Stora Enso Oyj

Ulla Paajanen - Head of Investor Relations Karl Henrik Sundström - Chief Executive Officer Seppo Parvi - Chief Financial Officer

Mikael Jafs - Kepler Cheuvreux Linus Larsson - Skandinaviska Enskilda Banken AB Lars Kjellberg - Credit Suisse Mikael Doepel - UBS Robin Santavirta - Carnegie Investment Bank AB Gustaf Schwerin - Pareto Securities Justin Jordan - Exane BNP Paribas SA Markku Jarvinen - Handelsbanken Capital Markets AB

Thank you, John. Good afternoon, everyone, and welcome on my behalf also to Stora Enso's Q3 2018 conference call.

And I will now hand over the call to our CEO, Karl Henrik Sundström. Karl, please go ahead.

Thank you. Good morning or good afternoon or good midday, wherever you are in the world.

I would like to go through a couple of highlights in the third quarter of 2018, then I will hand over for a somewhat more detailed presentation by Seppo. So sales continued to grow.

We almost grew 5% if you exclude the divested Puumerkki compared to a year-ago. Operational EBIT came in at an important growth of 23% versus the same period last year, and it's an EBIT margin of 13.8%.

It's very much driven by favorable pricing, but also by an active product management from customer. Strong cash flow continues to be generated by the entities, and we are continuing to strengthen the balance sheet.

Net debt-to-EBITDA is now at 1.1 versus 1.6 a year ago. And operational return on capital employed is actually well above the strategic target of 30% and reported in the quarter is 16.7%.

If we go into, let's say, a snapshot of the different divisions. So we have had a Packaging Solutions having another record quarter.

We have had Biomaterials with an EBIT record. And we have had Wood Products coming in with the best third quarter results ever in the history of this product.

And then we have an impressive improvement from last year for the Paper, growing up with 125%. Then if you look on Consumer Board, which are caught up in a situation where we are having variable cost increases growing faster than we have been able to compensate the long-term pricing we're having in this division.

If I started at what happened in the quarter. Well, first of all, variable costs increased by over €40 million in the quarter, and - of which 75% is coming from increased pulp prices as well as increased wood prices.

We now see that, that will be flattish going into Q4. On the good side, we have two things here.

We have seen the first impacts of small price increases that is going in the right direction. And on the other hand, we have kept the fixed costs flat.

All in all, I think this snapshot that you see in front of you very well demonstrate the strengths of the portfolio we're having. Where one division is caught in a timing difference, we had a very good progress in all other four divisions.

Fifth consecutive quarter with a return on capital employed above 13%. That means that we basically have established a different level of return on capital employed, which I've been very proud of.

Took us a long time to get here. Our intention is to stay here going forward.

Then if I go into some of the transformation steps. So we have announced that we are upgrading and expanding the corrugated packaging in Riga, in Latvia, and that's a project that will be complete in 2019.

We have two additions into our expanding biocomposite business, which is located in Sweden, in Hylte. One is that we are building up the Competence Center.

And the other one, that we are investing in additional production capability. And then Stora Enso and Gasum is actually investing together to build a biogas plant at Stora Enso's Nymölla paper mill in Sweden.

This is an interesting thing. This means that outbound and inbound logistics can actually start to use biogas in the truck.

Bergvik Skog restructuring is ongoing. Due to the very complicated structure, we believe that we will be ready during the first half of 2019.

This is no - has no implication on anything on the wood sourcing. The wood sourcing remains with Bergvik, as previous, going forward until we reach a final conclusion.

And then overall conversion feasibility is ongoing, and we will probably come to a conclusion and a final understanding by the end of the year or beginning of next year. Before handing over to Seppo, we're coming back to this slide that we've had for a couple of years now, describing our transformation journey.

As you can see, we are moving in the right direction, and we are getting a more balanced portfolio and having this quarter especially a very strong performance coming in from Wood Products, Biomaterials as well as Packaging Solutions. And then also a good result coming from Paper.

With that, I would like to hand over to Seppo.

Thank you, Karl. And I start with some of the key figures out of the report that we published today.

First of all, our top line sales increased 3% and operational EBITDA margin was 19.4%. That is a significant increase compared to a year ago when we had 17.2% operational EBITDA margin for the quarter.

Operational EBIT increased 23.4% to about €358 million. Our operational EBIT margin at 13.8%.

EPS, earnings per share, up 12.9%, and it was €0.27 per share. Operational return on capital employed at 16.7% level.

And as Karl had already mentioned, it speaks positively in the quarter now that we are above the targeted minimum 13% return on capital. Positive strong cash flows has continued, and net debt-to-operational EBITDA decreased from 1.6 a year ago to 1.1 at the end of this Q3 2018.

Moving to our divisions and I start with the Consumer Board. The sales growth continues.

They increased to record high Q3 €648 million. That is as we increased volumes as well as the first price increases that are visible now.

Also, volumes and ramp-up of Beihai Mill operations are improving the sales line. Operational EBIT decreased to €50 million.

And this is, as we have mentioned earlier, due to the significantly higher variable costs, especially pulp, chemicals and wood costs, that have been so far only partly offset by improved sales prices and fixed cost line. But like Karl had mentioned, now that they're - that unit is coming and the renewal of the contracts have been started, we already see the first price increases visible.

Demand continues strong, so we are confident that going forward, we can also increase selling prices as planned. Operational return on capital, 10.3%.

And then an important step in our transformation and development of alternatives for plastics was the successful rebuild of a machine at Imatra Mills in Finland for industrial production of MFC for barrier film production. Ramp-up is starting now during Q4 this year.

Then moving to Packaging Solutions, where we have another all-time high quarter. Sales increased 4% to record-high €330 million.

Also, operational EBIT increased to an all-time high of €68 million. Operational return on capital also at all-time high level of 30.4% and clearly above the strategic target of 20%.

We also announced investments in Riga, in Latvia in our corrugated packaging plant there to upgrade the machine and then expand the capacity. It was €9 million of investment.

Then moving to Biomaterials, and there strong pulp market continues. Sales up 9% to another all-time high of €413million.

And operational EBIT also at all-time high level of €125 million. ROOC likewise at all-time high - and operational EBIT despite a maintenance shutdown at Sunila Mill, reducing the volumes.

Operational return on capital increased to a new all-time high of 20.9%, which is clearly above our strategic target of 15% when it comes to Biomaterials. Also, the Lineo by Stora Enso won Best Product Innovation at the ICIS Innovation Awards 2018.

We got that recognition for the innovation we are doing in the world. In our Wood Products division, wood sales still continues to grow, and sales, excluding divested Puumerkki, increased 6.4%.

Operational EBIT, up 64% to record-high Q3, thanks to better pricing and mix as well as volume growth supported by our strategic investments at Murów sawmill and Varkaus LVL. Operational return on capital continued at record-high level of 31.6%, clearly above the strategic target of 20%.

We also continued to develop our business portfolio. We announced €7 million investment in building a Competence Center for biocomposites in Sweden.

We also announced operational steps with a start-up, TRÄ Group, to develop innovative digital services for wooden buildings. And with Orthex, we launched a new range of kitchen utensils made from biocomposites.

That's also 98% bio-based material. Then moving to Paper division, where solid profitability and cash flow continues.

Sales increased 7% to €779 million, and operational EBIT increased 125% to €65 million. Good market balance continues on the Paper market.

Well, the cash flow remained strong. Cash flow after investing activities to sales was 8.3%, thanks to better and improving profitability.

We also announced investment with Gasum to build a biogas plant at Stora Enso Nymölla paper mill in Sweden with a total investment of €5 million for Stora Enso. Then we'll get to strategic targets, where we are making good progress.

Most of the targets are on green. As you know also already the previous quarters, a couple of them remain on red.

Fixed cost to sales coming down to 23.3%, but still above the maximum 20% that we have defined as a target level. And Consumer Board at 10.3% below the 20% level.

And it is a reflection of the burden of paying our mills in the balance sheet even though that the ramp-up is moving ahead as planned and qualifications, and the time lag, the cost increases that we have seen this year and the selling price increases that have been started now. You might notice that when it comes to dividend, we have changed the wording of this step.

It says now to distribute 50% of EPS over the cycle. So the policy itself is not changed, yeah, but more precise now.

It says that's referring to net income regarding the EPS. I believe there is more clarity, so dividend based on share.

With that, I hand over back to you, Karl, please.

Thank you, Seppo. So now I will go over the outlook for the fourth quarter of 2018.

Sales are estimated to be slightly higher than the amount of €2,585 million recorded in Q3 2018. Operational EBIT is expected to be in line with or somewhat lower than the €358 million recorded in the third quarter of 2018.

The EBIT guidance is in line with the normal seasonality that we've seen over the last years. And it's also to be spelled out that the increase in variable costs will not continue.

They will more be like flattish in the fourth quarter. And then, in the estimate, a negative €10 million impact on operational EBIT is expected due to production restrictions at the uncoated fine paper mill in Nymölla, Sweden.

This is because water at the nearby lake, which supplies the water for the mill operation, is at a very low level and we and have to actually stop production in one line. And the impact of annual maintenance shutdown is expected to be similar to Q3 2018, but all these are included in the guidance.

Just before going into the Q&A session, I just want to highlight some important points in this quarter. It's the seventh consecutive quarter of sales growth, the sixth consecutive quarter of double-digit operational EBIT margin, fifth consecutive quarter of operational return on capital, well above the target of 16%.

The balance sheet continues to strengthen. And if you compare full year 2018 and 2017, EBIT are expected to be clearly higher in 2018.

Moving from asset transformation to innovation and sales transformation continues successfully. And I also think this quarter we are demonstrating the strengths of our portfolio.

While having one division being caught up in timing difference between variable cost increases and prices, the four others are more than compensating that outflow. With that, I hand over to Ulla.

Okay. Thank you, Karl.

And just a reminder that we will be hosting our Capital Markets Day here in Helsinki November 7. And subsequently, we'll visit the Heinola Packaging Solutions mill.

So now, John, I think we are ready for the Q&A session.

Yes. Hello, good afternoon, everybody.

A couple of questions from me. You point in your Consumer Board operations that you're aiming for price increases.

Can you sort of elaborate a little bit on the mechanics in that business? When you have longer-term contracts, et cetera, what's normal to seek compensation for?

Are these carton board prices linked to pulp? Basically, how does it work in that business?

And then a second question on the Packaging Solutions side where you say that in RCP containerboard and corrugated, you see slightly weaker demand in Q3 Q-on-Q. Is this sort of something seasonal or is it cyclical?

Could you sort of just talk a little bit about that? And then thirdly, in your lignin business, it seems to be going well, however small.

Do you have any sort of further plans to expand that, that you could talk about? Thank you.

So if I start with the pricing. So roughly about one-third of it contracts are up for renewal within - and basically up to date in Consumer Board.

So the negotiations are ongoing and have started. And what we have working on is for increased prices because they are market based.

We are not unique in this situation that we have higher pulp prices. But the important thing is there's still a very big demand.

So markets have decided that we expect prices to go up in the beginning of next year, so that's it. Then you have all the long-term liquid contracts which are negotiated during 2019, and we'll probably have to take more likely towards the end of 2019.

Okay?

Yeah, okay.

So that was the pricing question. Then when you talk about the RCP-based containerboard, the testliner, we saw that there's a slightly lower demand.

And when we look into going forward, we think that that's going to change a bit. It's going to be a slightly stronger demand in Q4 versus Q3.

And then regarding lignin, it's still very small volumes, but we are also now starting testing to use it more internally, especially on the LVL, and this is going to take a couple of years before we get the volumes where it's actually something to really report to you, but we have good traction. And if you look who gave us the product, it was actually a fossil-based consortium.

It's a petrol-based consortium. So I think that…

Okay. I understood.

Yeah, many thanks.

Thank you.

Yeah, thank you very much, and good afternoon. I'd like to follow-up on Consumer Board and maybe to continue on price.

So if I understand you right, you have one liquid packaging board price contract up for renegotiation in the second half of 2019. Could you please confirm that?

And the remaining part of the liquid packaging board business, when would that be up for price renegotiation, please?

So without going into too much details, it's confirmed that we have one in the second half of 2019. That's correct.

We have one that is basically starting now early - end of this year beginning of next year. And then the other one, if I remember right, is in 2020 for the big one.

Okay. So the one - so one contract has been - do I understand that right?

One price contract has been renegotiated that has been settled, but not yet reflected in your - okay.

No.

No?

No. Nothing has been renegotiated on the liquid contracts.

The improvement that we saw now in Q3 are [arbitrage] [ph].

Got you. So when you say one-third up for renewal by the start of 2019, that includes one LPB contract?

That is basically more around the area of FBB, which is not liquid.

Okay. But I thought you just said that you had one LPB contract?

Yes, we negotiate - that's why I was clear when I talked about it. This is where you will see the effect is in the late third part.

You negotiate and you step it. And then there are different timing when the price starts.

So that's why I said earlier you will see towards the second half and the end of the second half of 2019.

Okay. Okay.

So when you…

Sorry.

Yes. So the one-third that will be affecting then is basically FBB contracts.

Excellent. That's very clear.

Thank you. And then just looking generally, if you look at EBITDA per tonne in Consumer Board, it's under pressure, while EBITDA per tonne in Biomaterials or many other businesses also are doing much, much better.

What opportunities do you see to shift some of your volumes, which are now in less buoyant, less cyclical Consumer Board segments into somewhat, for the time being, more lucrative business segments?

So first of all, we are obviously working on that one, to get into others. But at the same time, having these long-term contracts is we think basically as a timing issue.

I think it's very important to look upon it that way. Now we are in a situation where we have had basically in one quarter over €40 million increase in variable costs.

And now we see that flattening out towards the end of this year, being flattish. So we are doing that on the margin, but it's also about what machines you can use to certain lengths and where you can actually swing.

So we are trying to maximize that, absolutely.

I guess, it can also be a bargaining tool in some of your price renegotiations?

Obviously, they also see our financial results. I'm not saying that traditional very profitable consumer board is not the most profitable any longer.

When you look on a number of areas, this isn't - that's absolutely correct.

May I also ask about seasonality? So as we went into the third quarter, you said that for reasons which weren't entirely clear to me, but for some reasons, seasonality, which historically has been very positive in the third quarter, didn't quite materialize in 2018.

Could you talk a bit about seasonality in Consumer Board in 2018, please?

Yeah. So first of all, I tried to explain that in the snapshot of the business.

So basically, we're having a record sales for Q3 in Consumer Board. But at the same time, we had over €40 million of variable cost coming in.

So EBIT is going down. But if you're comparing the seasonality between Q2 and Q3, you have to remember that in Q2, we had very high in maintenance.

And in Q3, we had Imatra and Ingerois. So it's a little bit a shift.

And then you have to remember that when we went into the third quarter, we were still - yeah, we still estimated, but we guided for Q3 that we were worried about the wood situation. So - and we did take down the pulp production in the mills where we had - today to deliver the board, which means that we have less pulp sales now.

And then the follow-up question then. How do you look at the fourth quarter in Consumer Board?

What kind of seasonality do you see going into the fourth quarter?

So basically, we have had two names being in maintenance. So we expect the same.

But the only thing is different, we don't expect variable costs to continue up, because what we see is the pulp prices, we believe, are stable going forward, and we have seen also that wood costs are going to be stable, because during the first seven months of this year, we had - due to the fact that there was very limited supply of it for various reasons, which meant that we and our competitors were buying on the margin to keep the pulp mills going and to be able to deliver the boards. And now we are more in a stable situation and our inventory levels of wood to the mills are back to normal, and we haven't seen prices go up.

So they are stable. Then we see that pulp are stable, wood costs are stable.

And then we see that pulp are stable, wood costs are stable. And then we also see that chemical seems to be more stable than previously.

So that's a little bit how we see going into Q4.

Okay. Thank you very much.

Thank you.

Thank you. I just wanted to start right where you ended about wood costs.

When you say they're stable, albeit most purchase organizations in Sweden during August and September hike their price between SEK20 and SEK45 per cube, is that not real? Is that not happening?

Or how should we read that? And also, can you - if those numbers are right, when should we see that coming through in - as cost increases for you for that externally purchased wood?

So we have had until the end of Q3. We have had quite significant increases in the wood prices, both in Finland, Sweden and in the Baltics, the majority of wood we pick up.

Going into Q4, we see them being stable and the supply situation being stable. Therefore we see…

So stable at that elevated level?

Yes. We don't see additional effect coming into Q4.

And just to be clear. Are you paying those prices?

Because typically in the past, you've had maybe three, six or nine months of standing timber on your books, so to speak, right? So you're not really seeing a clean inventory?

I will not comment on individual wood prices in Sweden. I will not do that.

So from what we see, we are in a situation where we don't see further increases on the prices across our portfolio.

Yes. And you also have to remember our fourth quarter is pretty wide.

So if you look at the total wood costs that we are looking at, we also take in part the development in Finland and Central Europe where we are sourcing as well.

Absolutely. And also just want to…

And Lars, 25% of our wood supply in the totals timber come from Sweden, 36% from Finland, and then - in the number, I would say.

So what - just to confirm a bit on the very long-term contracts on liquid paperboard. We don't –of course, don't know the full duration of these things, but it sounds maybe like three to five years or in that range.

If you can confirm. But do you not have any escalators in that for general cost inflation?

Are they actually fixed fully for whatever duration of the contract is?

They are fixed.

Understood. Just turning page a bit on Biomaterials.

Of course, we've seen very strong pulp markets. We heard from UPM the other day that their delivery volumes are down 5%, 6%.

Your delivery volumes are down 8%. What is your - the reason for your volume contraction in pulp deliveries?

And do you see that as potential upside for next year to get those volumes back to where they should be?

So in this quarter, we had a maintenance stop at Sunila. So that's for that explaining of - what the volumes.

We obviously are going to make sure that we deliver as much as we can out of our pulp mills, especially since we see stable prices going forward for a couple of years since the demand and supply seems to be quite stable.

Just to be clear, though, you've done 8% year-to-date, right, which is obviously - and you had a similar amount of downtime, I suppose, from…

Okay. If you take year-to-date, 8% down.

You have to remember that we took our pulp mills down when we had the problems in Q1 and Q2 with approximately 10%. And that is all our pulp mills producing 5.8 million tonnes annually, because it was not enough, so wanted to make sure that we could run boards and other things that will help in running them slower than we did in Q1 and Q2.

And that is part of that if you take year-to-date.

Yeah. That makes sense.

So effectively, if you had normal foresting conditions next year, you should be able to recover those lost volumes in 2019?

Yes.

Final point for me. I mean, there's an awful lot of noise from China in terms of - and it's been going on for some time, but it seems to be coming a bit to the fore now about a slowing demand generally in China with UPM called out the other day fine paper price pressure we've seen from various sources, that consumer boards are under some pressure even with very elevated pulp costs.

What do you experience in your business? Is top line an issue at all in Beihai or not at all?

So what I would say is that Q3 was a bit of a special quarter, because of all the uncertainties in Chinese market with import doubles you see or paper for recycling in the pulp and the whole permitting area around that. What we have seen is when it comes to the folding bookstore in China, we actually expect higher prices going into Q4, slightly higher.

But we are a small player in a huge market, focusing us to niche on the very high. And that's what we're working on, and we're only doing in the region.

Sure. And in terms of demand trends, any change directionally that we should think about, up or down?

Not that we have seen. Not that we have seen.

Very good. Thank you.

Thank you, Lars.

Thank you. Hello, everybody.

A couple of questions. First, coming back to the Consumer Board business.

Would you expect to recover the full cost inflation, which you're experiencing right now in that division by hiking your own prices? Or will you also need to take your costs down to recover the margins.

Obviously, we're going to move on all the parameters. But since it's a very healthy market demand out there and customers had benefit from lower prices right now, and it's going to be negotiation.

So based on working on known cost structures, it's obviously one of the things that we need to do as well to make sure that we get those things, because it's - we are not alone, but it's not a very crowded market on the - for the high quality. So it's going to be both.

And the market demand continues strong, as I've said earlier. And even though that the renewal rates with Q4 in market is seasonally down, we are confident that we can push through or get through the price increases needed.

But even if we do that, we still need to work on our cost position.

Okay. And would you care to give any comments on what's happening in Beihai?

Are you getting a positive on its contribution there right now?

So Beihai is going according to plan. We had - Q3 was a bit of tough quarter, because it was a bit unstable what situation they're going to be between merging and non-merging.

But now going into Q4, we see prices going up. So it's growing.

We are still ramping it up, and we are qualifying new grades.

Okay. All right.

Then switching to the Paper business. There are some comments out there of price increases for fine papers in Q4.

And also, some producers have always price hikes for the beginning of next year. What's your take on this?

So I would be - since we are in negotiations, in the beginning of a negotiation, I would say that we see prices being stable, and that's it. And I don't want to go in any further.

But obviously, I - it's actually very encouraging to see paper going up with 125% and in some…

And market balance remains good.

Yes.

Okay. But do you think price is stable.

Are you referring to Q4 or 2019 or both?

Q4 when I say stable. But when I got - when I look, they're worked in Paper.

So I think comfortable of a good price level in the first half of 2019. I think it's going to be good.

Better period.

All right. Thank you very much.

Thank you.

Thank you. Just in terms of the Consumer Board division, can you just remind me, what the net long position you have in pulp if you exclude Beihai?

And how much of that have you been able to deliver this year?

That one I have to - so we have - I don't have that in my hand.

That was in the Consumer Board, right?

Only the Consumer Board, right?

Exactly.

Because Beihai is using roughly 100 feet, to the 200,000 tonnes of chemical pulp, and then we are buying more out of that, because we are selling less out because of that. We found that - we said earlier that we have been slowing down pulp production with the first half, which means that there's been less market pulp.

Yes.

So excluding Beihai, we are talking a couple of hundred tonnes for pulp that we had been buying there.

But we will actually do that now. But I think it's important to understand what is the mix this year because of the wood issues and then what is it this year.

But I think your number is on target.

So I recall a number that it will be 100,000 tonnes net long, excluding Beihai. So I was just wondering how much of that you have been able to sell to the market this year with this.

So I think this year we are short because of that. We were running the pulp mills 10% lower for the first six months of the year.

But let - because usually we are probably excluding that Beihai. In 2017, we were actually selling pulp long.

You have to retrieve.

Sure. Okay.

Thanks. In terms of Beihai, you - potentially last year that - I guess it was Q3 or Q4?

Q4 I guess, you averaged EBITDA breakeven. Is it fair to assume that given the surge in any input costs there, that the profitability is roughly at the same level?

And also, you stated that Q3, I guess that it was a tough quarter for Beihai. Was that due to the slump that we saw in FBB prices during the summer?

Or was it something else? And finally on Beihai…

And it was also the uncertainty regarding how FBB would grow in China depending on the import and non-import of OCC that had been hitting a lot of it. But I will not talk about the profitability on individual mill.

We decided we'll stop that. At the end of Q4 last year when we reached designed capacity as well as EBITDA breakeven.

But as we had said earlier, we are at the final stage with the quality cases, and now it's - we are moving. Of course, we still have some parts, some tail ends of the qualifications to be done.

But now we are moving to mix optimization as our next step.

So the expectation is that the mix will still improve significantly going into next year in Beihai? Is that correct?

Yes.

It take part of that right now to commercialize the quality, those grades that we have qualified now.

Yeah.

All right. That is clear.

Can you just confirm though, I understood correctly that you expect the group variable costs roughly flat quarter-on-quarter in Q4 and wood costs on a group level flat quarter-on-quarter in Q4? Would you mind to comment about the wood costs?

I mean, you must have some idea about what is going on during the winter as well, how the market looks. So why is it that now we're seeing some of a steep increase in wood costs in 2019 due to various reasons, one, obviously, being you having been forced to import a lot more from expensive countries than before?

So what is the outlooks for you guys? Is it fair to assume that the flattish outlook would continue when we start going to 2019 in terms of group wood costs?

In group wood costs, this might be my famous last words. But what we see - and we are taking precautions of increasing the flexibility in our wood supply organization.

But we see at the moment more stable prices compared to last year, and we don't see a huge pickup from the level that we're having right now.

All right. That is very clear.

And finally on this average…

But that is based on that we don't have the - where the resources that we can't - we have adjusted most of the things to create more flexibility in the wood supply organization. But that's what we see right now.

Yes. Yes, of course.

And finally on Bergvik Skog. I assume you have quite favorable contracts, the ones that you had.

Now going into 2019, when this transaction is delayed should we assume that you will continue with the same sort of contract terms in terms of procurement that you had before? Or how should we get this down and start 2019 before the split-up of Bergvik Skog?

So the planning assumption, we see no change in the wood supply, because that - until we have signed the deal. After the deal is signed then it's something else.

All right. Thank you very much.

Thanks.

Thank you. And therefore, you have upcoming factors.

The consortium of net position that you manage. And I was doing some checking here offline, and they speak 200,000 tonnes, couple hundred thousand is correct ballpark figure.

It's going to very high enhancement.

And this year, you have been short. You had been buying from the market, excluding Beihai as well?

Yes.

All right. Thanks.

Hi, thanks. First of all, I'd like to try and understand your guidance for Q4 a little bit more.

So on operational EBIT, I want to say you have a pretty wide range. I think it's roughly €270 million to €390 million, if I'm not wrong.

When I'm accounting for everything you said now about maintenance and seasonality, well, there's €10 million item in Q4, a pretty stable cost inflation. And I guess pricing should be quite stable as well.

I think it sounds pretty conservative. Are there any moving parts I'm missing here?

Yes. You have to understand that the seasonality is similar to previous year, which means that you're having two big mills in maintenance Skoghall and Fors.

But when I look at the seasonality, also...

And then on top of that, you also have a sales pattern for Consumer Board. And also you have that in Wood Products.

You're going to differentiate that. So Wood Products, you should have a lower seasonality in sales in the fourth quarter as well as Consumer Board.

So you have a sales pattern, you have - and that's why we have the maintenance in Skoghall and Fors, because of the seasonal sales pattern, and then you have Wood Products. The wide range is not a reflection that we are uncertain.

It's more to get the midpoint where we think it's possible and what we're aiming at.

Okay, fair enough. Then secondly, this tax provision that you booked in the quarter, is this really a one-off item?

Or is there risk of something like this coming back again?

No, I think it's - that's an accrual, a tax credit, spending a [FBB] [ph] that we have a strong case. But to be prudent, as far as IFRS rules, we make the accrual.

So it's a onetime case.

Okay, perfect. And then perhaps just lastly, the Nymölla mill and the restriction you have to water levels there, do you see this being resolved quite soon?

Because I guess it won't go on for more than Q4 at least.

So there has been a little bit rain there, a couple of milliliters, but we need a lot more rain there. So we don't know.

I can't predict the weather, unfortunately.

That's right. Thanks.

Thank you. I just want to check on Biomaterials.

The last time I checked, I think the Sunila Mill capacity was less than 400,000 tonnes per annum, and yet you delivered 91,000 less tonnes in Q3. Was the mill down for all of Q3?

Or were your deliveries down more than your production? Or are there other factors in play?

I'm just - for example, one of your peers blamed bad weather in Uruguay for a lower pulp production. Was - wasn't the plant impacted in Q3 by weather?

Or were there other factors at play here in your lower production number?

Well, it - likewise, I mentioned that they had maintenance at Sunila Mill in Q3, not whole quarter but quite a long time. And also, there might be some deliveries that are rolling from one quarter to another.

So the physical timing issues of deliveries. So that completes our part as well.

But we did not have any weather problem in Uruguay.

Thank you. So your production then in Q3 has fallen by less than the 10.6% deliveries fall?

Yes. But I said the delivery is affected by different factors as well.

So there is - but there are no issues as such that we can relate in this quarter.

Okay. Sure.

Now obviously, you talked about significantly weaker demand in China in hard wood pulp in Q3. I just wanted to double-check your outlook for pricing.

Is that stable? Or - obviously, we have stories in the trade press of concessions to discounts to resellers of pulp in China.

Is that something that you're having to also concede?

No. And what we see in general, we see a stronger demand in all pulp, and prices are stable.

Right, okay. And just switching divisions.

Can you just remind us in Consumer Board the split of the business between folding boxboard - I'm sorry, liquid packaging board and, let's just say, other forms of board? I just want to understand some of the pricing dynamics, because I appreciate over 75% of contracts are annual-plus.

But I'm just trying to understand specifically with liquid packaging board what proportion of Consumer Board is that.

So liquid is some 45% to 50%.

Okay. Thank you.

And just one follow-up question. One follow-up question just on the Bergvik Skog transaction.

I appreciate it's been delayed into hopefully H1 of 2019. But have the terms of the transaction, are they still as previously guided?

Or are they in any way changing.

So they are at previously guided. So - and then on visibility, there aren't really - really we don't contract direction.

Thank you.

Just a delay, not causing any issues in wood supply next year, yeah.

Thank you.

Yes. Good afternoon.

Just a few more question. Maybe on the Beihai commercialization.

You said that you're now moving to mix optimization toward the products that you have now qualified. Do those products fall under your long contracts?

Or is this sort of a separate issue?

Some of them old and some of them are new. So it's a mix.

Okay, good. And then on the containerboard pulp production issues, have those sort of now passed?

Or just they still will continue in Q4?

Can you repeat that, containerboard?

Consumer Board.

The Consumer Board pulp production.

Yeah, they are back to normal with the wood supply at the moment.

Yeah. We're getting back to running the pulp mill for - it was in Q1 and Q2.

Okay. Then I suppose on Wood Products and Packaging Solutions, you're now delivering a return on operating capital in excess of 30% versus target of 20%.

Do you see this as a result of a sort of a cyclical peak? Or do you think that your targets here have been conservative?

Or how should we sort of interpret this?

Well, so when we looked at, say, targets in 2015, I think many of you thought we were a bit crazy. Now we have deliveries, and we are having very favorable situation especially in Biomaterials, Packaging Solutions, and it continuously good performance on a high level in Wood Products.

Wood Products, we've taken from 18% to 20%. I don't see maybe yet to change in targets, but give us a couple of more quarters with good performance or a year, then we might consider it.

But I agree with you that it is a very good performance.

Okay, good. And then maybe the sort of other side of the coin.

I mean, Consumer Boards for the European operations, you last year talked about return on operating capital of 35% to 40%. I suppose that has now moved down.

Was that performance a result of sort of more favorable contract conditions and sort of deflationary variable cost? Or do you see a recovery of that type of returns?

So you have to put this into a context. Part of the reason that we're coming down in the return on capital employed for Consumer Board is that we are going in the right direction in Beihai.

But given that we are caught in long-term contract with a timing effect of the price renewable means that I believe that we should be coming back into right direction. If we're going to get to exactly the same number, I don't know.

But that's the early thoughts now. But - so by having very good returns a couple of years ago coming down this year and now we see that we're kind of moving in the right direction, where we're going to end up, I don't know, but, it is a very good business, because it's very complicated and with very few competitors in the area.

I think, it's fair to say, that over time, we'll just be able to recover it, what margins we have lost. But because of contract structure I mentioned several times today, it takes a bit of time.

And we're also busy on new product development there where we can also improve our margins as well.

Yes. So we're aiming at getting back.

Okay. Thank you very much.

Okay. Thank you, John.

I want to thank everybody for attending the call and giving us - asking good questions. And we will be in touch next time towards February when we are out with our full year results.

So thank you for everybody participating today.