Stora Enso Oyj

Ulla Paajanen-Sainio - Senior Vice President of Investor Relations Karl-Henrik Sundström - Chief Executive Officer Seppo Parvi - Chief Financial Officer

Mikael Jafs - Kepler Cheuvreux Linus Larsson - SEB Enskilda Robin Santavirta - Carnegie Investment Bank AB Mikael Doepel - Svenska Handelsbanken AB Harri Taittonen - Nordea Markets Justin Jordan - Jefferies Group LLC Lars Kjellberg - Credit Suisse Antti Koskivuori - Danske Bank Alexander Berglund - Bank of America Merrill Lynch

Thank you. Good afternoon to everyone and welcome to our Q4 and full year 2017 earnings call.

I will hand over this call first to Karl, our CEO, and then our CFO, Seppo. After that, we will have a Q&A session.

So, Karl, please go ahead.

Thank you, and good afternoon or good morning depending on where you are in the world. So we released today our Q4 and full year results.

And I would like to start with saying, that the headline is all about accelerated profitability. Sales came 3% better than the same period last year, but excluding Paper that's actually up 6.2% and that's for the fourth consecutive quarter in a row.

For the whole year of 2017, 7% our product and services are new, that means they did not exist three years ago. That is almost the doubling compared to the same numbers in 2016.

That means that our focus of innovation is actually paying off. Operational EBIT at €280 million, that is up 47%.

And we reached actually an EBIT margin of just above 11%. Cash flow strong.

Operational return on capital employed, over 30% for the second consecutive quarter. And we continued with a strong cash generation and consolidated our balance sheet to net debt to last 12 months of EBITDA is 1.4 times.

And the profit improvement program is going ahead and delivering a support to the earnings expansion. So the other part is that we also proposed an increased dividend from the Board to the AGM for the third consecutive year.

And for me, this is a vote of confidence by the Board in our strength as well as our transformation journey. So we will propose from the Board a €0.41 or 11% increase versus €0.37 that we paid out last year and that's very important for us.

I always have this slide and that's basically demonstrating the strength of our transformation. As you can see, going from the 7.8% of operating EBIT margin a year ago to slightly more than 11% this year is explained by to get it extend to pay high, which driving €29 million, and I will come back to that later on.

You get €39 million coming from Packaging Solutions, of which a great part, almost half of it is coming from Varkaus. And then you have basically two equal parts, which is coming from China Packaging as well as strong pricing development in our board mills and our board products in Europe.

When it comes to Biomaterials, we are up 21%. And here we came in a little bit short from any expectations, and there are three reasons for that.

We had two annual shutdowns in Veracel and Skutskär explaining part of that. The third one was that we had some startup problems in Skutskär and the last one is that we had some external contracts that we entered in early 2017 with long-term pricing that is now terminated, but that now said, we missed an opportunity in the second half of 2017.

Wood Products up €8 million, driven very much around the expansion in Murów and the ramp up of Murów, as well as in a number of smalls. Paper down 18, basically explained by Veitsiluoto and lower volumes.

And then you got €8 million from others and that is basically coming all from the forest associates Bergvik and Tornator. 2017 was a busy year and we have been working a lot with ramp up of new products and that is being explained in improvement of the financial performance.

We had made a letter of intent aiming at the structural change in Bergvik Skog. We have done a number of investments and divestment enclosures Kvarnsveden 100,000 tonnes of SC.

We have sold off Puumerkki. We have sold off Bulleh Shah.

And then of that CapEx of around €350 million, we are focused - which is not the maintenance CapEx, we are focused quite a lot of driving improvements in the product portfolio, all enhancing capabilities in our growth areas. I'm very, very proud to announce that Beihai reached breakeven and in the fourth quarter as we promised.

And that is excluding any insurance compensation. The ramp-up continues ahead of plan and the consumer board machine reached actually in the fourth quarter design capacity.

This is a project that took 18 months to build and that was on budget and on time. We have probably done the fastest qualification of liquid board ever made and now we've been able to reach design capacity of the board machine in the fourth quarter, including EBITDA clean breakeven.

Now on, the Beihai Mill will not be separated, disclosed. And the reason for that is now we are going in the global product portfolio, Consumer Board, and you will be able to follow it from there.

But I think with the achievements with our mill in China, I think everybody can conclude that it's been very successful. Before handing over to Seppo, I'd like to say that the transform journey - transformation journey continues.

And now in the fourth quarter of 2017, 71% of the profit - of the sales and 84% of the profit comes from the growth area. And I think you can see that the strength of the transformation is very visible in this report.

The floor is yours, Seppo, please continue.

Thank you, Karl. And I start with the financials that we nicely summarizes the - actually the profitable growth that we demonstrate with the report today, as Karl mentioned.

First of all, looking at the top line, our sales growth, for the quarter, sales is up 3%, and like Karl mentioned, that our fourth quarter in a row. And that then comes down to 2.5% top line growth for the full year.

So reaching slightly over €10 billion, when comes to sales line. Operational EBIT at €280 million for the quarter, up 47% year-on-year, and full-year operational EBIT, also clearly better than a year-ago reaching €1 billion.

Operational EBIT margin for the quarter 11.2% and also for the full year we had a double-digit operational EBIT margin 10%. Earnings per share €0.22 for the quarter, that is up from €0.12 per share, a year ago for the fourth quarter.

And full year earnings per share €0.79, that's up from €0.59 than a year-ago. Operational return on capital of 13.5%, this is a gain second quarter in a row with return on capital above the targeted 13% level.

Excluding Beihai operations fourth quarter return on capital employed was 18.7%, and 14.3% for the full year. Cash flow from operations also continued to be strong for the quarter €519 million, up almost 13%.

Full year of €1.5 billion, slightly below 2016, that's because the reduction of working capital is now less than in the past. And that's to tell you, you should remember that we have brought down our working capital significantly over the last four years.

And of course, the lower gets the rest - the more high it is to reduce. But we are very happy with the level, we are now below 11% of turnover, which starts to be our targeted level, but we believe that there is still more that we can squeeze out from the working capital going forward.

Also net debt, the last 12 months operational EBITDA came significantly down from 1.9 a year ago to 1.4 at the end of this year. Then moving to Consumer Board, and our divisions.

And there, Karl already highlighted, we are proud to confirm that Beihai Mill reached operational EBITDA breakeven as promised. Sales were up 10%, thanks to improved volumes, sales prices and mix in Beihai.

Operational EBIT improved 82% to €69 million. Our return on capital excluding Beihai operations was 32%, also a bit improvement of over 1 percentage point.

And Beihai ramp-up continues ahead of the plan. We also announced our new investments during the quarter, CTMP investment at Imatra Mills in Finland in October, and also completed some of the previously announced investment projects by PE coating plant in Beihai and Imatra, also a Chemical plant at Skoghall Mill in Sweden and MFC investments at Imatra and Fors mills.

Then moving to Packaging Solutions. There again, we saw record sales and profitability sales up 18% to all time high Q4.

Operational EBIT also record high at €58 million that is coming from higher sales prices especially in containerboard, good sales mix management, operational improvements in China Packaging. Also I want to highlight good performance in Ostrołęka in Poland.

As well as kraftliner business in Varkaus, where we are now also meets profitability target or level that exceeds what we originally set as a target for the investment. And this confirms the success of the conversion that we made at Varkaus.

And we're extremely with the performance there. Return on capital 26.9%, also excellent improvement compared to a year ago when it was 8.8%.

Then moving to Biomaterials, a favorable pulp-pricing environment has continued. Sales up 4% and operational EBIT 53% reached €61 million.

Sales and profitability was affected, as Karl mentioned, by higher maintenance costs because of the scheduling of the maintenance worse compared to a year ago, and external contracts affecting the pricing or prices for the contracts. And there was some issues with the startups after the maintenance works done, affecting the profitability.

Investments in a Xylose demo plant Raceland is moving ahead. And we have come into commissioning phase now and expect to have commercial - first commercial deliveries now during the year that has started.

We also announced a mill investment, €52 million at Enocell Mill to increase dissolving pulp capacity. That is the second step when we are converting Enocell Mill to dissolving pulp.

And this was announced in October. This is also fully in line with the strategy we have announced for Biomaterials, where we concentrated our new liquid pump mill to some specialty pulps.

That is the same case with Skutskär Mill, where we are now proceeding ahead full-speed with fluff pulp investment project, and expect that project to be completed in second quarter of this year. Then moving to Wood Products, we also gained a highest ever Q4 operational EBIT.

Sales increased 6% excluding divested Puumerkki and the Baltic wood supply operations that we transferred to the segment Other earlier in 2017. Sales increase is reflecting growth from strategic investment at Murów in Poland, Varkaus LVL and Ala pellet mill.

And I said it was highest ever fourth quarter operational EBIT, that is thanks to improved net mill prices, increased share of value added business, one important decision that we have taken and that we are moving and implementing fully for the business. Ramp-up of the LVL production at Varkaus Mill continues, and we expect to reach full production in mid-2018.

Also CLT investment in Gruvön, Sweden is proceeding as planned and there we are scheduled to begin production during the first quarter 2019, so more or less a year from now. In Paper, here also we are happy to confirm that they are back on track.

They had a small hiccup in Q3, as you might remember. And already then, we told that we are confident that they are coming back and that is the case now.

Cash flow after investing activities to sales ratio was 6.3%, only slightly short of the targeted 7% level. But sales and operational EBIT decreased somewhat.

That's mainly because of the incident at the Veitsiluoto Mill, here too during the second half of the year. Then a couple of verses about the Nordic wood supply situation that has been sort of a hot topic before, here and after, because of the mild winter weather conditions in the Nordics.

But there are some possible limitations of Russian birch plywood exports that may cause disturbance also to pulpwood exports. But we are very happy and I'm pleased with our wood sourcing organization in Finland and Sweden that has been doing excellent work here and actively manage challenging harvesting conditions and enables stable wood inventories at the end of the year and that they ensure undisturbed wood supply to our mills.

There is of course some financial impact of this particular drama. We expect the financial impact to be only marginal.

But that means single million so nothing big. Then to end my part, about the strategic topic, the strategic targets, there like the title says, steady progress continue in the right direction.

And as you see, a lot of the targets are green or yellow. Actually, there are still some red ones, red spots that we need to work on to be fully happy and satisfied when it comes to the strategic targets.

We are happy about the growth. We are growing faster than the market, and I don't think, there's many peers that can demonstrate growth of 6% during the quarter or 8.5% for the full year.

Also our debt metrics are moving to right direction. And I see it is getting stronger, and operational return on capital employed, that Karl mentioned for the quarter was above the targeted 13% level and 11.9% for the full year.

We still need to bear and keep an eye, of course, on fixed cost to sales, where we are at 25% level, but we are confident that the target of 20% is fully reasonable - reachable and realistic, means that we need to keep our eye the cost structures also continue to work on our internal processes and to ensure internal efficiencies knock out costs from the system, and of course, to grow the top line. Then we look at the divisions.

Also there we start to see green and yellow, Consumer Board excluding Beihai at excellent level for the full year at 36%. Packaging Solutions, like I commented earlier, excellent performance and improvement versus a year-ago Q4.

Clearly, above the targeted 20% level at 26.9%, and full year, I think, more or less at the targeted 20% level. Here, our Biomaterials at 10%.

So below the 15% targeted level, but like mentioned earlier there were issues with operational startup after the maintenance works as well as these external contracts that have affected our average price for the quarter. And to make that schedule changes.

So there also we believe that we are sort of coming back on track going forward. Wood products, barely increased the strategic target of 20% in November from 18% that it was earlier, and there also for the full year, I think that they're at 20.5%, so really reaching the revised target.

Again, a proof of point that they are, and the new level, when it comes to profitability of the business. And Paper, where the target is 7% cash flow after investing activities during the quarter 6.3% and for the full year 5.5%, so strong, good cash flow generation continues at almost at the targeted level.

With that, I'll hand over to your, Karl.

Thank you very much, Seppo. And I will now go through the guidance.

So sales for the first quarter of 2018, our estimate to be similar to or slightly higher than the amount of €2,511 million recorded in the fourth quarter of 2017. Operational EBIT is expected to be somewhat higher than €280 million recorded in the fourth quarter of 2017.

We have no major scheduled annual maintenance shutdown in the first quarter of 2018. And then, just before we go into the Q&A session, I'd like to sum this.

Sales growth, four consecutive quarters in a row, which makes us very pleased. 7% of what we sold in 2017 did not exist three years ago, we classified that in accordance with many industries as new products and services.

The project of strategic importance, the product mix and the favorable prices that we have live with for a while now drive profitable growth. Sales growth, as I said, in the fourth quarter 3% for the totality and excluding paper 6.2%.

13.5% in return on capital employed, second quarter in a row of about the targeted level for 13%. Solid cash flow generation, strengthening balance sheet, we proposed a higher dividend today AGM and we are continuing to move from asset transformation to innovation and sales transformation.

With that, I'd like to open up for the Q&A session. Ulla?

Okay, thank you, Karl. Yes, we go now for the Q&A.

Yes, hello. Good afternoon, everybody.

I have two questions. The first one is about your growth CapEx.

You're indicating €350 million for this year. And then, my question is really how should we think about this in a mid-term perspective?

Are you sort of - do you have a long pipeline of similar projects as you describe on one of your line slide or should we expect this to gradually decline? That's the first question.

And then the second question is around paper pricing. We've read in [Regency and Cern] [ph] that for some paper grades, there is quite substantial paper price increases already seen in January.

Could you give us a comment on how you see that situation? Thank you.

Okay. If I take firstly on capital expenditure question and then Karl can take the paper pricing.

First of all, if you look at our CapEx guidance this is €550 million to €600 million. Typically, how our maintenance CapEx is, is around €200 million, €250 million.

And forestry CapEx is about €100 million that is needed for the replanting at the plantations. So the rest then €350 million can be used for development projects and growth projects.

And this starts to be now in line with the guidance we gave I think two, three years ago, stating that we are bringing down our capital expenditure to be at par with the depreciation. And we are there now.

And at the moment, we believe and we can also see that this is a sustainable level, 11.4 [ph]. Of course, it's natural but there can be years this is slightly up or down.

But I think this is pretty good level.

So just to give you a little bit more flavor on that, Mikael, it's - and then we have the requirement for return. We are having basically for three divisions with 20%.

But - and that's very simple to understand. We invest and we have a lot of possibility.

That gives a very good way for your organization to start to pick and choose, because we believe that it is sustainable. There you have pulp, which is lower and then, and basically, in paper it's all around cash generation, but also making sure that we keep the boilers up today to don't take any risks.

So that's the way, and I can tell you, it's a lot of project that we have to go through and especially with Seppo. When we think about paper prices and we see movements for example in many grades that is on the right direction.

And then, I would like to say that - we say that slightly higher prices coming up. I'm not sure it's - I believe it's the level of what is really risky [ph].

That's one. But it's going in the right direction.

Okay, many thanks.

Thank you.

Yes, thank you very much. My first question is in relation to the changes now happening at Bergvik.

And I wonder if you could share some of your strategic thinking around backward integration and forestland. What should we expect you to do for the long-term when it comes to your Swedish forestland holdings?

Thank you.

So in November last year we signed a letter of intent. And that is to do a new structure out of the old Bergvik.

Basically, it was Bergvik Vast and Bergvik Öst. Bergvik Öst was - they had sole supplier-ship to our - one of our biggest competitor in certain area.

And Bergvik Vast had the sole supplier-ship to Stora Enso. With that, it was linked with a long-term wood supply agreement that expires at the end of 2018.

And in the bioeconomy, I think it's very important to make sure you have control of your raw material and especially for the mills, that - the Swedish mill, excluding Nymölla and Hylte, which has a different way. They are supplied by Sysde [ph], this is crucial.

So that's the reason why we decided to slip Bergvik up in this letter of intent that we're now working on. And the progress is good and it's going to take some time to get to the final execution.

But that's the reason. So in simple words, just if you believe in the bioeconomy you need to make sure you have wood supply.

Excellent. So in other words, your intention is to also maintain full ownership of your part coming out of Bergvik.

Absolutely.

Excellent. And could you also tell us about the time line for the process, when the expected, that the Bergvik situation to be resolved?

So I would say the following. I think you would see - we will start to comment that in Q1.

But I think things will start to happen in Q2, Q3. That is the trend right now.

But I tell you, it's not easy negotiations and it's many parties involved.

That's clear. And one more question, if I may.

It appears that the Varkaus conversion has been very successful and you have - obviously, you've had support from good markets as well. What scope is there in the group for further similar projects going forward?

Could you tell us a bit about your work on that side, please?

So we are looking and, obviously, we have, but I will not share that with you. But one thing of having an infrastructure, and small and medium size pulp mills, makes things quite attractive.

But I just want to remind everybody that we built that mill for one-fifth of the value of building it greenfield. And I know how many of you were critical when we did it.

So, obviously, this is a good lesson for us for the future.

Very interesting. Thank you very much.

Thank you.

Yes, hello. Thank you.

I was wondering if you could comment about Beihai and especially the board machine there. What is the sales mix at the moment?

It appears that you are producing at capacity, but only generating EBITDA breakeven. What are you selling at the moment and what is the production targets for this year?

And I will be happy if you could share some light on the mix as well. So how will that progress during this year?

So in the Slide on Page 7, you can see that the majority until the end of the year has basically been second grade and waste training people. The second biggest that's been folding box board.

Not the highest quality folding box board, but folding box board. And the smallest parts have been liquid packaging.

But we have delivered liquid packaging. And I think it's a huge improvement in a very short period to reach at a sign capacity in such a short period.

The other thing is, if you look at that graph, you'll see the mix. So we are facing out second grade.

And there, we are increasing over time to liquid, and that's basically international prices on that one. So that's the journey.

So that's why I feel very comfortable.

Targeting Q1, I mean, versus Q4 with this delivers…

You tell me, anyone who has done this faster better than us.

No, no. I understand that.

I understand that. I was just wondering, the proportion of second grade appears to be quite high.

Is that, it cannot be due to the properties of the machine, it must be due to the market. From what I understand the market is extremely tight in terms of virgin fibre cartonboard in China and in Asia, overall at the moment.

So why aren't you producing more folding boxboard than…

Let me tell you, obviously, we are trying to increase - they wrap-upped with the liquid, we are doing as fast as we can, and making sure that they are ready to take it, the ones, because they need it in China, but they also to criterion and how fast you can ramp-up with a big converter. When it comes to folding boxboard, we are going as fast as we can.

And the new Chinese legislation, we come into force March 1, this year. So depending on how hard they will do it, we will see really what's happening to other grade that is based on recycle.

Because if they aren't as hard as the legislation is and we'll implement it as hard as they have said. Then it will be a lot more folding boxboard, prime grade in Beihai.

But we don't know that yet. Those are know that some of the big companies in China as already ordered OCC and recycled paper based on the old purity of 1.5% impurity.

So we don't know, but obviously it is to make high quality folding boxboard and ramping up the liquid as fast as we can.

Also - and also you have to remember that when it comes to second grade, it's part of the ramp-up process that you have second grade quality centers. As you see in the top build.

I understand. Thank you.

And then one more if I may on costs. Could you comment a little bit about the input costs outlook for this year past, especially in terms of wood procurement costs.

What are you seeing? And what do you expect for this?

And what do you expect overall for the cost inflation in 2018?

Yeah, I think, we don't see a big difference compared to 2017 in the big picture. I think cost inflation, at present as such, are relatively small.

They are somewhat more raised there than the wood prices but no drama there and oil chemical prices. But I would say, overall, the picture is quite good.

And also a big positive is that we have been also able to increase our selling prices, compensating for the higher input prices. So it's well under control and manageable.

No, no, no, it's not the main topic in that business at the moment.

Okay. Thank you.

And just a short one. Finally on - could you comment on the cost impact of the problems you had in Montes del Plata and Skutskar in Q4?

And are those mills now up and running well? Or is there still some tales of those problems going into 2018?

They are now out of it, and they are going ahead. So they are working quite well.

Effective in my monetary terms, we did - actually did comment on this, but we are - yes, talked about something on mills.

Okay. Thank you very much.

Thank you. First a couple of follow-up questions.

Firstly on Bergvik, you gave the expected impact on your debt and cash outflows if and when you do that deal. But could you shed some light on what kind of an earnings impact do you expect to - that deal to bring to your numbers if it materializes?

I don't really can disclose that. I think the debt matrix and the balance sheet impacts this.

But obviously, by eliminating a counter party in between, we will get gains. But –and then I would say that we expect them to be able to take that down in the costs, the integrated costs of - for the total flow inside Stora Enso.

And then, obviously, avoiding any risks of price increases if there was somebody else owning this property because it's a huge part of our wood supply for all the mills, Gruvön, Skoghall, Kvarnsveden, Fors, Skutskar and all that. And we believe that the forest in that part of Sweden is probably the most productive and then they might - it is really good with the growth of 3% to 4% per year.

Okay. Thank you.

Then on coming back to Beihai. As you said, it's been good progress on the ramp-up and volumes are coming up quite nicely and you reached EBITDA breakeven in the quarter.

And I understand that you are not giving the exact numbers anymore. But perhaps you could shed some light on when you expect to reach EBIT breakeven on that project.

I don't think you have to be Einstein to see the trajectory. And if you use a little bit imagination based on the EBIT breakeven, Q4, and take the growth on Page 7 you come to that pretty fast.

But we have decided not. Now this is part of the global product offering from Consumer Board, and we will focus on that.

We don't disclose Skoghall, Imatra, Fors and Ingerois. So that's the way we have decided.

And it was - and so, the ramp-up phase we wanted to help you to understand the negative effect on our results. But now it's coming more to business as usual and that quite for volatile [ph] for the total portfolio of Consumer Board.

And also, given the complexity of start-up of liquid board machine, we know that from the history of Stora Enso, that has been complicated.

Okay. Then, just a couple of short questions then on - on first of all on Q1, there are no maintenance, bigger maintenance shutdowns in the quarter.

But could you tell us what's the delta in terms of maintenance, Q1 compared to Q4?

And so, it is between - so the quarter on quarter, so there will be €50 million to €60 million less maintenance in quarter one, the impact.

Compared to quarter four last year?

And why do I say €50 million to €60 million and not an exact figure? Because it is a bit of a movement, especially on the impact side.

Now if we keep the machines down at a certain level, we want to do the short maintenance breaks.

Okay. That's clear.

Thank you. And then a final question on pricing, you gave some comments on paper pricing.

But what do you see in terms of packaging prices going forward now? And also what 's your take on the pulp price?

So I can give you it and I will tell you. So Consumer Board Europe, prices are slightly higher.

Consumer Board China, stable. But here is what's happening with the recycled paper.

It's a joker. Kraftliner, stable.

RCP containerboard, slightly lower. Corrugated packaging, stable.

Softwood Europe, higher. Then to pulp, I mean, to pulp now, we also for the pulp as well.

Hardwood European pulp, higher. Fluff Europe slightly higher.

Softwood China pulp, slightly higher. Hardwood China stable, dissolving China pulp slightly lower.

Okay. That's clear.

Thank you very much.

Thank you.

Yes, good afternoon. The - how big sort of a disturbances do you expect from the pending conversions of the power plants at Skutskar and Enocell?

Will that sort of incur any sort of particular costs in sort of mid this year or later on top of the usual maintenance?

We try to include what we know in estimates that we give. But - so I - it's include - whatever it's included when we know it.

But if it comes additional, then we'd probably have to give it in the comments like we did right now. Because, conversions are a bit sensitive, especially you go from one grade to another and you have a stop, et cetera.

So - and you can't have startup problems. So when we know it, we include it in the guidance.

And if we have extra, we tell you.

Okay.

I mean, I think, if things go as we assumed in sort of good material.

No.

Yes, yes. Okay.

You gave quite a good summary of the price expectations just - in the previous comment. But if you look at the consumable division and if you see that the European prices are up a little bit and the - sort of improving the price mix in China in a stable - otherwise, stable environment.

But what will be the kind of the best guess for the - kind of the business area…

So I will be clear, when I said Consumer Board, it's actually the FBB grades in Consumer Board. It's not the liquid.

The liquid has long term.

Exactly.

They have long-term. Yes.

You have to be clear.

Exactly. That's what I was kind of partly offset that you have the big part of the business, in that business.

So basically what sort of average price increase could we be looking at, including the - sort of the very high price mix and the FBB liquid packaging board mix? I mean, is there any…

I'd say, slightly higher, right. If you were to - you'd be last to understand what I say.

Well, I hope so. Thank you.

Okay, the last question, I mean, just sort of a - really a double, confirming your guidance sort of a policy. And when you say somewhat better, I mean, that it means basically 10% to 25% improvement roughly compared to the Q4 level.

And that's what you - in numerical ways you're saying?

That's correct.

Yes, yes. Okay.

Thank you very much. Thanks.

Thank you. Good afternoon, everyone.

Switching divisions. I just want to talk about Packaging Solutions for a second.

I just wanted to just clarify something in your disclosure. When you talk about board deliveries external, a number of 274,000 tonnes in Q4, this is your deliveries to external customers, so your - essentially your market board exposure.

This is obviously as distinct from what you use internally to make your Packaging Solutions. Am I correct?

You're talking about the containerboard external deliveries 1000 tonnes that's the question. 274,000 tonnes.

Just to clarify the 274 numbers that you're approaching for Q4 2017. That is the number, I should be using or just north of million for the year calendar 2017.

That's the number that we should be using in terms of trying to think about sensitivity to changes in, let's say, benchmark kraftliner or testliner prices in Europe in 2018. And that's sensitively…

Absolutely, right. So this - we are long in board in Packaging Solution.

And that is how long we are in board. We are not using everything internally.

We are selling mostly outside. So you're absolutely correct.

And in that is Heinola, Varkaus, Ostroleka. So it's - it is RCP board, it's kraftliner and its floating, semi-chemical floating.

Thank you. And obviously, your major kraftliner and testliner have Fuser [ph] two days ago talked about achieving some price increases in February.

I believe, €50 a tonne in kraftliner and €40 a tonne in testliner. Is that something that you've targeting similarly?

Or can you comment on price increases that may be possible in Q1 2018 for these grades?

So what I said quarter-on-quarter is that kraftliner, it is stable. We believe it's stable.

And for RCP containerboard, we say, slightly lower.

Okay. All right, okay.

And, I appreciate you've given very detailed guidance on pulp prices and the outlook for 2018. Just one very small question, probably really for Seppo, I guess.

The tax rate for 2017 was slightly lower than I think many of us were expecting. I think longer term, you talked about aspiring or getting to a 20% tax rate.

But specifically for an income statement for 2018, what sort of tax rate should we be expecting at a group level?

Well, I think like I said earlier, that longer-term we expect to be stay around 20% simply. And for modeling purposes a 20% effective is a good figure.

We were a bit lower in this quarter. If I remember 17%.

17%, 18%.

Yes.

Yeah, okay. All right, listen, thank you very much.

Okay.

Thank you. If we could start to come back to the guidance for the quarter.

If I do look at the maintenance costs, you called out the step change that's about 20%, slightly higher pulp prices, better paper prices, better mix at Beihai, not much cost inflation, and then I would assume a negative FX. But why don't we see a bigger pickup given all the other positive components and you basically have all of it in maintenance cost.

What are the offsets?

You split that out Q1 versus Q4.

Correct.

I don't tell is mitigated by the books [indiscernible].

Yeah, we see - yes.

And in operator a bit more.

Why you say that?

Basically, you just called out maintenance would be lower to the tune of €50 million to €60 million. That alone would lift numbers 20%, broadly speaking.

And then you have positive price mix, Beihai, better pulp prices, some paper prices, not much cost inflation. And you call that not much impact from harvest issues in the Nordics.

So how do we not come to an appreciably higher number than 10% to 25% higher EBIT sequentially? What are the offsets?

So we have slightly lower on RCP containerboard, which is Ostroleka. It's a big machine.

We have slightly lower on dissolving China, which is most of all dissolving. And we are having salary increases coming, which is part of the normal.

So when we do the numbers, we feel that it fits quite well with our guidance.

Fine. And in terms of FX, how should we view that on a sequential basis.

I think you call that €23 million in Q4. Is that more material headwind in the first quarter moving from today?

As you know, our policy is to - as you know, our policy is to hedge 50% of the coming fair amounts cash flow. And as you know, Dowhasty [ph] recently moving somewhat gains us if you look at the business of, so it is slightly more negative but no drama there either.

We are talking about relatively small differences between the two quarters.

Right, okay. Just want to come back to Bergvik as well.

I appreciate what you say in the bioeconomy, et cetera. Would you then consider to increase your ownership of trees or - because you obviously also called out that owning this landmass will depress, I think you said, your return on capital by about 100 basis points.

So I guess you weighed all the pros and cons. But to lower returns by 100 basis points is pretty sizeable.

So why could you not make a long-term agreement again within the framework of Bergvik as you must be doing in Sweden, for example, in the wood supply agreement as opposed to having it in your balance sheet?

So the discussions - obviously, that was one option, so yes, extended for another 15 years. That option was not viable, not because we didn't want.

Right.

If you think about the bio-economy, the strategic importance of forest assets and biomass. It's also I think a different view in that, we are as a company on value and important strategic, when it comes to forest assets that we had conscious at the time when Bergvik Skog was set up.

Understood. So the question is would you be asset…

So you - I still remember your last questions. But go ahead, please.

No, it's a - the question is would you be interested in acquiring more forest lands if that was an opportunity?

It's very much depending on where it is. But we don't have any other place where we actually have so much of the wood supply from one source all around our mills, like in this part of the Bergvik Vast.

It's a bit of a unique situation. And as you're right, it's 1% on the return on capital employed, and it's 0.6% in net debt to EBITDA.

And if I remember right, we have a very well working relationship with Tornator, but that's only 10% of our wood supply in Finland while the wood supply from Bergvik is much, much higher, especially if you only look upon the mills, as I mentioned, Gruvon, Skoghall, Kvarnsveden, Fors, Skutskar and Ala. So it's a bit of a unique situation.

Understand. That would be about 50% of all your Swedish wood mix, if I recall correctly.

Is that about right?

No. You think it's, no.

The only number we've given before is 50% of total Sweden, which means...

But that's one…

Yeah, on total. But they do not supply to Hylte and to Heinola, because they're getting it elsewhere.

So that's telling you a bit of importance.

Understood. Just two more questions if I may.

Just on Beihai because that is interesting, and you've done an incredible good job in ramping it up so quickly. I guess, Slide 7 is slightly misrepresented here when it comes to the production levels because you're already at close to 400,000 tonnes.

But should we look at the sort of split between the different grades, the fact would still be appropriate if we run the same chart by calling it 400,000 tonnes. Is that the way we should view it?

And also if you can just shed some light, because you are operating in China, of course, on the Chinese situation. What we can read from the outside is that December and January seems to be very week when it comes to board production, a lot of board mills taken downtime, which maybe a seasonal impact of course ahead of the Chinese New Year.

But are you sensing, seeing anything of this in your December and January demand? And if so, do you see a pent up demand post the China Lunar New Year?

If you can shed any light on that, that'd be helpful.

Yeah. So I would like to say the run rate was that - we've passed the 450.

That's why you see the steepness of the curve. But coming back to China.

The situation in China is the following. It is very unknown, what's happening.

When they stop the import of recycled paper and put a law that it has to have an impurity rate of 0.5 percentage point. That is impossible to get without processing the paper, okay.

If they are serious, like they say they are, it's going to be very, very hard. And even in this legislation, they want to close down a lot of the small mills that is under 300,000 tonnes.

But we don't know if they're going to go for it, soft implementation of this new legislation and admit under a certain period, 1.5% impurity, which is the legislation today. And we will not really know that until early March, when the new law is enforcement.

So if it is going to be according to what they have state and they have done the same in plastic. They are not taking in recycled plastic into China or scrap metal or certain impurity levels as well.

So if they are playing this hard, and it's fairly high up in the new plan, that means that, it's going to be very little recycled - a board or paper in China, it's going to drive the demand of virgin pulp to a higher extend. And that will be - have an effect on the whole Chinese market.

But right now, we don't know, so we are following it this daily. We do believe that the trend is there, which means that, virgin products in China is actually going to have a better future than recycled.

Maybe, I just come back on your question on guidance. Just a reminder, what you need to keep in mind also is the impact of the winter quarter, so to speak.

And that means employees and forest associates, the harvesting volumes are particularly seasonal. And that has an effect also of the results.

I mean, the cost, of course, was higher in winter, in the month. So that's having an effect in the guidance as well because of the typical seasonality.

Okay. Karl, I think you - I appreciate your for the long and medium term response because that's - what you had talked about.

I was more thinking about the near-term sort of demand trends in China? And what seems to be very slow demand and a lot of downtime taken also from virgin fiber Consumer Board mills?

So usually, I think it's next week on Thursday, Lunar Year starts. And that's historically in all industry it's slowing down, because the gifts and the products has been made already during December.

So it's historically a slowdown in all industries just before, and then it takes a while to start up after the Lunar Year.

But you're not seeing anything strange or awkward in your order books. It's kind of normal as far as you're concerned?

Yes, yes.

Okay, very good.

The only thing is that a lot of newsprint is right now going from Europe to China.

Why it is that?

Because of the recycled paper.

Understood. Very good, thank you.

Thank you.

Yes, thank you. Maybe two questions from my side.

First being on Consumer Board and deliveries in Q4. When I looked, the deliveries, excluding Beihai, they were up 30,000 tonnes or so year-over-year in Q4.

Is this due to the capacity creep at European mills or whether something exceptional in Q4 seasonally in 2017 versus 2016? That would be for first question.

The second question, I would like to come back to you on FX and maybe you would - maybe you're willing to share some thoughts. How do you see the FX impacting you in 2018, if we assume that the spot prices would prevail during, throughout the year?

Thank you.

So one of it is regarding having slightly better output of the Europeans, if you exclude - is that we had good production, both in Skoghall and in Imatra in the month of December and that's what you know personally. That - it's good operation I will say.

When it comes to the FX, if I know the FX, I probably should have the different jobs. I will ask Seppo to help me on this one.

Unfortunately, Karl, I don't have a crystal ball with me. But last year, following your FX from - FX was €50 million negative.

So the net effect for the full year. And Q4 was €23 million group level.

And assuming that guidance [ph] rates would stay there, they are and keeping in mind our hedge ratio 50%. I would say, so they were rough maybe half of what we had in May last year 2017.

Okay. Very helpful, thank you.

Thank you. Thank you very much.

So I just wanted to clarify a bit on the containerboard prices, because you said on - that kraftliner is stable and on the recycled side, slightly down. I was finding it a bit surprising because some of your peers are saying that they're getting a full hike on kraftliner, €6 per tonne in February and almost a full on Testliner.

And we saw pricing going up in the UK. I just wondered if it's kind of a different markets or if it's something specific to kind of Scandinavian exposure.

I can only say this is what we say that they are stable. And what we are seeing.

And the RCP slightly down is also an effect where we believe coming from the less export of paper waste to China. But that's our assumption for the quarter.

Okay. Thank you very much.

Thank.

Hey, good afternoon. I was just curious to hear about your thoughts on your strategic targets from a balance sheet point of view, given the strength of the balance sheet.

You kept your net debt to EBITDA at 3 times. You're sort of half that now.

And the outlook for 2018 as Beihai ramps up looks positive. So just curious just to hear whether you think three times is relevant and if so sort of does that mean you're looking at acquisitions et cetera?

Thank you.

We will revise that target. And that has been discussed with the board.

It's an old target, and I think I would like to have a net debt-to-EBITDA who starts with a 1.

Very clear, thank you.

Okay. Thank you.

Thanks on my behalf for everyone for the active questions this time. And I will hand this call now over to final words from Karl.

Thank you, everyone, for participating. And I would like to just share with you, 2017 was a year where a lot of things happened in the right sequence time.

And from a company's perspective, the last time we had a profit over €1 billion was in 2001. So I think we're taking huge steps forward.

And I believe that the growth is coming. Our innovation strategy is working.

We are delivering two quarters in a row, above 13% return on capital employed. And we are looking very positively for 2018, and especially first quarter.

Thank you. See you next quarter.

Thank you.