Stora Enso Oyj

Thank you. Good afternoon, everyone, and welcome to Stora Enso's Q2 2021 earnings call.

I'm Ulla Paajanen, Head of Investor Relations at Stora Enso and with me here today is our CEO, Annica Bresky; and our CFO, Seppo Parvi and we will start with the presentation and have a Q&A after that. So Annica, please go ahead.

Thank you, Ulla, and good afternoon to you all. I'm very satisfied with the strong performance and the solid growth that we delivered this quarter.

It is a proof point of our own actions and of very good market conditions for our products. So if I now move on to some of the key highlights of this quarter.

We see a healthy demand for all our core businesses and also improving market conditions for paper. So the outlook for the coming half year looks positive, as well as the result of this quarter.

Our result is driven mainly by biomaterials, wood products and packaging materials. And biomaterials and wood products, they deliver all-time high quarters on the back of very good operational performance, good pricing and a solid and strong demand.

We reached the majority of our financial targets and some of them we also over-exceed which is very rewarding to see. Last quarter, we said we were back on track, but now we are also providing solid proof points that our strategy is executed and it's delivering.

We also have concluded our profit protection program delivering on our promises which is very rewarding, especially since last year was a very volatile year. So all of the actions that we have done here have really supported our result.

Our strategy execution is proceeding at very good speed. All our kraftliner investment is ahead of the schedule.

We have high speed in new business innovation and restructuring and investing in our Paper division makes me confident that we see a turnaround in the coming quarters and that we will have a much more focused and competitive paper moving forward. So all-in-all, I have a positive outlook for the coming quarters and we reiterate our expectations of this year to be better than last year.

Moving over now to some of the key financials. We can see that our sales increased by 23% and 28% for our core areas excluding paper.

And this really shows first of all the resilience we had last year in our core businesses and now our growth transformation moving in the right direction. Our operational EBIT increased to €364 million, more than doubling and excluding paper to €413 million.

Our operational EBIT margin increased to 14%, which is above our target levels and excluding paper to 19.1%, so very healthy margins for us. Forest asset value increased further, both quarter-on-quarter by €229 million and compared to a year ago by €2 billion.

So now our market valuation is €7.4 billion for our forest assets. We have a strong cash flow from operations, €463 million and after investments €339 million.

So also here we are delivering a strong performance. I'm also very pleased that we are getting our net debt down and our net debt to operational EBITDA is at 1.8, which is under our target of being less than 2 times.

And we have decreased our net debt by more than €300 million. And last but not least, our returns on operating capital employed, excluding Forest division, increased to 18.1% which is very good levels and above our long-term target.

So we can see now what is driving the result that it is own actions being able to push through sales price increases having a good product mix, delivering on performance of our operations so production efficiency and then also good cost control. So, we have been able to more than mitigate the impact of variable cost inflation.

And if I stay on a few highlights on our strategy execution, I'm very pleased of how we have ramped up our kraftliner production at Oulu. We are ahead of schedule, delivering EBITDA breakeven two quarters ahead of plan.

The commercialization is proceeding ahead of plan. We have reached design capacity and technically we are where we should be.

Also costs are lower than expected. So, a very good job done here and supported of course by a strong demand on the market.

Other areas within Packaging supporting our growth is the commercialization of products utilizing new barrier technologies. And here our investment in [indiscernible] is commercializing new barrier technologies that support the growth of packaging and making sure that we have a good recyclability of our products.

We are together with Tetra Pak, one of our key customers taking the lead in ensuring a circular bioeconomy to support EU ambitions. So together we jointly invest in recycling of used beverage cartons in Eastern Europe and I'll come back to that in just a few minutes.

We are also partnering with a packaging technology company Pulpex to industrialize productions of eco-friendly fiber-based bottles and containers. This is an area where we see very good opportunities to grow into new applications.

Our feasibility study at Skoghall is ongoing at good pace. And as I've said before, we will come back with a decision of how we proceed by the end of this year.

We've also started the production of lignald, carbon for energy storage that is used in batteries for enabling e-mobility and that has started in our pilot plan as similar. And I'll come back with a few details on that as well.

In wood products are, new CLT production line Astras is proceeding as planned. Construction is ongoing.

So we will meet the targets there of a start-up in 2023. And I'm also happy to say that after the ongoing restructuring we would see an improved performance for our paper division.

And we will end up with paper sales that would be slightly above 10% of group sales. So here we are transforming to a more focused and competitive paper division that will be able to serve our customers in a very good way.

One topic that's been kind of highlighted lately is of course EU's ambition within climate neutrality and the green deal. So here we are confident that sustainably managed forests and renewable circular products they are part of the solution in reaching EU's ambitious climate targets and we are well positioned as a company.

So we support the EU's green deal as an opportunity to transition to a society that's much less dependent on fossil materials and that is low carbon. And this is an absolute necessary transition.

So, we are actively engaging in policy development in promoting ambitious climate targets and with our renewable products we can really help achieve the ambitions that EU have. In terms of EU taxonomy that was published in April and we see that we are well positioned there to fulfill all the criteria related to sustainable forestry.

The Fit for 55 package and EU Forest strategy they were published just a few days ago last week. So here we are evaluating the initiatives.

We are constructively engaging with the EU to make sure that, it advocates not only climate, but also industrial innovation to support the transition to a circular bioeconomy. And I will just showcase now two examples of innovation, where we see that we contribute to EU reaching these goals.

First of all, it's Lignode wood-based carbon for batteries. So the market for these carbons is growing by more than 30% annually.

And it is driven as you know by electrification of vehicles, consumer electronics and large-scale energy storage systems. So here we have a leading position to really support the need of more than 450,000 tonnes of carbon material needed in Europe only by 2025.

And – this is a strategic material, these anode materials for which Europe today does not have a local supply. So 90% is imported from Asia, and based on coal mines.

Here we have a product, which is bio-based. It is renewable.

It is fossil free. So we think that, we have a good opportunity to see a business of its own in the ranges of €1 billion sales potential already by 2025 for us as a company.

So we are, as we speak ramping up production of Lignode in our pilot plant in Sunila. So here, we want to replace conventionally used graphite from coal mines with or bio-based material.

It has lower carbon footprint, it is cost competitive, and it's also high performing in terms of rechargeability of the batteries. So our ambition now is to explore strategic partners that will help us accelerate the scale-up and commercialization.

Another area which is of great importance is to take the lead in circular bioeconomy. And here together with Tetra Pak, we are jointly investing in the recycling of beverage cartons in Central and Eastern Europe.

We want to more than triple the recycling capacity in Poland being able also to take in material from the surrounding countries. And we're investing together in a new re-pulping line at Ostroleka Mill in Poland, where we as a company will recover the carbon fibers and use them in our board product and Tetra Pak will recover and recycle polymers and aluminum to produce new products, and give a second life to those materials.

This is another proof point of how we can support EUs transition to more sustainable packaging material areas. The annual recycling capacity will increase to 75,000 tonnes in Poland, and contribute very actively in the creation of a circular economy.

And with that, I would like to turn over to you Seppo to give us a little bit more flavor on the financials.

Thank you, Annica. And I start with the – with the key figures from the report that we published earlier today.

So, top line grew 23% to about €2.6 billion in the second quarter of this year that is a significant increase from the previous year. Operational EBIT was doubled, and was at €364 million and EPS basic increased 40% to €0.26 per share.

Operational return on capital excluding Forest was at 18.1% compared to 7.8% a year ago in the second quarter. And cash flow from operations continued strong, and cash flow was €100 million higher than the year ago at €463 million.

And like Annica already mentioned, net debt to last 12 months operational EBITDA was reduced to 1.8% from 2.5% a year earlier. It is now coming down below 2.0 seating that we have defined as a long-term target.

And it has been above that due to the restructuring of Bergvik Skog ownership a couple of years ago, and now we are back on track here as there. Moving to our profit protection program that is now completed two quarters earlier than originally planned, this was a three-year program as you might remember, total savings achieved were €510 million, out of which €210 million are continuous change.

This is a great achievement by the organization and our personnel and shows the full commitments for the continuous improvement as well. That will be also in focus going forward.

And we stopped now reporting of the profit protection program, as we have reached the €400 million continuous sales. Then moving to divisions, and I start with Packaging Materials, where profitable growth continues and we can see healthy demand for all products.

Sales increased by 20% to €987 million during the quarter and additional reflection of clearly higher prices and deliveries. Also operational EBIT increased by €31 million to €144 million.

There we see higher sales offset by higher production costs. Our operational return on capital improved to 18.4%.

We see part we still burdened by all kraftliner mills ramp-up as we are now reaching the breakeven there.

Then moving to Packaging Solutions, where we can see very strong growth but profitability is challenged by continued increases in raw material costs. Sales increased by 21% to €170 million, thanks to higher European corrugated prices and deliveries but there is a slower business activity in China and some delays of the launches of our key customers.

Operational EBIT decreased by €6 million was €2 million. This is a reflection of continued sales price increases that we have taken to mitigate higher raw material prices but the raw material prices continue to increase and have done so since October, November last year.

But we are confident that we will be able to catch up as we move forward. And once the price increases of containerboard stabilized then we can be able to close the gap.

Actually the new business impacted operational EBIT also negatively by some €4 million and temporary higher costs in China during the quarter. Operational return on capital was at 3.6%.

Then in Biomaterials, where we had record results in a strong market. Sales increased by 57% to €453 million.

Thanks to clearly higher pulp prices and deliveries. Operational EBIT also increased by €127 million and we have reached all-time high quarter of €145 million operational.

Operational return on capital exceeded clearly the long-term target of 15% that we have set for biomaterials and was 24.4%. And we have launched NeoLigno, a fully bio-based binder during the quarter to provide healthier indoor working environment.

Then in term case of Wood Products. The strong sales with record high profitability and operational return on capital has continued, sale increased by 38% and was €477 million, a big thanks to all-time high prices also strong global demand, especially in classic sawn has been helping the development.

Operational EBIT increased by €74 million to all-time high of €100 million. A big thanks to higher prices and volumes that were partly offset by higher raw material costs.

Cost return on capital was a record high level at 65.8% on and that exceeds significantly long-term part of 20% for Wood Products division. Forest, the solid financial and operational performance continues.

Sales increased by 13% and was €586 million. There we had higher wood deliveries in Finland, Sweden and Baltics.

Operational EBIT increased by €6 million and about €60 million, the higher sawlog prices partly offset by higher variable and fixed costs. And operating return on capital remained about the long-term target of 3.5% at 3.7%.

And during the quarter we also joined new WWF platform, Forests Forward. Then Paper division, where restructuring has continued as planned and improving market conditions together with the restructuring are triggering a turnaround in the coming quarters.

Take late quarter €46 million clearly lower prices were offset by higher deliveries. Operational EBIT decreased by €10 million to negative €49 million, but we see the global paper market demand is improving.

High variable costs however are not yet mitigated for price increases and lower fixed costs. Cash investment activities the sales ratio was negative 2.7%, but the world continues to come back to the targeted levels there as well.

We have taken actions to restructure as well as to invest to make our Paper division more competitive. We are working to have more agile and more independent organization to take better into account the challenging market conditions in the paper business.

We have financed restructuring at the Hylte mill, final steps since end of last year announced capacity closures there. And we are planning to close Veitsiluoto and Kvarnsveden during the third quarter this year.

And we have announced divestment of Divestment of Sachsen site as well in Germany. And we have also decided to make some investments for the competitiveness at Anjala-Ingerois as well as Nymölla mills and we are investing €45 million.

Then looking at the long-term financial targets development, as you see it turning more right now when it comes to dividend growth as well as debt ratios, return on capital as commented earlier. On the Divisions, Packaging Materials still slightly below the targeted 20% level, but as mentioned it is still in the second quarter driven by the overall ramp-up.

Packaging Solutions clearly below the 3.6%; and Biomaterials, Wood Products and Forest above the long-term target level and Paper have continues to come back to the targeted levels. And then over to you Annica.

Thank you Seppo. And moving now to the annual outlook, I see a positive momentum continuing also for the second half of this year, so we reiterate our positive outlook for this year to be better in performance than last year.

Global economy is recovering strongly from the impacts of pandemic and we have a very healthy demand for most of our products and the market for paper is improving on the back of restructuring efforts that are being delivered not only by us, but also by other companies. So supply-demand situation will improve for paper products.

We're moving into quarter three and quarter four, which are more maintenance intensive. And here we have impact on the costs in terms of cost inflation, and also we have some work that we postponed during the pandemic impacting the total maintenance cost level.

If we look at the profit protection program as Seppo said, it is now completed. So we will not continue to come back to that.

But of course, we will continuously work with constant improvement and that is a key area of our focus to have good cost control and good sales and price excellence. Oulu kraftliner unit reached operational EBITDA as we said three quarters ahead of our initial target.

And of course the cost for the ramp-up were lower, landed at €20 million to €25 million of total negative impact below our previous estimate of €40 million to €50 million for the full year. So this is also a very positive result of the work that the organization is doing.

So in terms of any continuous reporting we will now discontinue that for Oulu. So if I would summarize, I'm very satisfied.

We have profitable growth. It's driven by our own actions and good market conditions.

We have healthy demand for most of our products and improving conditions for paper. We've reached the majority of our financial targets.

Our strategy execution is proceeding at good speed both in terms of innovation in terms of cost control and of our key investments. And there is a turnaround in sight for paper, which will improve the competitiveness of the division as such.

So all in all, I'm now open for your questions. Thank you very much.

And before we go to the Q&A session, please remember only two questions per person. We have many people wanting to ask questions.

So please go ahead and give the instructions now.

Morning. Thanks for taking my question.

If we could just start off with the Wood Products division, which has had a phenomenal performance this quarter, could you just give us an update of where you see demand and prices have been rising? What is the supply outlook for this division?

Is our saw mills able to ramp up supply further, or will prices be higher for longer in the Wood Products is the first question. And then moving on to Packaging Materials we've seen increased announcements for folding boxboard as well as on the containerboard side.

When will those higher prices that we're seeing in the market be reflected in your Packaging Materials division? Will folding box would only be a 2022 story with containerboard likely being second half of this year and into 2022 if prices remain at good levels?

Thank you.

Thank you for the questions. In terms of wood products, I think we see a continued strong demand both in Europe and overseas.

We have many products construction projects in our pipeline, the renovation spree is continuing. Also if we look at EU and the long-term ambition for green buildings, building with wood is really supported through the directives.

So short-term if we look at the coming quarters, I see a continued good outlook for wood products. And the supply demand situation is somewhat restricted.

There are not a lot of inventories out there. So I think that even if we would see a normalization in half a year or so the fundamentals of growth in this area are there.

And we have to remember that wooden based buildings they are only constituting a few percentages of all construction. And we see many schools, many offices, many actions in terms of building with wood that are in our pipeline.

In terms of classic sawn, we know that market is more volatile. But our Building Solutions business is more stable.

So they are balancing each other in a very good way. We have assigned more shifts to our production already in the beginning of the year.

So I believe all sawmills are running at their capacity at now. And then if we move over to packaging, we are fully booked on all machines.

We have a very healthy demand both within consumer board and containerboard. So for containerboard, the inventory levels are really low.

There is a tight supply-demand situation. So therefore, we have seen continued price increases both in kraftliner and in testliner.

So -- and of course, this is reflected in the results of corrugated where we have been able to pass on some of the inflation in the raw material side, but by far not all. So within corrugated packaging, we will continue to push for price increases and we will see an improvement in the coming quarters.

As I see it all our areas are supported by growth that our customers have both liquid packaging board, folding boxboard and the containerboards. So, I'm quite optimistic.

Great. Thanks very much.

Thank you very much. Now -- first of all, related to the paper business you talked about the turnaround.

And I was wondering if that is more related to the demand and the price outlook you are seeing now for the end of this year and next year or then to the restructuring you have. And also related to the Paper division, are you considering -- is this a part of the company that is in any way core, are you considering some structural measures to treat of this business in the midterm?

That's the first question.

So, if we look at the demand supply balance, it will improve and that is because many companies have announced restructuring actions. And as they are implemented, you would see a tightening demand-supply situation where it's adapted to the new baseline that we have seen now after the pandemic.

So as we said also our own restructuring with Kvarnsveden and Veitsiluoto, the mills will be stopped in Q3 and that's when the capacity actually disappears from the market. And the same has been with the other actions that other players have done.

So, year-on-year what we see now is that the demand is improving, since many economies are coming back. So there is a 22% demand increase in quarter two year-on-year.

And this year the demand will improve by 3% for the full year. So this is the fundaments that need to be in place in order to be able to push through price increases.

Still, we do not see it in the result this quarter. We are not yet fully mitigating the increase of raw material costs such as PFR, paper for recycling.

But the prices for paper for recycling will also normalize. And we in the coming quarters are pushing through price increases to compensate for that and mitigate this inflation.

So, our restructuring efforts will create a more focused and streamlined paper division as we explained. And we will see the impact in Q3, Q4.

So, I'm optimistic for the coming quarters for paper.

And then paper position strategically within...

Yes. Well, I think -- I've gotten this question many times and we will continue to work as we have been working.

It's going to be a smaller business for us. After this restructuring, it's only going to be 10% of our sales.

And I've said before that if there are interested parties out there that would like to acquire our paper business, we are interested to have a dialogue like that. Also in the meantime, we will work with improving the performance getting back on track and delivering on our key financials for Paper division.

And with the actions that we are taking, I'm confident that we are creating a much more competitive and good division for the future. So, this is where we stand at this point.

But in terms of core businesses, we have our growth businesses which are packaging wood products and biomaterial innovations. And then we have our value creation areas such as forest and biomaterials.

So in those terms, paper is no longer a significant part of our sales.

I understand. The second question I have is related to China.

We've seen some weakness in the pulp market and also in the consumer board market now this summer. Is this in your view more of a seasonal pattern?

What do you expect going into the high season in the autumn related to consumer board in--?

Yes, I would agree with what you say. July and August are seasonally weaker months for China.

We know that the market then picks up ahead of Chinese New Year. The fundamentals for growth in China continue to be there.

And long-term both pulp and packaging grades are growing significantly in China. So, I would see this as a temporary thing.

And we know that the Chinese market is more volatile in both packaging and in pulp. But what we see in Europe is as the economies can start getting back on track that we have increases in prices in Europe for pulp.

And also for our packaging boards where we are pushing through price increases. So, I think here it's important to have a balanced portfolio which we have.

Good. Thank you very much.

Yes, good afternoon. Thanks for taking the questions.

Maybe just sort of on the packaging side and this material increase in delivery volumes is there some sort of -- is this an absolute maximum now for the deliveries at least sort of looking at the sort of the shipments against the new level of capacity it looks like it's fairly fully utilized at the moment?

Well, we are fully booked but there is always operational equipment efficiency that you can improve. So, I see here that we are taking actions in debottlenecking existing assets.

We have still potential in all our machines I would say. And we are driving both kind of targeted investments where we can take bigger steps.

But also the day-to-day constant improvement of production efficiency. We've targeted investments in our pulp mills to improve their performance in debottlenecking our board machines to support kind of the growth.

So, I think it's both the long-term strategic but also this day-to-day work that we're doing in better operational efficiency. And then I would like to say that we -- in the last one to two years have put a lot of effort in our start-ups after the annual maintenance shuts.

And here we have improved our performance significantly. So, it will be very interesting to see now this order and our ways of working and processes if we can keep that trend.

Okay. Thanks.

And then the second question was the -- is about the new products and related looking at the sort of Lignode pilot plant. And just how long do you think -- how long does it take to take this sort of to commercial scale?

When could there be a decision? And what could be the typical investment scale in when that time comes.

And I know that you have some other pilot plant stage for example in biopharm, but which what sort of product are in this sphere of new products would you say that is the closest to getting the commercial scale.

If we look at the big kind of footprint it is lignode that has the potential to be a significant growth engine. And with the Sunila investment we will be able to test and commercialize at the same time because even though it's a pilot and it is a small scale at the start, it is commercializing the product that kind of happening with the pilot production in Sunila.

So, as I said I would say that the coming five years is when we will co-invest with other partners and drive the acceleration here. It's too early to discuss what type of CapEx levels will be needed but we will work with our customers and that is the key point of commercialization that we do this in partnership with our -- with the value chain key players to enable this accelerated scaling up.

So we are now just proving the technology needed. How we will construct the bigger site and then that will happen during this year.

And then, we are ready to go for a full scale up.

Okay. That’s very good.

Thank you.

Thank you. Annica, I just want to come back a bit to your outlook.

Of course, you're already above last year's level and you're optimistic for H2, as you called it out. Why not be slightly -- or can you share any more color on what you really think?

Because again, you're already above your metric target of being above last year. And then, I just wanted to come back a bit to wood products.

To your point, classic sawn, you mentioned that as a principal driver for the profit improvement. And then, you talked about the stabilization of the more sort of value-add products.

But also in the presentation you talked about -- or I guess in the prepared -- sorry, in the results note you talk about strong growth in the construction business. So I just wanted to understand what is really driving this profitability.

How big a portion is the construction of that improvement, or are we just looking at volatile classic sawn timber going through the roof, which, to your point, is volatile? Those were my questions.

So if we look at the outlook, I cannot give more flavor than to say that we see a continued strong demand. I do not see any major drivers that would create a setback for quarter three for the businesses that are growing and that are kind of having a good profitability.

So in those terms, I cannot quantify kind of more. It is a positive outlook.

I've been more conservative before, as you are aware. So in these terms we see that we can deliver on, I think, a good level also for the continuing half year.

And if...

Just, if I may add, I think that -- it's fair to say that assuming that COVID-19 remains sort of under control, vaccinations move forward as they seem to be and how effective and trust, in sense that global economy continues to recover and stay strong, there's no reason why our performance would not continue to be strong, like mentioned by Annica.

Yes. And then, in Wood Products, if we look at what is driving the performance, there are several areas.

One is, of course, that there were very low inventory levels in U.S. last year.

The booming renovation and also construction industry, there is a lot of historical lagging in projects of construction that U.S. and many other countries, also in Europe, there is a demand for renovations.

Then, of course, pandemic there was an uptick of do-it-yourself projects in many countries. And the inventory levels going in were low.

There have been some logistical supply chain challenges of transporting, which has also impacted pricing. But if I look at kind of the construction side with wooden buildings, there the pipeline of projects that we have is very healthy.

It is not as volatile as sawn timber. I do not see for sawn timber anything indicating that quarter three would be different.

There is still a restricted supply for sawn goods. So for the coming two quarters I see a continued strong performance for sawn timber.

And then on the construction side on wooden building solutions, there are a lot of projects in the pipeline schools, it is football arenas, it is offices, it is multi-storey buildings and in many countries in Asia, as well as in Europe. So if you have noticed, in Finland, for instance, there are clear, kind of, projects of wooden cities and so on.

And this is a trend that I expect will continue. So having a balanced portfolio where sawn timber is more volatile and then having an area in Building Solutions also growing with our new project in Spire having more capacity and the ramp-up of Gruvon site that will give a good condition to continue growing within Wood Products.

And we also see continued positive -- even more positive momentum, thanks to for the last week recently announced EU Forest strategy as well as climate package.

Thank you. I have a few more questions, but I'll get back into the queue.

Thank you.

Good morning everyone. Just want to come back on the interesting thing, carbons for batteries.

You opened up a little bit more there or speeding up, I suppose the ramp-up concept here. But I mean previously you have indicated 35% EBIT margin for these activities.

Is this still true, or have you done any changes on this lately?

No, we still see a very, very strong margin business here.

Okay and I was also curious about your mentioning partners. Can you say who asre they?

I mean I suppose industrial partners. Are they battery manufacturers or other industrial partners?

Those battery partners of course which are the direct customers, but also the automotive industry and energy storage industry which are setting their requirements. So I think for these types of innovations it is about true partnership in the value chain.

And we are exploring that now to set a partnership collaboration business model here to to be able to ramp up a local supply in Europe. And I think there are many interesting companies both in the automotive industry in Europe and also battery customers that want these materials.

And there is a restricted supply for components for batteries in large.

Okay. If I may ask a final question and that's on Oulu, if you could give some flavor on how we should think about this for next year?

I know what the capacity is here. Will you be able to run this at full capacity for next year would you say?

And could you help us to have perhaps provide an indication of the OpEx per tonne or something like that or a ballpark earnings level for Oulu that we can think about?

I will not provide you with any earnings levels for Oulu, but I will say that we have only run the mill now for two quarters. So of course commercialization of the high-end and premium products is still ongoing.

So, this is why I'm so positive with the achievement that already now we see kind of a very solid earnings performance and that will improve going forward. There is always more capacity to get out after design capacity.

So, if you are good at what you're doing, you will be able to get excess production out of the site. But at this point, we stabilize we have a stable production level which is the best precondition to make sure that we can drive the quality improvement now that we have for the highest grades and fully kind of getting the product mix that we want on the machine.

And that is the focus for the coming half year.

Okay. Got you.

Thank you very much.

Thank you.

Yes, thanks a lot and good day to everyone. It's pretty clear from what you're saying that you're seeing very strong markets in your various areas of operations.

How do you see input costs developing in the third and fourth quarters variable costs in general, but maybe wood costs in particular?

Well, we do not see any significant kind of impact here. We have been able to mitigate already in Q2 and we will continue to do so.

We have very good sourcing processes. Our major kind of, input costs are fiber costs.

And here we have been able to push through price increases to our customers and not only maintain margins but actually improve margins. So, of course, we constantly monitor what is happening on the logistics market and so on.

There we have been -- we have had to take cost increases. But then we have been able to reduce costs in other sites.

So good cost management is what we are doing here. And we will continue to do that.

So I don't see anything alarming going forward.

Agreeing with Annica's comment. And I would add that biggest pressures are as you said Linus on wood especially log prices, but that is balanced by pulp wood prices.

And energy costs are somewhat up as well. Logistics have been stable now in Q2, but there were increases through the first months of the year because of the increased volumes globally and shortage of specialty containers and some small pressures on chemical side.

But I think they are very manageable like Annica already mentioned.

Great that's helpful. And then maybe completely different on the EU policy that you touched upon, and I appreciate this is to a large degree work in progress and a lot still has to be said about it.

But could you maybe discuss with us a bit already today what the practical implications may be as for transit from this set of different EU policies now being proposed? I mean, with the EU taxonomy to start with you say that you're very confident that you comply with it on the forestry side.

Do you also see other areas where you comply? And when it comes to the FIT 455 [ph] and the forest strategy, how do you see that impacting harvesting levels, would availability and potential cost pressures and your possibilities to operate.

And again I understand it's still early days but what's your thinking at this stage?

If we look at EU taxonomy as such, I think it's tougher for smaller private forest owners. There is increased reporting of climate impacts and so on.

But we as a large company were able to -- we have the processes that are in place, so we can manage on those levels. And in terms of being a green business, we are kind of fully in line with our sustainable forest management.

In terms of FIT 455 and EU4 strategy, it is very early days. This is just -- this is a directive.

So we have to remember it's not legislation. So we are looking at the areas where we do have a concern, and it is making sure that forest management, a sustainable forest management is acknowledged in EU as a driver for climate benefit.

And here we are driving a lot of advocacy in making sure that our position as an industry and solution provider for achieving climate -- positive climate impact in EU is fully acknowledged. So I think it is early days and we would need to come back to this topic once we have analyzed a little bit more what possible implications it may be.

And, kind of, wise of own experience, we have seen many changes in these directives over the year. So this is just a first starting document.

But I will need to come back on this a little bit further ahead.

Sure. I appreciate that answer.

Thank you very much.

Good afternoon, Annica and Seppo, congratulations for a strong Q2. I've got two separate questions.

Firstly, on packaging materials where you described the outlook as healthy demand for all products. In the 14.4% growth in deliveries in Q2, can you help us understand clearly that's benefiting from the successful ramp-up of clearly ahead of schedule.

But in the sort of more consumer board type areas can you just give us some sort of quantification of what the organic volume growth you've seen in whether it's first half or Q2, specifically has been? And in North America in particular, we've seen price increases announced in areas like CUK and folding boxboard.

Is there a scope for that, secondly, in Europe in your view? And then secondly, I guess coming back to your Slide 7 you finally change in forestry policies.

There's an interview in Bloomberg today from Seppo, talking about essentially 55, when it comes to board and paper-based products at the substitution effect is not fully recognized. Can you just help us understand what exactly you're referring to by that comment, please?

Thank you.

Yes, if I start with Packaging Materials and the demand there, it is clearly very strong. And in folding boxboard and in liquid packaging board, we are growing with our customers.

And here as you know, the contract structure is a little bit more stable. So pushing through price increases and compensating for increased variable cost takes a little bit longer.

But we see that our major customers such as Tetra Pak, SIG and liquid packaging, they have very healthy growth outlooks. So I'm quite confident that we will be able to continue with that.

And then, if we look at the EU forest strategy, I think there is a recognition of Packaging Materials as being a solution to replacing other materials, such as plastic components or plastic packaging in the society. But what is not fully recognized is the forest role as a driver of climate mitigation that forest management and the products that come from forest are part of replacing fossil-based materials.

So we need to make sure that we do not just look upon the forest as a carbon sink but rather make sure that, it is fully recognized in Europe and in many countries, where reforestation needs to happen. And that is one of the initiatives that's very good in EU, that it's now also targeting reforestation.

But that you can see that forests, if they are sustainably managed, they can both mitigate climate change but also provide products that replace less eco-friendly products on the market. And here we are just in the beginning of that transformation, I believe in both packaging, in construction, where a lot of the materials used today like concrete or steel or plastic have enormous CO2 footprints.

So this is what I mean, when I say that it is not fully recognized that there is a big potential for our industry to really enable EU to reach their targets. And at the same time protect biodiversity and have growth in forest.

So this is not a contradiction per se. And we have proven that in the Nordics, where we have had our practices for sustainable forestry for quite some time.

But as I said, this is a continuous discussion with EU, where we are engaging and have a good – a lot of good dialogue. So I'm confident that we will see the impact coming forward in a positive manner.

Yes, best wishes and continued success and the discussions. And I appreciate it's a marathon not a sprint.

Sorry, I didn't catch what you said.

Sorry about that. I was just going to say best of luck for delivering the – you know, I appreciate you have material forest assets in Sweden, Finland and then extremely well placed benefit from any EU climate change in forestry policies, so best wishes on that in the coming years.

Yes, yes.

Thank you. First off on the graphic paper side, just to clarify the numbers you Annica mentioned there in the beginning, you talked about 22% demand increase in Q2 year-over-year.

And that the full year demand should improve by 3%. If you could just clarify is this on a global level?

Is this is a European level? Is this for graphic papers overall?

Who's doing the estimation for the full year and so on? Just a bit of a clarification there.

But also on paper I was wondering if you could give some indication of what kind of price hikes you have been able to achieve for mechanical papers in particular going into the second half of this year? That would be my first question.

Well, the demand is overall. So, it's not a European demand, it is global demand.

So, and it is for all of the segments within graphical paper in general. So, that is kind of the foundation for those -- for that data.

And if we look at commenting kind of price increases looking forward, unfortunately I cannot do that as you know. But we have had several price hikes during the end of quarter two and we are pushing through that to mitigate the raw material cost increase.

So, that is unfortunately all I can comment at this point.

Okay. And then my second question would be on the pulp markets.

And maybe on Europe, in particular, if you could just talk a bit about what you see in the European markets right now in terms of demand for pulp, in terms of customer inventories, producer inventories. Any particular price trends what you see in Europe now and we will see as you pointed to yourself price volatility or declines actually in China Europe seems to still hold up fairly well.

Just wondering what you're seeing in the European pulp markets right now please?

We have seen a continued demand increase through the quarter so and price increases there. So, the supply, if I look on a global level, because it is like China and Europe, it's all interlinked.

So, it's very difficult to kind of separate the one area from the other. But the supply is tight for kind of pulp on the market and it's driven by a few factors.

One is that quarter two was quite maintenance heavy. There were many companies that had postponed maintenance activities during the first year of the pandemic and now they took a chance to kind of prolong their maintenance shuts during quarter two.

There have been logistical challenges in kind of supplying pulp to the many corners of the world as you are well aware with everything going on in logistics side. If we look at inventory levels, the global inventory levels they are for hardwood for instance they are eight days below the five-year average.

So -- and for softwood, they are in line the global inventories with the five-year average. So, moving then forward to quarter three which is usually a maintenance-intensive quarter supply is going to be restricted again.

So, I see that for Europe there is a continued healthy balanced supply-demand situation also going forward the coming two quarters.

Okay. Thank you very much.

Okay thank you, Andrea and thank you for everyone participating our Q2 earnings call and lively discussions and good questions. And I will now hand it over for Annica for final words.

Please Annica.

Thank you everyone. As I said in the beginning, this was a quarter that we are proud of and I'm satisfied with our performance.

We have strong performance and solid growth both year-on-year and quarter-on-quarter. And I see we have a positive outlook going forward.

And I'm excited to talk to you again in quarter three report. Thank you very much and I wish you all a nice summer.

Thank you.