality.
So all in all, we stay firm in our strategy execution, and the actions are intensifying as we are moving further. Our paper restructuring plans have been announced. We also decided to shut down our U. S. Based via operations in Q1 since they were not in line with our areas of growth.
Our 3 d Textile joint venture, where Stora Enso holds 25% share, is in demonstration plant phase for developing a new technology for sustainable textile fiber in Nymolla. So this is An area where we put effort because we believe that textiles need to be much more sustainably produced in the future. So here, we have leadership position together with our other joint venture partners. In our strategic review, we made The decision to cease dissolving pulp production at Ennocell Mill during 2021 and instead increase the production of other pulp grades. And as you are aware, the ramp up of the converted kraftliner in Oulu is Proceeding very well and ahead of plan.
And as I mentioned, we've reached EBITDA breakeven already in quarter 3 2021. We estimated before that it would be Q1 2022. In the Sterech Mill, we have decided on an investment in cross laminated timber production. And here we are in the construction And this project is also proceeding as planned. And this will be a very good add on seeing now the demand and the many projects we are running in our Wood Products division.
Our feasibility study is ongoing at Skogal Mill, and the decision On that investment is to be taken at the end of this year. And last, we have signed an agreement with The OX2 to lease land in Sweden for the construction of 170 Megawatt Wind Power Park. And this is also how we support renewable Energy production through our forest holdings and collaborating with partners in that. I'll just say a few words now about the plans to permanently close down the pulp and paper At Kwansteaden and Beiseloto Mills. And a lot of this, of course, you have already read in the media.
And it's important to remember that this decision is still subject to complete Did co determination negotiations that we will do the coming months now. But what we aim for is to reduce our capacity in SE Magazine Paper and Improved News and also in woodfreeuncoatedoffice paper and coated magazine paper. And as you are all aware, there is significant overcapacity in many paper grades, especially on the European market. So for us, We reduce our own capacity by 35% by this step and make sure that the rest The sites that we have are competitive, and our paper business becomes profitable. Of course, this is very, very sad news for our people.
It has a potential impact of maximum 1110 persons. And the financial impact of this would be €35,000,000 in operational EBITDA that would be improved for the Paper division. And as I said, it would take out 35% of our paper capacity or 1,300,000 tonnes per year. Our annual sales would decrease by approximately EUR 600,000,000 on the back of this decision. And then we allocate EUR 127,000,000 noncash impairment costs in quarter 1 and EUR 104,000,000 as items affecting comparability in quarter 2 results, out of which EUR 96,000,000 is a cash impact due to restructuring and layoff costs.
And now with that, I turn over to you, Seppo, to give a little bit more details on the financials.
Thank you, Annika. And I start with the key figures from the report that we have published today. First of all, sales line for the Q1 This year, sales reached EUR 2,276,000,000, that is 3.1% increase year on year. Operational EBITA margin at 21,400,000, significantly up compared to a year ago when we were at by 15.2%. And operational EBIT at EUR328,000,000, that is 82.4% increase versus year ago.
And operational EBIT margin of 14.4%. Earnings per share basic at €0.18 for the quarter. And And operational return on capital employed, excluding forest, as Amik already mentioned, that 12% a bit below 13% long term target. And cash flow from operations at SEK 185,000,000 and debt to last 12 months of price and EBITDA stable at 2 point 3, despite the fact that we have paid the dividend at the end of the quarter. Then moving forward and looking at our €400,000,000 profit protection program, where we are moving ahead with good speed, and we will be able to reach the target It seems already ahead of the plan during the current quarter Q2.
We are very proud and happy about the achievement, and organization has been working hard To reach the target. We are trying to close also the reporting of the program end of the coming quarter. But obviously, we will continue to Track the savings and close the sales towards end of the year. Then moving to divisions, and I start By looking at the Packaging Materials division, their strong performance continues. And we are very, very proud about the Oulu Mill ramp up That is proceeding also ahead of the plan.
Sales increased by 13% and reached EUR 862,000,000, This is thanks to higher deliveries and price. Operational EBIT was up €31,000,000 At EUR 127,000,000 level despite all ramp up costs. Ramp up costs for the EUR 20 3,000,000 During the call. This is also a reflection of lower variable and fixed costs. And good to remember that last year Q1 was negatively impacted By strike in Finland.
Operational return on capital improved to 16.7% compared to 13.5% a year ago. And like Annika already mentioned, Olomil Operational EBITDA breakeven is expected to be reached already in Q3 this year. That is 2 quarters ahead of the original expectations, where we thought that we would be there by Q1 next year. Then looking at Packaging Solutions, where we can see solid growth, but operational EBIT is challenged by higher raw material costs. Sales increased by 7%.
This is thanks to higher sales in China packaging as well as European corrugated deliveries. Operational EBIT decreased by €4,000,000 and was at €4,000,000 level. This is because of higher raw material prices and negative FX For an exchange impact that is not yet fully compensated by higher selling prices. Typically, there is about 1 quarter delay. New businesses impacted to press our EBIT also negatively.
This is the work we are doing on investments when it comes to biocomposite Business from Pifan and Fox Inc. And these have been partly offset by higher volumes. And operational return on capital at 7.5%. Then look at Biomaterials. The excellent market conditions and solid performance improved profitability.
Sales increased by 24% and was at €355,000,000 level, this is thanks to higher pulp prices as well as higher deliveries partly due to Finnish strike In the comparison period, Q1 2020 affecting the figures. So it's good to notice that market is Quite strong. And currently, global inventories are 2 days below 5 year average. Operational EBIT increased By €68,000,000 and about €65,000,000 and this is thanks to higher sales and lower variable costs. Operational return on capital increased 11.2%.
Next, Looking at our wood products, there we have record high quarterly operational EBIT margin. Sales also increased by 13% €382,000,000 thanks to strong demand, especially classic sauna market has continued to be strong. Operational EBIT increased by €34,000,000 and was €52,000,000 It is 2nd highest Q1 ever. Higher sales prices and volumes partly offset by higher raw material costs. And like mentioned also earlier, in addition to record high quarterly operational EBIT margin, this was also highest ever operational return on capital, 36.9%.
Significant increase compared to 11.3% a year ago. Then our Forest division, where solid operational performance continues and is basically the results on top of the gain from the land divestment. Sales increased by 7% to €582,000,000 This is thanks to high deliveries in Finland and Baltics. Operational EBIT increased by €82,000,000 to record high first quarter level of €123,000,000 This is including €74,000,000 impact from forest plant sales in Sweden as well as solid food supply performance. Also to It's worth to mention that harvesting conditions with winter growth were excellent and quite optimal all the time.
It is, of course, good news for the availability of the wood. Operational return on capital, clearly above long term target And was at 9.9% level. Then our Paper division, where we expect that plant closures would improve profitability and long term competitiveness of the division. Sales decreased by 28% to EUR 428,000,000. This is due to lower deliveries because of accelerated structural demand It declined.
Oil Mills conversion also decreased sales significantly in the Paper division. Operational EBIT decreased by €55,000,000 to negative €34,000,000 This is due to global pay to market challenges. Higher variable costs were partly offset by lower fixed costs. And comparison period, yes, last year was negatively impacted by the strike in Finland. Also cash flow after investing activities was At negative SEK 4.6 percent.
Then Taking a look at our long term financial targets and the development there, it starts to be now more on green and yellow Compared to a couple of previous quarters, dividend and growth on green, growth 14.3% in our core growth businesses. And net net operating EBITDA at 2.3% and net debt to equity at 37%. Operational return on capital employed at 12%, as measured earlier, slightly below 13% target level. Then look at the divisions. So looking at the Packaging Materials, slightly below the targeted 20% level at 16.7%.
Also Packaging Solutions at 7.5%. Biomaterials moving up at 11.2% now. And Wood Products, like set at out level of 36.9%, clearly higher than and above the targeted 20% level. And ForEx at 9.9%, Also above the 3.5% level that Javier said as a long term target. And data where we target 7% was now a negative at 4 point Thanks, Seth.
With that, I hand back to you, Annika, please.
Thank you, Seppo. And coming back to our outlook, we stay firm in our expectation that this Your operational EBIT is expected to be higher than in 2020. And as you're all aware, this is driven by the recovering global economy from the pandemic. It's specifically strong in China and in U. S, but also Europe is catching up.
The demand for our product It's healthy except for graphic paper. So this is the backdrop upon which we see that this year will continue to be better than last year. In Packaging Materials, our Oulu Mill is performing better than we expected. So as we said, the EBITDA breakeven happens already in Q3. Before, it was Q1 2022.
And as Seppo also mentioned before, EUR 10,000,000 to EUR 15,000,000 negative impact of ramp up costs are expected in quarter 2 and approximately EUR 40,000,000 to EUR 50,000,000 total negative impact of the ramp up for operational EBIT in 2021. We will reach design capacity by the end of quarter 2, this is progressing very well. What we are focusing now is establishing the final steps in the Quality that we have and already now we have had very good feedback from our customers. So commercialization of the product portfolio will be reached by end of 2021. And as Seppo mentioned before, our EUR 400,000,000 profit protection program is proceeding very, very well, and we will conclude this ahead of our plan already by Q2 this year, delivering on our target.
Our estimation for our total maintenance impact is EUR 112,000,000 for quarter 2. And in Pulp Business, we have no significant maintenance shuts during quarter 2. So to summarize once again, we are getting back on track on delivering on our new financial targets that we set a year ago on our Capital Markets Day. And I'm very proud of the work that we have done. It's been a combination of our own actions and then a very strong demand for renewable materials in our core businesses.
Moving forward now, we will continue our focus on our strategy execution to deliver growth. And this is something that the whole organization is focusing on. So with that, I open up for your questions.
Yes. And before we go to the Q and A session, I want to remind all of our audience that please limit your questions to 2 per person. So Roberto, please give instructions for the Q and A now.
Ladies and gentlemen, we now begin the question and answer session. We have our first question from the line of Robin From Carnegie. Please go
ahead. Yes. Thank you very much. It's Robin Santander from Carnegie. Now the first question I have is related to the Consumer Board business of yours.
You have launched Price increases in Europe and in Asia, I assume. Could you just describe, first of all, the background For those price increases, I think you have been quite cautious related to the consumable defaulting boxboard In Europe before, has that what has changed? And then related to the Chinese business, We have seen ivory bar prices increasing quite significantly. Could you describe what kind of pricing agreements You have in China when it comes to length. So are those mostly still monthly price agreements?
Or do you have mostly Long agreements in China. So more information on that. Thanks.
If I start with Europe
and Consumer Board, as you
are all aware, we Tumor Board. As you are all aware, we have a mix of different type of contracts from long contracts that are up 5 year, then we have 3 year, 1 year and then shorter contracts. And how we can increase prices is dependent on when the contracts Are kind of reaching their time for renegotiation. So this is always depending on that when we can push prices. But of course, whenever we have the possibility and we see that there is a strong demand, we push price increases.
If we look at China, the market is different. It's more shorter term contracts, especially in the folding boxboard business, And the market is more volatile. On our liquid business that we have in China, it's more or less the same setup that we have in Europe, where it's more longer contracts.
Thank you. And can I ask what is the relation of the
longer contracts and shorter contracts in China?
Is it So a shorter contract in China. Is it fifty-fifty or
We do not to comment on the contractual setup. Unfortunately, I'm sorry for that.
All right. And then just on the situation in Europe. Has something changed now when you are launching price increases? And before you, I guess, quite consistently, we're talking about lower prices Price pressure in Europe?
I do not recognize the comment that we have seen price pressure in Europe. We have pushed price increases when we have had a strong demand and when the contracts have been up for renegotiation.
And typically, the prices are in annual cycle. They are renegotiated around New Year on both sides of the New Year. So sorry. And Yes. That is also reflected on the timing.
All right. I understand. The second question I have is related to the pulp business and And your dissolving business, what is the background for you now moving out of that business? And When will you stop selling or producing this Solvencytop?
As many of you might be aware, we have done a strategic review. We did that already last year. And within that, we decided which areas we had the opportunity to be market leaders in and take significant market share, where we would see our best opportunities for good margin business. And when we looked at it, dissolving pulp For viscose production was not an area where we would be able to have a significant share of the market nor have An upside from profitability perspective, Ennocell Mill is a swing mill, and the dissolving business It's a minor part of our total business in Stora Enso. And if you look at having a site such as MSL, you want to have Less complexity and reduced complexity.
And if there is no clear margin upside, then this complexity just adds on production costs. So this is the backdrop of the decision to move out. If we then look at the timing, we have Customers globally, not only in China. So this is, of course, something that we gradually will do and hope that by beginning next year, we would have moved out most of our business.
I understand. Thank you very much.
Thank you.
Thank you for your question. We have the next question from Justin Jordan from Exane. Please go ahead.
Thank you and good afternoon everyone and well done clearly on the nice cyclical recovery in Q1. I've got 2 separate questions. Firstly, on Wood Products, where you described the demand in Q1 versus Q4 as significantly stronger. And clearly, you're seeing the positive volition relation benefits of that in terms of increased record EBITDA. Can you share with us your view on the outlook for demand as it were?
Do you believe it will remain Significantly stronger year over year throughout calendar 2021. And secondly, on a completely different topic, I appreciate you've had a very busy week. But On Wednesday this week, the EU gave us some final determinations on taxonomy. And clearly, Stora Enso is a major forest Manager in Sweden and Finland. What is your initial take on what taxonomy might mean for Stora Enso in terms of proportion of revenue that For example, taxonomy aligned.
Thank you.
Thank you. If we start with Wood Products, we see a healthy demand continuing There are no signals or indications that something would change. There is a restriction in supply, And there are a lot of projects requiring, for instance, CLT and LVL products that we have. So I expect the demand to continue staying on this level. And if we then move To taxonomy and sorry, before moving there, it is mainly driven by, of course, the demand in U.
S. And also very strong demand in EU. We are seeing it picking up also in Asia. And of course, here, we constantly Make sure that we choose the projects where we can also deliver and support to our customers. You're all aware of the challenges in the supply chain side, and we have managed really well to be able to both deliver wood products to our customers and make sure that we choose the right Projects.
And then if we move to taxonomy, our initial take is that we will be able to live up to the Expectations in the draft that or what we have seen so far. It will mostly impact Kind of smaller forest owners by having to declare environment and climate impact assessments and But this is something that we are already working on as a big forest owner. So for us, this impact is not going to be substantial. And of course, as forestry now is classified as green investment, it is, of course, positive for us. We will continue improving our operations in this and to be in line with the requirements.
A deeper analysis, of course, we will come back too. We've only had the text for a couple of days now.
Thank you, Annika.
Thank you for your question. We have the next question from Lars Kjellberg from Credit Suisse. Please go ahead.
Thank you for taking my question. I was going to get back to consumer board. It's been pretty good evidence that, of course, Corrugated containerboard has seen very strong demand from e commerce. But I suppose you would have in your consumerboard business Potentially greater scope for plastic to paper wins. Are you seeing any of that?
And have you seen a Sort of greater acceleration of growth in that business that relative to containerboard has been comparatively slow? That's my first question.
What we can say is that we see that we have a very strong demand from our customers in liquid board and in consumer boards. And as I said, our capacity is fully sold out. So our Skokal investment is The steps that we would like to take, if everything is found to be on a good level in the feasibility study, to increase Our ability to deliver on this on the consumer board market as well. And then, of course, Innovating in the types of barriers and so on is a work that we are doing to support the transition from other materials into consumer boards. But I would say, yes, the trends the sustainability trends in society are increasing, and more and more people are questioning their choices in terms of packaging, What type of packaging can be recycled?
So design for circularity and also design for lower carbon footprint is going on. And here, our products have Superiorly lower carbon footprint than many of the other alternatives out there. So yes, I believe that we are seeing some of these trends materializing.
Have you in any shape or form starting to track any gains of new business from plastics to paper?
That is very difficult to track. It is very, very hard to do that. But we Get increasing kind of questions from customers where they want to move out of many of the most difficult Plastic, for instance, packaging and going into paper for the reasons that I have said. So but it's generally on a high level, it's very difficult to track. And of course, if we can have availability of more material to give and have these Solutions.
That will drive our growth.
Just a follow-up question, what you said on liquid paperboard and Being sold out of many things. Of course, one of your customers think they're about to close their own Wakatane mill in June. Does this present opportunity for you to speed up the mix improvement in China?
I do not comment on China specifically, but of course, we are growing together with our customer needs, both in Asia and in Europe. And SIG is one of our customers.
Got it. Thank you.
Thank you for your question. We have the next question from the line of Michael Doepel from UBS. Please go ahead.
Thank you. A couple of questions. First on the sawn timber markets. Now given the very strong demand and pricing that we see there, Have you seen any signs of capacity buildup in that market?
You mean inventory or
No, I mean, starting up of new sawmills and building new sawmills to kind of match the higher demand.
Oh, okay. No, I cannot say that this is there is always excess capacity in the sawmill. You can always add more shifts And so on. This is the type of business where when the business is low, you take out shifts and then you increase the shift. So it's not so much about building new sawmills.
It's actually about running the sawmills that are already there to their full capacity. So
And maybe that's a bit There is some projects by our competitors, but it's not so significant addition to the market capacity that it would disturb the market as such?
No.
Okay. And then my second question would be on costs, Basically, on kind of underlying cost trends that you see now heading into Q2 and the second half of this year. I guess there are some inflationary pressures in some areas, Some are more stable. But just wondering what kind of a chance do you see now heading going Forward in the year. And also related to costs, I think you had a temporary cost saving last year, a quite significant one.
Just wondering if you see that coming back now this year or is it staying away, so to say?
Yes. You take it, Seppo.
Thank you. So looking at the cost pressures, they are relatively low still at the moment. Some increases when it comes to fiber costs. For instance, recycled fibers or recycled paper prices are going up. We have managed to compensate quite well when it comes to, for instance, containerboard business with the price increases.
So that is not hurting the business. What is this cost? We all know that there is a challenge with the relative of the containers, which is increasing the costs. But that also is that a small portion of the total cost pool, and we have been able to compensate pretty well. When it comes to Packaging Solutions business, like Heineken commented earlier, the cycle is a bit longer, so it takes about the quarter to Get a chance to compensate for the higher input costs, but they also be on the right track to be compensated.
So I would say they're expertly Well under control at the moment. When it comes to last year, you had sort of temporary savings that we took because of COVID-nineteen, Those were more temporary by nature. But like I said, our permanent cost savings and improvements to the product protection program are moving ahead, We're ahead of the plan, and that partly compensates for that part from last year.
Okay, okay. And right. And then just to follow-up on the underlying cost side. Is there what do you see in terms of wood Costs, output or Solox, what are the trends you're seeing there?
Well, especially in the case of Log cost, we see that the trend has been going up and the costs are increasing. Bar food has been more stable and balancing it somewhat.
Okay. That's clear. Thank you very much.
Thank you for your question. We have the next question from the line of Joao Grunselis. Please go ahead.
Yes. Hi, everyone. Can you hear me? Yes?
Perfect. Okay. Hello there. So I have a question first. My first question is on ULO.
And I appreciate you giving us The detail of where you foresee the EBITDA breakeven. But could you say something on where you see profits For the Ulla conversion given where prices are today, for example?
Well, we cannot comment on that. It's future outlook. So at the moment, we comment
on EBITDA. Okay. I remember Yes. I remember historically you were mentioning what kind of sort of indicative EBITDA you would achieve and so on. But I then look at the yes, I do that work myself.
I just wanted to see if you could help me there. Then I was wondering about the closures in that you announced this week Sweden, Finland. I think in that press release, you mentioned that the impact would be SEK 35,000,000 positive from the closure. Is that based on historical EBITDA for those mills? Or how did you come to that number?
Is it more an indication? Or can you elaborate on that, please?
Seppo, will you take that? Are you there?
Sorry, can you take sorry, can you repeat the question?
Yes, sure. I'm after sort of the earnings impact from the decision of closing the 2 paper mills in Sweden and Finland. And I think you said in the press release that you're indicating an impact of SEK 35,000,000 positive. How did you come to that number? Was it based on sort of the isolated effect from those 2 mills?
Or did you consider sort of indirect effects? Or How do you arrive with that number?
This is the reflection of the profitability of those mills at the moment. Like we said that in loss making last year, they continue to be Lossmaking also this year. And in many ways, we are exiting those businesses at volumes, and we close if we come to close that Decision after the negotiation process?
Sure. Because I was thinking that when this happens, the operating rate should be quite healthy In Stora Enso's paper business. So my feeling is that the earnings impact will be a lot higher than SEK 35,000,000. Do you agree on that?
Well, like I said, this is based on the current performance of those mills. And in some of the grades, if you look at the for instance that At the Weichlodas, where we are producing mechanical, uncoated, fine paper, mechanical magazine. If it gets Mekka and Makasi, we are exiting the market totally, and that is not, of course, then bringing any reasons. And we produce Obviously, they pay elsewhere, but also there, I think that it depends so much on how the future development is on the demand and the price development. So that's difficult to comment.
I would rather say that how much this will impact Has to do with how the market develops going forward and what type of capacities that are still on the market. So It is about making sure that now we exit the unprofitable mills, but it is also about the ability to push Prices then on the grades. And yes, as we all know, it's tough there.
Yes, sure. But I mean, I think it's a given that your operating rates now will be quite healthy even if demand stays where it is On these low levels, right?
Yes. That is the point that Nymela is producing office paper, for instance. So Of course, we will try to transfer as much of our customer base as possible and offer them grades within our portfolio. And Anjala is producing improved news. And then we have SC paper that's produced in Langenbrugge and Maxau mill that can be offered to our customers.
Okay. Thank you. That's helpful comments. Thank you.
Thank you.
Thank you for your question. We have the next question from the line of Cole Hathorn from Jefferies. Please go ahead.
Good afternoon. Thanks for taking my question. Would you mind just providing a little bit more color on the demand trends you're seeing in pulp? Firstly, what are you seeing from your Tissue customers and the graphic paper demand by region, that would be helpful. And then also on containerboard, What are you seeing there from the demand end markets?
And also, would you mind commenting on where inventory levels are in the containerboard market at the moment? Thank you.
If we look at the pulp side, as I said, we see a healthy demand increase for this year, 3% to 4%. It's Mainly driven by China. Long term, it's 2%. From the end use perspective, of course, The graphical side, there it is about the paying capabilities of paper customers That kind of impact that and the paper mill's ability to drive through price increases and stay running despite the increased pulp prices. If we look at the hygiene and other end uses, There, I think the ability to pass on is quite good.
So for us, we have about, In our mix, a much smaller part in the graphical side, approximately, well, just about 10% of our sales are to graphic uses, and the rest is through other end uses, which are developing quite good. Then remind me of the second part of your question. You're saying container boards or
And
then on container board, I'm just wondering if you can give some Perspective on where you're seeing the demand either by region or end markets, industrial, consumer And also where inventory levels are in containerboard?
If we look at the containerboard business In terms of industrial, we see the industrial business is picking up, and that has been going on in China for quite some time. Europe is coming now. So the end use for containerboard there is picking up. And also, E Commerce and so on has been strong throughout the pandemic, and that will continue also afterwards through changed behaviors. So We see a healthy demand going forward, both in Europe and in Asia.
Yes. And then inventory levels, I'll have to check there with you, Ulla, if you can support. I can't remember right now how the inventory levels are for containerboard.
Well, I don't think there is anything Sort of a meaningful say on that because there's a good demand, healthy demand at the moment, and we are more or less sold out except for Oulu. So apparently, the inventories are not too high because the demand seems to be going so strongly at the moment.
In the case of container port, there are no statistics available like for pulp in the case of inventory levels globally.
Thank you.
Thank you for your question. We have another question from the line of Harri Taittonen from Nordea. Please go ahead.
Yes. Good afternoon, and thanks for taking the questions. Obviously, it would be interesting to hear your take. What is your what were the drivers What is the depreciation in pulp and what you are seeing? You referred to the suppliers' inventories that they are a little bit below the Kind of an average, but is there anything you could sort of how you could comment on the buyers' inventory, so The sort of paper making side and what sort of signals you are seeing in the pulp market.
Also maybe related to that, There's been some comments that maybe the European demand for pulp is not as such so strong, but the prices have been more been driven up by the Premium in the Chinese market, but what is your take on the kind of European demand for pulp these days?
Yes, it is the Chinese market that is driving the pulp market, and that has been the case for many years. So in Europe, there is a relative strong demand. But as I said, the paying capability of the graphical side, is deciding kind of on an overall global level how the demand develops. And As you are all aware, the prices are kind of getting close to the higher levels that they were, what was it, roughly a year ago or Something like that. And that means that what we see ahead of us is that the continued Growth in global economy, that is what's fueling the growth in Pulp side.
So As I said, I expect between 3% to 4% demand increase globally, mainly driven by China. So that is what we can say at this point.
Yes. Fair enough. And my second question will be regarding the I mean, are you going to when do you potentially calibrate your guidance? Because obviously, It sounds a little bit undemanding, to say the least. But I mean, is there some sort of a do you envisage that you would be calibrating it As the year goes.
This is the guidance we give on kind of we do not go into more specific Stiffs on the guidance.
Yes. Okay. Thank you. Thank you.
Thank you for your question. The other question Jennifer Alexander Bergun from Bank of America. Please go ahead.
Thank you very much. First off, on the inflation that we're seeing on paper for recycling, both O and P and OCC. I just want to get your view if you think that this is solely kind of a transitory effect from the lockdowns or Perhaps, as it could also be a structural trend here on collection issues as getting more and more packaging going by the e commerce channel. And I just wondered if you have any kind of data on kind of how collection or recycling rates have changed in Europe? And then how you see your responsibility and overall responsibility in the industry To make sure that circularity is still very high within paper products.
That was my first question, and then I have a technical follow-up.
Yes. I'll start with the last question that you asked. We see our responsibility, 1st of all, as a company and also as an industry of being very strong in supporting The buildup of good collection systems for all fiber materials. We see the trend for circularity Is increasing. And of course, having a renewable material that is also circular and collected is something that we are working very hard with each A country in Europe to make sure that, that becomes realized.
And we have had a lot of discussions with the EU on the needs of Standardization of the collection systems in order to ensure that as much of the material that is out there is actually being collected and recycled. And I can just mention one of the collaboration projects that we have with one of our customer, with our Merlin Ostroleka and also our Trials that we have done in Langenbrugge, where we take back packaging and put it back into our operations from the liquid side and from foodservice side, where the collection rates have historically been quite low. So I think, yes, this is going to have to develop, and standardization of the collection systems Long term, it's going to take place in Europe, and we are having a lot of discussions on that with EU. And then if we look short term, one of the things that's happening has been, as you mentioned, the lockdown that has impacted people's Kind of ability to return their packaging in the degree that we have had before and also the trade flows between countries of material has been impacted. That is a short term situation.
And I expect as lockdowns are eased and that The collection rates will increase once again. Long term, I do see that more and more products are Going in the direction that there needs to be a part of the product coming from recycled. And that will drive, of course, the competition for PFR, but Not to a degree that it cannot be handled by the fresh fiber kind of intake in the system.
Thank you. Yes, another question is just on kind of your improved guidance on ULLO, now Pulling for the EBITDA breakeven. I just noticed, if I got this right, the EBIT increase that you're guiding for is only SEK 5,000,000. And that's it's not really clear to me why the positive effect would not be larger. So I guess if you can help me a bit on the math here.
Well, if you look at the guidance, we mentioned that the proxy EUR 10,000,000 to EUR 50,000,000 negative impact would See there, on a gross EBIT for Q2 and approximately SEK 40,000,000 to SEK 50,000,000 for full year. The depreciation is roughly SEK 30,000,000 For Oulu Mill this year. So that might help you a bit on that. But of course, it is not a linear Why when it comes to ramp up and operations? And I think the main thing is that we are now confident and like we communicated, we are reaching or So to reach breakeven on EBITDA already in Q3 instead of Q1 next year.
So it is moving ahead With good speed and also supported by the market.
Thank you.
Thank you for your question. There are no further questions.
Okay. Thank you, Roberto, And thank you, everyone, for listening in for our Q1 2021 results. And I will now hand it over to Amica for Final words of our call today.
Yes. Thanks, everyone. We have delivered a solid result on the back Drop off a good performance, good cost control and strong demand and market recovery. And we have seen solid growth in our growth businesses, which also is a testimony that our strategy is moving in the right direction. And our focus is now executing on the plans that we have announced and come back to you in the coming quarters.
I wish you all a nice weekend. Thank you.