Stora Enso Oyj

Thank you, Marie. Good afternoon everyone.

I'm Ulla Paajanen; Head of Investor Relations at Stora Enso and welcome to our Q3, 2019 conference call. I will hand it over now to our CEO, Karl Sundstrom then will be followed our CFO, Seppo Parvi and after that we will be hosting a Q&A session.

Karl please?

Thank you. And good morning or good afternoon depending on where you are in the world.

Today we published the quarterly results for the third quarter of 2019. This is a quarter like previous quarter, where we had focused a lot on cash and costs and that is because of the kind of downturn that we've seen in the markets.

As you can see -- sales decreased by 7% versus a year ago and sales excluding paper decreased by 5%, basically all divisions are negative in sales and it's basically only consumer board is kind of flattish. We came in with an EBIT of €231 million which is just below a double-digit EBIT margin.

We came in at €9.6 million. We have generated a strong cash flow of almost €490 million which is better than previous year.

And we have kept net debt-to-EBITDA flat compared to the second quarter of 2019 and it's obviously up compared to last year because of the restructuring of Bergvik Skog and the implementation of IFRS 16. So, if you look upon what happened during the quarter, as you can see we have had huge effects of sales and volume.

We have seen some increased costs, but that has been more than compensated by the €41 million of profit protection that is included in this quarter results. That means that we're basically right now are having a cost base that is lower than a year ago.

And that is a very important factor to have in your hand when we are preparing for the change in the cycle that will come one day. And if you just add those €28 million in less cost to having -- comparing that to what we had last year, you can see that we are moving the EBIT margin from 13.8% to 16.1%.

So, we also announced in this quarter that we are increasing both the time and the scope of the profit protection program. We are now increasing it from previous €200 million to €275 million, but we're extending it by 1 year from 2020 to 2021.

We have so far basically achieved year-to-date about €100 million of cost savings in the nine first months of 2019. We have reached approximately cumulative of €200 million by the end of 2020 and the last €75 million will come in 2021.

We have now included also the effect of the marketing and the sales, as well as of distribution structure because of the Oulu conversion which will greatly simplify the setup of the paper division. We will also consolidate the Finnish saw mills regarding Spruce to Varkaus which means that there we'll have a integrated board machine with the pulp mill, one LVL machine and a spruce saw mill which means that we are actually saving on site.

And that is a part of the consolidation that we have done. During the quarter, we announced that when I'm leaving the company, I will be replaced by Annica Bresky as of the 1st of December 2019 and Annica is working with Stora Enso today and is leading the Consumer Board division.

I am extremely proud to announce that my predecessor will come within the company. And I think that's showing our strength of the bench and the competencies we have built in Stora Enso.

We've had a number of important events during the third quarter. And as we published at the Capital Markets Day, we will now from the beginning of January 2020, we will have a separate Forest division.

This is to drive the transparency, but also focus the value creation or owning forest. This is a direct effect of the restructuring of Bergvik Skog and this gives us an opportunity to actually also demonstrate that we are the second biggest private forest owners in the world today with €3.6 billion of biological assets.

We have concluded the conversion of the Enocell pulp mill to become a dissolving pulp mill and we are ramping it up during the fourth quarter. We have sold our last paper mill in China Dawang.

We have acquired a minority stakes in China Packaging. We have launched a paperboard tube and that is an important part in our strategy to replace plastic or fossil-based materials with a fiber substitute that is competitive as well as environmental friendly.

With that, I would like to hand over to Seppo to give some highlights on the numbers.

Thank you, Karl. And I will start by looking at key figures for the quarter that we have reported today.

First of all, going to the top line sales reached €2.4 billion that is reduction of 7.1% versus third quarter a year ago. Operational EBIT was €231 million, down from €358 million in Q3 2018.

Operational return on capital employed 8.7% and cash flow from operations continues to be very strong and cash flow for the quarter was €488 million. That is up from €457 million a year ago.

Net debt to last 12 months of EBITDA was 2.2% and that is slightly above the targeted maximum level of 2.0%. Then I move to the divisions and I start by Consumer Board, where price increases are continued.

Sales decreased slightly to €640 million that is a reflection of lower board deliveries and higher pulp deliveries as well as higher board sales prices achieved during the quarter, another area. Strong operational EBIT.

For the quarter EBIT increased by 45% and was €73 million. That is due to the higher sales prices, lower pulp costs and lower fixed costs.

Also lower volumes had an effect on the profitability. Operational return on capital employed improved around three percentage points and was above 13% for the quarter.

We also made trials with Fiskeby Board in Sweden to recycle used paper cups into white-lined chipboard. These tests were successful and we could demonstrate utilization of the used paper cups as variable raw material without any investments or changes needed for the process conditions.

Earlier trials were also done at Langerbrugge to recycle used paper cups. We also received Seven European Carton Excellence awards during the quarter.

Then moving to Packaging Solutions division, the corrugated market is benefiting from lower containerboard prices. Sales decreased 9% and was €299 million and that is due to significantly lower containerboard and kraftliner prices.

Operational EBIT decreased €39 million from last year's all-time high level and was €29 million driven by things like the lower spot prices and higher wood costs. Positive effect from lower raw material prices for corrugated units could be seen in the result.

Operational return on capital decreased to 12.1% dividend pricing at the lower containerboard prices during the quarter. An overall mill conversion in the kraftliner production is proceeding as planned and construction work has started in all areas.

Production is expected to be started by end of next year 2020. Moving to next division Biomaterials, and there we can start to see the Chinese market is showing positive signs.

That was also confirmed by the latest fix index released earlier today. Sales decreased 20% from last year's record high Q3 to €331 million.

That is mainly driven by significantly lower pulp prices. Operational EBIT decreased €86 million and was €39 million, but you have to remember that last year's figure was at all-time high level when it comes to operational EBIT.

This was driven by things like the lower pulp prices and higher wood costs and also volume impact had on effect. OpEx return on capital decreased to 5.9% in line with the lower profitability in the quarter.

Next, look at the Wood Products, their successful margin protection continues. Sales decreased 5% to €380 million due to lower plastic selling prices, slightly lower deliveries.

Operational EBIT decreased €21 million and was €27 million, and here again good to remember last year's Q3 was at a record high level. This was affected by lower sales prices and volumes, as well as higher depreciation impacted by strategic investments.

Lower wood costs in Central Europe had positive effective in the result. And operational return on capital decreased to 15.8% due to lower profitability during the quarter.

Paper division continues to generate good strong cash flow, despite the challenging market conditions. Sales for the quarter decreased 11% to €690 million to be quite significantly lower data deliveries during the quarter.

Also down on paper mill, divestment in China had a negative impact on top line. Operational EBIT decreased by €15 million and was €50 million there significantly negative effect from volume was seen.

Good cost management, lower fixed cost due to profit protection variable costs mainly from pulp had a positive effect on the result. And cash flow like I mentioned after investing activities, the sales ratio increased to 14.4%.

This is second best ever in the interdivision, very good cash flow, but thanks to good working capital management in the division. Down on mill divestment in China reduced annual paper capacity 540,000 tonnes.

We have also reduced or reducing of one million tonnes paper capacity with all of mill conversion next year, we continue to produce paper until the end of September 2020 and then start the conversion. And that is about 20% of our paper capacity.

Then looking at the strategic targets, some of those already have been commented in the divisional review. I will highlight a couple of additional ones like fixed cost of sales at 24.2%, so still remaining above 20% targeted maximum level, but there continues to reduce fixed costs continuously.

And our profit protection program is one part of that. Our net debt-to-equity ratio at 55%, so it is below the 60% maximum level defined.

Divisions their Consumer Board like mentioned improved from about 10% level to slightly above 13% level. Packaging solutions coming down from record high to 30.4%, the year go to 12.1% this year.

And Biomaterials at 5.9% rate when it comes to return on capital and Wood Products at 15.8%. And paper like mentioned, very good cash flow during the quarter, 14.4% ratio when it comes to cash flow after investing activities to sales.

With that, back to you, Karl.

Thank you. The outlook for the full year for 2018, deteriorating trading conditions, caused by geopolitical uncertainties, related to trade wars and a possible hard Brexit are expected to impact Stora Enso negatively.

Demand growth, is forecasted to slow for Stora Enso's businesses in general. And the decline in demand for European paper will continue.

Due to the profit protection program, costs are forecast to remain roughly at the same level in 2019, as in 2018. Stora Enso is still implementing additional profit protection measures to mitigate the negative financial impact of the current situation.

And I think it's important here, in an uncertain market situation. The only thing we can act on is, on the cost structure.

And building a better company for when the cycle turns. Next slide please, so the guidance for the fourth quarter of 2019.

Operational EBIT is expected to be in the range of EUR100 million to EUR180 million. During Q4, there will be annual maintenance shutdown at shutdown at Fors, Ingerois, Skoghall, Varkaus, Montes del Plata and Skutskär mills.

The total maintenance impact is estimated to be at the same level as in the fourth quarter of 2018 and in the third quarter of 2019. So we see continued deteriorating trading conditions going into Q4.

We are focusing on cash generation. We are increases the profit protection program, in order to build a stronger company, when the cycle turns.

And we have also decided to go out with a forest division from January 2020, focusing on increasing the transparency and a focus on value creation in our forest holdings. With that, I open up for Q&A.

Hi guys, good afternoon. Harri Taittonen from Nordea, Should we go straight to the guidance, because, it's so meaningfully below Q3 about EUR90 million.

If you look at the midpoint of your guidance for Q4, it's roughly EUR90 million lower earnings from there. And I understand about EUR20 million comes roughly from the line other, but still we are looking at about 4% margin deterioration.

And you mentioned that the trading conditions overall are weaker. But could you sort of break down a bit more on which parts of this comes from?

So, the main reasons for the lower guidance for the fourth quarter, are coming from the Biomaterials division, basically prices are continuing down. And the second one, are coming from, Paper division, where we see demand and prices coming down.

Do you want to add something, Seppo?

No. I think you summarized it probably I think you very familiar to that by sales.

Sales price development in paper and pulp markets. Relating to other, there are some -- like some of that spacing issues.

If you look at the costs how they accumulate during the quarter, that has some effect between the two quarters. But it's mainly sales price driven.

Okay.

And there are also certain uncertainties, because we are still having quite a wide guidance range. And that is because we don't know.

But for biomaterial we are pretty certain, because it's usually about a 90-day turnaround, between orders and the deliveries.

Exactly, yeah, I was just going to ask, if you have like, included some kind of contingency for the ongoing political uncertainties? And whether that's something that you have kind of baked in the numbers for the coming quarter?

So what we have done is a wide assessment and we guide on the total company. But the main reasons are paper and biomaterials.

Okay, okay. Maybe just a small question on the biomaterials and the maintenance cost, which, on a group level are probably going to be in line, as you say, but if you think that the Montes del Plata and Skutskär will be kind of, sort of, sat down in Q4 and Enocell was down in Q3.

And how much -- given that for Enocell you probably took a bit extra, extra downtime as part of the conversion. So is that division going to be kind of affected by negative delta from maintenance?

The division will be affected, yes. And remember also that we are ramping up Enocell after the conversion, which means that it takes some time plus that you have Skutskär and Montes del Plata.

Yes.

Yes.

But also prices are coming down.

Yes, sure. Sure, sure.

Okay. Maybe the last question, if I may.

I mean, just on the Consumer Board, which has been doing well, but also the kind of the pricing outlook and that. I mean, you have been fairly positive about the pricing prospect next year for parts of the Consumer Board mix.

But, I mean, with the current market environment being this week and also power prices down; do you see risk to these sorts of statements that you have made earlier on the general outlook for pricing?

For Consumer Board and the pricing going into next year, I am still positive, hasn't changed.

Okay. Very good.

Many thanks

Even you can see that there are flat sales and the profit is up 45%. So I think the things we've talked about continue.

Yes. Exactly, exactly.

Thank you.

Thank you and good morning or good afternoon, everyone. Can I just return to biomaterials for a second?

We're in a situation where clearly it would appear like softwood pulp prices in China have troughed, but hardwood is still declining even today's data and inventory still clearly for hardwood need some work. How long do you think that will take, if at all, for hardwood to reach some sort of stabilization?

And when we think about biomaterials quarterly profit going forward, I appreciate the sort of 45 to 90-day lag between agreeing a contract today and delivering, but how long -- how many successful quarters of impact do you think we have going forward until potentially we see some recovery in 2020 by refining EBIT?

I believe and I don't know, we are a player, but we are not a dominant player in any sense in the pulp market. I would say that, I guess, that the lowest point in the pulp prices are probably going to be Q4 this year and maybe going to next year's first quarter, but I am a believer that prices will recover during the first half of 2020.

But I don't know.

Yes. No one has a crystal bowl, but it's good to remember what happened a couple of years ago, when we were having a slow growth in the pulp prices and the change was quite fast when it started to move.

And if you look also on the Chinese data, in the first quarter of 2019 volumes were down of imported pulp into China with minus 15%, recovered to minus 1% by the mid-year and it's around now by end of September, I would say, it's like up 3% to 4% with very strong growth from August and forwards. And it seems like they are emptying their inventories, but at the same time it's not a lot of new capacity coming out.

So, I think, something will happen.

Okay. And just switching divisions in terms of the Oulu conversion, we're in a situation where we've got container board overcapacity globally, frankly, and subdued emerging containerboard demand in Europe.

Would it make sense to postpone the Oulu conversion perhaps six to 12 months, just given the soft demand outlook for containerboard?

I think it is because once it's built, we're going to ramp it up. And I'm a believer that mono material that is pure virgin is actually having a demand.

This is like a 31 million to 32 million tons market growing with two to three percentage points and which means that our 450,000 is basically roughly around half of that yearly growth. So I think, we need to do the conversion as speed as we can and make sure that we can ramp it up because it will start to produce towards the end of 2020.

So…

And also we have to keep in mind the decline in paper market and that's not getting any easier in the paper markets. In that sense we are quite happy that we make the decision on moving in good speed ahead with the conversion.

It's better to produce kraftliner than a – be fine.

No, I don't dispute the decision to produce less graphic paper. I guess what I'm questioning is the logic of spending €450 million converting rather than closing.

€350 million.

Sorry, €350 million. Okay.

Thank you. No.

I think -- and this can turn and I'm not so worried about that. It will be time to ramp it up as we know.

It's a growing market have not changed. There's a good demand replacing plastics and based packaging materials.

And I think that's hitting the market at the right time.

And it is a new cross line that doesn't exist, which has its advantages.

Okay. And just one final question just switching divisions again to Consumer Board.

Am I right in thinking that you have essentially a contract reset with your major customer as of January 2020 in terms of a positive pricing opportunity potentially that may bring ...

We have some major contracts still to be renewed at the end of this year means speaking of mix without going too much into specifics, but we are at the final stage of the renewal of the also the longer-term contracts. And obviously that falling boxboard related contracts are coming to renew, those are more annual now towards end of the year again.

Sure. And so can you give us any outlook for folding boxboard prices for 2020 which as you say tend to be annual contracts?

I'm just wondering given

I don't want to give any outlook on 2020, but I think economy is going to come back probably and that means that in 2020 that prices will also come back.

Okay. Thank you.

Yes. Thank you.

Few questions from my side. First on Consumer Board.

And going to Q4 and the seasonality that typically seen in Q4 there should we expect kind of similar seasonal EBIT than earlier years in this division? Or is this year somehow different?

You have to remember two things. We have two --we have actually three mills in maintenance shutdown in Q4 2019.

We have Fors, Ingerois and Skoghall. Then you also -- if you look historically, how we have -- and this has been a problem, we have usually had a little bit of a too high expectations on Consumer Board in the fourth quarter.

Because in last year, we had only two of the Consumer Board mills in maintenance shutdown. We have Skoghall and Fors, but now we're also having Ingerois.

Yeah.

I think you get what I'm trying to say.

Yes, absolutely very helpful. Then second question on costs.

You talked about a lot about taking down fixed costs and then you have got quite big plans on that side. But then on variable costs what do you see from there coming in Q4?

And I guess for a little bit longer period as well early next year? What's the outlook on variable costs?

Yes, I would say in general there's not a lot of pressure from costs has not been during the year or going forward. Sequentially, of course, look at the wood cost that is the key for us.

We see that it's easing. Of course, compared to year ago they are still at the higher level on average for this year as I remember how it has developed, but that is of course key driver to us and the same quarter other key inputs.

Due to the same reasons, markets have been softer and it's affecting other markets and players. So, no major pressures from there.

When it comes to cost improvement and cutting programs that we are running successfully, roughly half of the savings are coming from variable costs and half from fixed costs. And then, of course, as I say we do not take into account normal price changes in good or bad, but then it will be consulting for variable cost.

It must be something changes in recipes or changes into the materials themselves or reducing consumption in the recipes.

Or qualification of new suppliers. It has to be something that is sustainable.

And active.

Active, yes.

Sure. Then thirdly, just on net working capital, if you could give us a kind of an indication of what to expect on Q4 from that?

Yes, we started to put extra effort and focus on working capital after Q1 and Q2 and have continued the same in Q3. Working capital came down €100 million plus in Q3 and we continue to work with the set of projects.

Project office to look at this and to keep the pressure on businesses and good supply to ensure that we can push down working capital difference component. So, I'm confident they will continue.

We have not set any targets or we are not commenting targets when it comes to working capital levels where to go, but I'm not sure that there are opportunities to knock out a couple of percentage points from the net working capital net sales ratio compared to where we are now. It came up somewhat last year especially and now we are working to bring it back to the levels where we were earlier.

I think it's potentially realistic that we can and should be below 11% to net sales if you look at the ratio as such. So, I think that gives you some perspective.

But of course, it's a long-term action, so it's not such short-term access. But it's one of the key areas in addition to profit protection program that we are running now because cash is very important in this time span when economy is turning a bit sour.

And I think it's important to take care of your balance sheet and cash flow.

All right. Thank you very much.

Thank you very much and good day to everyone. The way you guide now for the fourth quarter actually takes us back to profitability level where we haven't been since 2013 while some of your key benchmark prices are actually somewhat higher than they were back then.

So, I wondered just is cost a very important part of the equation here? Is it so that variable costs have maybe started to decline, but they will decline only much slower than your product prices go down?

And if so what's your anticipation for variable cost development in 2020? And maybe then in particular on the wood raw material side please?

Yes. First of all, I think it's worth to note is I remember that at comes to pulp; pulp has been committed historically low levels.

And that is obviously having an effect or not only in biomaterials, but stores in general. When it comes to the variable cost, I think you hit the right point Linus when we look at the wood cost.

If we look at good cost level this year, it has been and continues to come down sequentially, but it's coming true in the figures slower than you might expect. And it's partly because of the structure of the market as that we have been obviously making wood supply deals from the forest owners over time and some of those have been old prices so to speak.

And we have been harvesting those and it has been affecting the inventory varies and the cost coming to the system. But that is of course continuous consumption of the wood.

And like I said we expect that positive trend from the wood market continues, positive means that wood prices come down and then that the FX cost starts to come through also more discipline in the results. It takes typically a quarter or so at least when the market moves and now it has taken a bit more.

So, I think that has been the key driver. If you look at the wood cost somewhat higher than earlier due to the last couple of years developed until coming down now, and historically low pulp prices especially.

And also to remember that Consumer Board were we have been doing good increase in prices basically starting to come truly now. It has been improving continuously.

But now, almost a whole quarter has been renewed. Some last contracts still to be done with those prices.

So, there are this kind of phasing and timing issues.

Right. And so when in earnest will we start to see a sequential wood cost decline do you expect?

Sequentially, wood costs are declining already. But I think that early next year, picking up next year we would expect that they come stronger through interpreters.

So, it's slightly more than a quarter if we act fast.

Okay. But is that -- can you say that for basically all of your wood sourcing regions?

Or is that just in certain regions? Or is it pretty much the same?

I know you've had quite low-priced sawlogs in Continental Europe recently. But, is there anything else to note on that?

Or is it pretty broad-based that you will see a cost decline on the wood input?

It's mainly Finland, which is roughly one-third of the total volume and less in Sweden but it’s mainly Finish phenomena. In Central Europe, as you saw because of the pulp [indiscernible] wood costs have been coming down and our remained relatively low.

And plantation-based wood that is more -- it's our own plantation, so that is kind of FX are not so large.

So Sweden, we have fast reaction time due to the demand.

Exactly. Exactly.

Right. And then, just one more question if I may.

If you could just provide any sort of update on how your day high operation is going within Consumer Board? What's the latest on the ramp-up in terms of capacity and mix development?

And how are you affected by what's going on overall in the Chinese packaging board market?

So, we are at design capacity and that we've been for a long time and we are qualifying more and more. And what we see now is that the FBB demand is slightly stronger in China and the prices are stable.

And I would say we are affected, but not as much.

We are working on bringing higher premium grades to the market and launch there successfully new products, and that they improving the product portfolio and improving profitability moving forward.

But that is also a new way of how we work. So it goes according to a pattern.

It doesn't happen overnight.

But, if I put the question maybe somewhat differently. If we, for a second, remove the tailwind from cheaper pulp, because the operation is buying pulp from outside the mill, are you seeing profits progress at that mill?

Absolutely. With the lower chemical pulp prices that we have seen that is absolutely helping them.

Yeah. But I mean except for that factor are you even adjusting for that particular factor?

Are you seeing underlying profitability progress at Beihai?

We do. Operationally, we have been running there almost since the beginning very successful startup and good volumes and efficiencies, we already earlier.

And like I said when we are improving the product mix moving away from standard folding box spot to lower end of the range to higher quality of grades, there is a clear improvement in the profitability. Of course, as we all know folding box spot market is quite crowded but there is overcapacity in China.

And that is why it's extremely important that the team in China as they have been doing continue to move volumes to upper end of the range and that's exactly where we get the profitability pickup.

And also increase the direct sales to their users and using less and less of merchants.

Excellent. Thank you very much.

Thank you.

Thank you very much. So a just – a bit more on the Q4 guidance.

Now, I guess, it's what expected that the average pulp price is lower in Q4 compared to Q3 also the paper prices lower in Q4 compared to Q3. So that's probably well known by analysts and the market.

But these other segments seasonally Q4 has been sort of higher earnings Q-on-Q. So Seppo could specify a little bit of what is going on there?

And what should we expect for the other segment now going into 2020?

First of all, you have to remember that this segment includes also R&D costs and some project-related costs that are always a bit difficult, especially for you looking outside in to understand the phasing of those. So that is one driver that's why based on facing issues between Q3 and Q4.

And then, there has been some – if you look at the of the costs, especially the projects that some cost have been let's say moving from earlier quarters towards end of the year related to the finalization of those projects. So there's nothing extraordinary as such, but typical – difficult things that are there.

Going forward of course, you have to remember that today segment other includes all our forest operations in Nordic meaning that it excludes that they are taking over wood supply Finland, Sweden, Politics and Russia. And starting from the beginning of next year when we separate, separate those and start to report forest divisions separately, I think it is the dealer of this segment more clear to you when we look at the development it will be easier to follow our estimate.

Right. But can you provide some kind of guidance on the earnings improvement, I guess from sort of you now reporting a little bit differently the forest assets you have 2020 over –

When it comes to forest assets, I cannot comment more than what we commented already in Forest Day in Stockholm. The guidance as you know, we are guiding full group results next quarter and we don't go more into the details when it comes to as such.

All right. And then can I just ask on – you touched upon maybe a bit better FBB prices in China.

But what are you seeing sort of in terms of activity levels volumes when it comes to biomaterials and Consumer Board in China?

Consumer Board is LPB and its liquid, it's CUK and its full Service Board. So, if I start with the pulp, I would – we have seen volumes now increasing and accelerating increasing in the second half basically from August towards today.

And we have also seen – we've all seen today that the NBSK is moving up for the second week in a row even – and we also see that the has not really moved in the right direction yet so that is one thing. We do believe that the inventories are coming down in China.

And China needs to increase pulp consumption every single year if they are going to continue with the GDP growth. At the same time, we don't know what will happen with the import of recycled paper, but the quotas are coming down for recycle.

So, if Chinese economy, which needs to grow, are going to grow, if they're going to buy more pulp, they are going to need more packaging materials in general. And Chinese consumer are very, very eager to make sure that they have food safety and food safety is an area where we basically are focusing the Beihai mill on.

All right. Thanks.

That is clear. And then finally –

One thing more which I think is important and that is there is a change in China. There is an increasing middle class that is, there is a change in China.

There is an increasing middle class that is growing. And they consume more and more.

Sure, definitely. Just finally a question.

Some of your peers in Sweden are writing off the book value of their forest which apparently is having a quite positive impact on the share price development. Now, what are your thoughts?

I guess initially, you have sort of said that that you're fine with the way you book those forests at the moment. But I guess especially the Latin American Forest are booked at very very low levels.

So, are you still sort of -- are you looking into this issue? Or are you fine with the way you booked the forest value?

Is that in your view reflected market value well enough?

Well, obviously, we follow the situation and development what our peer group is doing in Sweden and globally also you have to remember, a lot of rotators companies outside Sweden also. Typically, people are likely using discounted cash flow models.

Very few of our peers are using market prices, because of the market, big-sized deals not being done frequently. But let's see how it develops.

First of all, then, if you look at Sweden and specifically our case, then you have to remember, we have recently done a big deal and the value today in parasite is reflecting prices that we have paid for the additional land in the case of Bergvik Skog and the land that we got as part of the demerging or splitting Bergvik Skog relative to our previously owned share is not far away from that. So, in that sense, we think they did sort of hearing -- at least a fair value.

But obviously and we have also given out figures, the latest we did was in Stockholm, at the ForEx Day, giving comparison to valuations based on the market prices date in Sweden. And there you can recall that, if you look at the book values today, it is about $2.8 billion in Sweden and looking at our fair valuation.

If you look -- use the figures from IMF deal, it's 5.1, almost double and LRX statistics at EUR 7.9 billion, almost triple compared to what's today in our books. So I think that is of course some idea on the potential value and heating value there in the balance sheet.

Sure, definitely.

So I think -- it's quite transparently communicated by us already, isn't it?

It is. It just seems that the impact on the share price if you do that on the book is hefty, but I agree with you.

Thank you very much.

Thank you. Coming back to the Consumer Board business, just as a reminder, how big part of that business is liquid packaging board today?

45%.

Okay. And how big part of that 45% is now being renegotiated in terms of price contracts?

We have not communicated that kind of ratios. But like I said earlier, we are at the final stages now.

So, by the end of this year more or less done with the exception of one or two contracts, so they are -- they start to be there.

Okay. And would you say that during the year 2019, you are already seeing some effects of earlier price negotiations during the year?

We have communicated basically all quarterly reports that we have had, that we have been working with the whole portfolio from everything from FTD, SBS, Foodservice Board and we have achieved every quarter, an increase in the prices.

And you can see those if you look at year-on-year development of Consumer Board. They have been improving.

And we have been also quite happy that I can say that we have been quite happy with the increases reached. They are where we have been targeting as well, so very successful work in the team in Consumer Board division.

Okay. And then, just a follow-up on Beihai, which you talked about previously, but could you give a rough split, how the mix in that Beihai mill looks today?

How big part of the volumes are higher-value products today compared to let's call it, lower grades? Just to get a feel of what's the improvement potential there?

I would say that, it's still quite big. We are like Annica said in the Capital Markets Day a year ago that we are halfway through in the portfolio development and ramp up in that sense and we still need to continue.

So it's too much still on low end of box project. But like I said, we continuously work on launching new higher end of the range products and that's improved the profitability.

So we are moving step by step. And also of course developing is important there on top of change in coming with the new grades.

Okay. And then just finally on the switching to the corrugated box markets, what do you see currently in those markets in terms of demand and pricing?

I mean we have seen containerboard coming down quite a lot, but it appears if corrugated box pricing has held up a bit better. What do you see now in that business?

Are you seeing increased pressure on the box prices? Or are they still holding up fairly well?

So with the kraftliner has come down, it gives a bit more leverage for the corrugated units and the corrugated units was a positive contributor to us. At the same time, we see on the containerboard the board going in there from packaging solution that the demand is stable.

And also the prices are stable. And I think that was confirmed already today with the statistics and it's been there for a while.

So that will mean over time that the gain will probably change that the -- corrugated packaging might come under a little bit of pressure going forward.

But if you look at the volumes of corrugated this year looking at Q3 or year-to-date, so there actually is a slight increase in the volumes during the year. So I think that's an indication, if market is holding pretty well and the volumes are also pretty healthy.

And part of that is actually explained with the continuous growth of the e-commerce that is driving a lot of corrugated material.

Okay. And then just a final question on the pulp market, we've talked extensively about what's happening in China.

But how would you describe the European pulp market right now? Has there been any change in the last month or weeks or so?

What do you see there happening going forward? I guess, so far this year demand has been quite weak declining clearly and the inventories are very, very high.

Do you see any improvements in situation?

In the fourth quarter no improvement. It's still under pressure.

But you have to also remember that in Europe the prices started to decline later than in China. And like I said in China it starts to stabilize and probably Europe follows a bit later.

Yes. But in terms of demand have you seen any changes or inventory levels in Europe?

Well typically one leads to another.

And it is a bit, the German economy which is by far the biggest market in Europe is in a way probably going into recession which obviously will affect the level of economy which is the driving force between the box demand.

Okay. Thank you very much.

Yes. Just a couple of questions.

Consumer Board, if I can return to that, just curious a bit what you're seeing in terms of demand trends. I mean, we're seeing some stability actually in corrugated, which should be more cyclical and in this business you're not seeing any volume growth.

And this scenario where I guess there's been an argument at least you should be gaining some momentum in the pack, substrate change from plastics for example, right. Can you give us a bit of color on what you see is going on in the market in terms of demand trends generally and also in overseas markets?

So what we see in general is that we have also been very clear that we have been fighting for making sure that we do value management and not taking bad deals. We see an increased interest and discussions with customers.

But you have to remember to replace a lot of the packaging material from what is a typical plastic doesn't happen overnight. And I think what we have seen is a bigger and bigger discussion with customers.

And a typical thing was that the board that we can make plastic tubes that will be very small in the beginning and we see more and more of all these euro packaging awards that we got is actually a reflection of that the interest is there. It's not going to be orders in a quarter or so.

It's going to take some time when we took volumes. So I think the interest is there.

It's going in the right direction. And you have to remember, the single-use plastic directive is not -- is implemented on the EU level, but hasn't gone into the local legislation yet, which will drive this even faster.

So I think it's early days to talk about it, but the interest is there.

Okay. Looking at leverage, as you pointed out Seppo, it's been up a bit and of course your guidance for the fourth quarter is quite a bit down.

So I guess you're approaching some 2.5 times and you're stepping up CapEx spending. When are you getting concerned about the leverage?

And would we consider some of your spending for -- which you guided for 2020 at quite high level?

Yes, obviously, follow the balance sheet carefully and it's important to pay attention to it. Like we communicated already earlier, this year when we announced the conversion project in all and increased the CapEx temporary about the earlier levels around 600 plus to 800.

We already then said that we will focus on working capital. Also we plan to continue non-core asset disposals to improve the balance sheet.

And I think those are the actions that we have in pipeline continue to implement and share that our balance sheet is not getting worse.

But you're not considering any actions specifically beyond what you talked about net working capital et cetera, but no CapEx changes at this stage?

Not at this stage. I think we are confident that we can continue with the projects that we have in the pipeline.

But obviously, if things get very sour and cash flow starts to deteriorate then we need to look at other actions and reducing CapEx is obviously one alternative. But at the moment, we don't see any reason to go that far.

And Lars, don't forget that we have how much have we sold of non-core assets in the last how many years.

In five to six years about €600 million, so roughly €100 million a year.

Got it. And the final question for me and I asked the same question the last time around.

Clearly, paper volumes are quite weak and clearly there's no doubt there's a need for capacities taken out. A question that I asked last time as well is how do you faring with customer retention at all?

Or is that a factor now comes into play because your deliveries were down more than the market generally? How should we view this?

I would say, so far so good for the customers. Customer retention has been good.

And we have been able to keep the volumes relatively well.

Very good. Thank you.

But the whole competitive landscape is similar.

Yeah. And of course in general, we focus that on values than volume.

Got it. Thank you very much.

And Karl all the best for your future. Thank you.

Thank you. And that was the last question I think or not?

Okay. We still have a question then we'll take them.

Thank you, Lars.

Good afternoon. Just following on actually on Lars's question around balance sheet.

I just want to make sure on the dividend side of things you're still comfortable on paying 50% through the cycle. So just the fact that we're probably going to a lower EPS number, you still feel comfortable with the dividend payments as is?

Dividend policy has not been changed. It's 50% over the cycle, yes.

Okay perfect. And then when you talk about your earnings into next year, a lot of the impact is around pricing, but you talked positively around, potential opportunities for new areas of development in the next coming years.

Has the softer macro environment changed your views on those type of projects or not at all?

No. I think given the trends that Lars also talked about that people want to replace for site-based materials, we need to speed up the innovation because when you launch a new product, over time, that is a more profitable product than the previous one, maybe not when you start it.

But when it gains volume and that's the reason why we need to be more innovative than anybody else because the demand from customers will increase. And if you are first out you get a bit of a time monopoly.

And that – it always affect the margins.

Great. Thank you.

Okay. Thank you everyone for the lively discussion.

And now before we end, I will hand it over to Karl, because he wishes to say some final words to you.

So first of all, thank you very much. This is my last quarterly report for Stora Enso.

I would like to thank you all for bearing with us. It's been a great privilege to work with Stora Enso.

And I am very convinced about the future of Stora Enso. We are in the right business.

We are doing profit protection program, which will make us an even better company when the cycle turns and I'm extremely proud to be replaced by Annica, who will take over the 1st of December. So I think this is a last farewell to you all and I thank you for being patient with me and I have enjoyed this a lot.

Thank you very much.

Thank you.

Thank you.