Stora Enso Oyj

Hello, everyone, and welcome to Stora Enso's third quarter 2024 results presentation. Thank you for joining us today. I'm Hans Ulström, the president and CEO of Stora Enso, and I'm here with our CFO, Seppo Parvi. Today's presentation is titled Continued Growth and Earnings Improvement. We will guide you through our performance and share insights into our outlook for the fourth quarter. We will also address any questions you might have to extend. So now let's shift focus to the key highlights of the quarter. We achieved a continued profit improvement compared to the same period last year, primarily driven by price increases and ongoing cost-saving actions. And we are encouraged to report an increase in our adjusted EBIT for the fourth consecutive quarter. Notably, our packaging materials, biomaterials, and forest segments have performed we recognized the challenges faced by our packaging solution and good product segments and are focusing on navigating the weak markets in both segments. In October, our focus was clear to take decisive actions that would solidify our financial standing and retain the value of our assets. Although we achieved a reduction in our net debt to EBITDA ratio, we still remain above our target of 2.0%. We have therefore decided to sell approximately 12% of our forest assets in Sweden. In total, our Swedish forest assets cover 1.4 million hectares with a value of 6.3 billion euros. In addition to strengthening our balance sheet, it would also underscore and expose the economic value and resilience of our forest holding. Regarding the Bay High Packaging Board production site, after thorough review and negotiations, we decided to retain our Bay High site and forestry business, recognizing that the value in owning these assets is higher than the achievable selling price. We are confident that Stora Enso is the best position to continue operating the site going forward. And given the recent global cost escalation of wood and logistics, the relative cost competitiveness of the Bay High site has improved. This choice aligns with our long-term strategic goals, and our commitment to maintaining the global leadership in fiber-based packaging market is firm. We believe in the long-term value of this asset and its potential to support our core operations without requiring significant capital expenditure mid-term. The Bay High site will be developed through a continued focus on operational excellence, cost optimization, and product development. And by optimizing the product mix at Bay High, we are not just maintaining but enhancing our position, especially in the Asia-Pacific market. So let's move to our Q3 result and the contributing factors in more detail. Our value creation programs focused on sourcing, operational and commercial efficiencies are making progress across all divisions. Group sales increased by 6% or €134 million, reaching nearly €2.3 billion. This growth was driven by higher prices in all divisions except packaging solutions and increased deliveries, particularly in packaging materials. However, these gains were only partly offset by the negative impact of structural changes, such as the closure of the HOOP board unit in the Netherlands and the Sunila pulp production site in Finland. HOOP adjusted EBIT increased to 175 million euros up from 21 million euros last year, meaning our highest operational EBIT since the first quarter of 2023, and the adjusted EBIT margin rose to 8% from 1% last year. This improvement was driven by the higher top line that more than offset the higher fiber costs. Cash flow from operations amounted to 271 million euros, and cash flow after investing activities was 4 million euros, sustaining reduced operating working capital levels. Let's delve deeper into the key factors that influenced the adjusted EBIT. As mentioned earlier, the group suggested EBIT increased significantly to €175 million from €21 million last year. We can see on this chart that this growth from the higher sales prices and, as mentioned earlier, increased deliveries in packaging materials improved profitability by €99 million. However, fiber costs, mainly from wood, reduced margins and profitability by 80 million euros. Other variable cost categories improved, adding 60 million euros to adjusted EBIT. Fixed costs also came down by 13 million euros despite increased maintenance costs for biomaterials. And here we can see the impact from the value creation programs. Now, let's take a closer look at the division starting with packaging materials. The quarter showed strong performance with high operating rates and positive outcome from the profit improvement program. Sales rose by 11% or 112 million euros reaching 1.169 billion euros. The results were driven by higher volumes and significant increased container board prices. Furthermore, the consumer board prices increases were successfully applied to renewed contracts, which, important to note, represents only a small portion of the total volume. Demand remains stable, but ordering flow across all segments weakened in the third quarter due to challenges in market recovery caused by slow retail trade growth. Adjusted EBIT grew by €107 million to €73 million, driven by improved top line and lower fixed costs. And adjusted EBIT margin increased to 7%. Elevated fiber cost was offset by reductions in energy, chemicals, and other variable costs. Now, continuing with the packaging solutions division, where we continue to navigate through challenging market conditions. The division's performance remains burdened by substantial margin pressure due to market overcapacity. Consequently, sales declined by 2% to €262 million, primarily because of lower pricing levels, though volume saw a minor improvement. Adjusted EBIT fell by €21 million to a negative €6 million. The profitability of the division suffered significantly due to higher margin pressure stemming from difficulties in passing through the sequential increased container board costs. Additionally, the ramp-up of the new corrugated packaging site in the Netherlands burdened the result. These factors collectively underscore the considerable challenges the division encounters in sustaining profitability in the current market conditions. Let's take a look at the biomaterials division. In biomaterials, overall pulp demand weakened during the low season and due to new market capacity being ramped up. Global inventories rose above the five-year average. Sales increased by 10% or by €36 million to €380 million, primarily driven by higher sales prices, although sequentially pulp prices fell across all grades and markets. Deliveries decreased due to weakened demand and planned annual maintenance shots. Adjusted EBIT increased by €39 million to €43 million. Adjusted EBIT margin increased to 11% from 1% last year. Profitability improved thanks to higher sales prices, although this was partly offset by increased planned annual maintenance costs and higher fiber costs. Shifting focus to the good products division, we were impacted by continued low demand. Wood products struggled with continued weak markets and low construction activity, but saw slight increases in volumes and prices. Building activity remained low, keeping demand for cross-laminated timber and laminated veneer lumber down. Sales rose by 3% on 9 million euros, reaching 359 million euros. Adjusted EBIT improved by 19 million euros to a negative 2 million euros, thanks to higher volumes and prices, reduced fixed costs, and one-off insurance compensation of 10 million euros, which offset increased raw material costs. Ongoing cost-saving measures helped to improve the results. Now, let's have a look at the forest division that continued its strong performance also this quarter. The Forest Division experienced continued high demand for all wood assortment in the Nordics. Sales saw a significant increase of 30% or 161 million euros to a total of 695 million euros. This was primarily driven by higher volumes and rising wood prices both year on year and quarter on quarter. The third quarter adjusted EBIT reached a record high, increasing by 22 million euros to 81 million euros. This reflects the strong operational performance of the group's forest assets and wood supply. The value of our total forest assets remains stable at 8.8 billion euros, equivalent to 11 euros and 11 cents per share. I will now hand over to Seppo to go through details of some key financials. Over to you, Seppo.

Thank you, Hans. And let's start with the net debtor. EBIT day ratio and operating working capital slide. Profit Improvement Program initiative during the first quarter this year set an adjusted EBIT improvement target of 120 million euros. Full impact is expected to be visible from the beginning of next year, 2025. Also at this, our value creation actions aimed at reducing variable costs in the medium and long term have shown significant progress. These efforts have contributed to improved earnings, cash flow, and improving our leverage ratio. Notably, we have improved our net debt-to-exhaustive EBITDA ratio quarter-on-quarter to 3.1 now, although it remains above our target ratio of 2.0. Operative working capital improved compared to last year and stayed consistent with the previous quarter. To further strengthen our financial position, we are planning to and we are preparing to sell approximately 12% of our forest assets in Sweden. This sale is anticipated to reduce both depth and further enhance the balance sheet. Then let's move to the next slide and look at the long-term financial targets. The current business environment is impacting our ability to meet all long-term financial targets. However, encouragingly, we are seeing recovery in some financial targets. As Hans previously stated, we are executing measures to reinforce our business for current requirements, while also planning for continuous improvements and future competitiveness. As mentioned earlier, sequentially, we have improved our net debt to exhausted EBITDA ratio. However, we are still behind year on year. Except for forest division, all divisions are still below our return on capital targets. In regard to this year's dividend, our board is evaluating the possible second payout and will make a decision by the end of this board. And now back to you, Hans, for an overview on sustainability goals and market outlook.

Thank you, Seppo. Our growth is underpinned by sustainability, which serves as both a strategic enabler and a competitive edge. We are committed to achieving our ambitious sustainability goals, focusing on climate change, circularity, and biodiversity. In terms of climate change, we are enhancing energy efficiency, transitioning to renewable energy sources, and increasing our use of non-fossil electricity. These efforts have led to a 49% reduction in production emissions since 2019. Building on this progress, we are targeting net zero carbon emissions by 2040. In circularity, we have reached 94% recyclability of our products and are aiming for 100% by 2030. Stora Enso remains fully committed to the long-term target to achieve a net positive impact on biodiversity in its own forests and plantations by 2050 through active biodiversity management. And after the environmental incident in Finland in August, Stora Enso has and continues to introduce robust measures to prevent similar events from happening ever again. Now, moving on to the sequential market and business outlook for the fourth quarter. I will now cover the market and business outlook for the rest of this year. Stora Enso anticipates that the gradual market recovery will slow down from the third to the fourth quarter, which is expected to adversely impact our fourth quarter's profits. Additionally, we face ongoing market volatility, including high inflation and potential labor strikes and continued high good costs, which may affect demand and pricing through year end. With that as a background, I will now comment on the outlook per division, starting with our largest division, packaging materials. The fourth quarter is typically a low season in the division. Here we expect to face challenges with reduced volumes due to weaker demand and our annual maintenance shutdowns. We will see the impact of price increases in consumer board and container board. However, the average price across the division will be lower. This is due to product mix. with a higher portion of lower-priced container board compared to the higher-priced consumer board products, as we are having shutdowns in our big consumer board mills. High wood costs continue to be a primary concern, and the weak ordering flow from the third quarter makes our outlook for the fourth quarter uncertain. Market demand in packaging solution segments remains unpredictable and volatile, influenced by weekly fluctuations, and over capacity in western europe we anticipate a sequential decline in volumes due to seasonal effects with no significant uplift expected from peak periods margin growth is constrained by ongoing expenses related to increased container board prices and ramp up of the new corrugated site in delhi in the netherlands This site will be the world's largest corrugated box site when up and running. In biomaterials, demand will vary across regions and segments, but on average, it is expected to remain unchanged in the division quarter on quarter. In China, we anticipate a rise in demand due to lower inventories, favorable seasonal demand, and lower prices. In Europe, demand for certain paper products is expected to weaken slightly. Older demand for fluff pulp is projected to remain stable. Good prices expected to be higher in the Nordics while or expected to be high in the Nordics continuing on a high level while chemical prices are expected to stabilize. In good products we expect an increase in demand for plastic zone products and heating pellets driven by seasonal factors. Demand for our building solutions is also expected to drive higher volumes. While raw material costs are expected to remain in line with the third quarter this year, elevated wood costs are anticipated to continue with a year-on-year increase. And finally, our forest division, we expect the wood market to remain constrained in the Baltic Rim due to shortage driven by increased demand for industrial wood. We expect a continuation of our robust and sustainable financial performance into the fourth quarter. We also anticipate that general cost inflation, particularly affecting logistics and harvesting costs, will impact the fourth quarter. With this outlook, I will move to the key takes and how we are building a stronger future. To recap, our third quarter of 2024 has shown solid performance and decision-making to ensure financial stability and growth. Our actions are focused on improving profits, competitiveness and cash flow. Our value creation programs have delivered significant variable cost reductions, contributing to operational and financial performance across divisions. And this year's profit improvement program is on track to deliver on its target of 120 million euros in fixed cost savings by 2025. We have decided to sell approximately 12% of our 1.4 million hectares of Swedish forest assets, which are valued at 6.3 billion euros, to strengthen our balance sheet. And after a thorough review and negotiations, we decided to retain our Bay High site and forestry business, recognizing that the value of these assets in our own use exceeds the achievable selling price. Furthermore, we are well on track to deliver on our guidance and expect our full year 2024 adjusted EBIT to be significantly higher, meaning plus 50% and above than the 342 million euros in 2023. But before we conclude, I want to recognize our CFO, Seppo Parvi, who will be departing now by the end of this month to pursue new opportunities. Seppo has made significant contributions to Stora Enso over the past 10 years, and we are truly grateful for his dedication and impact. We wish you, Seppo, all the best for your future endeavors. Thank you, Seppo, for your commitment and for your valuable service. Thank you for your attention, and now we are ready to take your questions. And pass on.

If you would like to ask a question, please use the raise hand function at the bottom of your Zoom screen, or if you have dialed in, please press star nine. Please only ask Max two questions at a time. If you wish to ask more than two questions, please rejoin the queue. We will pause for a moment to allow questioners to enter the queue. Our first question comes from Epram Ravi at Citigroup. Please unmute your line and ask the question.

Thank you. I'll use my quota of two questions wisely, I hope. Firstly, on Dehai packaging, you said kind of your proceeds were or potential proceeds were less than what you value them. Could you put some numbers around it in terms of what you thought the value was and what the offers on the table was so that we can get a sense as to how much the the value uplift from that decision has been. And secondly, on the sale of the Swedish forest assets, the market price of forest assets, I mean, according to Ludwig & Co has been declining, etc. And so the question on that is that is it the appropriate time to sell these assets? And again, what's the timing of those assets? You've announced your intention, but do you have a timeframe by which you hope to close this transaction? Thank you.

Thank you, Efrem. So first on Bay High, no, we don't disclose any numbers on this. But what I can say is that, you know, since 2022, the operating environment has changed. Also, China is the world's largest liquid packaging board market, and we really see that a liquid packaging board from Bayi is by far the best quality liquid packaging board in China and in Asia. We clearly see that retaining Bayi has an importance, has a great value. We are the best owner for this asset. compared to, you know, the potential prices we could have got for the asset. So we are maximizing shareholder value through this decision.

And I would add that, like I said earlier, we are not in a financial situation that we would need to sell it for any price. And like we said earlier, that if we don't get the price we want, we are not going to move ahead, and that's why we came to this conclusion.

And regarding the forest assets, there is lots of inbound interest in forest assets. So based on the ongoing negotiations and the indications from many participants, there is a lot of interest for this asset.

And do you have a timing for when you would hope to close?

Well, we also here, we take the time needed, you know, to maximize value. So, as in the case of Bay High, also here, the value achieved is much more important than the, let's say, the timing. Thank you.

Our next question comes from Talat Mittal at Barclays. Please unmute your line and ask your question.

Hi, good morning. So a question on the packaging materials specifically on the consumer board segment. So destocking is now largely over and you are highlighting weaker demand going into Q4. But you are also adding a lot of capacity, FVB capacity next year. So how should we think about pricing and margins when the environment is so challenging?

Yes, thank you, Paolo. Well, first of all, I mean, we have increased prices throughout the year in container board, but also in consumer board, and also other competitors in this segment have announced price increases, as you know, from public sources. When we are referring to the outlook, some weakening of the board market, we're referring to the fourth quarter. Our new 750,000 ton annual capacity consumer board line comes on stream during the beginning of next year, and we still expect a gradual improvement of demand for our board grades. You know that our board demand is very much driven by consumer spending and consumer confidence. And with declining interest rates, declining inflation rates, we expect that that will also drive the continued recovery of demand for board rates.

And also important to note is that this 750,000 tons is not going to be on market on day one. It takes some time to ramp up the machine and all that. But maybe when it comes to phasing of the ramp, we come back to that later once we are at the ramp-up stage.

The capacity corresponds to about two years of, let's say, trend growth for consumer board.

Sure. Thank you. So the second question I have is on forest valuation. In June and July, we saw some reports saying that the transaction prices in 2024 are down mid-single digits, 5-6% in Sweden. How should we think about that? I know that you re-evaluate only twice a year, but how should we think about transaction prices in Sweden?

Well, like we said earlier, first of all, when it comes to variation of our forest in the balance sheet, we use three-year moving average. And, of course, how that moves also depends on how the sort of earlier data has been moving compared to where the market is today. Another thing is that, of course, prices move a bit differently in different parts of Sweden as well. There are certain regionalization on the wood market and the forest market and then depending also where the deals have been that has an effect on the statistics.

Thank you.

Our next question comes from Andrew Jones at UBS. Please unmute your line and ask your question.

Hi, Jess. Just on the forest sale again, I'm just curious what sort of buyer you're looking for and a bit more detail on how you plan to do this sale. When you say a 12% stake, are we talking about certain chunks of the forest or are we talking about 12% of the holding company? And even in the past, we've had SEA pushing the idea to us that, these transaction values are, if you do it in the corporate space, there's usually a corporate premium on those levels. So are you expecting to sell your stake at a premium to what we're looking at in the book? Or could you just talk to your expectations, maybe not around absolute price, but how you think about that price relative to what we see in the book value? Excellent.

If I start, first of all, at this stage, we are not commenting on the deal structure. That's something we'll come back to later. It's something we are now, like I said, in the process to divest 12% of the forest land in Sweden, but we don't go more into details now.

Yeah, thank you, Andrew, for the question. I mean, we don't comment on the expected sales price But what you said about, let's say, the premiums for corporate deals, I guess that is publicly available information that there is some kind of a premium when there is corporate deals. But as I said, we don't take time, so we don't comment on the expected price in relation to our book value.

Understood. And my second question is just on the Chinese asset. Can you give us an idea for the nine-month profitability of that mill? I mean, is it EBITDA break-even? Is it positive? Is it negative? And obviously, given the capacity build-out we're seeing in China on the consumer board side, I'm curious if you see that situation improving there.

into next year it seems like operating rates are very low and there's more capacity coming like how do you see that turning around in the future well ask and comment the chinese market but when it comes to uh profitability of single meals and units in in our company we do not comment those we are on division level as we also report report to the market yes and as stated before we are

We're happy to keep the asset, and we feel that is absolutely the right decision. Beihai is producing the by far best liquid packaging board quality in the market, so we are really aiming at that highest-end segment with the highest quality requirements, and I think that's how we can. And when it comes to the market, the Chinese market, There is overcapacity in folded box board, but we aim to increase the amount of liquid packaging board in the mix at Bay High. So that's really the edge of our strategy in Bay High. And, of course, the latest stimulus efforts in China, and also seem to have some positive impact on the economic development and consumer confidence in China.

Yeah, understood. Thank you very much.

Our next question comes from Charlie at BNP . Please unmute your line and ask your question.

Good morning. Thank you very much for taking my questions, and best wishes to you for the future. I've got some questions on the packaging material segment. Can you just clarify, you mentioned that a couple of, or a fraction of your consumer board had already been able to reprice, but I guess it's the minority because it's mainly a contract business. How much of the share of that business will come up for repricing in Q1 of next year? And On Olo, I appreciate you all going to revert to us on the ramp-up nearer the time, but do you anticipate that making an EBIT level positive profit contribution next year?

Thank you. Thank you, Charlie. So when it comes to the Olo 750 ramp-up, we will come back to the guidance later during next year. And

Second question was about contract renewals in packaging materials. And typically, majority of the contracts are renewed end of the year, sort of Q4, Q1. When it comes to share of the volume, that's something we don't comment. But typically, those are, as you know, annual contracts, and more limited volumes are in two- or three-year contracts. So significant part is going to be... bankroll now during the coming March.

Very clear. And just a follow-up on your comments about the board considering paying the second tranche of the dividend. Can you just share what are the key criteria which you think they're likely to consider in this regard? Because it strikes it as a little bit strange to be on the one hand selling long-term fixed assets, on the other hand selling sorry, paying out more cash to shareholders when you're trying to strengthen the balance sheet?

Yes. So, Charlie, of course, there is a mandate, there is authorization from the AGM to the board to make such a decision on a second dividend payout latest by the end of this year. There are no criteria disclosed. around this, so that is a decision the board will look into then later this year.

Thank you very much.

Our next question comes from . Please unmute your line and ask your question.

Thank you for taking my questions. Coming back a bit to the wood situation in connection with the startup of oil. I mean, it's a very challenging market as you described it. Right now, weakening demand, et cetera, and in the midst of that, you're starting up a very significant new supply addition. Would you even consider to delay that startup just to make right away for it as things start to clear a bit on the the demand front the other topic is of course you know structurally high wood costs in the Nordic region in totality in Finland especially and you're adding another wood consuming asset into the mix and UPM at the capital markets they commented you know structural wood cost issues require structural remedies that seems to be the case so what are you thinking about to offset the incremental wood consumption at Olo. How do we do that? Or is that not a consideration that you're taking, or any other step you may take to make way for the Olo machine and wood consumption that's coming with it?

Yeah, thank you, Lars. So, with the Olo 750 consumer board line, Wood consumption will increase about a million cubic meters per year in that region. And we are not considering any delay. We will start up when we are ready. We have a lot of capital tied up into the asset, and therefore we need to start getting payback on that capital as soon as possible. It should also be noted that when we look at the recipes of this old 750 new consumer port line, there is a significant amount also of eucalyptus pulp, which will go into the to the furnish, about 250,000 tons per year. So also in that respect, it is taken into account in the total, you know, in the recipe and the recipe optimization and the total cost structure for this folded box board and other products that will be produced on the line. And we are confident that this line will be, you know, the most cost-efficient or at least one of the clearly most cost-efficient consumer board lines globally with this modern technology size and with the furnish set up. Then when it comes to your question about the, yes, the wood market in Finland and the Nordics, the Baltic Rim area is tight. However, when you look at the wood paying capability, you know, the more expensive, the higher added value products you produce in Integrate, the better is your wood paying capability because the share of wood costs is lower the more expensive the product is. And consumer board, like folded box board to be produced there in this old 750 facility actually has the best wood paying capability because the price point of these products is over the cycle almost twice as high as, for instance, market pulp or papers. So clearly the share of wood cost is smaller, and therefore also, you know, when you produce in a cost-efficient way with economics of scale, it integrates with integrated pulp as well as then, also mechanical wood products to saw milling to support with chips and dust, you can basically have the best wood paint capability with consumer board. And that is exactly what we aim to do there in Oulu.

And also I would add that we have very strong wood sourcing organization in that part of Finland that will also support us when we're ramping up And also notice that, in general, overall competitiveness of Oulu, adding the 750,000 tons capacity there on top of the existing capacity will obviously improve the total competitiveness of the unit as well, which will then be visible in the figures.

Let's remember we had a large printing paper facility there in Oulu, which was closed down in that region. Thus, we have very good established wood sourcing organization and context to wood forest owners and sellers from that time.

Just one follow-up, if I may. I mean, you are, of course, adding substantial capacity in what now is an oversupplied market. And with the logic you just said about you can pay more for wood, of course, as it's a high-priced product going forward. upstream, so to speak, on the pulp side, that would be less relevant. So, given the challenges in pulp, would that be where you would consider anything to shut down? You did shut down Sunila, of course, right? Are you thinking any other structural measures to ease that pressure again?

No, we don't have any plans of any further shutdowns. As you said, you know, we just recently shut down the Sunila pulp mill.

Our next question comes from Cole Haythorn at Jefferies. Please unmute your line and ask your question.

Good morning. Thanks for taking the question. It's a little bit of a follow-up on Lars and also related to the Bay High decision not to dispose. My understanding was that you would post that Bay High disposer if you had done it. being able to optimize your production mix, and it would help you ramp up that consumer board mill a bit faster and place some volumes. I do agree that demand hopefully is a structural downturn rather – sorry, cyclical downturn rather than structural, but wood costs are higher. We do have overcapacity. Is it not better at this stage to, you know, reduce fixed costs, close – packaging materials capacity, be it container board or folding box board, and improve operating rates on your entire mill system, and improve your mix, which you talk about being much higher margin, enabling you to focus on those better products. Do you need to kind of revisit that strategy review that you did last year on your asset base? Because things have changed quite a bit.

Thank you. Yes, thank you. Thank you, Cole, for the question. Well, yes, you are right. I mean, when we started the divestiture process in 2022, there was an idea of doing that after the divestment of Bay High to do that kind of an optimization and to serve Chinese and Asian liquid packaging board customers from Sweden and Finland. However, the operating environment has changed quite significantly since then. Wood costs have moved up significantly in the Nordics, which also improves the relative competitiveness of Beihai in the high-end liquid packaging board grades, where, as said before, Beihai is the clear leader and actually the only asset in China and Asia for producing this high liquid packaging board quality. So, So, yes, and of course, as a function of that, we revisit our asset optimization, and that is something that we are continuously looking into. I do agree with the comment that, you know, you need to look into how do you maximize the total the total profitability, the total EBITDA generation and EBIT generation of your available assets, depending on what is the demand, what is the sales outlook. So that is certainly something we continuously look into. And I don't want to exclude any potential scenarios for the future, but we don't have currently any plans to shut down any capacity.

And also, like we said earlier, we are targeting not only European market, but also Northern American market, where we believe that we are in a good position, quality position to get some volumes also, and additional volumes.

The folded box board from Olus is providing a 20% to 30% yield advantage, actually, compared to domestic U.S. competing grades and much better quality properties, optical properties, you know, strength properties, folding properties, and so forth. So there is a significant part of the Olus 750 sales, which is directed to the North American markets.

And then maybe just as a follow-up, we've seen Germany recycled container board prices move a little bit lower in October, but the cost dynamics are quite different to virgin container board, and the entire industry is talking about value over volume. Do you have any thoughts on whether there could be a divergence between the virgin prices and the recycled prices? And, you know, while I can – Just to confirm on Olu, you know, you've talked about a low-cost machine, but am I right to think that it also improves the cost per ton of the existing production at that site just because you absorb greater fixed cost per ton there? Thank you.

Yes, absolutely right. You are, Cole. Starting up this second huge liner in Oulu will improve also the cost efficiency of the existing craft liner machine there in Oulu. Absolutely, exactly according to the logic you described. And when it comes to the decoupling of recycled fiber-based test liner and craft liner, yeah, I mean, historically you can see that there is a variance between these machines. And it is true we have heard about some spot offers in the market for recycled container boards, which are somewhat on a lower level than previously. However, is that then temporarily, or is it more like that remains to be seen?

Thank you. Our next question comes from Patrick Mann at Bank of America. Please unmute your line and ask your question.

Thank you very much, and thank you for the presentation. I just want to go back to the strategic decision to sell a portion of the forest. Can you just maybe talk us through the reasoning here? I mean, I think Lars touched on it when he said, you know, we've got high wood costs and and now you're becoming sort of less integrated into wood. I mean, how did you decide on 12%? And is the idea here as well, you know, as well as to reduce leverage to get people to appreciate that this is an asset which can be monetized and potentially get it into your share price rating? Or is it really just about deleveraging? So... And then maybe how you selected the 12%. I mean, is this about areas where you feel that you'll be able to get wood supply contracts at a reasonable price or at good volume? I think in general, just talk us through the strategic planning around the sale and why that amount and why now. Thank you.

Yes, thank you very much. So first of all, the 12% that is selected there is representative for our forest ownership in Sweden. So it is fully representative. And when it comes to the reasoning here, it's twofold. It is depth reduction as a key driver here. But it is also, you know, exposing the value of forest to really – expose what is, let's say, a true representative value of our forest holdings. And then we are also looking into a long-term supply, wood supply agreement with the new owner of the assets. So it's almost like, you know, you know, eating the cake and keeping it at the same time as we will continue getting wood from this new entity. What I also can say is that, as said earlier, we don't disclose probabilities of our mills, but what we can say is certainly that divesting forest, you know, has a much smaller marginal impact on EBITDA compared to, for instance, divesting Bay High. So if you think about the net debt to EBITDA impact, we get a daily higher impact from a forest deal.

I mean, just to push a little bit further on that, strategically, if it's getting your cake and eating it too,

why stop at 12 why why own any of the forests right well this these are our current plans and and this is what we have disclosed and published okay thank you very much our next question comes from james perry at city please unmute your line and ask your question morning thanks for the presentation

Sorry to keep coming back to the forest sale, but are you able to share with us where exactly in Sweden the forest you're selling is, or is it holding scattered all over the country? And secondly, on packaging solutions, as you said, margins seem to be pressured for some time here on overcapacity, even as paper packaging demand has returned a bit. I know it's difficult to quantify, but Just how far removed are we from dynamics that would allow you to reach your 15% return target? And is there any prospect of reaching that level even in the next few years, do you think?

Maybe I take the forest question first before handing over to Hans. The forest we own is 39% from Sweden. And where we are talking here is, of course, in that region where we have our forestry.

Yes, and so it's basically Värmland, Daalanda, that part of Sweden in the central part where we have the main part of our forest ownership. So this 12% is representative for our total forest ownership in Sweden. And then, you know, this was the assignment I got. If you read the Announcement news, when I took over as CEO in September of last year, our chairman of the board said that my job is to reach our financial targets. So that's what we are working on in a very systematic way, and we are getting there. We are getting closer all the time, and that's what we are working on.

Our next question comes from Charlie Mirsan at BNP Paribas Exane. Please unmute your line and ask your question.

Thanks. I just have one follow-up question. I just wondered how much of the £120 million fixed cost saving programme was already visible in Q3 or will be visible in totality in 2024. I appreciate it could be fully visible in 2025. I just want to double count the year-on-year benefits you are anticipating on receiving there. Thank you.

Yeah, without going too much into details, very small part is visible this year. Like I said, we started the program early this year. We finalized union negotiations end of Q2, and then we are now in the implementation phase. So, like I said, it's fair to assume that material part is coming for next year, starting from the beginning of the year, like I said earlier.

Many thanks.

Our next question comes from Andrew Jones at UBS. Please unmute your line and ask your question.

Hi, Jess. Just with regard to the accounting concerns that you've put some press releases out on, I'm just curious about the motivation behind those delayed payments at the end of the quarters, is that something that you regret given the sort of, I guess, hit to the company's reputation that came from that? Or do you think it was kind of a necessity because of pressure maybe from credit agencies and so forth that, you know, if you hadn't done that, we may have seen some sort of credit agency-related issues I guess, was it a necessity or was it a, you know, or was it something that you really grew at given the reputational hit? Thanks.

I mean, if you look at the totality and the volume in question here, like we said, this was in total an average 70 million euros in the end of Q2 and Q3. And like always, working capital actions, property improvement actions, et cetera, they come from a number of actions, and this was one of those. If you look at this as a single action, it's relatively small and not material in any significant way, so this would not have been any triggering point when it comes to rating or similar things. Also important to note is that we have no financial governance. You know, so no typical finance and governance could be first netted to net the PTA ratio. And in that sense, also no triggering points that one would need to be worried about.

Yeah, I want to emphasize what Seppo said here. It's the 70 million represents about 6% of our annual operative cash flow. And in fact, the impact was neutral in Q3 because, you know, the It was done in Q2, so it had a certain positive cash flow impact there. But as it had been – and it's a transfer of cash flow between the quarters, as you know. And because it was done in Q3 another time, it means that the impact was neutral because it had been done in Q2. And now we have clearly said that now it is stopped. We don't do it anymore. So on the full year, there is a neutral impact there. out of this. I do want to underline that, you know, payment statistics is public information in Sweden, so anyone can go in and check, you know, the payment, accuracy of payments, delays of payments in Sweden from Bulagsverket, and if you go in there and you make research, you will notice that, in fact, Stora Enso is not a for-payer. In fact, we are quite a good payer when it comes to payment accuracy. That's the public information available in Sweden. But, of course, as we have stated also now with Insight, you know, thinking about the headlines of this and the potential impact on our brand and reputation, you know, we took, you know, cash flow optimization one step too far. That's clear.

Okay. That's clear. Thank you.

Our last question comes from Cole Haythorn at Jefferies. Please unmute your line and ask your question.

Thanks for taking the follow-up. I'd just like to have questions on the market trends in packaging solutions. I was just surprised to call out a bit of seasonal weakness there. Normally we have kind of the kind of the Black Friday and the Christmas boost. And I'm just wondering, is this more your Dion packaging specific items where they're kind of more skewed to food that's impacting that? Just anything you can call out on the dynamics there on that packaging solution box volumes. And then in wood products, you talked about an improvement in sawn wood. And again, normally we just have a bit of a softer material winter periods. I'm just wondering if there's something I'm missing on the Thornwood side. Thank you.

Yeah, thank you, Cole. Well, yes, you are right regarding packaging solutions. So it's mainly we are, the result is burdened by the ramp-up of the Delir site in De Jong. It's a 200 million euro investment in total that we have been ramping up now throughout this year, and the ramp-up is continuing. And as I said That site with the old factory and the new factory, that site, when wrapped up, will be the world's largest, the world's most efficient corrugated box plot, the world's most efficient and largest. But this former de Jong, so the de Leer site, BU Western Europe, as we call it, is serving to a large extent, the vegetable business, flower, vegetables, food segment. And there, basically, you know, the season is their seasonal weakness right now, combined then with the ramp-up ongoing. Regarding sawn goods, I mean, there has been some price increases taking place, and there has been some improved demand here in Europe. in Q3, but still, let's say, the construction market continues to suffer. As we know, I mean, there is no major uptick in construction market in building permits and so forth. So that still remains to be seen when we can see the construction market really coming back and moving up. It could also be happening very quickly then when when construction restarts again, because there is, of course, now a lot of pent-up demand around new buildings and construction.

And when it comes to Black Week and Christmas and our reference in the outlook, what we mean, obviously, there is sort of a peak, but because of the soft retail market and consumer behavior, we don't expect similar uplift or peak in the demand as there would have been in the normally if you can say it that way right that's that's what we were what was the share what was the purpose of the of the message there thank you there are no further questions i shall now pass back to hans sholster and seko pavi for closing remarks thank you very much thank you all for joining in and thank you for your good questions and your interest

You can clearly see we are totally determined to improve the profitability of this company. Q3 was the fourth consecutive quarter-on-quarter improvement year, and we are also committed to reduce the debt burden. Q3 was the second consecutive quarter of reduced net debt fee with DA. We're continuing to focus on those items we can affect, so cost efficiency, competitiveness, and we are doing great progress in our value capture activities. programs, value capture work throughout the whole organization. So we are fully determined to deliver shareholder value. Thank you very much and have a good day.