Stora Enso Oyj

Ulla Paajanen Sainio - SVP of IR Karl Henrik Sundström - CEO Seppo Parvi - CFO, Deputy CEO and Country Manager of Finland

Robin Santavirta - Carnegie Investment Bank Lars Kalbreier - Credit Suisse Mikael Doepel - Handelsbanken Harri Taittonen - Nordea Justin Jordan - Jefferies Mikko Ervasti - DNB Markets

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

And we're broadcasting here from a sunny Helsinki. And I will now hand it over to Karl, our CEO.

Please Karl.

Thank you, Ulla and I am happy to be here and good morning to the one side of the globe and good afternoon to the other if you are on the other side of the globe. So, we announced our Q2 release today and earnings and it was another quarter with progress.

So, sales came in slightly better than the same period a year ago basically €2 million higher, but if you exclude divested and closures business, we were actually €2.7 million. If you look at the full growth position which is basically the company excluding paper, it was a growth of 7.1% and this is the second quarter in a row where we have total growth for the total company.

Operational EBIT came in at €219 million, slightly below a year ago or €226 million. We had solid cash flow from operations.

We came in on the same return on capital employed and we're basically the same area excluding Beihai. Net debt-to-EBITDA improved from 2.2 year ago to 2 times, which is a step in the right direction again and it's €50 million profit improvement program is proceeding according to plans.

So, in a portfolio like Stora Enso, it's a lot of moving parts and I'll go through some of the highlights here before you get more details on later on in the presentation. So, if you look at Consumer Board, they're basically €8 million down compared to year ago.

It's all due to three factors. It's logistic costs extra which is partly driven by the strike we had in the Gothenburg container harbor.

It is positioned within the Consumer Board division for layoff in connection with the profit improvement program and its Impairment Green Certificate. Beihai came in at minus €17 million impact on the EBIT, which is €1 million better than last year, but you have to remember that we reversed in this quarter €4 million of the €7.5 million position we made in Q1 due to the turbine failure.

Packaging Solution growing €23 million year-over-year, which is all explained by Varkaus ramp up combined with better cost line in prices and the strong performance of China packaging. Biomaterials increased €5 million and that's coming from better pulp prices, but also additional capacity coming out of our mills in Latin America.

Wood products improved and that is also driven by the transformation projects, Murów and Varkaus. Paper had a challenging quarter and came down €32 million, part of that is explained by maintenance producers in quarter three for Oulu and lower sales prices, but if you look at the big picture, you have to remember that because new maintenance schedules for biomaterials and paper and some additional costs, we are €16 million hiring in the maintenance costs in the second quarter this year compared to last year and we're coming in €10 million of our guidance to you guys in conjunction Q1 for maintenance.

If you take some of the steps of transformation that we performed in the second quarter and has been announced before this release, it's actually the CLT production unit for €45 million in Gruvön that we announced in early July. We had also announced that we're going to built a corrugated plant in Tychy in Poland.

In June, we stopped production at [TMH] and we've also announced a divest a re-board business because it's not core. Today, we signed an agreement and made a separate press release regarding that we're selling our minority stake in Bulleh Shah Packaging and the buyer is packaging, which is the majority owner and the reason for this exit out of the package on the market is very simple for us.

First of all, the capabilities of that mill means that we are getting products that are not in our strategic focus and other one is that we will never reach in that mill we believe the 20% return in operating capital, which is a target for Consumable Board. However, the exit will be done under a responsible manner together with an external party who will make sure that we do that is in the best way.

Beihai and we continue here to ramp up ahead of plan and I'm very, very happy to announce that we're moving to EBITDA breakeven from Q1 2018 to Q4 2017. We had also in this quarter added commercial shipments to two addition liquid packaging board customers.

Now we have total of three liquid customers taking volumes from Beihai and we delivered 90,000 tons of board from that mill in the second quarter compared to 4,000 in the first quarter. It's a very dramatic ramp up.

Before handing over to Seppo to go through some of the details of the divisions, I would like here to make a bit of reflection. We are now moving ahead and the transformational investments are driving our growth in the growth divisions.

Today 72% of our sales are coming from the four growth divisions and 95% of the profit. As I said before, it was a bit of a challenge for result wise for paper, but made a record cash generation, which is very, very important.

With that, I hand over to you Seppo.

Thank you, Karl and I start with some of the key features from the report that we have published today. First of all, the sales and I'll call it's very positive and important sign of our transformation and a milestone that we've reached that we are now two quarters this year in a row that we can see growth of the reported topline and in Q2 it's marginal, but we have to remember that the divestments of the patent are reviews to say by €90 million and despite that we are showing slight increase of the topline.

Operational EBIT reported at €219 million, slightly down due to the higher maintenance costs in the quarter. Profit before tax excluding items affecting comparative up 36.6% that is thanks to lower permit cost in the quarter compared to a year ago and the main reasons there are foreign impact on the US dollar denominated loans in China as well as lower losses from research this year compared to last year.

Our sales also up excluding IACs up by €0.07 and EPS basics up 20% and that is also affected by lower taxes in the quarter and that is coming from positive change in the deferred taxes in Q2 of this year. Return on capital excluding Beihai 12.4% slightly below the targeted 13% but at the same level with the year ago and solid cash flow from operations continues and it was €365 million and this is despite the ramp ups in Beihai, Varkaus and elsewhere in increase in working capital and we continue to focus on working capital to keep it on the positive trend.

Net debt to last year EBITDA came down to 2.0, reflecting the core cash flow despite dividends at the update during the quarter. Then moving to the results and I start with consumer where sales increased by 5.2% driven by Beihai mill ramp up.

Operational EBIT declined by €7 million due to the high fixed cost and also probably booked related to the cost improvement program our Green Certificate impairment. Beihai development continues positive as Karl already mentioned and we expect board machine to reach operational EBITDA breakeven in Q4 this year, one quarter earlier than previously forecast.

Operational EBIT improved by €1 million versus last year for Beihai operations and here I want to highlight a reminder that Beihai operations improved not only the mill, but also the forestry operations there. And in Q3 we expect that operational EBIT in Beihai will be approximately €70 million, so at the same level as in Q2 at least for the total operations in Beihai.

Both of [servers] are ongoing and we expect that the turbine is back in operation during the second half of 2017. The reverse €4 million of the provision that we booked in Q1, the provision was €7.5 million and we made our updates on the latest information we have on the repair costs.

Operational return on capital was 13.9% and excluding Beihai operations €34.3. We also signed today agreement to divest our holding in Bulleh Shah Packaging in Pakistan and expect to close that transaction in Q3.

Then moving to Packaging Solutions, plus they exclude 21%, thanks to workers mill and China packaging as favorable price development in Europe. Operational EBIT was at all-time high €40 million.

Thanks to the same reasons and this is really a proof point for the profitable growth that we are reaching in Packaging Solutions but also in Stora Enso in general. In Varkaus kraftliner mill delivered first positive quarter of EBIT as expected and operational return on capital was 18.3%, clear improvement from 7.7% reported a year ago and not far away from the targeted 20% level.

We also announced investment of €10 million. We expect our corrugated plant in Poland in Tychy and signed an agreement to divest our report business in speed.

This is a business that we don't see as part of the floor of packaging solutions going forward. Then in environment areas, where sales also increased due to volumes and higher prices, especially from Latin American partners and sales increased 8.5%.

Also, EBIT improved by 8.8%, thanks to the higher prices and delivery volumes, but there was some make up fees like higher logistics costs, higher maintenance cost due to sequence of maintenance shut downs and higher standing in R&D and innovation but R&D and innovation expanded of course and are seen as an investment to future where we expect to get the fruits later. And start-up process at the bagasse-to-xylose demonstration plant in Raceland in U.S.

is proceeding as planned and we expect that the first batches of xylose will be delivered towards the end of the year. Wood products also continued profitable growth and sales increased 1.6% driving by the strategic investment in Varkaus veneer and Murów sawmill.

Notice of excluding Baltic wood sourcing operations that we transferred internally for segment Other sales would have been up 3.5%. EBIT increased by 6.1%, thanks to higher delivery volumes and better sales prices and English wood cost have some negative effect in the result.

Very happy to see the strong performance also in return on capital where we reached 25.5% clearly exceeding the strategic target level of 18% and ramp-up in Varkaus LVL Mill continues and we expect full production to be reached in mid-2018 that is about a year from now. We also announced a new investment on CLT production unit at Gruvön Sawmill in Sweden and we supported by €5 million investment.

Total asset are growing wooden element -- wooden building markets in Sweden and Scandinavia. Then moving to Paper, we have strong solid cash flow continues and it’s clearly above the targeted level.

Sales of the ongoing operation decreased 3.6% driven by lower sales prices in Europe and lower part sales and like I mentioned earlier, divestment of Kabel are up again Suzhou Mill, reduced the sales by €90 million. Operating EBITDA decreased by €37 million, main reasons being extensive maintenance down at the Oulu pulp mill, lower sales prices and divestments and global sales as there as viable cause.

That was somewhat does strongest offset by positive development of fixed costs and was lower. At Kvarnsveden Mill in Sweden, we're moving ahead with the close of 100,000 tons SC machine, capacity as announced earlier.

An internal review that we started about the year ago has been completed now to address the topic of how to compete under increasing cost pressures and decline market conditions. Now, we are in place a clear and more efficient structure supporting improved competitiveness going forward.

Then looking at the strategic targets that are as you can see from the traffic lights that we have added they also now but they're ambitious but also reachable. Looking at the Group level first, you can see that dividend, we are at the target that we are distributing increase in dividends.

Growth, we are growing faster than the relevant market. If you look at the businesses excluding papers, about 1% growth during the second quarter of this year.

And debt ratios both net debt to operational EBITDA and net debt to equity are below the target levels. And operational return on capital excluding Beihai like I mentioned earlier 12.4% slightly below the 13% targeted level.

Something where we still need to work on is fixed cost to sales where we are 25.6% level and we are aiming at 20% level, which we still believe is reached upon our realistic target. If you look at the divisions, growth in Beihai promising look forward it grew in very higher, clearly above the 20% targeted level of 34.3%.

And then really happy to see packages allowances improving their performance and reaching 18.3% return on capital not far away from targeted 20% level. Biomaterials at 9.8% and wood products like I said earlier clearly above the 18% targeted level at 25.5%, so solid performance continues there.

And paper cash flow and we are recording cash flow up investing activities to sales at 10.6% level where the target is 7%. So, this is showing that good cash flow generation capabilities of the data business we have in store.

With that I hand over to you, Karl.

Thank you, Seppo, for a good presentation on what's happening in the division. So, guidance for the third quarter of 2017, sales are estimated to be similar to the amount of €2,528 million recorded in the second quarter of 2017.

Operational EBIT is expected to be somewhat or even clearly higher than the €219 million recorded in the second quarter of 2017. Operational EBIT estimate include negative €17 million impact or the ramp up of the Beihai operation.

Impact of the annual maintenance shutdowns is expected to be approximately €10 million lower than the second quarter of 2017 and is included in the guidance. Beihai board machine expected to reach operational EBITDA breakeven in Q4 2017, one quarter earlier than previously forecast.

Before going into the Q&A session, I only want to remind you, we are clearly seeing the positive contribution from our transformation projects accelerate. So, sales growth excluding paper at 7.1%.

Total sales growth excluding divestitures and closures almost 4%. Accelerated profitable growth by Beihai, Varkaus, Cross Line and LVL, China packaging and Murów and we are on a good track of moving away from the asset transformation to innovation and sales transformation.

We have strength in the balance sheet by solid cash generation. With that, I hand over to Ulla for Q&A.

Okay. Thank you, Karl.

And yes, operator we are ready now for the Q&A session.

Yes, thank you and good afternoon. First question about the Beihai Q3 guidance.

Just to be sure that I get it right, so you guide €70 million EBIT loss in Q3 versus €18 million in Q2, but the Q2 €18 million I guess that includes the €4 million reversal so are you operatively or comparability guiding €5 million improvement from Beihai? That’s my first question.

We are guiding a $4 million improvement if I can do the numbers right. Because it was €17 in Q2 and we are guiding €17 in Q3 as well and included in the €17 it a reversal of provision that we took in Q1.

So, my numbers tells me €4 million.

Okay Sorry, yeah. I remember it was €18.

Okay. Thanks.

So that’s -- if you look at the Q4 and you expect the EBITDA breakeven to be reach in Q4, if I guess you’re expecting rather similar kind of pace or whatever to Q4?

So, this is it's probably in your mind why don’t to get better in Q3?

Not really actual.

Okay. But I would like to explain.

Yeah.

There is an improvement by $4 million, yes. However, when we start to prepare for the bigger volumes or what we’ll say, will be the better profitable grades, we need to hold down a bit on the folding box board that we're doing today and that’s the reason.

All right. That’s very helpful.

Thanks. Second question on biomaterials and the reason pulp price increases, how should we think about the current prices and the timing when those prices will fall into your numbers in coming quarters.

What’s the timing at this time on chasing the pulp prices? Please.

So, if I answer you the following. So, if I take from Q2 to Q3 if you take your European softwood, we believe they are stable.

European hardwood we be slightly higher, plus stable. Then if you look upon China, then we believe softwood will be slightly lower and then we see hardwood lower and dissolving lower.

However, then you need to understand the mix of our total sales of market pulp 20% goes to China. I think that gives you good picture.

Yes, thanks. Lastly on the maintenance you gave that $10 million change going into Q3, I just wondering what is that number in the Biomaterials division the change in maintenance cost going into Q3 versus Q2?

It’s not significant in biomaterials. So, we don’t give figures by division.

We’ve guide the full Group figures, but there is nothing major there.

Okay. Those were my questions.

Thank you very much.

Thank you, Andy.

Hello everybody, two questions. The first one is broad one, for this year your guidance for a CapEx €600 million to €650 million.

Then as you scrapped the potential test on the machining in Poland, I'm wondering how should we think about future CapEx in the light that you now are basically saying that you are moving from asset transformation to sales and innovation transformation? That's the first question.

And then a second housekeeping question, financial costs were retire if I remember well in Q2, how should we think about financial costs for the reminder of the year? Thank you.

Those were my questions.

So the first one regarding CapEx is that we don’t give, we come to guidance about next year a little bit later, but obviously we are having the long-term goal is over time to take us down to basically depreciation plus the re-foundation of the foundations, which today is about €100 million. So that's the aim we’ll having.

And let me -- we are right now into sorting the decision of budgeting and capital planning and capital allocation for next year. So, we will come back to you later on that one and the other one regarding financial, I hand over to Seppo.

If financial of course, I think that in general if you look at the trend net debt going down and also, we’ve been managing our loan portfolio by paying down -- prepaying older higher interest rate bearing liabilities and taking in new long-term money with lower interest rates. So, if you look at finance our net interest cost that I would expect to go down.

I think the thing you have chances if you look at -- and try to compare quarter-on-quarter, year-on-year, the develop and I also commented on EPS is the point that this year Q2 will be our lower finance mix then a year that's because we had positive gains on dollar denominated loans in China. And last year and this year also with some repurchases but the capital losses from repurchase to higher year.

That is of course difficult to model in, but in general I would say that you can move forward that interest mix as such is going down.

Perfect. Many thanks.

Yes, good afternoon and thank you for taking my questions. Three questions if I may, first one the biomaterials deviation, I'm a little bit puzzled about the average price if I look at the sales divided by delivered tones, strongly according to my calculations up by 5% year-on-year and spot prices -- pulp spot prices have going up more than that and the dollar in Q2 has been quite strong.

So, could you just explain the dynamics there and whether there is lag of a couple of months before the spot pulp prices feel that you are into be there on your results?

So, in general, we are using spot prices or using the ones on of the 4x?

Yes, for example compare to the 4x price

But the 4x price are without discounts and you have everything from 5% discount depending on the grade up to 30% discount on the price. So, it’s very hard and it's higher in certain markets than in others.

So, it’s very hard to really an answer to your question. Secondly, I think it’s also important to say that there is a turnaround time between when you take the order on the new price until you deliver because you have a backlog of somewhere to two to three months.

Right, of course I understand, but this lag is what I am seeking, so you say is two to three months.

Yes.

And the discount rates I understand are quite similar at the moment compared to for example one year ago.

No, they have actually increased according to our information.

They have, all right. How much and this is a market phenomenal or...

It’s very hard to say because I can only see what we’ve done and so forth, but it’s clear to disclose because I think it's also slightly different depending on what sort of customer what contract you're taking and how long it is.

Thank you. I understand.

Then on Consumer Board, now the second quarter actually the I guess third quarter in a row with declining average prices. Why this explaining that is if FX or simply average price is declining.

Consumer Board prices are very stable. It could be probably a bit of the mix and you have to remember that we’re ramping in Beihai with folding boxboard.

So, you cannot really following, because still a local Beihai of the 90,000 ton a lot of that as you can see on my little graph it’s actually folding boxboard, which has a very different price level than liquid, TUK and Food Service Board.

Good, thank you. I understand.

And then finally on Beihai and the liquid packaging of new customers, you’ve said three now are there any major customer that you are still doing the test rounds with our customers?

Yes.

There are still some, or the major customer you ...

We don’t go into that. But, as lower volume -- it's more volume still that we are delivering commercially and it’s also on certain grades.

So, we have three customers and there are couple of more to go after and we don’t want to name any of them.

Good, thank you very much.

Thank you. I just wanted to return to Beihai a bit and if you could talk us through a bit what is going better than expected in terms of your timing and the ramp-up?

Is that a better market growth or is it your specific ramp-up that is doing better? Also, when you talk about liquid packaging board and you're ramping that up potential at a quicker pace, you've said earlier if I recall correctly that you would probably cannibalize about 100,000 tons that you're currently selling from Europe into China.

If you can comment a bit how that’s proceeding and where those 100,0000 tons if that's the right number where they're going to land and then I have a couple of follow-ups on that?

So, what is going better is that first of all, it's probably the fastest qualification on liquid packaging board ever made. So that going better.

It's also going better in regards of getting out high-quality folding boxboard. And high quality CUK with a bulk that make it quite unique.

So, on that chart and I will say that team is doing really well. So, that I want to say is very well.

And efficiency is actually has been among the best performing machines a couple of times in the last six months, which is very unusually, usually you need to have a team who works on the machine for a couple of years. But this team who has been trained both in [indiscernible] have actually learned to run this machine and it's a very good machine so far.

So, I will say these are the things and about these 100,000 tons they are basically sold out already. That we’ll replace in China over time.

We are actually squeezed on liquid right now.

All right.

And CUK.

And in terms of the turbine malfunctions, is that actually delayed the progress of this machine would you’ve better off if that wouldn’t have happened?

It maybe in a week or two. Because what we manage to do was actually to increase the power supply from the grid, which was a backup lime and we’ve been running basically I think we had one-week time.

And we’ve been able to CTMP to keep that running as well. So, we didn’t lose a lot of time.

But you have to understand, when it was two days before the quarter end that it happened and then the machines stood basically when we were doing the quarterly reports. So, we were bit shell-shocked.

Understood. Then shifting with just to wood products for two seconds.

So, of course that’s an area that you do comparatively very well in. You are investing quite a lot of money in it.

What do you see in terms of demand trends, housing, construction etcetera, and that gives you confidence that there's a good place to put more money behind?

So first of all, when it comes to -- if I take tomorrow first, that is basically focusing on glulam for the Japanese market and it’s unique offering that we’re having. So that is driven by that.

Then you have the LVL, which is a new product for us and it fits very well with CLT and that is when you want to build wooden elements to build multi-tenant houses. And today I think in Sweden, I think it is about 10% of all multitenant house that are built up of wood and there are studies made that will double in very few years and we see that as a demand and it's actually so that for example MCC, they are screaming at us to get this CLT plant up as fast as possible because today when we supply this bigger CLT build in Sweden or in the Nordic, the 7,000 cubes of extra we had to ship it from Austria.

So, it’s actually we started to work with this four or five years ago and demand has yet increased and we need to hurry up here. So, we gained this market and nobody else because this is the first CLT trend in the Nordics.

Okay. Final question for me.

Currency has obviously shifted quite dramatically over the past call it six or seven weeks. How are you hedged.

Can you share any color on when we should see an impact from in particular the dollar weakness we’ve seen into your P&L?

Yeah, it's Seppo. Maybe I’ll take this one.

Like we also said earlier, we follow our policy, but we hedge about 50% of the annual cash flow and typically we have higher hedge ratio for the short-term and a bit less for longer-term. So that means in the short term, it takes a bit longer time before the effect is visible in the profit and loss.

Just to remind you that if you look at the total exposure, so dollar 10% more is about €121 million before the hedge.

Understood. And is there any difference between the different business areas?

Of course, if you look at the divisions, so highest exports we have in biomaterials because of the pulp being priced in pricing based on dollar. I think there is some effect in other divisions like in paper and also some of the consumer product depending on the export volumes outside Europe, but main effect is in biomaterial.

So, in essence what you are saying is, we’re not going to see any impact this year of any significance is really going to be in ’18 impact?

If it remaining where it is and it goes more to wrong direction, there will be some effect, but not full effect visible.

Thank you. A couple of questions first of all on the Consumer Board business.

You mentioned that there was some provisions and some impairments taken in the quarter. Could you quantify those?

The whole -- basically the whole package of the additional logistic cost partly caused by the strike in Gothenburg and the profit improvement provisions and the Green Certificate makes up, basically all of the €8 million.

Okay. But you don’t want to split that up, I guess?

Maybe I can give you some flavor. The logistics cost you talk about some couple of couple million, €2 million to €3 million, profit improvement, profit related provision is in region of €1 million to €2 million and Green Certificate related write-off was something around €1 million a bit below €1 million, so that gives you some flavor on magnitude.

Okay. Thank you.

That's helpful. And then staying in Consumer Board and just a question on Beihai.

Now you bought forward the EBITDA breakeven guidance for Beihai. Would you dare to give a guidance on when it will break even on the EBIT level?

Would Q2 next year…

I am not that brave. Let me pass EBITDA breakeven and then we can talk about EBIT.

Okay. Fair enough.

Then a couple of questions still first of all on the €50 million profit improvement program. How much of that could we expect to see I guess late this year and how much will go into next year?

Roughly half will be visible this year still a second half next year.

And that will be I guess annual run rate?

That’s on annual run rate.

Okay. And then finally on the Q3 guidance, which I guess implies some €50 million or so improvement compared to Q1.

Maintenance is one thing, Beihai is basically flat, quarter-over-quarter. What would you say are the main drivers for such a significant earnings uplift?

If I talk about it, you will see continuous improvement from Varkaus. You will see continuous improvement from Murów and from Varkaus LVL.

You will see improvements in Consumer Board and you will continue to see improvement from China Packaging also impacting solution and obviously, we expect to have a slightly better result in paper.

Okay. That's very helpful.

Thanks a lot.

Yes, thank you and good afternoon. Following up on the €50 million program you booked some cost related to in the second quarter.

Is there some cost remaining related to that program still that would be my first question?

There might be some very small extra cost to be book as provision, but nothing significant as this is not any sort of major headcount reduction program. So, it will be first of the previous programs that we have been running from that respect.

So, nothing significant. And we are talking about €50 million that’s not a lot.

Okay. Exactly.

All right. And then second one related to the structural assessment of the paper business and that you are now done with that and the structure is ready.

Can you elaborate a bit like what has been the core changes there? Earlier you talked about IT platform, HR things like that, but what is the change in this?

Are we now going to see some sort of step change in Q3 from Q2 related to that?

So first of all, this gives paper a platform to be more competitive. They don’t have to participate in a lot of the other common things that do in the group supporting the growth that we have in the growth divisions, which means that they have a more of an independent structure which helps them to ringfence their own cost to work with them.

That’s the whole purpose. So, for them in things like new systems or new process or other things they have a more independent way of dealing with it, which gives them an easier cost to continuously drive cost down.

Okay. Sure.

Thank you. And then finally, third question, comparing the two presentations, one in Q1 presentation and the second -- and this presentation and looking at the Beihai assumptions and looks like that you have revised those volume and mix assumptions a bit also going forward.

It looks like now you are looking at folding boxboard production lasting a bit longer and maybe a bit more gradual volume ramp up between '18, '19 to 2020. Is there something you want to say on that or what the thinking behind that change between these two charts is?

It's a continuous discussion of doing this and one of the big things that we've done is that we have made a decision that we're not going to have any sale of second grade, that is actually a cost of poor quality. So that will be reaped out, which we affect a bit and has already effected a bit the production volume because that is not counted as production.

The other thing is that we have seen that the possibility of getting into a premium position on certain premium folding box boards is actually better than we thought before and that gives us also longer time to build up for new products for example, CKD was U.K. is very new product to China and maybe we are bit more conservative how fast we can launch it.

But this is something that we continuously change in our SNOP discussion and long-term planning. So, you shouldn’t read too much.

You should just read into maybe a little bit more mature than we were when we did this slide may be nine months ago.

Yeah. Okay.

Understood. Thank you very much.

Thank you very much and good afternoon to everyone. A couple of questions on Consumer Board please, you did indeed go through the year-on-year development in the second quarter and why the Consumer Board at Beihai was somewhat weaker.

Now that we look into the third quarter I wonder if you could help us bridge the development versus the second quarter, so Beihai is flat maintenance is I guess up €20 million or so. What are the other moving parts in terms of seasonality and other when we look at Consumer Board Q3 operational EBIT versus Q2?

You have in the guidance and in the report, we are having maintenance in [indiscernible]. We do not expect the same problem with logistics.

Volumes are higher. We are not planning to impair certificates and we don't see the amount of impairment for the profit improvement program.

And historically you had quite the seasonal upswing and I guess that's what you're referring to when you say higher volumes. Is that something that you would care to quantify or…

We guide on the -- I cannot give explicit, but paper is also usually up in Q3 and now Oulu has been moved -- was moved to Q2 and not Q3.

Right. Right.

Part of the reason why I'm asking is because Beihai is such a huge swing in the third quarter year on year. So, I'm just trying to grasp what they offsetting negative might be.

So, we don't overestimate the year on year improvement in in the Consumer Board division.

I see what you mean.

But that's fair enough, then on Beihai, the guidance that you provide for the fourth quarter does not sound very encouraging, but if I understand it correctly, you're referring to the actual machine, it's an EBITDA breakeven for the machine rather than the totality of the Beihai operation. Would you care to give any sort of idea around what kind of EBITDA you would expect for the whole Beihai operated in the fourth quarter for instance?

As you know we guide only full company or full group on operationally EBIT level. But, the thing in Beihai to explain you a bit why we don’t want to go into details there especially deteriorating to as it relates to forestry and it's very much depending on forestry volumes, how much is harvested and how much wood is solved and that is increasing or decreasing the result between the quarters and months significant sometimes.

And that’s why when talking about the EBITDA breakeven that we're focusing on mill because that is most stable become better contract the forecasting process for that, there are less change in parameters relating to mix of the wood and volume and market prices.

I see, but I guess that's at least partly an offsetting factor that you will see rising harvest as your wood demands go up and therefore high depletion in your forestry assets in Beihai?

Correct. The highest the harvesting the higher the depletion cost.

That is right. The only thing you have to remember is that we have more plantation than we need right now since we are only running it on the CTMP.

So, there is a swing factor what we sell in the market.

But, of course when the volume goes up a bit and fixed cost go down that is helping the level.

All right. And then, just one just lastly and that's detail on Beihai, but you are ahead of plan and you specify in which ways previously on the call in one way you have been or I guess you could call it a negative development, when you look at production it's actually lower in the second quarter compared to the first quarter.

Could you just explain if there was anything if we should we read anything into that please?

And that’s why I was explained that we are already pulping second grade and we count that as production that we started in Q2 that was trying to say on the previously. So, deliveries were 90,000, production was 81, and that is because a couple of thousand tons have been re-pulped because they don’t want to create a second-grade market.

Excellent. That's very clear.

Many thanks.

Thank you, Lars.

Thank you, good afternoon. Just staying on the theme of Beihai for a second, according to we see in China tetra pack is rationalizing from four to three plants, I am just wondering has that got any impact on your in China specifically for that rationalization.

I don’t know about and I can’t really say about tetra pack. I only know that tetra pack is growing in China.

So, I don’t know if that means that they have fewer but bigger plans. I don’t know.

Okay. All right.

And then just moving divisions to packing solution obviously very strong growth in EBIT year-on-year. I am just -- one thing just conscious of it that they I guess in Q3 the cross that the Varkaus which was in Q4 last year.

Is that going to be impactful for this division in terms of increased maintenance cost in Q3 vis-à-vis Q3’16?

Let me think, we are all having maintenance in Varkaus in Q3 and there is nothing major related to maintenance in packing solution in Q3. Varkaus has maintenance up right, but right it's not a major topic.

Thank you. And just regard to Varkaus and obviously the backdrop of increasing crops on the pricing that we are seeing across Europe.

Can you just give us some sense of how quick Varkaus or Stora Enso generally benefit from rising crop and prices that we see on screen for pics or whatever? I am just kind of curious what’s sort of time lag there might be to when you actually see the benefit of that in reported revenue and EBIT?

I would say its two to three months.

Okay, thank you for that. just…

But that is depending on the contract and how fast we can do and if you can do it faster, but usually its two to three months.

Okay. So, as we sit today, then this should be some more benefit to come in Q3 from price increases that seem to have been achieved shall we say in May, June.

Yes. And to coming to your maintenance question, you should remember that in Q2 we had Ostroleka maintenance and now in Q3 we have Varkaus.

So that is also smooth and the difference between the two.

Thank you. Okay.

And just one final thing just on -- again staying on the theme of planner, sorry there has been obviously growth in the industry generally, some announcements regarding a further €50-ton price increase from August. Is that something that Stora is participating in also?

So, when we talk about cross liner, we believe the prices quarter-on-quarter will be higher without going into specific euro amount per ton.

Okay. Thank you.

Thank you very much and good afternoon. Just following up on the biomaterials and on the earlier pulp ASP question, I understand, the election discounts, but purely compared to your competitors who have reported already your ASP growth looks a bit week or so.

Can you still please elaborate a bit on this, do you have longer contracts or what's possibly causing this? That's my first question, thanks.

Maybe I can comment, of course I don't know who are the competitors you refer, but of course mix of the portfolio, you should remember that we have, if you look at the 2.50 million tons we have about 900,000 tons of wood pulp, 800,000 is soft wood pulp. Then we have pulp 150,000 and 250,000 tons of pulp and on top of that we have some 50,000 tons of grass pulp and depending on the mix I think that has an effect.

Difficult to comment more on that.

Okay. That's fine and then the second question on the Consumer Board excluding Beihai, so excluding it, so you talked about the cost movers there, but looking at just the volumes it seems that second quarter deliveries are down by more than 2% year-over-year.

So, what's happening there can you explain and it striking back doors the LPBs or something in the underlying market place? Thank you.

We certainly miss certain things when it comes to logistics problems. That's for sure and that working capital we couldn’t change chip, but I would like it to be more a mix question

Mix question. Okay.

Okay. thanks very much.

Yeah obviously quite a few questions on what your guidance really means right. So could you just elaborate for those that don't know you that well?

What is in line mean, what sort of range you're talking about? What is somewhat or clearly higher meaning in terms of quantum versus the prior quarter?

So, in line is plus, minus 10. Other one is 10 to 25 and the last one is 25 and upwards percentage points.

Percentage points. Okay.

Thank you.

Thank you.

This is Karl Sundström. First of all, thank you for participating in the call.

We're looking for the future with great enthusiasm. Our transformation is clearly visible in the numbers we're doing and don't forget that we have now a CMD in London on 8 November this year.

You're very welcome all of you. Thank you very much.

Thank you.