Stora Enso Oyj

Thank you, Rosie. Good afternoon, everyone, and welcome to Stora Enso's full year and fourth quarter 2018 conference call.

We will start with the presentation and then we will have a Q&A session. And, please, Karl, go ahead; our CEO, Karl Henrik Sundström.

Thank you, Ulla. Good morning or good afternoon depending on where you are in the world.

So we are here to briefly present the Q4 2018. So we had the 8th consecutive quarter of sales growth; excluding the divested Puumerkki, it's 6.4%.

Operational EBIT decreased with some €9 million compared to the year-ago period and came in at €271 million, on an EBIT margin of 10.2%, which is the 6th consecutive quarter with double-digit EBIT margins. Unfortunately, we had operational issues at 6 of the mills and I will come to that.

We had some softness in the market. And there was negative impact across basically all divisions of less volume, which had an impact of EBIT of €11 million.

EPS increased by 75%. Cash flow after investing activities came in a little bit on the low side at €148 million.

We continue to improve the balance sheet. And net debt to EBITDA ended up 1.1 times.

Operational return on capital employed came in at 12.4%. If you look what happened in the fourth quarter was that, as I said, we had lower volumes and that was basically happening towards the end of November, beginning of December.

There was less possibility to get customers to take volumes. And that was an impact of around €11 million.

And that was signaling for me a bit of a slowness in the market. The bigger issue was the €40 million in temporary operational challenges.

And that is basically 6 mills. In Biomaterials we had a problem in Skutskär starting up after the first annual shutdown after the conversion to fluff.

And we also had some issues in Montes del Plata. The biomaterial impact was about €20 million.

The challenge that we already talked about in Q3 of Nymölla and the lack of water in the nearby lake continued longer than the expected time, just that we had an issue with the pulp mill in Veitsiluoto, totaling a loss of EBIT of €16 million. And last but not least, we had both small hiccups in Imatra and Fors totaling €4 million.

So all of these operation issues are now cleared and we are ramping production again. But unfortunately, in this kind of process industries this happens.

But I'm very, very unhappy with having 6 mills basically towards the end of the year. The Board of Stora Enso are proposing to the AGM to increase the dividend from €0.41 a year ago to €0.50, which is the fourth consecutive year where we are having increased dividends.

And this time it's by 22% and then I will say it's a vote of confidence from the Board to propose to the AGM on the future of Stora Enso. We also have well above for the first time of 13% on return on capital employed for the total company for a full year.

We actually ended up at 15.5%. This is the first time since 2000, where we are at this level.

And I'm very, very happy to say that we now after 18 years are back to a good level. And now, the challenge we have is to continue to make sure that we continuously deliver good return on capital employed.

In conjunction with the fourth quarter report, we also issued a press release and it's referred to in the report and that is what we call a profit protection program to strengthen the competitiveness of Stora Enso that has been launched. And the reason for it is that we have seen cost increases and we see cost increases in the fourth quarter, especially continuing to the first quarter, especially in the areas of wood, chemicals and logistics.

And you have to take one number here, the wood costs are €50 million higher we expect in Q1 2019 versus Q1 2018. We are also reducing the CapEx by €50 million from the previously announced guidance of CapEx for the full year of 2019.

The reason is also that we're entering into a more unsecured future. And we want to be proactive first of all to get the competitiveness back and fighting back the cost, and secondly, be prepared if unexpected events are happening, because right now the macro situation is quite unpredictable.

This in the first phase includes that we are closing down or planning to close down the PM6 in Imatra. That's a 90,000 tonne paper machine.

And we are also doing adjustments at all our sawmills in Sweden at Imavere sawmill in Estonia. This is just a beginning.

The total program is €120 million in cost reductions of fixed and variable costs. And we expect that we will get some 40% to 50% of the programme during the 2019 and the full effect for the €120 million programme will become by the end of 2020.

There was a number of important events during Q2 - Q4, and one of them is obviously the partnering with H&M and IKEA to be a fourth partner in the - to industrial Tree To Textile. We've also launched RFID, they are only sustainable RFID tag in the markets.

We actually completed environmental impact assessment for Oulu. We divested June Emballage in Sweden, and then there was a number of investments that we have announced during the fourth quarter.

Also we entered a binding agreement about the restructuring of Bergvik Skog. We are expected to finalize this during the first half of 2019, and it's totaling a direct ownership of 1.4 million of hectares of forest land, of which 1.15 million is productive forest land.

This is an increase of the Stora Enso balance sheet, totaling about approximately 1 billion. I also want to say that in the fourth quarter we had two items affecting comparability, one was the Latvian land sales, which gave us a gain of €47 million, and other one was increased fair value of the biological assets in Stora Enso €49 million.

Before handing over to Seppo, I'd like to say that the transformation journey that started in 2006 from basically a Paper company to a company more balanced and more focused towards this four growth divisions is continuing, Paper had a good 2018. But now the portfolio is more balanced and 83% of the profit are coming from the four growth divisions.

With that, I'd like to hand over to Seppo.

Thank you, Karl. And I start with some of the key figures from the report that we came out with earlier today.

First of all, top line sales for the quarter grew 5.8% year-on-year and full year sales reached almost €10.5 billion, an increase of 4.4% compared to 2017. Operational EBITDA margin was 15.3% for the quarter that we are reporting at the moment, and operational EBIT was €271 million or 10.2%.

Full year operational EBIT reached €1.325 billion that is an increase of 32% compared to 2017. Our net profit for the period we'll get full year 2018 was €988 million that is an increase of 61% compared to the year before, and earnings per share was €1.28.

Operational return on capital employed for the quarter four was 12.4% [negative also] [ph] 13% target level, but the full year figure reached 15.5% and was higher than the targeted 13%. Then moving to the divisions, and I start with Consumer Board, were challenging market conditions continued, but first price increases have been achieved.

It was actually a second quarter now that we are pushing through price increases that started in Q3 already. Sales increased slightly to record-high Q4 of €637 million and that's to higher local sales prices of €10 million positive effect that was offset by lower volumes.

Operational EBIT decreased €45 million to €24 million, significantly higher variable costs especially for wood, pulp and chemicals those we've been talking also about earlier, last year in the reporting, they were partly offset by improved sales prices. Carton board production was lower.

And operational challenges at Imatra and Fors mills had a slight negative impact on profitability. Operational return on capital was 5%.

Packing Solutions, their record sales and profitability continues. Sales were up 5% to all-time high €352 million.

And we have improved prices and active sales mix management in the European-based operations increasing the sales. Total containerboard delivery remained stable.

Operational EBIT also increased to a record high Q4 of €59 million. Clearly, higher sales prices and good mix management in the European-based units was offset by lower sales volumes in China as well as higher raw material costs overall and some spare part write-offs.

Operational return on capital was at 25.7% level that is significantly above the long-term target of 20%. This is driven by improved profitability in the division.

Then moving to Biomaterials division, where good market continues despite signs of price pressure. Sales were up 14% to another all-time high of €415 million.

Sales prices were higher, but deliveries slightly lower. Operational EBIT was also at record high Q4 level of €91 million, at an increase of €30 million.

Higher pulp prices were partly offset by higher variable costs, especially for wood and energy. We also had some production problems at Montes del Plata and Skutskär pulp mills during the quarter.

Operational return on capital reached the strategic target of 15%. Also Lineo by Stora Enso was awarded for Innovative Product Award 2018 by the Institution of Chemical Engineers.

It is another proof-point for the R&D and innovation that we have been investing in over the past years. Then moving to Wood products, where we had another record quarter.

Sales excluding the divested Puumerkki increased 3.5%. That's very much thanks to improved sales prices in classic sawn business.

Operational EBIT was up 66% to record high Q4 of €42 million. Clearly better prices and improved mix, partly offset by higher fixed costs related to increase in operations.

Return on capital continued at record high level of 27.1% and that is clearly above the strategic target of 20%. Our investment at Gruvön sawmill to new CLT unit has been completed and we expect to start commercial production now during the Q1 that has been starting now.

This is according to the plan. Then moving to Paper division, where we have solid quarter but impacted by operational challenges.

Sales increased 5% to €761 million, and clearly higher sales prices in all grades and a better mix was partly offset by lower sales volumes. Operational EBIT was stable at level of €45 million significantly higher sales prices in all grades were offset by higher variable costs, especially in wood, pulp and chemicals.

We had production issues, I mentioned earlier, production reductions caused by water shortage at Nymölla Mill and some technical problems at Veitsiluoto pulp mill had a total of €16 million negative impact of the result. We also have to take some market related curtailments at Oulu Mill due to softness of the coated woodfree market.

And cash flow after investing activities to sales ratio was down 2.5% and that was negatively impacted by temporary working capital challenges. Here we should notice that Q3 cash flow was significantly better at 8.3% to net sales, so now it's two quarters, where the second half of last year were over 5%, but still below the targeted 7%.

But we are confident that this is a temporary reduction in cash flow and the Paper division will be back on track in the beginning of the year that has now started. Then moving to strategic targets, before handing back to Karl.

Our targets are progressing, but there is still more potential as you have seen in the paper. Most of the targets are green, but there are still some on red or yellow.

When it comes to balance sheet, balance sheet has continued to strengthen. We are growing faster than the relevant market, but especially when it comes to fixed costs to sales, there we have work to do to reach the target to be at 20% or below.

For the full year, we were 23.6% that is trailing down clearly from 35.1% in 2017. Return on capital employed, I mentioned earlier for the quarter was below 13% target level, but full year was clearly evolving at 18.5%.

Look at the divisions - divisional targets. Consumer Board below the 20% level; that is the target for them, and that is due to the reasons that we also mentioned earlier, and the reason is that cost increases that Consumer Board has been facing during 2018 have not been recovered through prices yet, but the good positive thing, as I said, we are now again increasing prices in Q4, but we started during Q3, but the work continues there.

Packaging Solutions clearly about targeted 20% level and 25.7% for the quarter as well as the 27.2% for the full year, and also Biomaterials has a targeted level that is involved. And Wood Products continues to good return on capital 27.1% for Q4 and 28.1% for the full year, and I mentioned for the previous slide Paper was below the targeted levels at 5.7%.

Then handing back to you, Karl.

Thank you, Seppo. So - as of now, we have also incorporated an outlook for 2019 that's a new, we have changed a guidance, also I will come to that.

So we - Stora Enso believe that 2019 is expected to be largely in line with 2018, provided that the current trading conditions do not significantly change. Demand growth is expected to continue for Stora Enso's four growth divisions.

And however, we believe that the demand for the paper will continue to decline. Group sales are expected to be higher and costs are also forecasted to increase in 2019.

So Stora Enso will implement measures to mitigate these costs and that is included in the profit protection programme of €120 million, but it's also for the increase uncertainties of the macroeconomics. When it comes to the guidance, we have to start giving sales guidance for the following quarter and we have changed the way how we guide operational EBIT.

Instead of using adjectives, we will use numerical intervals. And I think that's in the spirit of increased transparency and simplification.

I would like also to remind everybody that in first quarter 2018 we did not have any annual maintenance stops. This year we have changed the schedule and we will have two annual maintenance shutdowns, one at Ostrołęka PM5 and the other one Veracel, Brazil.

And that will give the total negative impact on maintenance estimated to be €20 million, compared to Q1 2018. With that and then just before opening up for Q&As, I would like just to give a couple of reflections of Q4 and the full year of 2018.

We have had 8 consecutive quarters of sales growth. We have had 6 consecutive quarters of double-digit operational EBIT margin.

Annually EBIT grew 32% in 2018. And we came out on a return on capital employed for the full year on 15.5%, which is well above the strategic target of 13%.

We have continued to strengthen the balance sheet. And the proposed dividend is an increase by 22%.

And we are immediately implementing the profit protection programme to be better prepared for the increased cost, keeping an open eye for potential market weakness. We believe it's best to act as fast as possible.

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

Okay, thank you, Karl. Yes, Rosie, please, we are ready for Q&A session.

Yes, hello. Good afternoon, everybody, so two questions for me.

On - you mentioned there that wood costs would be €50 million higher in Q1 2019 and then you have a chart also in your presentation pack about the wood costs in Finland. Two questions within that, is the same wood cost picture valid for Sweden?

And these wood cost increase, is that something that is temporary due to weather last year or is it something that we should expect going forward as well? And then secondly, on your potential Oulu investment to convert the paper making into packaging materials, when should we expect some news on that potential decision?

Thank you.

So first of all, with the wood costs, if you remember, we did have a challenging first half year when it came to wood supply in general. So the wood cost went up quite steadily and we were actually giving, including in our guidance the effect during last year and then they have gone up a lot less lately compared to the previous.

So the pic of the increased wood costs, which is now I'm talking the whole Stora Enso is in the Q1, and it's including Sweden as well.

Okay. Thank you.

And when it comes to Oulu, so the environmental impact assessment is ready. The feasibility study is not ready.

And it will be in the first half of 2019.

Many thanks.

Thank you.

Thank you. Good afternoon.

A couple of questions. Firstly, I was wondering if you could give some comments on what's happening in China, partly related to Beihai, any progress there in terms of mix.

And also what's the demand situation for that business right now in China? And then secondly, on the pulp market what you are seeing right now in China, what's going on there in your view, and what's your expectations there going forward?

So in China right now, it's quite unstable. So we are ramping up still and we said in Q3 that we were basically half way, and still ramping up.

In China, it is a bit wait-and-see situation regarding board. It seems to be more virgin board.

But at the same time, given that a lot of these boards are used for packaging of electronics equipment that is being shipped elsewhere in the world and mainly to the U.S. and other goods to the U.S., it's a bit of an uncertain situation that I think will be clarified hopefully before the second of March when hopefully the - China and U.S.

comes to good trade agreement. But it's little bit like a wet blanket over it.

And so it's a little bit uncertain situation right now, but we are ramping up. And we are a very small player in China.

When it comes to the pulp prices, so when I look up on the pulp prices, I think it's too early to say really what's going to happen. But the expectation when I speak to our marketing people and read a lot on report, it seems like we need now to pass the Chinese New Year.

And then hopefully, we believe they will go up after that, because it's not coming a lot of new capacity. And the demand, it's actually increasing.

However, now, we will have a week or so of Chinese New Year. And if you look on the - and you know this better than me, that you've seen the prices on ForEx for China, they went down further the first two weeks.

And then the last two weeks of January, they started to climb up again. So that's what we know, but I think also when you read about the inventories, yes, the inventories or imports are high.

However, we believe that inventories at customers are very, very low, because it was a lot left buying towards December. So I don't think the chain is overfilled.

Did that answer your question?

Yeah, yeah, sure. You did.

Thank you. Can I just have one final one, then on, if we move over to Paper and Packaging prices and perhaps then mainly in Europe?

I wonder, if you could just give some comments on what you've achieved in terms of price gains in Paper and certain Packaging grades than in Europe from the beginning of the year. And maybe also give some comments on the grades where we have seen some price declines?

So we have seen - you've seen that's well that testliner is holding up quite well, it's been marginal decline in prices on costliner. FBB demand is actually quite good.

And prices are climbing up in Europe. You have to remember that for us, some 80% of the contract or a year or longer.

So we are moving, and we have not moved and done a lot renegotiation yet on some of the liquid customer that's coming later. But we will compensate this, because we cannot do alone bear all of this and that we will also have to take down costs, especially on variable, we have to be a little bit tougher on certain areas.

That's why we launched a programme.

Okay. Many thanks.

Thank you very much. Good day to everyone.

On maintenance, if you we were to the put a number on your guidance for the first quarter on a sequential basis. What's the maintenance tailwind, I would guess in the first versus the fourth quarter?

So the full - the maintenance in Q4 2018 was €13 million less than in Q4 2017. And Q1 maintenance impact is estimate to decrease by €54 million due to lower maintenance costs and less lost volumes in Q1 2019 quarter-over-quarter.

Great. And in the €54 million sequential improvement, how much of the €40 million is actually included that you mentioned these six mills, where you had production issues in the fourth quarter, which burden the quarter by €40 million.

And I think…

Nothing.

Nothing, okay. So on…

So we measure the maintenance and like in Skutskär when we have startup problem. From the day, when the maintenance should be over and then the ramp is something, that's not maintenance, that is operational issues.

I said, we just declared this €40 million was all in Q4. There is no carry over to the first quarter.

All those are [indiscernible].

Exactly. Now, but…

So for example, Nymölla started a week after Christmas to ramp-up.

Right, right. Thank you.

So I mean, all else being equal, I mean, if we were to add back that the full €40 million impact that before in the fourth quarter, that's a €40 million improvement in Q1, and then another €54 million improvement, that's €94 million, you have some price improvement coming through, which are the big negatives here…

No. But we also have a lot of higher costs, wood cost, chemicals and pulp.

Right. Yes.

You said previously that you see wood costs peaking in the first quarter. How much sequential wood costs increased do you expect sequential in Q1 and Q4?

I don't have that in my head.

But is it cost, because also volume should be, I mean, from a seasonal point of view. Volume should be a positive Q1 and Q4.

Is it actually cost that is the big driver offsetting the tailwinds that we just mentioned?

So I would say, to be very clearly in this on that one is that we have lower - significantly lower wood costs in the first quarter of 2018. The price is started to go up during Q2 and Q3 and a little bit in Q4, but bit so much.

But that's why I wanted to point out that the wood costs if you compare, the very, very strong quarter. On first quarter of 2018, we have a different cost situation, especially on wood.

And that's the €50 million I gave you, and that's why we need to reduce costs.

And also, you have to remember that due to Q4 those from a downside on the pulp prices, but some of the volume was with the higher old prices. And now it was even though they just stabilized, of course, there are some trade in Q1 with lower prices, but inherited from the previous quarter, which is playing a role as well in the math.

Sure. Thank you very much.

And then something completely different, you're expecting to include the Bergvik forest land operations into your operations, and accounting in during the year. How much of operational EBIT continuation would you expect on an annual basis from the Bergvik assets?

Let us come to that when - where we get that. But I would say it's probably in the area of somewhere €20 million to €30 million.

And now you're comparing with - because you had some kind of contribution before, but this is the additional contribution after completing these transactions?

That's what I believe, but let us take that when we get. Because we also have to decide with transfer pricing and blah, blah, blah, right?

Sure. Sure.

But that's very helpful. €20 million to €30 million on an annual basis.

Thanks. Thank you very much.

€20 million to €25 million.

Okay. That's very precise.

Excellent. Thank you.

Otherwise you would take the midpoint and I wanted to be a little bit conservative, you know.

All right. Thank you very much.

But I am very, very happy to get Bergvik, yes, basically back into Stora Enso. It's a huge possibility for us to make sure that we've actually controlled our raw materials.

Great. Many thanks.

Thank you.

Thank you, and good afternoon, everyone. I've got three very separate questions.

Firstly, can you just talk about inventories, at the yearend - I guess, one for Seppo here? You had €1.57 billion of inventories, which are looking through history, as I think, 9 or 10 year high as a percentage of sales?

Or are there any particular divisions where inventories in Q4 were particularly elevated, I'm wondering whether Packaging Solutions or Biomaterials, for example. Delivery were low versus inventories - sorry, versus production, so were there particular divisions that were impacted by high inventory levels at year-end that's a symptomatic of weaker market conditions?

Or is there anything longer term, we should think about here? Or should we be expecting, for example, this to normalize as you go through 2019?

Yeah. I think first of all, we have to remember that end of last year wood inventory was extremely low.

You remember the harvesting challenges started towards end of the year when weather was so wet both in Finland and Scandinavia. That is one driver, why you see increase now, of course, it's compared to the year.

And then towards end of the year, we also mentioned [a brief point as well, paper were] [ph] taking some downtime in Paper division in Oulu due to market [credit] [ph] reasons, and also as you know the pulp market lastly a bit more difficult than earlier during the year. I think those were the three main reasons compared to past if you look at the trends as such.

I don't think that we are deliberately increasing stock as such now or going forward so that's what the reason. So I would not expect that to be the case.

It's more depend a bit of the trading conditions at a business situation that might be strong end of the quarter.

Sure. Okay.

Thank you. Just moving to Consumer Board, you talked about having achieved some price increases from third quarter 2018 upward.

One of your peers talked about price increases for a large global - the packaging board customer from January 2019 onwards. Can you just give us some help us you when you might be able to achieve price increases in liquid packaging board?

So you will see during the years are smaller, increases on liquid and then probably towards the end of 2019, early 2020. Because, our big customer there, it's on a different calendar scheduling them to the competitor.

Okay. Thank you.

Look forward to it. And just finally, so I just wanted to just re-clarify something you said regarding Packaging Solutions.

You talked about testliner prices, and clearly, what we're talking about here as well as production from Ostroleka. We can see clearly benchmark European testliner prices are full, I think, its 35, 40 years a tonne in Germany.

So what's sort of impact of Stora Enso's scene in the last, let's say, quarter in terms of pulling prices?

So they went down in Q4, but they're holding up, okay in - so far in Q1. And you have to remember that recycled paper has not increased as much as volume virgin fiber.

Sure. Okay.

Thank you for that.

Thank you. I just want to start with the profit protection programme.

You call that a couple of discrete, I mean, sawmill, and then the smaller machine at Imatra. Can you walk us through what else you're doing and what you expect in terms of cash and/or other charges related to taken up this €120 million?

So Lars, we have the programme and as we said in the press release, we drafted it already. We will not give any more information until we have actually announced what we're going to do internally, because otherwise we might break laws, and also it's not fair with our employees, but we will come with it.

What I said is, we expect to have 40% to 50% of the savings in 2019 in the remaining part of the full programme in 2020. And I can assure you, we have delivered every single saving programmes for many, many years, we know how to do this.

Sure. And with reference to cost to achieve this, can you comment it on that?

So it's going to be on fixed and variable costs.

Right now, what I'm saying is the cost for you to implement the €120 million concept.

Yes. We come back to that, because it will be costs, and that's what we said in the press release that we collected under this items affecting comparability.

You've referenced in your prepared remarks, challenging market conditions in Consumer Board. I just wanted to understand exactly, that means is that in reference to the price costs relationship?

Or is there anything else that you would call out being challenging?

No. It's not a fact that, we have been - as you know, you're going to say behind the price increases, but it's based on the contractual structure that means that they have been challenging and continues to be challenging at this for some time.

And then also we have new basis on volume decline, not a slight volume drop, but nothing so serious, but of course that has been affecting the business as well.

The biggest has been that we've had increased chemicals, pulps, for the non-integrated increased wood costs, increased logistics. And we have not been able due to the contractual situation to increase prices.

We are not alone in this.

Yeah. I think, you guys see the same from our competitors, but have reported already.

Sure. And then finally on the six mills have operational issues.

Can you give us any color, what actually happened, what went wrong and how do we called out ensuring this is not going to happen again?

So I cannot get, it's a very unusual situation that you have too little water in the lake in Sweden - in that part of Sweden. That's very unusual.

That lasted longer than we expected, we thought four weeks. And then it was basically one of the double.

So that is unusual. Then we have Skutskär, which we actually have the first annual shutdown after the conversion.

And that means that people were not that trained, because now it's 100% fluff, and certain things went wrong. Then we have some issues in Montes del Plata, when it come to some equipment that we needed to change, and that was more complicated that we brought.

And maybe we have a big surprised that a mill that was inaugurated in September 2014, it have to change some equipment and doing that and took longer time than we thought. That was a surprise.

And that was not good, even though they are now, they are up in production and producing a lot better than before. But I would say that the possibility of having six mills in basically 1.5 months, it's very unlikely has not been before.

But the magnitude of the problem is similar to some of our competitors that in third quarter. So it happens in the process industry.

But I would say that, if you take away basically more than half of it, these things can happen, because we are in the process industry.

Sure. Just one final question, Seppo, have you - maybe you have already in the report I didn't pick it up.

Have you show the impact from IFRS 16 on your - what you expect to be on the EBITDA, depreciation, finance cost and your debts from that change to lease accounting?

We expect that the effect on EBITDA will be some €60 million to €70 million. Of course, we can't be more precise, because as the year goes and moves forward then we start to report accordingly.

So positive.

Positive, yes. Sorry.

Then on EBIT level, it's also somewhat positive, not big amounts, of course, because some of the things reported earlier about EBIT have moved to [final submit] [ph] as you know. Net income wise, it's basically no big change at all, so it's a very, very small.

And then when it comes to balance sheet, we talk about roughly €0.5 billion additional liabilities.

Got it. Thank you.

And big part of it is the leased forests.

Especially in China.

In China.

…relating to Beihai operation.

Okay. Thank you.

Thank you. So in Consumer Boards you mentioned you had price increases.

Some price increases in Q3 and also something in Q4. In what grades was that and where was it?

Was it in China?

No, it was mostly in Europe. Chinese market is a bit unpredictable right now.

And in China, we are more going to - we are qualifying new boards, and so there's new products coming in. So it's not really about raising prices.

Okay, so in Europe. Now, we are seeing pressure actually on spot [cut] [ph] on board prices in China, the heavy ones at the end of last year.

And looking at the earnings you're generating in Consumer Board, probably the most important division you have, it's one of the lowest Q4s you have reported in several years. I think it would fair also to open up a little bit what is going on with Beihai in this kind of situation.

How much of the volumes are direct [sort of] [ph] to the premium grades and clients that your sort of long-term focus on how much is sold on the spot market in China? And any sort of timetable, any sort of guidance on when we might see sort of the mix improving in Beihai?

The mix improvement you will see this year. However, we don't want to disclose individual mills more when you have troubles there.

And that's what we done, but I hear what you say.

So I simply - I just want to add one thing. Actually, Annica also told in the Capital Markets Day in November last year that we are sort of halfway through when it comes to working on the mix, yes.

All right, all right, thanks. Regarding the guidance, it's a quite broad range now for Q1, given that we are already almost half into the quarter.

Could you just mention the sort of key elements that of uncertainty related to - is it related to the Chinese pulp market or the Chinese board market or are there any other elements? What's the key element of…?

So the key element for the wide range is that it's partly around Brexit and the flow-on effects on Europe, because Brexit, we don't know. And for us, it's less than 5% of our sales.

But it's an important part and we don't know what will happen. That's one.

We don't really know how the demand will affect the trade in general if U.S. and China don't come to an agreement.

Thirdly, absolutely is around the pulp prices, because it's a very interesting situation. Pulp prices have fallen quite a lot in China, not so much in the rest of the world.

But there is increased demand, if you know statistics. And it's a very little new capacity coming, which makes it a very, very interesting situation.

And it worries people just stop buying. So these are the swing factors that we have used, when we brought the range.

I don't think in my entire working life I've been in a more uncertain situation reality, what is really happening.

Yeah, I agree. And what I want to add and highlight is that, it's clear.

And I think you see it in other businesses also that, as the discussions between U.S. and China, for instance, are going on where it comes to different trade war related issues, people are getting cautious.

And even though it is not maybe directly affecting us, but then we are part of the supply chain in many cases. And that's one of the uncertainties when it comes to the need for industrial packaging and that kind of things as an example.

And it can have an effect on pulp demand temporarily if there are hiccups in the economy on flows.

And that's also why we are launching this not only to reduce cost, but to be prepared for an uncertain future if it affects trading, the profit protection.

Sure. Sure, 350 plus the 20 on extra maintenance Q1, it's just the very high number for me in Q1.

So it's not only risk you're seeing, I guess, you're seeing also potential there.

Absolutely.

Then to question related to volumes, what are you doing in pulp, are you producing less this Q1 compared to last year due to the situation we have, including the JVs in South America?

So we give guidance to the totality. And by having that range, you see that the risk is a bit higher.

But we don't give guidance at individual areas.

Okay, I was just trying to ask whether you sort of produce restricted production. But perhaps you don't want to guide on that side either.

Yes.

Okay. And then, just on the - you mentioned somewhat more cautious clients, customers in November, December.

What is that sort of outlook at the moment? Is that - was that temporary, has it continued, getting worse, getting better?

I think we will see a lot more after Chinese New Year. So right now January and it's not that the quarter have passed.

One third of the quarter passed yesterday, two-thirds left.

You're absolutely right. Thank you very much guys.

Thanks.

Thank you.

Yes, good afternoon. One area which we haven't talked about is the Wood Products.

And we have heard elsewhere that there has been some pressure on the - at least the sort of the basic sort of standard grade sawn wood. But what are you seeing there?

And obviously, you have more higher value-added products there to mitigate that. But what's sort of outlook do you see there in light of the comments on lower pricing or standard grades?

So one clue is actually when you saw in the release that we are actually reducing in [Ala] [ph], that was on components. Components is basically a wood that goes into window and there is no surprise that the buildings starts in the Nordic are coming down a bit.

However, we believe also that the substitution effect of replacing concrete with more of wooden mechanical solutions are increasing and we see that. So I think it's a bit of a mixed picture.

So you have one substitution effect on what you call the higher value. But you also have a bit of lower building starts in many, many markets.

Yeah, yeah, does it. You have a number of capacity additions, small ones there.

I mean - and also in the engineered wood products side. Are you being sort of able to ramp those up still on sort of the market?

Yeah.

Yeah, we believe so. And also we are driving hard on automation, because at the end of the day, the only thing you can control is cost.

Sure, sure. Maybe I don't know, if you want to comment on this, is partly what Robin was asking about.

But if I got it right, in the pulp side the share of China has been around 20%. And now that the price differential is so wide between the Chinese prices and European prices, is there sort of a - how do you kind of - is there a change in the geographical pattern that you are looking to sort of divert volumes elsewhere or sort of stop selling in China or…?

We're going down - we are going down marginally in China, about 1% at this point. And then you have to understand that the rebate structure between prices in Europe and China are slightly different.

Yeah, sure.

And I might add also that in this situation we are also looking more, a bit how much more we could use internally, because in some case for logistics reasons or for other reasons we have been buying pulp externally and also selling at the same time. But it is kind of market situation.

We look at opportunities to be more clever in that sense, yes.

Okay, okay. Thank you very much.

Thank you, Harri.

Good afternoon. I have two questions left.

Firstly on Consumer Board, just when you're saying that you had the first price increases coming through, how much of that did we see in Q4?

So what - maybe you can. We had some price increases coming through in Q3.

You saw some price increases coming through in Q4.

Yeah, and actually one of my slides I mentioned €10 million in Q4 coming from higher local prices in Consumer Board.

Yes.

What I meant is, I mean, is there - well, can you give any sort of guidance on the further effect in Q1 from the implementations you've already made?

No, no, that's something we cannot comment. What we have said is that we continue hard to increase prices whenever the contract is coming to an end.

And those, we will then communicate as we move forward what we have achieved. But we strongly believe and still remain confident that we can manage going forward.

Yes.

Okay. Fair enough.

Secondly, just looking at your maintenance schedule for this year, if we include Q2 as well, it looks like you're pushing most of it towards H2 versus previous year. I mean, is there anything sort of market related in terms of the risk for, well, a weaker market towards the end of the year?

The maintenance schedule, it's very much driven by technical needs and maintenance schedules we have. Typically, only thing that will have an effect and a bit different between those years, typically related - some mills are 12 months cycle, others in 18 months cycle.

And sometimes it's a bit depending on investments, stops might be [we hit a bit] [ph]. But it's very much technical and engineering needs driven than anything else.

Maintenance - then comes taking - market curtailments, that's totally different thing.

Okay, thank you.

Thank you very much. I have two questions, first, on the outlook statement, when you're saying that you expect it to be largely in line for 2019.

Just want to clarify, is that on an EBIT level and does it include positive benefits from both the IAC and then the small benefit also from the Bergvik Skog transaction. That was my first question.

So when we talk about largely, included in it is everything that we know today. The impact of the savings programme is not fully in there, because that comes at another sentence.

Okay. But the stuff - but it's that you get the benefit, the small benefits from Bergvik Skog again also, the EBIT benefit from the new leasing accounting.

Yes, yeah, all that is of course included. I just want to remind that when it comes to Bergvik Skog, of course, effect this year will be limited as the deal is not even closed.

Yeah, they have signed the binding agreement.

Okay. Thank you.

That's very clear. And let me ask my second question.

It's on the cost saving and we are saying that 40% to 50% you'll have in 2019, is that a run rate level, so that kind of run rate at the end of 2019 or is that the actual benefit you're getting in 2019?

It is the actual benefit that we are getting already in 2019.

Okay. Thank you.

That's very clear. Those are my two questions.

Thanks.

Good afternoon. Could you give us sort of an update on the coated fine paper markets and what you're seeing there and also the potential impact from Oulu in 2019?

So woodfree coated is actually a bit of a challenge. That's why we took here market curtailments.

And if we would go ahead with the Oulu conversion, which we have not decided yet, I think an annual impact is that sales of paper will be reduced by 5%, about - from the 29% to the 22% or something like that. Did that answer your question?

Yeah, thank you. But on your potential curtailments at the moment, is there any EBIT impact that you're guiding for in Q1 or H1?

No, no, the curtailment was included in Q4. We have not talked about or announced additional curtailments.

And if I remember right, if we go ahead, we are running it all into 2020, the paper machines.

Perfect, very clear. Thank you.

Yes, thank you, Rosie. So thanks everyone for your attention this afternoon and following us.

And I will now hand it over to Karl for final words to this call.

So thank you very much for this. We came out towards the end of the year with some challenges that we have now fixed when it comes to operational issues.

And we are seeing cost increases that we are now combating, but we also have a macro or a world situation that is more unstable. And that's the reason why we wanted to be proactive and start the cost reduction programme in order to protect our profitability and ensure our competitiveness going forward.

With that, I would like to thank you.