Stora Enso Oyj

Ulla Paajanen-Sainio - Head, Investor Relations Karl-Henrik Sundstrom - Chief Executive Officer Seppo Parvi - Chief Financial Officer

Antti Koskivuori - Danske Bank Mikael Jafs - Kepler Cheuvreux Linus Larsson - SEB Harri Taittonen - Nordea Lars Kjellberg - Credit Suisse Oskar Lindstrom - Danske Bank Henri Parkkinen - Pohjola Bank Mikael Doepel - Handelsbanken Rebecca Clements - BlueMountain Christian Schlimm - Allianz Global Investors

Thank you, Julian. Good afternoon, everyone and welcome to our traditional Q2 conference call.

And I will now hand it over to our CEO, Karl-Henrik Sundstrom. And Karl, please go ahead.

Thank you very much, Ulla and good morning, good afternoon, wherever you are in the world. So, we will start now with a short presentation and then we will do Q&A session.

So, we have reported the second quarter 2015. Sales were down 0.7%.

However, in the case that you are lowering and taking out the declining paper as well as the divested businesses, such as Uetersen and the Corenso, sales actually went up 4.8%, almost 5% and that we feel very proud of. This is very important.

This is part of our transformation. We had a sales increase in biomaterials mainly driven by Montes del Plata of 50%.

We had over 6% in packaging solutions. We had 1.2% in consumer board.

We had a bit negative sales in the wood products. And we had flat volumes in paper.

If you look upon the operational margin, that remained unchanged at 8.1% versus the year ago period. And that was despite operational challenges that we had made in consumer board.

And what are these operational challenges? They are totaling in amount of €12 million and there are three parts.

One part was the power failure we had in our consumer board mill in Imatra. We had pulp production issues, both with quality and quantity, in Skoghall combined with the broken gearbox.

And then we have had for a period, investments in safety as well as increased mechanization in our plantation in China in the Guangxi project and that one had lower harvesting volumes, which meant that they lost increase in the Chinese operation. We are now ramping up with increased mechanization.

At the same time, we have now built up basic the whole staff and they are in preparation for stocking the mill, which means that they have training of people either in Europe or in China and basically sitting at the mill site training in computer programs in all of us around that to be ready for the launch in a year’s time, which is midyear 2016. We generated an extremely strong cash flow of almost €500 million and we ended up with an operational return on capital employed of 9.4%.

If you take the next slide with us, it’s part of the operation. So if we look at the Q2 2014, consumer board, if you exclude the operational challenges as well as the Guangxi startup costs, actually increased by 0.4 percentage points.

That’s basically €10 million on the sale of €7 million in increase. The operational challenges as I said to Imatra and Skoghall and the harvesting issue that we are having in the Guangxi project is €12 million, or 0.5%, the Guangxi startup costs, which will remain about this level until the mill is up and running, is €10 million or 0.4.

We had packaging solution, including the Corenso basically at very flat. But if you would take out the divested Corenso, it’s actually an increase of 0.15 percentage point in the profitability.

And then you have the strong performance of biomaterials mainly driven on Montes del Plata. You have the Middle East effect on wood products, and then paper, which had a challenging quarter.

Cash flow is the strongest cash flow that we had in 10 quarters. We have managed to reduce working capital with around €140 million in the quarter, which is very, very encouraging.

We also managed to get the net cash flow, which is after investment of €261 million, which is actually bigger than the €236 million we paid in dividend in the same quarter, which basically meant that the dividend that we paid out were coming back in the same quarter, which is the very strong signal of the underlying performance of our business. If you then go to the next slide, I think it’s important to remember what we have actually achieved.

We have been able to get the Montes del Plata pulp mill up and running, which is one of the drivers of the increase in sales, but also in profitability. And that mill has an annual capacity of 1.3 million tons, of which the Stora Enso share is around 50%.

And in the month of June, it actually performed at the nominal capacity, which was very encouraging. And we are working hard to keep improving the performance of the mill.

We also started our previously announced Murow sawmill in Poland, with 140,000 m3 per year, which will be ramping up now. We have the Sunila Biorefinery with the lignin boosts, where we will start to commercialize the products coming out of the mill in the second half of 2015.

And we had acquired as you are well aware of the Virdia, which is the new technology where we can actually separate out cellulosic biomass into highly refined sugars and lignin. The project that we are having in the pipeline is the consumer board debottlenecking of Imatra, which will be ready by September 2015.

We have the Varkaus conversion, which is going according to plan. We have the consumer board mill in Guangxi going also according to plan.

We have the Varkaus wooden building elements. The second investment in Varkaus will be ready in Q2 2016.

And we have the biomaterials in Xylose demonstration and market development plan in the U.S. which will be ready early 2017.

Taking in some photos of where we are in the Guangxi mill. So the board machine plant, as you can see, is under construction.

The roofs are getting on. And we have started to install the machinery.

And this is according to plan. And the plan is, as previously announced, to collide with this mill mid 2016.

There is a high level of activity and it is a remarkable progress that has happened in a quite short period. The transformation journey continues.

And as you can see now, we are getting basically two-thirds of the sales coming from what we consider growth businesses and almost 95% of the profit coming from the growth businesses. Paper is in this quarter 6% of the profit, it was 8% in Q1.

And I will say the transformation is speeding up. And I am very pleased to see that we managed to grow in three out of the five divisions.

And that will enable to maintain despite operational issues at the operating margin of 0.1%. With that, I hand over to Seppo.

Thank you, Karl. Let’s start on the key figures on financials.

Like Karl already mentioned, net sales went down 0.7% compared to Q2 last year. What’s very important to note is that the increase of 4.8%, excluding structurally declining paper and divestment.

Operational EBIT was flat at €207 million compared to €209 million a year ago or 8.1%. Net profit for the period increased from €1 million a year ago to €173 million in Q2 this year and the EPS was €0.17 per share.

Cash flow from operations increased by about €200 million and was €489 million for the second quarter. Net debt to last 12 months operational EBITDA was 2.7, slightly down compared to a year ago.

And this is quite a good achievement taking into account that we have paid dividends in Q2 as well as taking care of our quite expensive investment program at the same time. Moving down to the next slide, our net foreign exchange impact and combination with price development, sales prices, here once again, I want to remind everyone that we have to look at FX in combination with the local sales prices.

And in paper, foreign exchange gains to large extent compensated the price decline. In biomaterial there was actually both price changes and FX contributed positively this quarter and in other divisions no major net effects.

On the next slide, we have opened a bit how the FX impact is split between the divisions. This quarter, EBIT was €59 million, down from €64 million in Q1 this year.

As you can see in both quarters, biomaterials has been the biggest beneficiary of FX changes, slightly down in Q2 this year compared to Q1 and paper second largest. Other divisions are quite small in seeing millions old.

Then commenting on different divisions and developments there and starting with consumer board. Their sales increased by about one percentage point due to higher volumes.

Operational EBIT decreased by €13 million driven by operational challenges at Imatra and Skoghall mills and Guangxi harvesting volumes that were lower compared to a year ago. Those three together had an effect of €7 million on result.

And like Karl already mentioned, preparations ahead of the startup of the Guangxi mill in China increased fixed cost by €10 million. And this is something that we expect to continue at the same level going forward in the coming quarters.

Operational issues, of course should disappear and go away. Operational return on capital employed for the division was 16.1%, further to note that operational return on capital was 30 – almost 31%, excluding Guangxi investment, our maintenance in Q3 at Imatra and Ingerois mills.

In packaging solutions, we actually grew excluding Corenso by 6.1% due to higher volumes and operational EBIT excluding Corenso, increased by €4 million due to higher volumes and lower variable costs. Before these figures decreased if you look at the sales by 13% because of Corenso divestment and operational EBIT was increasing by €1 million.

Operational return on capital at 11.7%, slightly up from the year ago. And just to confirm what Karl earlier said, the conversion of the Varkaus paper machine to kraftliner will begin now in Q3.

Biomaterials traditional sales increased 50% due to Montes del Plata ramping up and positive foreign exchange movements. Operational EBIT increased by €49 million, thanks to Montes del Plata, positive foreign exchange impact as well as higher hardwood pulp prices and operational return on capital at 8.9%.

Here you should remember when you look at return on capital that Montes del Plata is still ramping up, even though it has now reached an important milestone than the original nominal capacity in June, our maintenance in Q3 at Skutskär Mill. Wood products, their sales declined by 10% mainly due to lower deliveries to Middle East market and operational EBIT decreased by €14 million.

That was driven by lower prices in local currencies, some with the increased fixed costs and higher transportation costs, partly due to the change in the market mix. And the operational return on capital at 17.9%.

Curtailments for the division were at 3%, slightly up from the year ago where we have 1%. Then moving to paper division, their sales – reported sales declined by 6%, but important to note it’s actually volumes excluding Uetersen disposal were flat.

Operational EBITDA decreased by €31 million and positive currency effect was not enough to offset lower average prices in local currencies. Very good news, cash flow after investing activities to sales improved from 3.7% to 5.1%, highlighting the fact and the role of the paper division in our group being the cash flow generator.

But in Q3, we have maintenance planned in Oulu the major maintenance shutdown and smaller ones in Anjala, Langerbrugge and Maxau and Veitsiluoto mills. Then moving to next slide and capital expenditure forecast that remains unchanged.

And we forecast that for the full year to be between €820 million and €880 million. Positive depreciation range similar as earlier communicated €530 million to €550 million.

And let’s remind that capital expenditure forecast includes €110 million for the biological assets and €390 million for the project in Guangxi, China this year. Then a summary of the strategic targets and where do we stand at the moment, as you remember we published the strategic targets some news, in some case, we consent all strategic targets at the group level during the Capital Markets Day in London in May and we plan to give a status summary every quarter from now on.

If you first look at the group targets in the case of growth excluding paper, we are reaching the target at the moment. The net debt [ph] to operational EBITDA is below the target of 3% and debt to equity is below 80% of 70%.

In the case of fixed cost to sales, we are at 25.5% and as we also told during the Capital Markets Day this is the ratio that we need to work on the cost structure as well as to continue the growth of company and that they will improve the ratio. And operational return on capital employed was at 9.4%.

If we exclude the Guangxi project, we are at 10.9%, but below 13%, our target. Then look at the different divisions, where do we stand there.

First of all, in consumer board, if we exclude Guangxi project we have reached the target of 20%, however we are at 16.1% including the Guangxi investment in the balance sheet, but that is of course not generating any cash flow or profitability, yet as the ramp up will take place in the middle of next year. Packaging solutions at about 12% level, below the targeted 20%, and biomaterials at 9%.

We are – Montes del Plata is ramping up still is turning the balance sheet. Wood products, about – at the level of 18%, the targeted level, and paper at 5.1% cash flow after investment activities to sales, slightly below 7% target, but going up during the quarter compared to a year ago.

Then back to you, Karl.

Thank you very much, Seppo. So, coming into the guidance, so Q3 2015 sales are estimated to be similar to the amount of €2.562 billion in Q2 2015.

So the sales are estimated to be similar to the amount in Q2 and Q3. Operational EBIT is expected to be in line with the €207 million recorded in Q2 2015.

Negative maintenance impact is expected to be €15 million more than in Q3 than in Q2 2015. So the summary then, the transformation is at full speed, sales increased 4.8% year-over-year excluding paper and divested businesses, operational EBIT stayed at 8.1% despite some operational challenges and the strong cash flow.

With that, I hand over to Ulla and the Q&A session.

Okay. Thank you, Karl.

Yes, operator please, we are ready for the Q&A session.

Yes, thank you. This is Antti Koskivuori from Danske.

My questions are related to the maintenance costs you are guiding now, €15 million higher in Q3 than in Q2. Could you quantify how much this is above last year Q3, because that seems a bit high number for me?

And as I understood already in Q2, your maintenance cost was significantly higher than last year. And also would be very helpful if you could give us a number how much your projects in Imatra and Varkaus are impacting the maintenance costs you are having this year?

Thank you.

So, the first question is that if you take year-over-year, all the maintenance costs until the end of Q3, including the €15 million that is actually basically €2.5 million lower than it was the year before. So, we are not going up in maintenance costs by the end of the third quarter.

And the other question that you are answering is a bit tricky, because obviously it gets a bit mixed up, because in Imatra right now and when you start that up, because you do that debottlenecking, for example, in the maintenance window. So, it’s a little bit tricky to see exactly what is what.

Okay. But do I get it right that actually your maintenance cost in Q3 will be lower than last year Q3?

Yes. The only thing that you have to think about is that this year, we have one additional maintenance and that is the Montes del Plata, but that was in Q1.

Alright, thanks. Then the second question on the Guangxi harvesting issues, did I understood right that the negative impact from that in Q2 was €6 million?

Yes, because if you think the total that we – on Page #3 say ‘16 and then we give the other one that is [indiscernible] that’s correct. And the reason for it is that the year before we harvested a lot more.

But due to the volumes and the safety and the low mechanization level, we actually started to work on the safety, so we started and then we started to mechanize it. So, now we are ramping up in Q3.

So, you will have some impact still in Q3 from the same issue?

Yes.

Okay. Would you quantify how much you expect that to be?

I can’t say how much, but I would say maybe €2 million, hopefully less.

Alright, thank you. Very helpful.

Thanks a lot.

Yes, hello. Good afternoon, everybody.

Two questions. The first one is a bit of a repetition where you talk about the operational challenges and after cartonboard division.

I didn’t quite catch the first thing. Was it a power fail that you talked about?

And then you said something about pulp production at Skoghall, could you please repeat them and elaborate?

Okay. So, the power failure in Imatra was that due to the way we operated, we actually got the blackout.

Okay.

And that’s not good in the process industry.

No, I can imagine that.

And that’s why I call challenges. And in Skoghall, we have invested in the pulp improvement and we have had problems with the quality and getting the pulp boiling at the right level.

At the same time, we have a gearbox that broke down. So, we got two things there.

Okay. And the pulp issue is that functioning satisfactory now?

We have a solution that we are working on right now.

Okay. And then the second thing would be around the Varkaus and this transformation on sort of the general paper-related question.

I mean, as we can see on Slide 30, if I read it correctly, you are currently curtailing 9% of your current capacity. And then you also write that the Varkaus 280,000 fine paper machines stopped in August.

Was that machine running during Q2 or....

Yes, it was up and running.

Okay.

And it will stop at the end of August.

Alright. And but then given those 9% for the curtailments that you are making, how do you view sort of the paper market, what should we expect?

So, the paper market is fairly tough right now and especially in the newsprint prices, they are still somewhat under pressure on certain markets. When you look at the publication prices, we expect them to stay relatively stable.

And we expect wood-free or fine paper to have increase in prices, but that news is challenged.

Okay. So, I mean what do you think is sort of a good or a level of curtailments that you can keep over time?

That is a very hard question. But I think the level of – when we are getting close to two digits, it’s not good, then you have to do something.

Yes, okay. Many thanks for that.

Yes, thank you very much and good afternoon to everyone. Maybe if I may just follow-up on that prior question just for clarification, say what is your current operating rate in your paper operation?

I know that you said that volumes, excluding 8% were flat year-on-year, could you give us bigger or the accurate or even better for the various parts of your paper operation?

Yes, I will give you some indications of it. And then are you talking about the Q3 or what we think in Q4?

Okay, in Q3 what we had in Q2?

One of both.

So, I would say when you look upon coated magazine in the high 80s, FC in Q2 – yes, I talk in Q2 and we expect coated to go up a bit into Q3. When you take FC, it was in the mid-80s and we expect that to increase.

Coated fine paper, around the 90s, and we – it’s over 90 actually, it’s 90 plus and we expect that to remain the same. Uncoated fine, high 90s will remain the same.

Newsprint around the 90s and we expect that will go up a little bit.

And these are your own – now you are referring to Stora Enso operating rate?

Yes, this is Stora Enso.

That’s great. That’s great.

Thank you very much. That’s very helpful.

Could I also ask about, yes, do I understand it right that the tailwind if you look sequentially Q2 on Q1? And if so, why is that given your hedges, which presumably should get some delayed benefits?

So as we write in the report, there were no sequential improvements. So in reality, the way I think you should read it is that, that’s including the hedges.

So if you wouldn’t have been hedged, it would actually been the tailwind – headwind, no tailwind any long.

And where have you had the headwind actually, in which markets or what is...?

You can see as we speak in Seppo’s Slide #12.

Yes. Linus, it’s Seppo, yes.

You also have to remember that then in Q1 report there was a big drop and change in the exchange rates as you get the regional benefits through balance sheet items like receivables. And now the exchange rates have been rather stable or bouncing back a bit and that’s also why you don’t see such a big impact as you saw earlier, so it’s stabilizing if you start the…

Got it. And given your – given today’s exchange rates, is it produced flattish as we look into Q3 as well, would you dare to comment on that?

Yes, it’s flattish, but depends of course how the exchange rates develop now after the Greece situation you saw to some extent.

Sure. That’s good.

Thank you very much.

Hi. Yes, good afternoon.

On the – you referred on this to the positive sort of trend in the pulp side overall combining the currency and what’s happened in the sort of dollar crisis, but if you break it down to various pulp grades, so the four main grades you are selling, I mean how did that sort of develop, were you negatively or positively affected in the long fiber side and how did fluff and dissolving pulp behaving and contribute to the profits in this quarter?

So, if you look on the – if you take the softwood pulp Europe, so it has been – if I remember right now, the pulp and I should say it looking forward, I think if the price is in euro is going to be positive, I believe with the current exchange rates. And that is – and the biggest positive will probably come from hardwood pulp and for China as well as for Europe.

And then you asked about fluff, to some extent, yes positive.

Okay.

Harri, Seppo, if you take a look at the past call to the biggest benefit I think is hardwood pulp. And that is, of course also at the same time in our hardwood pulp volumes have been increasing significantly since the Montes del Plata ramping up actually both.

Exactly. And are you seeing – and there has been some comments on the Chinese markets overall sort of slowing down in the last sort of few weeks, particularly in the long fiber side, but I mean are you kind of seeing something like that happening in the market currently or what’s the feel for the pulp – pulp cycle near-term?

We see sequential slight decline in volumes in China.

But you have to remember, some machines are now typically pulp market is a bit soft during the summer months. So, it’s difficult to say how the trend itself will be when people come back form the summer holidays and back to business.

Exactly. Okay.

And just one more question on the sort of the maintenance side if I may, I mean this it too early to ask about the Q4 sort of plans overall is?

I would like to guide one quarter in advance and given the volatility with all the stuff that we have been having, so I can’t come back in Q3 about the maintenance in Q4, if that is the case.

I understand. And that is of course, okay.

But on the broader level, I mean is there sort of similarity or sort of annual patterns or is there sort of asset base so complex that it sort of each year is going to be different somehow?

No. I have to think now, but the annual – but there are certain mills where you had 18 months shutdown on the recovery boilers.

And I don’t have that in my head. Sorry about that, but maybe – but it should be the same pattern.

Yes. And [indiscernible] I think this year’s Montes del Plata ramp related maintenance we had in March this year.

Yes. Okay, fantastic.

Thank you.

Thank you. A couple of questions, working capital as you said was a good inflow in the quarter in question, if I recall correctly you had a big outflow in Q1, how should we view this normalized going forward.

Was that a sort of swing between the two quarters that was unusual and I guess you did curtail some more production in Q2 actually you said in the release to improve working capital, so that’s one question. And I just wanted to come back to Varkaus because I am slightly unclear, as you stopped production of uncoated fine at the mill, how would that impact your fixed costs, do you keep your people until you restart again and if so does that mean your fixed costs ratio goes up.

And when you cease production of uncoated, will you continue temporarily to produce pulp and sell pulp or how does that going to work?

Okay. If I take the working capital part first, and then Karl can take the second.

On the working capital, Lars you have to remember that typically Q1 is the quarter where working capital is increasing after Q4 at year end, so to the extent seasonality. And when it comes to normalized levels of working capital, I don’t think that we are there yet.

As we have said earlier and also discussed in the Capital Markets Day, we are working on working capital and expect that we can continue to decrease working capital levels going forward. And maybe what we say and I said earlier that we can see that we should be able to bring it down by 2 to 3 percentage points versus net sales compared to where we have been, so there is still more potential to go.

Okay.

So, when it comes to – the system will stay because they will be trained to run the new board machine. And we will want to do certain adjustments to the pulp mill.

So I don’t expect any significant pulp to be sold externally. So you are right, we will have less sales, but we are also running certain of the paper qualities to stock, so we were selling out of the inventory as well.

But in reality, you are right, we would have less sales and we will have higher fixed costs on that until we got the board machine up and running by the end of the Q4.

And yes Lars simply you have to remember in the case of pulp, moving from hardwood pulp to softwood pulp as part of the conversion.

Okay. And just sort of from a reporting line, would this mill be transferred into the packaging solutions at some stage, I guess it will, but will that happen in Q4 or will that happen in Q1 next year?

It would – in Q3, the transfer – when we stopped the paper production end of August then it gets transferred to packaging solution.

Understood. And the final point and I guess on the FX component, so you are now effectively out of the less favorable hedges, is that so you are kind of more live now, is that the way to look at things?

Yes. Like I said earlier, now we hedge 50% of the next 12 months.

Well, so that’s true, so it’s early. But like I said earlier, of course you have to remember that there are big moves up or down, there is also bigger effect, was a one-time effect from balance sheet items and those that are not rolling forward.

So, that is, of course, a reflection here in the results.

I am sorry, just one final one. Can you please remind me what you are doing in the Imatra side?

I lost that. In terms of debottlenecking, what is the outcome when Imatra is done?

So, it is an investment to increase the cost obviously, but also the output of the Imatra mill by de-bottlenecking it.

It’s very important internal logistics in the mill.

Okay. And what should we expect in terms of potential increased output when it’s done?

It’s 20,000 tons, I think we announced when we went out with the investment and that was in Q4 last year.

Very good. Thank you.

Yes, hi. Thanks for taking my question.

With regards to the wood costs which of course is a key component for your operations. In the Nordic region, we have quite a few reference points for how costs are developing.

However, we know much less about the wood cost in Uruguay and in – for your Guangxi operation. So, could you perhaps tell us a little bit about the cost level for those two operations for wood if you are happy with that cost level and how you foresee or expect it to develop going forward?

Is wood cost in those two operations, how that developed something that we need to be aware of?

So, if I answer Uruguay first, I believe the wood cost is in the right ballpark. It’s a big difference in transportation cost versus if you compare it to Veracel, because it’s a lot longer, it’s in the northern part of Uruguay.

So, all-in-all, it’s more expensive than what we are having in Brazil in that joint venture. When it comes to China, the wood cost, since the plantation is under build up and there is another thing with this plantation is one of the very few FSC plantations at all in China of this size, so the prices are quite good.

But there is also a question of what they use for it. So if they are a good landowners, that actually is wanting to have certified chain of custody wood.

They are paying a little bit more, but still a lot of that wood is going into local Sun-Air Company. So, I am giving you a little bit of a wishy-washy, because we don’t really have ramped up the harvesting yet.

And during towards the end of the year, we will have a better understanding of the rotation as well as the total cost of the wood. It’s still a little bit, because we haven’t really harvested a lot.

Right. And do you see any reasons why you said in Uruguay that the wood cost is in the right ballpark, but my interpretation was that perhaps on the higher end of that ballpark, is that a wood cost that you can see that you could take initiatives to take that down?

So, we are working quite a lot on making sure that we get the transportation costs down. So, we are increasing the barges by taking it down the river instead of driving it on trucks.

So, we are working on it.

But in the case of Veracel, you have to remember that Veracel mill is in the middle of the plantations.

The plantation is right into the end of the mill.

Right. And in Guangxi, I mean I realized you haven’t made a decision on the pulp mill yet and that might be some time, but would the plantation as it stands now and then sort of the cost level that you have in there now be good enough for you to feel confident of putting a pulp?

I don’t want to go with it. The thing I can tell you is though that the harvesting cycle is competitive.

So, this is obviously one of the big questions where we are going to have a look when we start to look at the decision if we are going to take the decision of the pulp mill to the board.

I would also like to say that we are increasing mechanized harvesting at the moment.

Because of course efficiency and safety for the people that’s why we are actually behind what we logged year ago.

Right, thank you very much.

Thank you.

Yes, hi. I have two questions.

My first question is related to issues you had in Imatra and Skoghall. I wonder if you have calculated how much production you lost because of these issues.

And the second question is related to Montes del Plata, you mentioned that this mill reached nominal capacity in June and your aim is of course to improve the efficiency and operational issues. Based on your experience so far, if possible that in the long run, that this capacity is something else than 1.3 million tons on an annual level.

So, do you see chances to, let’s say, increase and to find a little bit more output from this mill? Thank you very much.

So, in the case of Imatra and Skoghall, the number that we are giving you is the effect of lost production and extra cost and everything. And I don’t want to open it up, but that’s the cost we have given you and I don’t want to share that, because we haven’t done that previously.

So, when it comes to the yield management of the pulp mill, you can probably over time increase the capacity, yes, but more importantly, it’s actually to manage the cost and the recipes to get the margin up. And that takes usually around 18 months before you get it into the right ballpark of yield management of the pulp mill.

And we have now been up and running almost a year. So, the normal – I tell you, usually you don’t read nominal capacity this fast, but for me, it’s more important that they work with the yield management and how much wood they need in and making sure that the quality is topnotch, so you get the best prices.

Okay, thank you very much. Very helpful.

Thank you.

Thank you.

Yes, good afternoon gentlemen. Three questions if I could.

First on the consumer board, can you give us some sense in terms of the pricing environment on consumer board, particularly in terms of liquid packaging given that you have seen sort of a 1.2% growth in the sales number and a slightly higher growth in volumes? Second question just in terms of since we have very strong performance on your corrugated division, could you maybe just talk about that?

And it looks like you have seen an acceleration in demand or volume trends in Q2 over Q1 with 5.5% growth in Q2 versus 4% in Q1 maybe just kind of confirm and maybe some dynamics around that? And then thirdly, the Varkaus conversion, the time to convert the mill seems to be very quick and maybe just give us some sense as to specifically what has to happen within that plant and why you were confident that the plant can be up and running and producing kraftliner by the end of the year?

Thank you.

Okay. Let me start with the consumer board and having that as an answer.

So, the prices are stable and there is a growth demand for that product. And it’s a product that travels worldwide.

So, that is part of the reason why volumes are going up and sales as well. When it comes to the packaging, the corrugated, there is an area where we are having our presence that is growing faster than the European average.

We are in the corridor, which is basically, we are taking the Nordic, Sweden and Finland, but then we go to the Baltic states, Poland and that corridor and that is growing faster. And our footprint of our corrugated units, are actually very close to where a lot of important customers are.

But you have to remember also that in what is packaging solution, which we call the corrugated unit there are two mills, today three mills. So, Ostroleka is ramping up quite well, and they are doing what we considered yield management, so into the Middle East and European market where they are very competitive.

So that’s one of the reason, so it is corrugated boxes they are increasing a bit, but also the output of Ostroleka mill. And then when you come to Varkaus, so the Varkaus conversion started actually basically at the end of the year.

The mill has been producing paper and preparing for the conversion. And a lot is done, a lot of the infrastructure is done.

Now it is actually the list and equipment, which will happen in the month of September they start and going into. And then when we start up and running, that means that we start to produce towards the end of Q4.

And then you need to trim that in for a while until you get the right quality and that’s a process of about 18 months as well before you get it in like Ostroleka. So unfortunately, we don’t get from day number one the yield management and the margin that we need, but it is looking very favorable and they have done a lot of homework.

Okay. Thank you very much.

This is Mikael Doepel from Handelsbanken. A couple of questions, starting off or continuing on the Varkaus, could you quantify what the costs will be for that conversion?

Yes. We have said the conversion, if I remember right, is €110 million.

Yes, that’s the investment, but in terms of the costs through the P&L which your are indicating now also there will be some in Q3, I was just wondering if you could quantify those?

I don’t have those.

No, it’s not really for the Varkaus conversion itself as such, nothing significant.

Okay. Then turning to the pulp markets, you discussed the volumes, the demand out there previously in China and what you expect there, but if you think about the pricing especially for the hardwood and softwood grades, what would you expect for the rest of 2015 globally, on average?

On average stable.

Okay. And then finally on the consumer board business, how do you see your market positioning, developing in that area, I know that you have a lot of various grades and various up cycles, but overall if you think about that business area, do you see yourself maintaining your market positioning or is there anything changing there?

No, I think we are getting actually stronger with – first of all we are getting some additional 20,000 tons out of Imatra when we are really at the end of September. Then we have the Guangxi mill, 450,000 tons.

Obviously we are going to aim at the end game to get as much as possible the liquid packaging board. But it will be other grades as well and during the start up we will probably have to train on lower grades.

But I see us becoming stronger in the consumer board area, in general. And there are a number of really interesting grades.

You have the CUK, you have some FSCB grades, you had liquid grades and so forth. So I would say that there is a number of interesting niches to go after in that market because consumer board is a collection of niches.

Okay, that’s clear. Thank you very much.

Yes. Good afternoon.

I have two questions. The first one is on Page 5 of the report where you show the bridge from operating EBITDA to cash flow from operations, you have a line showing other adjustments, which is at €21 million positive, could you please explain what that is?

And the second question is related also to the cash flow bridge, in the text below, you write that receivables and inventories decreased by €40 million and €90 million, respectively and payables increased by €10 million, that gives €140 million in flow on working capital, however you showed €126 million in the bridge, what is the difference, could you clarify, please? Thank you.

Yes. If I take the second one first, that is the fact that in the comments we are clear FX.

Provision.

Provision payments from the comparisons we have in the table. And then looking at the, they are non-cash items above EBITDA…

Is this normal provision cycle establishing and releasing in the year or is there anything specific in that you had a non-cash charge in the P&L that needs to be in the cash flow?

It’s normal, nothing extraordinary.

And for future quarters, should this be also modeled positively or...

Well, I think you can use that as a good estimate going forward.

Okay, thanks.

Hi. Thanks for taking my question guys.

Just going back to the paper division, given the capacity utilization that you mentioned earlier in the call on the Q&A, what was the major contributor then to your – to all that margin decline, because that was one of the worst margins you have had in that division for about two years and it seems you’re your utilization, it didn’t look that bad, so was this all pricing related or was it the mix related, what was the contributor to that?

It is pricing. And since we are strong in both super calendar and in news where we have been having, so to say the biggest price declines, that hit us pretty badly, because those grades are basically just under 50% of the total sale in those paper grades.

Okay. And is there an expectation, I know that probably some of the closures didn’t help very much on pricing for like the first quarter and the second quarter, but when do you expect to have some I guess some progress on improving prices in those grades?

So, as I have said before, newsprint going into the Q3 is going to be under challenge, under pressure. And when you come to publication paper, they would really a bit stable and wood free which is fine paper we expect prices increase.

And obviously, if this continues and hopefully something will happen, if it continues a long time, we will close some paper machine like we have done before. Every paper machine we know when they are getting cash negative, then we close them.

And is that something – is that a decision you make relatively quickly?

You bet.

Because obviously conditions change, right. So I mean if things continue as they are, for example in newsprint, I mean would there be something before the end of the year?

I can’t talk about that because then I am breaking the law, but I can only tell you, we act fast on these things.

And also, what will happen depends also what competition is doing, so difficult to know what people have in their minds.

Okay. Thank you for that.

And then on the Biomaterials margin, looking at it from an EBITDA perspective, I guess I was expecting given that you had a bit more ramp-up in Montes del Plata, I was expecting the margin actually to be perhaps better this quarter than it was in the first quarter and actually it was lower, so what’s the reconciliation there?

I think it’s what I mentioned already a couple of times that in Q1, there was this extraordinary benefit from stronger move in the currencies that was pushing the results a bit. Otherwise, I would say yes, there is a – as we expect and there was of course the maintenance works in MdP this year and especially Veracel sorry in Q2.

Q2 had Veracel.

Veracel of course is a well established operation and that historically has more significant effect for this MdP maintenance in Q1.

Okay, alright. So would you say the majority of that difference then is ForEx related with some contribution from maintenance?

More or less and some from FX, like I said.

Okay. And then just regarding your liability management, you did proactively pay down the 2016 bonds during the quarter, is that something we should expect to continue to see from you guys or will you be looking to perhaps set the market again at some point?

Like I said earlier, we are actively working to reduce our excess liquidity. We will act about a trillion, some €200 million, €300 million down compared to previous levels, but we are saying that we are targeting the company to go €700 million to €800 million.

This means that we, as a main activity, continue to pay down debt. But of course, there is an issue of managing your portfolio and let’s say looking at the market being down, so we might do some restructuring of the loan portfolio, but nothing concrete in the plans at the moment.

It’s more than going forward of the market development of course.

And is there a preference for, I guess, for fixed rate bonds versus perhaps bank debt or is it just dependent on where the best price is?

Where we have operated like I said, we are looking at the market [indiscernible], but there is nothing concrete in that.

And we feel a bit uncomfortable talking about it, because some of you guys are also debt investors.

Yes, okay. No, it’s just a general question since you were proactive about it this quarter.

Okay, thanks guys.

So, thank you all for sharing this hour with us and for very good questions. I just want to remind you all we did actually grow if you take away the declining paper and the sold businesses.

We manage to keep the 8.1% despite operational challenges in Imatra, in Skoghall and in Guangxi when it comes to lower harvesting volume and we did deliver a strong cash flow. Thank you very much.

Thank you.

Okay, thank you.