Stora Enso Oyj (STERV) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to Q1 2021 Stora Enso Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to the speaker today, Ulla Paajanen. Please go ahead, ma'am.

Thank you, Roberto. I'm Ulla Paajanen, Head of Investor Relations here at Stora Enso and welcome to our Q1 2021 results announcement call. And with me here today is our CEO, Annica Bresky; and our CFO, Seppo Parvi that will give us first a presentation about the results before the Q&A session. So Annica, please go ahead.

Thank you, Ulla, and thanks for joining us this Friday afternoon. If I start by summarizing this quarter, I would say that we are back on track on many of our financial targets. And this is due to improved performance in our company, but also recovering market conditions. We have seen a good growth of our core businesses, 14%. And we can also see an improvement in our operational EBIT by 82%. And the backdrop is that all our growth businesses are moving in the right direction, and we have had a good cost management within the company. As you are aware, this week, we also announced the closure of two paper mills. And of course, this is very difficult news to deliver to all our mill personnel. If we look at how this impacts our paper business, this would, of course, improve significantly the profitability of our paper business and our long-term competitiveness and at the same time, our footprint within paper business will be reduced. So after completed negotiations, 90% of our group sales would come from our core businesses and this is, of course, the direction we are going in the execution of our strategy. Oulu Mill, which was 1 of the significant steps of transformation. We took last year that we started ramping up in the beginning of this year is performing very well. We are delivering our products to the customers. We have reached many of the quality demands. And I'm very happy to announce that we are reaching our operational EBITDA breakeven earlier than planned already in quarter 3 this year. And last but not least, we reaffirm our outlook for this year, where we say that we expect our operational EBIT to be higher than last year. So all in all, I would say that Stora Enso is back on track and that we see traction in our growth in core businesses. So if we move now over to some of the high-level financials, our sales increased by 3% in quarter 1, and excluding paper, as I said, by 14%. Our operational EBIT increased to EUR 328 million and excluding paper to EUR 362 million. And of course, we need to remember here that we have the impact of our forest sales in Sweden on EUR 74 million. All in all, despite this divestment in forest sales, we still have a very strong underlying result. Our operational EBIT margin increased to 14.4% and excluding paper to 19.4%, which is a very good level, showing the strength of our businesses in the growth segments and also our core businesses. Cash flow from operations landed at EUR 185 million and after investments at minus EUR 9 million. Our net debt to operational EBITDA is at 2.3x, on the same level as a quarter ago. And operational return on capital employed, excluding our Forest division, increased to 12%, which is quite close now to our financial -- long-term financial target of 13%. If we now move to the bridge showing what impacted our results. You can see here that it was mainly driven by performance in our growth businesses, also good cost management on top of, of course, the forest land sale. And the impact of paper has been quite significant, as you can see here, the market is still very demanding and sales prices are low in the paper business, but we have, through the other businesses, being able to increase our sales, increase our volumes despite challenging supply chain situation around the world and also deliver on our reduction in variable and fixed cost and our profit protection program. So all in all, we are moving in the right direction. I'll say a few words now about the market conditions for our businesses. And we have seen robust performance in packaging materials. That was the case also last year. This year, we see that we are fully sold out. There is a high demand, and our capacity for the division is very allocated right now. Market situation in China is continuing to improve, which is also driving our results in that division. For Packaging Solutions, there is a solid demand for e-commerce. And this supports, of course, our corrugated packaging. The prices here are yet to catch up because they have been quite steep with the raw material price increases in containerboard, but this will adjust itself as we go along. Classic sawn as well as CLT and LVL has been extremely strong in Wood Products results. We have seen a very good performance there with all-time high levels of EBIT margin -- operational EBIT margin. This is a very strong testimony of the direction of our Wood Products in terms of building with wood. We have a continued healthy performance for our Forest division. The harvesting conditions have been excellent. So our Forest division has been able to supply this increased demand from all our other businesses. Of course, we have also seen the improvement in biomaterials. And as you are all aware, the pulp prices have moved in the right direction since already last quarter. And now they are shown in our books, which is good to see. Demand is expected to stay strong for this year. Last but not least, as we have said many times, the paper demand is still very much challenged and will continue to be so. But we have taken significant steps now in our company to adjust our capacity to meet this new reality. So all in all, we stay firm in our strategy execution and the actions are intensifying as we are moving further. Our paper restructuring plans have been announced. We also decided to shut down our U.S.-based Virdia operations in Q1 since they were not in line with our areas of growth. Our TreeToTextile joint venture where Stora Enso holds 25% share is in demonstration plant phase for developing a new technology for sustainable textile fiber in Nymölla. So this is an area where we put effort because we believe that textiles need to be much more sustainably produced in the future. So here, we have a leadership position, together with our joint venture partners. In our strategic review, we made the decision to seize dissolving pulp production at Enocell Mill during 2021, and instead increase the production of other pulp grades. And as you are aware, the ramp-up of the converted kraftliner in Oulu is proceeding very well and ahead of plan. And as I mentioned, we've reached EBITDA breakeven already in quarter 3 2021. We estimated before, that it would be quarter 1 2022. In ŽdÃrec Mill, we have decided on an investment in cross-laminated timber production. And here, we are in the construction phase, and this project is also proceeding as planned. And this would be a very good add-on seeing now the demand of the many projects that we are running in our Wood Products division. Our feasibility study is ongoing at Skoghall Mill, and the decision on that investment is to be taken at the end of this year. And last, we have signed an agreement with OX2 to lease land in Sweden for the construction megawatt wind power park. And this is also how we support renewable energy production through our forest holdings and collaborating with partners in that. I'll just say a few words now about the plans to permanently close down the pulp and paper production at Kvarnsveden and Veitsiluoto mills. And a lot of this, of course, you have already read in the media. And it's important to remember that this decision is still subject to completed co-determination negotiations that we will do the coming months now. But what we aim for is to reduce our capacity in SC magazine paper and improved news and also in woodfree uncoated office paper and coated magazine paper. And as you are all aware, there is significant overcapacity in many paper grades, especially on the European market. So for us, we reduce our own capacity by 35% by this step. And make sure that the rest of the sites that we have are competitive, and our paper business becomes profitable. Of course, this is very, very sad news for our people. It has a potential impact of maximum 1,110 persons. And the financial impact of this would be EUR 35 million in operational EBITDA that would be improved for the paper division. And as I said, it would take out 35% of our paper capacity or 1.3 million tonnes per year. Our annual sales would decrease by approximately EUR 600 million on the back of this decision. And then we allocate EUR 127 million of noncash impairment costs in quarter 1 and EUR 104 million as items affecting comparability in quarter 2 results, out of which EUR 96 million is a cash impact due to restructuring and layoff costs. And now with that, I turn over to you, Seppo, to give a little bit more details on the financials.

Thank you, Annica. And I start with key figures from the report that we have we have published today. First of all, sales line for the first quarter. This year, sales reached EUR 2.276 billion, which is 3.1% increase year-on-year. Operational EBITDA margin at EUR 21.4 million, significantly up compared to a year ago, when we were by 15.2%. And operational EBIT, EUR 328 million, that is 82.4% increase versus a year ago. And operating EBIT margin at 14.4%. Earnings per share basic at EUR 0.18 for the quarter. And operational return on capital employed, excluding Forest, as Annica already mentioned, a bit below 13% long-term target. And cash flow from operations at EUR 185 million. And net debt to last 12 months of operational EBITDA stable at 2.3, despite the fact that we have paid the dividend at the end of the quarter. Then moving forward and looking at our EUR 400 million profit protection program, where we are moving ahead with good speed, and we will be able to reach the targeted savings already ahead of the plan during the current quarter, Q2. We are very proud and happy about the achievement and organization has been working hard to reach the target. We are trying to close also the reporting of the program end of the coming quarter. But obviously, we will continue to track the savings and close the tails towards end of the year. Then moving to divisions, and I start by looking at the Packaging Materials division. The strong performance continues. And we are very, very proud about the Oulu Mill ramp up that is proceeding also ahead of the plan. Sales increased by 13% and reached EUR 862 million. This is thanks to higher deliveries and price. Operational EBIT was up EUR 31 million at EUR 127 million level despite all ramp-up costs. Ramp-up cost for the Oulu Mill EUR 23 million during the quarter. This also inflection of lower variable and fixed costs. And good to remember that last year first quarter was negatively impacted by strike in Finland. Operational return on capital improved 16.7% compared to 13.5% a year ago. Unlike, Annica already mentioned, Oulu Mill operational EBITDA breakeven is expected to be reached already in Q3 this year. That is 2 quarters ahead of the original expectations when we thought that we'll be there by Q1 next year. Then looking at Packaging Solutions. Where we can see solid growth but operational EBIT is challenged by higher raw material courses. Sales increased by 7%. This is thanks to higher sales in China packaging as well as European corrugated deliveries. Operational EBIT decreased by EUR 4 million and was at EUR 4 million level. This is because of higher raw material prices and negative FX foreign exchange impact that is not yet fully compensated by higher selling prices. There is about one quarter delay. New efficiencies impacted operational EBIT also negatively. This is the work we are doing an investment when it comes to biocomposite business, formed fiber and Box Inc. And these have been partly offset by higher volumes. Operational return on capital at 7.5%. Then looking at biomaterials. The excellent market conditions and solid performance, improved profitability. Sales increased by 24% and was at EUR 355 million level. This is thanks to higher pulp prices as well as higher delivery partly due to Finnish strike in the comparison period Q1 2020, effect in figures. So it's good to notice that market is quite strong. And currently, global inventories are 2 days below 5-year average. Operational EBIT increased by EUR 68 million and was EUR 65 million, and this is thanks to higher sales and lower variable costs. Operational return on capital increased 11.2%. Next, looking at our Wood Products. There, we have record high quarterly operational EBIT margin. Sales also increased by 13% to EUR 382 million, thanks to strong demand, especially classic sawn market has continued to be strong. Operational EBIT increased by EUR 34 million and was EUR 52 million. It is second highest Q1 ever. Higher sales prices and volumes, partly offset by higher raw material costs. And like mentioned also earlier, in addition to record high quarter operational EBIT margin, this was also highest ever operational return on capital, 36.9%. In effect increased 11.3% compared to a year ago. Then our Forest division, where solid operational performance continues and has disciplined the results on top of the gain from the land divestment. Sales increased by 7% to EUR 582 million. This is thanks to higher wood deliveries in Finland and Baltics. Operational EBIT increased by EUR 82 million, the record high third quarter level of EUR 123 million. This is including EUR 74 million impact from forest land sales in Sweden as well as solid wood supply performance. Also to -- it's worth to mention that harvesting conditions this interval have excellent and quite optimal for the time. This is, of course, good news for the relativity of the wood. Operational return on capital, clearly above long-term target and was at 9.9% level. Then our paper division. Here we expect that plant closures would improve profitability and long-term competitiveness of the division. Sales decreased by 28% to EUR 428 million. This is due to lower deliveries because of accelerated structural demand, it will decline. Oulu Mill conversion also decreased sales significantly in the paper division. Operational EBIT decreased by EUR 55 million, to negative EUR 34 million. We issue the global paper market challenges, higher variable costs were partially offset by lower fixed costs. And comparison period, last year was negatively impacted by the strike in Finland. Other cash flow after investing activities was at negative side, 4.6%. Then taking a look at our long-term financial targets and the development there. It starts to be now more on green and yellow compared to couple of previous quarters. Dividends and growth on green. Growth 14.3% in our core growth businesses. Net debt to operational EBITDA 2.3% and net debt to equity at 37%. Operational return on capital employed at 12% as mentioned here slightly below 13% target level. Then look at the divisions. So looking at the Packaging Material, slightly below the targeted 20% level at 16.7%. Also Packaging Solutions at 7.5%. Biomaterials moving up at 11.2% now. And wood products, like said, at record level, 36.9%, clearly higher and above the targeted 20% level. And ForEx at 9.9%, also above the 3.5% level that [indiscernible] has as long-term target. On paper EBITDA that was 7% was now negative at 4.6%. With that, I hand back to you, Annica, please.

Thank you, Seppo. And coming back to our outlook, we stay firm in our expectation that this year, operational EBIT is expected to be higher than in 2020. And as you're all aware, this is driven by the recovery in global economy from the pandemic. It's specifically strong in China and in U.S., but also Europe is catching up. The demand for our product is healthy, except for graphic paper. So this is the backdrop, upon which we see that this year will continue to be better than last year. In Packaging Materials, our Oulu Mill is performing better than we expected. So as we said, the EBITDA breakeven happens already in Q3 before it was Q1 2022. And as Seppo also mentioned before, EUR 10 million to EUR 15 million negative impact of ramp-up costs are expected in quarter 2. And approximately EUR 40 million to EUR 50 million total negative impact of the ramp-up for operational EBIT in 2021. We will reach design capacity by the end of quarter 2. This is progressing very well. What we are focusing now is establishing the final steps in the quality that we have. And already now, we have had very good feedback from our customers. So commercialization of the product portfolio will be reached by end of 2021. And as Seppo mentioned before, our EUR 400 million profit protection program is proceeding very, very well, and we will conclude this ahead of our plan already by Q2 this year, delivering on our target. Our estimation for our total maintenance impact is EUR 112 million for quarter 2. And in pulp business, we have no significant maintenance shuts during quarter 2. So to summarize, once again, we are getting back on track on delivering on our new financial targets that we set a year ago on our Capital Markets Day. And I'm very proud of the work that we have done. It's been a combination of our own actions and then a very strong demand for renewable materials in our core businesses. Moving forward now, we will continue our focus on our strategy execution to deliver growth, and this is something that the whole organization is focusing on. So with that, I open up for your questions.

[Operator Instructions] We have our first question from the line of Robin from Carnegie.

Yes. It's Robin Santavirta from Carnegie. Now the first question I have is related to the consumer Board business of yours. You have launched price increases in Europe and in Asia, I assume. Could you just describe, first of all, the background for those price increases, I think you have been quite cautious related to the consumer board, the folding boxboard market in Europe before. Has that -- what has changed? And then related to the Chinese business, we have seen ivory board prices increasing quite significantly. Could you describe what kind of pricing agreements you have in China when it comes to length. So are those mostly still monthly price agreements? Or do you have mostly long agreements in China. So more information on that?

Yes. If I start with Europe and Consumer Board, as you are all aware, we have a mix of different type of contracts from loan contracts are up to 5 years, then we have 3 years, 1 year and then shorter contracts. And how we can increase prices is dependent on when the contracts are kind of reaching their time for renegotiation. So this is always depending on that when we can push prices. But of course, whenever we have the possibility, and we see that there is a strong demand, we pushed price increases. If we look at China, the market is different. It's more shorter-term contracts, especially in the folding boxboard business, and the market is more volatile. On our liquid business that we have in China, it's more or less the same setup that we have in Europe, where it's more longer contracts.

And can I ask what is the relation of the longer contracts and shorter contracts in China? Is it 50-50?

We do not comment on the contractual setup, unfortunately. I'm sorry for that.

All right. And then just on the situation in Europe. Has something changed now when you are launching price increases and before you, I guess, quite consistently, we're talking about lower prices or price pressure in Europe?

I do not recognize the comment that we have seen price pressure in Europe. We have pushed price increases when we have had a strong demand and when the contracts have been up for renegotiation.

And typically then prices in annual cycle, they are renegotiated along new year, both sides of the new year. So -- and that is certainly critical on the timing.

All right. I understand. The second question I have is related to the pulp business and your dissolving business. What is the background for you now moving out of that business and when will you stop selling or producing dissolving pulp?

As many of you might be aware, we have done a strategic review. We did that already last year. And within that, we decided which areas we had, the opportunity to be market leaders in and take significant market share, where we would see our best opportunities for good margin business. And when we looked at it, dissolving pulp or viscose production was not an area where we would be able to have a significant share of the market, nor have an upside from a profitability perspective. Enocell Mill is a swing mill. And the dissolving business is a minor part of our total business in Stora Enso. And if you look at having a site such as MSL, you want to have less complexity and reduce complexity. And if there is no clear margin upside then this complexity just adds on production costs. So this is the backdrop of the decision to move out. If we then look at the timing, we have customers globally, not only in China. So this is, of course, something that we gradually will do and hope that by beginning next year, we would have moved out most of our business.

We have the next question from Justin Jordan from Exane.

Well done, clearly on the nice cyclical recovery in Q1. I've got two separate questions. Firstly, on Wood Products, where you described the demand in Q1 versus Q4 are significantly stronger. And clearly, you're seeing that the positive motion relation benefits of that in terms of increased record EBITDA. Can you share with us your view on the outlook for demand, as it were? Do you believe it will remain significantly stronger year-over-year throughout calendar 2021? And secondly, on a completely different topic. I appreciate you've had a very busy week. But on Wednesday this week, the EU gave us some final determinations on taxonomy, and clearly, Stora Enso is a major forest manager in Sweden and Finland. What is your initial take on what taxonomy might mean for Stora Enso in terms of proportion of revenue that might be, for example, taxonomy aligned?

Thank you. If we start with Wood Products, we see a healthy demand continuing here. There are no signals or indications that something would change. There is a restriction in supply. And there are a lot of projects requiring, for instance, CLT and LVL products that we have. So I expect the demand to continue staying on this level. And if we then move to taxonomy -- and sorry, before moving there, it is mainly driven by, of course, a demand in U.S. and also very strong demand in EU. We are seeing it picking up also in Asia. And of course, here, we constantly make sure that we choose the projects where we can also deliver and support to our customers. You're all aware of the challenges in the supply chain side, and we have managed really well to be able to both deliver Wood Products to our customers and make sure that we choose the right projects. And then if we move to taxonomy, our initial take is that we will be able to live up to the expectations in the draft that -- or what we have seen so far. It will mostly impact kind of smaller forest owners by having to declare environment and climate impact assessments and so on. But this is something that we are already working on -- as a big forest owner. So for us, this impact is not going to be substantial. And of course, as forestry now is classified as green investment, it is, of course, positive for us. So we will continue improving our operations in this and to be in line with the requirements. A deeper analysis, of course, we will come back to. We've only had the text for a couple of days now.

We have next question from Lars Kjellberg from Credit Suisse.

Just going to get back to Consumer Board. It's been pretty good evidence that, of course, corrugated or containerboard has seen very strong demand from e-commerce. But I suppose you would have in your consumer-board business potentially greater scope for plastic to paper wins. Are you seeing any of that? And have you seen a sort of greater acceleration of growth in that business that relative to containerboard, has been comparatively slow? That's my first question.

What we can say is that we see that we have a very strong demand from our customers in liquid board and in Consumer Boards. And as I said, our capacity is fully sold out. So our Skoghall investment is the step that we would like to take if everything is found to be on a good level in the feasibility study to increase our ability to deliver on this -- on the Consumer Board market as well. And then, of course, innovating in the types of barriers and so on is the work that we are doing to support the transition from other materials into Consumer Boards. But I would say, yes, the trend -- the sustainability trends in society are increasing and more and more people are questioning their choices in terms of packaging, what type of packaging can be recycled. So designed for circularity and also designed for lower carbon footprint is going on. And here, our products have superiorly lower carbon footprint than many of the other alternatives out there. So yes, I believe that we are seeing some of these trends materializing.

Have you, in any shape or form starting to track any gains of new business from plastics to paper?

That is very difficult to track. It is very, very hard to do that. But we get increasing kind of questions from customers where they want to move out of many of the most difficult plastic, for instance, packaging and going into paper for the reasons that I have said. So -- but it's generally on a high level, it's very difficult to track. And of course, if we can have availability of more material to give and have these solutions that will drive our growth.

Just a follow-up question, what you said on liquid paperboard and being sold out on many things. Of course, one of your customers think they're about to close [indiscernible] Mill in June. Does this present opportunity for you to speed up the mix improvement in China?

I do not comment on China specifically. But of course, we are growing together with our customer needs, both in Asia and in Europe, and SIG is 1 of our customers.

We have the next question from the line of Mikael Doepel from UBS.

A couple of questions. First, on the signs in the markets. Now given the very strong demand and pricing that we see there, have you seen any signs of capacity buildup in that market?

You mean inventory or...

No, I mean a starting up of new sawmills and building your sawmills to kind of match the higher demand?

Oh, okay. No, I cannot say that this is -- there is always excess capacity in assortment. You can always add more shifts and so on. This is the type of business where -- when the business is low, you take out shifts then you increase the shift. So it's not so much about building new sawmills. It's actually about running the sawmills that are already there to their full capacity.

There is some projects by our competitors, but it's not so significant addition to the market capacity that would disturb the market as such.

No.

Okay. And then my second question would be on costs basically on kind of underlying cost. Trends that you see now heading into Q2 and the second half of this year. I guess there are some inflationary pressures in some areas. Some are more stable. But just wondering what kind of trends do you see now heading -- going forward, forward in the year? And also related to costs, I think you had a temporary cost saving last year, a quite significant one. I was just wondering if you see that coming back now this year or is it staying away, so to say?

You take it Seppo.

Thank you. So looking at the cost pressures, they are relatively low still at the moment. There are some increases when it comes to paper costs. For instance, recycled piper recycled paper prices are going up. But we have managed to compensate quite where it comes to process containerboard business with the price increases. So that is not hurting the business. Logistics cost, we all know that there is a challenge with the benefit of the containers, which is increasing the cost. But that also is a small portion of the total cost pool, and we have been able to compensate pretty well. When it comes to Packaging Solutions business, like Annica commented earlier, the cycle is a bit longer, so it's about a quarter to get a chance to compensate for the higher input costs, but they also be on the right track to be compensated. So I would say that it's relatively well under control at the moment. When it comes to last year, sort of, temporary savings that we took because of COVID-19, those were more temporary by nature. But like I said, our permanent cost savings and improvements to the protection program are moving ahead, well ahead of the plan, and that partly compensates for that part from last year.

Okay. Okay. Right. And then just a follow-up on the underlying cost side. Is there -- what do you see in terms of wood costs, pulp wood or sawlog? What are the trends you're seeing there?

There especially in the case of log cost, we see that the trend has been going up and the costs are increasing. Pulp wood has been more stable and balancing it somewhat.

The next question from the line of Johannes Grunselius.

Okay. So I have a question first. My first question is on Oulu, and I appreciate you giving us the detail of where you foresee the EBITDA breakeven. But could you say something on where you see profits for the Oulu conversion, given where prices are today, for example?

Well, we cannot comment on that, its future outlook. So at the moment, we comment on EBITDA.

I remember historically, you are mentioning what kind of sort of indicative EBITDA you would achieve and so on. But I then look at it -- yes, I do that work myself. I just wanted to see if you could help me there. Then I was wondering about the closures that you announced this week, Sweden and Finland. I think in that press release, you mentioned that the impact would be SEK 35 million positive from the closure. Is that based on historical EBITDA for those mills? Or how did you come to that number? Is it more an indication? Or can you elaborate on that, please?

Seppo, will you take that? Are you there?

Can you repeat the question?

Yes, sure. I'm after sort of the earnings impact from the decision of closing the two paper mills in Sweden and Finland. And I think you said in the press release that you're indicating an impact of EUR 35 million positive. How did you come to that number? Was it based on sort of the isolated effect from those two mills? Or did you consider sort of indirect effects? Or how do you arrive with that number?

It's the inflection of the profitability of those mills at the moment. Like we said they were loss-making last year, they continue to be loss-making also this year. And in many ways, we are exiting those businesses and volumes, and we -- it becomes a closer decision after the construction process.

Sure. Because I was thinking that when this happens, the operating rate should be quite healthy in Stora Enso's paper business. So my feeling is that the earnings impact will be a lot higher than EUR 35 million. Do you agree on that?

Like I said, this is based on the current performance of those mills. And in some of the grades, if you look at, for instance, that at the vehicle order, where we are producing mechanical -- uncoated mechanical magazine, if, we are exiting the market totally, and that is not, of course, tempering any traditions. And we produce office paper elsewhere, but also there, I think that it depends so much on how the huge development is on the demand and the price development. So that's difficult to comment.

I would rather say that how much this will impact has to do with how the market develops going forward and what type of capacities that are still on the market. So it is about making sure that now we have to be on profitable mills, but it is also about the ability to push prices then on the grades. And yes, as we all know, it's tough there.

Yes, sure. But I mean, I think it's a given that your operating rates now will be quite healthy even if demand stays where it is on these low levels, right?

Yes, that is the point that Nymölla is producing office paper, for instance. So of course, we will try to transfer as much of our customer base as possible and offer them grades within our portfolio. And Nymölla is producing improved news and then we have SC paper that's produced in Langerbrugge and Maxau Mill that can be offered to our customers.

We have the next question from the line of Cole Hathorn from Jefferies.

Would you mind just providing a little bit more color on the demand trends you're seeing in pulp? Firstly, what are you seeing from your kind of tissue customers and the graphic paper demand by region, that would be helpful. And then also on containerboard, what are you seeing there from the demand in markets? And also, would you mind commenting on where inventory levels are in the containerboard market at the moment?

If we look at the pulp side, as I said, we see a healthy demand increase for this year, 3% to 4%. It's mainly driven by China. Long term, it's 2%. From the end-use perspective, of course, the graphical side, there, it is about the paying capabilities of paper customers that kind of impact that and the paper mills ability to drive through price increases and stay running despite the increased pulp prices. If we look at the hygiene and other end uses, there, I think the ability to pass on is quite good. So for us, we have about, in our mix, a much smaller part in the graphical side, approximately -- or just about 10% of our sales are to graphic uses and the rest is through other end users, which are developing quite good. Then remind me of the second part of your question, you're saying container boards?

And then on containerboard, I'm just wondering if you can give some perspective on where you're seeing the demand either by region or end markets, industrial, consumer? And also where inventory levels are in containerboard?

If we look at the containerboard business in terms of industrial, we see the industrial business is picking up, and that has been going on in China for quite some time. Europe is coming now. So the end-use for containerboards there is picking up. And also, e-commerce and so on has been strong throughout the pandemic, and that will continue also afterwards to change behaviors. So we see a healthy demand going forward, both in Europe and in Asia. Yes. And then inventory levels, I'll have to check there with you, Ulla, if you can support. I can't remember right now how the inventory levels are for containerboard.

Well, I don't think there is anything sort of meaningful to say on that because there is a good demand, healthy demand at the moment, and we are more or less sold out, except for Oulu. So apparently, the inventories are not too high because the demand seems to be going so strongly at the moment.

In the case of containerboard, there are no statistics available like for pulp in the case of inventory levels globally.

We have another question from the line of Harri Taittonen from Nordea.

Obviously, it would be interesting to hear your take. What is your -- what are the drivers for this de-depreciation in pulp and what you are seeing? You refer to the suppliers' inventories that they are a little bit below the kind of average. But is there anything you could sort of -- how you could comment on the buyer's inventories in the sort of papermaking side? And what sort of signals you are seeing in the pulp market? Also maybe related to that, there's been some comments that maybe the European demand for pulp is not as such so strong, but the prices have been more -- being driven up by the premium in the Chinese market. But what is your take on the kind of European demand for pulp these days?

Yes. It is the Chinese market that is driving the pulp market, and that has been the case for many years. So in Europe, there is a relative strong demand. But as I said, the paying capability of the graphical side is deciding kind of on an overall global level, how the demand develops. And as you are all aware, the prices are kind of getting close to the higher levels that they were, what was it roughly a year ago or something like that. And that means that what we see ahead of us is that the continued growth in global economy, that is what's fueling the growth in pulp side. So as I said, I expect between 3% to 4% demand increase globally, mainly driven by China. So that is what we can say at this point.

Fair enough. And my second question will be regarding the -- are you going to -- when do you potentially calibrate your guidance because, obviously, it sounds a little bit undemanding to say the least. But I mean, is there some sort of -- do you envisage that you would be calibrating it as the year goes?

This is the guidance we gave on kind of we do not go into more specific objectives on the guidance.

The other question is from Alexander Berglund from Bank of America.

First off, on the inflation that we're seeing on paper for recycling, both ONP and OCC. I just wanted to get your view if you think that this is solely kind of a transitory effect from the lockdowns or perhaps if it could also be a structural trend here on collection issues as getting more and more packaging going by the e-commerce channel. And just wondered if you have any kind of data on kind of how collection or recycling rates have changed in Europe? And then how you see your responsibility and overall responsibility in the industry to make sure that circularity is still very high within paper products. That was my first question. And then I have a technical follow-up.

Yes. I'll start with the last question that you asked, we see our responsibility, first of all, as a company and also as an industry of being very strong in supporting the buildup of good collection systems for all fiber materials. We see the trend for circularity is increasing. And of course, having a renewable material that is also circular and collected is something that we are working very hard with each country in Europe to make sure that, that becomes realized. And we have had a lot of discussions with EU on the needs of standardization of the collection systems in order to ensure that as much of the material that is out there is actually being collected and recycled. And I can just mention one of the collaboration projects that we have with one of our customers with our mill in Ostroleka and also our trials that we have done in Langerbrugge, where we take back packaging and put it back into our operations from the liquid side and from the foodservice side, where the collection rates have historically been quite low. So I think, yes, this is going to have to develop and stabilization of the collection systems, long-term, is going to take place in Europe, and we are having a lot of discussions on that with EU. And then if we look short term, one of the things that's happening has been, as you mentioned, they're lockdowns that has impacted people's kind of ability to return their packaging in the degree that we have had before and also the trade flows between countries of material has been impacted. That is a short-term situation. And I expect as lockdowns are eased and that the collection rates will increase once again. Long term, I do see that more and more products are going in the direction that there needs to be a part of the product coming from recycled. And that will drive, of course, the competition for PFR, but not to a degree that it cannot be handled by the fresh fiber kind of intake in the system.

Yes, another question is just on kind of your improved guidance on Oulu now pulling forward the EBITDA breakeven. I just noticed if I got this right, the EBIT increase that you're guiding for is only EUR 5 million. And that it's not really clear to me why the positive effect would not be larger. So I guess, if you can help me a bit on the math there?

If you look at the guidance, we mentioned that the approximate EUR 10 million to EUR 50 million negative impact would be there on operational EBIT for Q2 and approximately EUR 40 million to EUR 50 million for full year. The depreciation is roughly EUR 30 million for Oulu Mill this year. So that might help you bit on that. But of course, it is not a line here when it comes to ramp up and operations. And I think the main thing is that we are now confident and like we communicated that we are reaching or expect to reach breakeven on EBITDA already in Q3 instead of Q1 next year. So it is moving ahead with good speed and also supported by the market.

There are no further questions.

Okay. Thank you, Roberto, and thank you, everyone, for listening in for our Q1 2021 results. And I will now hand it over to Annica for final words of our call today.

Yes. Thanks, everyone. We have delivered a solid result on the backdrop of a good performance, good cost control and strong demand and market recovery. And we have seen solid growth in our growth businesses, which also is a testimony that our strategy is moving in the right direction. And our focus is now executing on the plans that we have announced and come back to you in the coming quarters. I wish you all a nice weekend.

Thank you. That concludes the conference for today. Thank you for participating. You may all disconnect.