Stora Enso Oyj

Thank you, Sandra. Very welcome everyone to Stora Enso's full year and fourth quarter 2019 earnings call.

This is memorable quarter for us, because now we will have our new CEO Annica Bresky here for the first time presenting to us. And with me is also our CFO.

Seppo Parvi. So Annica, Please go ahead.

Thank you, Ulla, and welcome everyone to my first quarterly call. We -- looking back we have had a challenging quarter with difficult market condition.

I am not satisfied with our profitability levels. But considering the uncertainties on the market, we have focused on what we influence our cash costs, our costs within the company and also managing value over volume strategy securing margins for the business.

So, before I dive into the key financials, I would like to highlight a few positive things about last quarter. We delivered a record high cash flow from our operations at the value of €721 million.

Also for the year we had a very high and strong cash flow. And of course, this is a testimony that we are focusing on the right things such as our working capital management and also we had an extra dividend and repayment from Bergvik Skog.

We see a significant increase of our forest fair evaluation of €777 million out of which is €600 million effecting IFRS results. We are major forest owner in the world.

And this is a strong testimony of delivering shareholder value on our assets. I am also happy to say that we were proactive and started our profit protection program early.

We have a very good momentum, and we have committed to delivering €275 million by end of 2021. The program is proceeding ahead of plan.

Already last year we delivered €150 million and rolling €105 million and for the quarter for €50 million in cost savings. And I'll come back a little bit further on how that is distributed throughout the divisions.

Now moving into the key financials, our sales decrease by 9% to €2.411 million from €2.657 million. And the main driver is significantly lower prices primarily in biomaterials, in Packaging Solutions, Containerboard business in paper and wood product plastic sawn.

Consumable sales prices were more stable. Operating EBIT decreased to €112 million down from €271 million due to significantly lower prices and we could not despite our efforts fully compensating for that effect through our profit protection program.

Net debt to operational EBITDA landed at 2.1 times close to the target of 2.0 times. We will continue working with strengthening our balance sheet, major effect compared to Q4, 2018 is of course our acquisition of Bergvik for us.

Our operational return on capital employed was 4.2% for the quarter and 12.4% compared with Q4, 2018 and this is below our strategic target of 13%. Now moving to how the results builds up in the bridge.

You can see here a €209 million effect on sales prices and mix, negative effect. And a small effect on volume as a result of us managing value over volume to protect our margins in some of our businesses.

We had improved cost position or reduced cost for our fiber and you can also see our €50 million improvement from profit protection. But all-in-all it was not enough to compensate.

If we move over to our profit protection program, as we promised €275 million we will deliver by end of 2021. The distribution between fixed and variable cost is approximately 50-50.

And you can see over the years the plan of getting there. Last year mainly Packaging Solutions, wood products; paper and other had the biggest impact, but going forward the increase is going to be also in the other division.

I feel we have a very strong commitment and momentum in the organization. So I fee very confident that we will reach our target here.

Moving over now to our forest fair valuation. This increased by €777 million.

And here we can can see that we are a big forest land owner. We have totally 1.6 million hectors of forest holdings in Sweden, Finland and in our plantations.

And with our DCF methodology that we used today, the value of that is booked for €4.9 billion. We can also see here an example of if we would use LRF statistics on transactions for forest lands where the price would be around €5,700 per hector and that would mean that the value of the Swedish forest where we have them in southern Sweden would be around €6.5 billion.

So this is a strong foundation for our future and creating shareholder value. The board is proposing unchanged dividend at €0.5 per share and totaling €394 million.

In 2018 -- between 2017 and 2018 we increased dividend by 22%, so we stay on the same level here. And as you may recognize we and a policy of distributing 50% of earnings per share over the cycle.

So if I now would summarize some of the key events during Q4, I am happy that we are continuing our transformation and the corrugating plant in Riga and Latvia is completing according to plan. Also our conversions of Enocell skewed given CLT production are ramping, according to plan.

We have made a $€9 million investment enabling production of bio-based plastic in Langerbrugge mill and this is to be used for transparent packaging, to be completed by Q2, 2021. I am also happy we continue our close collaboration within our startup community and one example of those is the commercialization of renewable and biodegradable straw together with Sulapac.

And this rendered quite a lot of attention on the market and we continue to work with other products as well. Part of our strategy is also making sure that we strengthen our asset base by divesting or closing unprofitable mills.

So last quarter we closed down 90,000 ton per packaging paper machine at Imatra Mills in Finland and also closed down Kitee sawmill in Finland and had an agreement to divest our sawn construction timber mill at Pfarrkirchen in Germany. This is to be finalize during Q2 in 2020 -- Q1, 2020 sorry.

And last but not least, we have stepped out the paper business in China by divesting the lost 60% of equity stake that we had in that mill and that was completed during Q4. And now Seppo, please take us through the financials.

Thank you, Annica. And I'll start by looking at the key figures from three quarter that we have published earlier today.

Top line sales for the quarter went down 9.3% as Annica already mentioned earlier. Full year sales 2019 is €10.55 million, that is reduction of 4% year-on-year.

Operational EBITDA margin 10.8% and operational EBIT margin 4.6% for the quarter, and earnings per sales €0.66. Operational return on capital at 4.2% for the quarter and 9.8% for the full year 2019.

We are very proud of and I am happy with the cash flow that we are reporting for the quarter. Cash flow from operations at €721 million which is significantly up compared to €323 million in Q4 2018 and full year cash flow at almost €2 million.

Net debt to last 12 months of operational EBITDA is at 2.1, it is slightly over the limit of 2.0% that we defined as a strategy target, but it has been moving down already during the second half of last year and we continue to work on the cash forward also going forward. Then I move to division and I start with Consumer Board, where successful value of volume management has continued and also show positive result development..

Sales decreased by 4% and was €640 million due to lower board deliveries in Europe mainly. Operational EBIT increased by 111% and was €51 million.

Value over volumes approach decreased the volumes, but local sales price is higher, improving the profitability. Also clear lower variable costs due to pulp help.

We also completed successfully key account negotiations with increased prices as also communicated during the year that we have been working on the price increases and being confident already earlier that we can reached the targeted price increases. Operational return on capital doubled during the year -- during the quarter, 9.5% compared to Q4 a year ago.

Then moving to packaging solutions where challenge is containerboard market continued, but corrugated market performs quite well. Sales decreased by 17% from all time high level a year ago and it was €293 million.

That is due to significantly lower containerboard prices, but as mentioned earlier corrugated market was strong. However, there was somewhat softer demand in China.

Operational EBIT decreased by €43 million and was €60 million. Here it's good to notice that last year Q4 was record high in cost operational EBIT.

And the lower raw material prices for corrugated units offset -- were offset by lower containerboard prices. Operational return on capital decreased to 6.8% and driven by significantly lower containerboard prices.

And Oulu Mill conversion into kraftliner production is proceeding as planned and our Kitee saw production is expected to start by end of this year. And as communicated also earlier, we continued production of paper boardmachines until the end of September this year.

In Biomaterials division, challenging market conditions continue as we all know, and there our focus has been very much on inventory management. Sales decreased by 18% from last year, all time high level and was €341 million.

That is a reflection of significantly lower pulp prices also that we had all time high deliveries during the quarter. Operational EBIT decreased by €103 million to negative €12 million from last year's record high figures.

Higher total volume impact, but that was effected by significantly lower pulp prices during the quarter. We also had higher maintenance costs at the Skutskär Mill compared to a year ago and also important to note that Montes del Plata pulp Mill was also down for maintenance works during the Q4.

And all-time high deliveries took place to manage inventory levels and improving cash flow. Operational return on capital decreased to negative 1.9% compared to 15% year ago.

Then moving to wood products where we continue to focus on margin protection and had record Q4 cash flow. Sales decreased by 6% and was €374 million, that is driven by lower classic saw prices and lower deliveries during the quarter.

Operational EBIT decreased by €28 million from last year's record high Q4 level and was €14 million. That is driven by lower sales prices and was also had lower total volumes mainly due to curtailments at the Nordic mills to manage inventory levels and also Kitee sawmill close had an impact.

We had lower wood cost in Central Europe and in general, lower fixed costs improving the profitability at the same time. Operational return on capital decreased to 8.2% due to lower profitability.

During the quarter we also launched a wooden office building design concept. And we also received Puupalkinto Wood Award 2019 in Finland for the tallest wooden high-rise building Lighthouse Joensuu, that has been made out of our areas.

Then looking at the paper division where strong cash flow was supported by good cost and working capital management during the quarter. Sales decreased by 9% to €694 million level.

The decrease in pricings is at the lower paper deliveries and lower prices in most of the paper grades. Also Dawang paper divestment had a slightly small -- slight negative impact about €30 million.

Operational EBIT was stable at €44 million and there somewhat lower prices in most grades and significantly lower total volumes impacted by curtailments to managed inventories had an effect on the profitability. And lower variable for mainly pulp and paper for recycling costs had positive effect on the result development as well as fixed costs due to good cost management in the division.

Cash flow after investing activities to sales ratio increased to 10.3%, clear improvement compared to year of 2.5%, but this is thanks to very good working capital management. Also good to keep in mind as announced earlier we are reducing paper capacity by over million tonnes that is 20% of our paper capacity with paper mill conversion during this year.

Then to summarize the development of strategic targets, most of these have been commented already either myself or my Annica, but maybe to highlight couple of those. Net dept operational EBITDA like I mentioned, 2.1, it is coming down after the acquisition Bergvik Skog land and forest in Sweden and we continue our work improving cash flow to bring net debt further and of course our profitability improvement to get below 2.0 as set as a target.

And operational return on capital employed for full year at 9.8% below the 13% targeted level when it comes to return on capital. On the divisions, I just want to once again highlight the good cash flow from paper, paper division 9.3% to net sales, for full year 10.3% for the quarter.

With that, I hand over back to you, Annica.

Thank you, Seppo. And moving now over to the outlook for 2020.

We see that subdued and mixed trading conditions caused by geopolitical uncertainties will continue to impact Stora Enso for this year. The decline in demand for European paper will persist and demand for other group products is expected to remain mixed.

We have exceptionally mild winter conditions in the Nordics and the soils are not frozen. And this could of course impact our harvesting and transport of wood and may therefore affect the stability of raw materials supply and potentially increase wood cost to our Nordic mill.

Stora Enso will continue active cost management in the coming 2020 to 2021 through the profit protection program implementation. And the fixed and variable cost savings target €275 million to the end of next year.

Various labor organizations in Finland are currently on strike which you might know. This is also affected to impact our result negatively.

And a comment from my side on that is that of course strikes are never good. And as a country, Finland and Sweden and the Nordics we are really -- have a really big export for our products.

It's important that we find an agreement with the unions on these topics. They mentioned uncertainties affect our guidance for Q1.

We have a wider range between €90 million to €200 million of operational EBIT is expected for first quarter this year. So during Q1 we will have one annual maintenance shutdown at Ostrołęka Mill compared to two that we had last year where we also shutdown of Veracel Mill.

The total maintenance impact is estimated to be approximately €60 million and €10 million lower than it was in Q4, 2019 and in Q1, 2019 respectively. And as said, the various labor unions in Finland are currently on a three-week strike.

If this continues the total impact will be around €11 million for each week. Of course, we hope that this will be resolved in the agreement, but we have taken that into account in our guidance range.

I would also like to remind you that we communicated previously that we have a new divisional structure as of January 1st. Best targets to get even closer to our customer base and providing solutions for their journey towards more sustainable packaging materials.

So we formed a new division called packaging materials were both Consumer Board and Containerboard business is reporting too and we have also packaging solutions, the new packaging solutions where we have our corrugated packaging together with the recently created formed fiber unit. And this strengthens our ability to bring new solutions and applications to the market.

I also want to say that we have our newly forest division formed to make sure that we increase transparency towards our shareholders on our assets development. And here we include the Nordic forest assets and wood supply operations in Nordics Russia and Baltics.

And with that we have five growth divisions where we will continue to focus into leading positions for our materials. So summarizing, and we have had a challenging quarter for, but we have focused on what we can influence our cash, our cost and making sure that we protect our margins through value over volume approach.

We expect the subdued and mixed trading conditions for this year and our very strong cash flow from operations, €721 million is a result of our good working capital management in all the divisions that we have. We see a significant increase of our forest asset fair valuation to €777 million and our profit protection program is progressing ahead of plan.

We will deliver on our promise of €275 million and we had an impact of €150 million for last year. The new divisional structure will support our business ongoing building on innovation solutions and a stronger partnership with customers and the board proposal of unchanged dividend of €0.5 per share.

So with that, thank you very much. And I hand over to Ulla.

Yes. Thank you, Annica.

And we will now go for the Q&A session. Please Sandra.

Thank you very much. I've a bit of a longer-term question.

When we're thinking about that 13% return on capital employed target, which we obviously quite far from right now. Is this something we should still look at through the cycle targets?

Because if I look -- historically it seems like you are really past that when prices were at record levels. And if we look currently at the different products versus history, I mean, pulp definitely at these historical low, but consumable prices still look very high versus history.

Containerboard even though it is down and is not collapse versus historical levels. And on top of that you do have as you said a deflationary cost benefit from recycled paper prices being lower.

So basically on your topic of focusing on what you can control, do you think that the profit protection program alone is enough to get to that 13% level on a through the cycle basis. Or do you think it looks maybe a bit too ambitious?

Maybe I can start and Annica can then take from there. 13% target rate was set it, of course, it's a long term target and then over the cycle its clear, been in cycle business that they are years when it still -- it's changing to reach.

But I think also if you look past five years we have been proven. It is a reachable challenging target.

And in that sense I think it's valid. Of course you need to keep in mind that our balance sheet has changed over the years around voice as the acquisition of Bergvik Skog Forest has changed the balance sheet quite big there.

But so far we have not thought to change the target as such.

Yes. I agree with Seppo.

And for the moment we keep the target and we continue to work to get that.

Thank you.

Thank you and good afternoon everyone. Can I just focus on the consumable business for a second.

Firstly, we've seen, I know you've got a described value of volume strategy here. But we've seen throughout calendar 2019 now consistent organic volume declines in this business.

Well, peers are reporting structural tailwinds of plastic to paper perhaps 2% to 3% organic volume growth. What is your longer term aspirations for organic volume growth in the Consumer Board business?

And when perhaps might we see this business return to that sort of longer term growth record?

What we see is that we have had to do this value over volume approach for the last year. But of course our target is to get back to grow with the market.

It has been an uncertain market last year in the demand especially China has been more challenging than before. But introducing more premium products for instance in bay high and working with the position there is something that will bring us back to a stronger position for the future.

And that's what we are working on.

Okay. Thank you, Annica.

And just following up, you know, clearly congratulations on becoming CEO.

Thank you.

But on the morning that you've announced the number dialing into the webcast of your news conference with -- and you cited the profit protection program and clearly the Oulu conversion is some of your key 2020 priorities. When we think perhaps more longer term over the next perhaps let's say five years or so.

When you look about the Stora Enso group, now clearly you've announced recently reorganization of the Consumer Board and packaging solutions division. Should we say, smaller slimmed down packaging solutions division.

Is that something we should now view as perhaps in the same light as the paper division, a source of free cash flow for funding other growth areas? Or there are other sort of longer term strategic visions that you could perhaps share with us from your initial few months as CEO now?

Thank you. That's a good question.

If we look at packaging materials first and the customer base, there are more and more requirements for recycle of the packaging for food applications. And we have a very strong barrier development within current Consumer Board and we can benefit of having that competence in one division and one leadership.

And this is for the benefit of retailers. It's for the benefit of our brand owners and the development of new packaging solutions following single plastics regulation.

If we look at the packaging solutions, I would rather see that we now can have a focused approach on a division where it's more light asset compared to previous containerboard parts which are more similar in structure to the assets that we have in Consumer Board and therefore requires a different type of management and leadership. So packaging solutions as assets like.

We are further down the value chain. And as you've seen, we have put their new fiber -- form fiber applications there which we target to grow.

So I would not say that it is part of a spin-off strategy rather a more focused approach on that that part of package, lost packaging solution or the previous packaging solutions division.

Okay. Thank you very much.

Thank you.

Yes. Hello.

Good afternoon. Well, a question on the pulp and the very high deliveries, and sort of wondering -- well we know that there was heavy restocking particularly in China, but was that behind the dollar.

Is it sort of more pulp moving to customer inventories. And what is your feeling of the inventory situation at the moment in the global system in the pulp market?

You're right that we have been destocking our inventories and this is the right time to do it. If we look at the external market analysts they say that the prices are probably going to stay on this low level for some time more coming months or even first half year.

From a inventory and stock perspective we can see that the stocks and inventories are not increasing anymore, which is positive. And we see that also a small decline in inventory levels.

So depending how their demand kind of picks up in China coming this year. And if we are lucky we can see major destocking.

And also look at the big indices that I think we all can see here every week. It's clear that the prices have stabilized that's been even some increase if not be big but some increase in China.

Yes. Bottom out of pricing.

Yes.

Right. Okay.

Thanks for that. And then another question maybe on the forest value discussion which has been of course very lively last year.

And you decided to do. It's a big number, €777 million, but it's still not benchmarking the value to their peers and I was wondering, your thinking there that is -- was there some sort of an interim decision or something that you are still considering a longer term what sort of value to attach to the forest asset particularly in Sweden?

Well, like we mentioned in the press release released earlier, we have continued to use discounted cash flow model, which we see at the time believe and see as the most fit all type of industrial company industrial operation to use. And the increases like we mentioned, it's mainly coming from lower discount rates, lower market interest rates and that is lowering the discount rate that we use and market rates come down.

Obviously, follow the situation how the market practice develops. But it is still the most common way to value the forest assets discounted cash flow method.

Understood. Well, the final question on the consumer board overall.

Sorry, if I may add.

Of course, of course.

For your information, we have added also some statistics and information on the market price. So you can benchmark that against what we have as fair value in the balance sheet.

Exactly. Yes.

Fair enough. The final question on the consumer board given that you have achieved some -- well, your targets in certain price negotiations, but then there are also trade press reporting that some falling boxboard.

What would be the best kind of broad guidance for the average price for the consumer board now going towards this year compared to Q4 or last year prices?

Well, I cannot comment on that dividing the business as such. But you are right, that there are pressures in the folding boxboard in Europe, while in China it seems more stable levels.

So, but more than that I cannot give you details.

And if I may add. I think the most important thing is that we have now finalized the price increase around of all the key accounts and customers, all the businesses.

I know many people have a doubt in if we can increase the prices or not. And I think we have proven and shown that we are able to increase prices and cover the gap between the cost increases that we have faced and the prices that we have had in the past.

Okay. Thank you very much.

Thanks.

Thank you. Good afternoon everybody.

I could continue a bit on the consumer board division. You mentioned the achieved price increases with major customers.

We talked about the volumes there previously. How would you expect this price hikes to impact the volumes for this year in the Consumer Board division.

As previously mentioned you have had five quarters of declining volumes. Should we expect to see volumes down again in 2020?

Or would you expect to see a rebound? That would be my first question.

I cannot unfortunately comment on coming price negotiations and the folding boxboard. That business is negotiated on a yearly basis and we go into a negotiation period in coming quarter for that part of the business.

But what I would see is that when the market becomes stronger we have a good position to continue growing the business as such is a strong business. We have leading positions with many of our products and we are very well kind of perceived by our customers and partners.

So I have no doubt that we can grow Consumer Board business in the future.

Okay. Then switching to containerboard and corrugated.

What do you see there in terms of demand and pricing and inventories right now?

Well, the containerboard demand is stable, but as you know, under pressure, the prices for containerboard have been driven by lower OCC prices and recycled fiber prices. However, we see stabilization.

We don't expect that major continued decline in that area. So -- and then if we take corrugated packaging that has been unexpectedly strong, supporting the business, which shows also the importance of having both of the parts in your portfolio both corrugated and containerboard business.

Okay. Then just a final question on the paper business particularly in Europe, we've seen below trend declines in demand in 2019.

And that's been driven by different things. But going forward what's your take on the demand trends for paper?

What's your kind of best case of what the structure of the demand, the class will be going forward? Is this minus 10% or so, the new normal?

Or should we revert to some sort of a 5% or so going forward? What's your take on that?

Well, medium term we estimate between 4% to 5% decline. We are prepared within the division to constantly kind of handle a declining market and we do not expect that to change.

We have proven that we can deliver a strong cash flow and we are managing our cost levels in paper division. When we have an opportunity we convert the units to more profitable business.

And if there are opportunities to divest we will do that as well. So this is the strategy that we have had and we will continue having that.

Got it. Thank you very much.

Thank you.

Yes. Hi, everyone.

It's Johannes Grunselius from Kepler Cheuvreux. So I have a question on your guidance for Q1.

I mean it's a pretty wide range obviously that you mentioned here, Annica in your presentation. Could you give us some color what's behind the low end of the range?

And what's behind the high end of range. Give us sort of couple of building blocks that would be perfect?

Well, I think we all see how geopolitical issues are uncertain and many of those are quite difficult to factor in our guidance. We factored in the three-week labor union impact of €33 million and that of course affects the low part of the range.

And then, of course, depending on how the market picks up. If for instance, biomaterials as many external analysts think that there will be a recovery in the second half of next year.

That of course has a significant impact on our results. So for quarter one €200 million is achievable if China market picks up and if their labor union strike does not become too long.

Okay. Have you penciling any impacts from the unusually warm and wet weather here in the winter in Scandinavia.

I mean, you mentioned that will impact the wood sourcing of wood, have you penciling anything of that into this guidance?

No. So far we have been able to manage our supply by redistributing kind of the assets that we have in transporting where it's possible and harvesting where it's possible.

This is one of the big strengths we have as a big forest owner and with the ecosystem the forest owners that we have in both Finland and Sweden to utilize the wood where it makes most sense. So, far no, and we have not factor that in the guidance.

Okay. Then on pricing, I understand if pulp prices starts to move higher, I guess there's a couple of weeks lag before you see that in your P&L.

Can you confirm that?

Yes. We usually say…

Is it that mean to say -- and then I also have a question.

Sorry, just to be clear, its not two weeks, its more like couple of months and over the course that the prices has come through.

Okay.

We usually say, it's between four to five months before we see the P&L respect. And this is because of the long transport that we have.

And then, of course, the inventory levels and so on.

But then, it must mean the high end and the low end of your guidance range is more dependent on shipments rather than pricing?

Yes. You can say that.

Yes. Okay.

Thank you very much.

Thank you.

Thank you. This is Robin from Carnegie.

I was just wondering about what do you see in China in general at the moment. First, sort of recent trends in terms of consumer board, I see some statistic pointing to a bit higher for the boxboard prices.

Is that something that you have seen over the past couple of months? And then what do you see in terms of the Corona virus we have now?

Is your mill operating? Will it continue to operate?

And have you so far seen any impact on demand? Thanks.

Yes. Good question.

Let me start with the corona virus. We have not had any impact on our mill so far.

We are of course monitoring what happens and taking care of our employees there and following all the restrictions that the Chinese government is imposing. And our mill is not situated in the same area where the first outbreak was done.

But of course it's very difficult to estimate how it will develop during the coming half year. I believe the Chinese government is taking all of the measures that are necessary to contain the virus and has acted very, very quickly compared to what they did many years ago with the Sars virus.

If we now go back to demand, of course, if the Chinese economy is affected heavily by this, it will have an affect on our business as well. So far we have not seen that.

We have a stable and even a little bit stronger demand in consumer board grades. We have a solid kind of growth of food packaging in general.

So, we see a stronger demand compared to before. Yes.

Then we'll have to see how the uncertainty with the virus develops.

Okay. Thanks.

And then two additional questions if I may. First, just maybe broader picture question for you Annica, as I understand when we met in December in Helsinki, the strategy going forward might be so that to focus on the company's strength.

Whereas maybe in history as Stora has been known on quite the broad sort of focus on containerboard, wood products, paper and what have you. Is this is sort of something that you want to formalize in some kind of way?

Is there a CMD where you sort of will roll out the new strategy? Or is it sort of feel just going in the same direction as before?

That's a good question. And I understand as new CEO you get this question many times.

I have a new management team in place and we are of course working in detailing kind of our path forward. Many of the elements will stay in our strategy.

But we have a CMD in September where we will go through a little bit more in detail how we are thinking. In all our business there are growth opportunities and there are strong assets and we will build as I said before also on the places where we have leading positions and strengthen that that business.

More than that I cannot go into right now. You'll have to wait till CMD.

All right. Thank you very much.

Yes. Good afternoon.

So wood prices have dropped like 10%, 20% by different regions countries. What do you see yourself in Q1?

Sorry. Wood price in Q1, what we see.

Oh, wood prices. Yes.

Wood prices or wood product division.

Yes, because I didn't heard you.

Wood costs.

Wood costs.

Oh, wood cost. We expect them to be on the same level.

So a little bit lower perhaps gradually lower depending on how the market continues. However, as I said if we have harvesting issues that might affect the wood prices if we are not able to deliver to our mill, but that we have not seen yet.

So there's no quarter-to-quarter positive effect from lower wood prices in Q1?

Depends very much on harvesting conditions going forward. Like say, we expect some slight decrease assuming so that everything else being equal.

It also depends of course with the strike and how long that becomes.

You could say that wood supply situation improves if the strike continues, if you puts the positive note on that. Of course, we rather see that strike ends as soon as possible, so as we get back to business.

Okay. And then on the bay high, what is the status there now?

How much is producing liquid packaging for instance?

Yes. We are fully ramped up in terms of production efficiency have been that since 2017, 2018.

I do not normally comment on the split of liquid business and the rest of the business. Our target is still to have a half as the machine fills with liquid business and grow premium positions and the rest for instance, CKB or other food service boards in China.

We still continue some of the qualification. It is very normal that you have up to three years of qualification for products.

So most of the products with liquid we have qualified and many of our customers target growth in China. So we are happy to be localized there.

Okay. Thank you.

We are having long term investment.

Yes. Thank you very much and good day to everyone.

Just a couple of follow-ups. Will actually one first on Enocell.

If you could update us on that is progressing. Are you producing dissolving at all.

And if so to what extent and what do you expect for 2020 in terms of product split at Enocell please?

Yes. It's Seppo Parvi.

We are moving with the ramp up as planned. We are committed during Q3 call, but it's done in patches, so we are running dissolving pulp patches for the customer qualifications and then continue with standard pulps while waiting until moving with the qualifications.

So we'll go ahead as planned. Too early to comment the volumes for this year yet, but of course the plan is to move as soon as possible more and more volume dissolving pulp that we see as the specialty area for Enocell going forward.

And I mean given where prices are right now, is that like a strategic choice or is it so that you might actually choose to predominantly continue to run, take the grade, given current profitability?

It is a strategic decision that we had done, that we are converting. [Indiscernible] and Enocell the dissolving pulp and when it comes to sort of standard pulps we have very good assets in Latin America producing eucalyptus pulp in Uruguay and Brazil and those focus on the sort of more normal parts and then these Nordic mills on specialty pulps.

But I guess what you're asking is that the dissolving pulp prices are quite low at the moment.

Of course, exactly.

Yes. It's always a choice that we have.

What product mix we run in the mill. Even if we are ramping up the dissolving pulp for a long term.

Right. Okay.

So there might be some compromise to be made as you move along.

Yes.

Yes. And then just coming back to your guidance for the first quarter what have you baked in terms of price changes and maybe particularly on the paper side?

Well, we have taken into account that the paper is going to continue to be weaker and that the prices are under pressure for paper and continue to be that. For wood products in Europe, also there we have under pressure for classics sawn, while building solutions is more stable from a pricing perspective and also a growing part as simple as say.

Folding boxboard under pressure in Europe and also containerboard it's a little bit uncertain if it will pick up. So this is what we had put from a kind of pricing perspective.

For folding boxboard China and for biomaterials Europe, we will see more stabilization of prices.

One of your competitors earlier today said, the mid single digit price declines on graphic paper in the first quarter versus the fourth quarter. Is that something that you're seeing as well?

Well, we don't comment so specifically on our prices on paper. It is a case by case contracts that we do, so.

Okay, great. Thank you.

Thank you.

Yes. Good afternoon.

Markku Jarvinen from Handelsbanken. I had a further question on pricing You mentioned that you managed to increase prices on liquid.

Did I understand correctly that you had the increased from Q4 to Q1 now or how does that work?

Well, actually the negotiations for liquid are our annual, bi-annual or even tri-annual contracts and they start from kind of from 2020 and onwards. So the effect comes this year.

So -- but we see the effect from Q4 to Q1 and then continuing. Is that -- that's my question.

Yes. For liquids business, yes.

But then you have to understand that we have -- it's a mix of products of course.

Sure. But for liquid you see higher prices?

Yes.

Okay. Good.

Then a bit of clarification on the profit protection. I guess you saw €105 million or €150 million of savings in 2019 and you're going to for €275.

So is the €275 should we consider that 105 or 150. So, are you getting further 125 or [Indiscernible].

Let's put this way. I hope I don't confuse you too much.

The original target is based on all savings, it is comparable to maybe another €150 million. But like you know this is report.

We also mentions continuous savings to €105 million and look at how well the program is running. I would not be surprised even if it's a continuous saving reaching €275 million.

But the target originally includes also one time type of savings. So this is €150 million.

But its moving better ahead. So I'm still impress by the organization, how well they have committed to the program and work hard on filing the savings.

Okay. Very good.

Then on the forest value, I suppose you're now showing value of €6.5 billion for the Swedish forest. I think at the Investor Day you talk about €7.9 billion [ph], obviously kind of wondering what happen there?

You mean based on the statistics?

Yes.

Okay. Now I'm not on the comparison.

Maybe there'll be some change in the market prices. But you can you can check with all our IR, if needed later to look at the details.

But statistics are, of course, leaving all the time.

Okay. Have you thought about sort of doing a more formalized evaluation exercise what the market value would be sort of for the asset.

Or is that something that you consider in the future?

Well, Like I said earlier, we think that at the moment the best method is discounted cash flow, being an industrial company. But also as we have said also earlier before or how the market practice develops and then act accordingly.

When it comes to sort of wider exercises and discussion on market values et cetera, we tried to provide you with this kind of statistics on the done deals in the regions where we have foresters so that you can do your own math and judgment on the valuation. But we don't want to start to speculate more if the market value as such.

Okay. Good.

Thank you.

Good afternoon. Two questions please.

The first on containerboard. What have you seen out in the market and have you gone out similar to your peers with potential price increases and linked to that, I mean, you've got your Varkaus Mill and you've got your Fluting Mill.

Are those impacted by the strikes and how are the inventory levels in those grades? Will that downtime protect potentially support the industry supply demand balance at the moment?

Maybe I'm kind of comment on the market. When it comes to Fluting and Kraftlinerin mills in Finland, they are down currently because of the strike.

And any commentary around the pricing on containerboard?

On the market it is under pressure as I said, containerboard prices are under pressure and demand is stable. We follow very closely, and when we think it's appropriate we come out with price increases.

Okay. And then, Seppol, a question for you on the CapEx guidance, which you've lowered €100 million to protect cash flow.

How did you think about those projects that you've effectively postponed for CapEx?

Well, we are looking at the priorities that we have for different CapEx projects. Also we have had -- we still have some unallocated CapEx that has been in the research, so they have been also cutting from that, which means that there's less projects that we will then approve later during the year.

So if we have taken it from different places within project list in the priority order and cutting from the sale, the project so that they accounted to this €100 million.

Okay. Thank you.

If I maybe hear, Markku to your question about the difference of the valuation. So in CMD we had that total hectares to 1.4 billion -- 1.4 million hectares and this calculation we have the productive land, which is 1 million -- one hundred four thousand hectares.

So that's a difference.

Thank you. Your guidance have been wide for some time and clearly in the fourth quarter you came down in the lower end of that guidance.

There seems to be a lot of things happening to you and less things that you control. Can you think about or can you share with us the controllables that you have to improve earnings in 2020 from where we are today?

Again considering of course, quite a chunk of your prices have continued to go down into Q1. If there are anything that you can do?

Because again profit protection program as Seppo, you mentioned this, there's a various components to this, but you weren't annualized €200 million already in the quarter in Q4 and yet you have quite a weak number typically relative to earlier guidance, if you like, and even the midpoint in Q4. So what can you control?

And the other question, I was thinking a bit about, I appreciate you're going to come back to this the Capital Markets Day, but you have an awful lot of small things. You mentioned like three, four various projects.

That is a business, of course, but they're not really scalable and sizable that really makes a difference. And so if you look at your growth component, where are we really going to get that from?

Do we think that these RFID solutions, solar park et cetera will actually generate anything that is meaningful that it's going to make a difference for you?

If I can start with what is controllable, of course negotiating prices is one key capability of ours. So it's not only things happening to us, but it is also our ability to generate value for our customers.

And that is of course something that we continue to develop in our organization. The other part is of course, operational excellence.

And you have to remember that we have during several years now converted a lot of assets into new product areas. Each such conversion takes a lot of effort and it takes time before you can fully ramp up, fully get the product portfolio there, fully get operational efficiency in place.

And I think we are moving into a period now after Oulu conversion where most of the area where we can convert, have been converted. So this gives us also opportunity to get stability in our operations.

And this is something that we definitely will put even more focus on. If we look then at our innovation portfolio and I understand your question that our growth has if you look at kind of the full Stora Enso portfolio, it has not been growing much.

Introducing new products and materials to the market takes time to ramp up. PET bottle, when that was introduced first time it took 25 years before the product actually kind of hit the market.

The difference now is that there are a lot of regulations coming on stream which clearly support many of these areas for the future where CO2 footprint is going to become more important. Recyclable is becoming more important.

But for the whole value chain to change, it takes time, it's a lot of infrastructure and so on. But we want to be the leaders in the areas we choose to work with.

Then coming back to what type of innovation products we should have in our portfolio. We are making the assessment of where to focus, where we can become really big and what positions we will take.

So this is an area which I would come back to when I have had a little bit more time to work on it. But it is a good question.

Appreciate that. And in terms of -- you will welcome road I've taken out of this profit protection program again a run rate of €200 million.

Do you see more controllable cost takeout that you can do and if so where do you kind of focus on?

The beauty of this profit protection program is that it consists of many, many smaller actions. And that it is very distributed throughout the company.

And I think this is a testimony that our people have really kind of committed to delivering and also reducing the risk. If one project is not proceeding ahead of plan we can find other projects to complement.

And this is a way of working. We have a very structured way of working now in place.

And I expect us to continue to constantly look at our cost position and improving year by year. So I think we have found a good model to work on and I'm confident that we can deliver here.

I fully agree with Annica. And there's good momentum, and it's obvious that even when this program ends, continuous improvement -- and must continue and will continue.

There's always something you can do.

Very good. Thank you and good luck.

Thank you. Okay.

Operator, I believe we are in the end of the call. So thank you everyone for listening into our full year results conference call.

And I hope to meet you again in April when we are out with our Q1 results.

Thank you everyone.

Thank you.