Stora Enso Oyj (STERV) Earnings Call Transcript & Summary

Hello, and welcome to the Stora Enso Q2 Report 2022. [Operator Instructions] And today, I'm pleased to present President and CEO, Annica Bresky; and CFO, Seppo Parvi. Please go ahead with the meeting.

Thank you very much, and welcome to our Q2 report for Stora Enso. Driving the sustainability transformation of our societies has never been more relevant than now. We are actively doing that through our purpose, being a responsible business to do good for people and the planet and enabling the transition towards a renewable society based on the product portfolio that we provide. And I'm very happy to say that we have once again had a continued strong execution, underpinned by outstanding performance for this quarter. This is the highest quarterly operational EBIT since the beginning of the millennium. We have been able to successfully mitigate higher variable costs and inflationary pressures. And we have been able also to secure access to key input materials. Our partnering with Northvolt is very exciting, of course, because it is a significant milestone for the development towards world's greenest battery made out of our product Lignode and also ensuring a European local supply for this strategic transition in electrification. And we've also raised our full year operational EBIT guidance to be higher than the full year of 2021, then we landed at a result of just above EUR 1.5 billion and we see that we can reiterate that we will be better than that with confidence for the full year of 2022. So as you can see, we had a strong sales execution. We have been able to increase our sales and grow by 18% year-on-year, and excluding our paper business, by 21% year-on-year, which is a very strong indication that the demand has been solid for most of our products during the quarter. Operational EBIT landed on EUR 505 million, which is almost a 40% improvement compared to last year. And we are significantly higher above our long-term targets on operational return on capital employed, excluding Forest. We deliver here almost 23%, which is above our target of 13%. So all in all, I'm very satisfied that we have been able through quite turbulent and turmoil times to deliver such a strong quarter. We continue with our growth strategy, investing in biomaterials innovations. And we are all very excited that we have launched a joint development collaboration with Northvolt, one of the leading battery producers to take part in a joint effort now to commercialize our green batteries based on Lignode and grown in our Nordic forests. We are able to secure them a European supply of fossil-free anode material. And that enables us now to customize the product according to Northvolt's needs for that and jointly kind of make sure that we get to the market a battery with a low carbon footprint, a sustainable green battery. We have a feasibility study ongoing for the first industrial production facility for Lignode and it's proceeding according to plan with a decision during the end of second half of this year. So this is, of course, partnering up gives us the power to drive commercialization. If we look also to investing in renewable materials and packaging more specifically, we are also meeting the demand for recycled packaging board by initiating a feasibility study for a conversion of the newsprint machine that we have on one of our paper sites in Langerbrugge to containerboard. This is a fast-growing end use. The site is very cost-efficient and has good accessibility to energy solution, deep harbor and good logistical setup. And the targeting end users that we look at are industrials, e-commerce, furniture, packaging and electronics as well as within the agricultural and food packaging. Projecting a potential sales of EUR 350 million. It is another step that's possible in the growth strategy of our Packaging Materials division. And it would be a supersized machine of 700,000 tonnes of testliner and recycled fluting. We will conclude this feasibility study in the first half of next year. And if we have a positive decision, the production can start in 2025. And the estimated CapEx for such a conversion is approximately EUR 400 million. So this is another significant step in growing our renewable packaging business. We're also continuing our partnering with our customers to enable them to become 100% circular and improve their resource efficiency in Europe. Together with Tetra Pak, we're taking the second step now to see of a possible recycling solution at the same site that I talked about before in Langerbrugge in Belgium. This is targeting the recycling needs of beverage cartons for the Western Europe in Benelux and surrounding regions. And we forecast here that we would have a capacity to process about 50,000 tonnes of recycled cartons per year. So this is the second step. We took the learnings from our first collaboration and joint development project in Poland, where we set up the same framework for 75,000 tonnes of beverage cartons and that enables recycling in the Eastern Europe. So these are really proof points of how we, together with partnering in the supply chain, can make sure that we drive the development of circular economy in our markets where we are active. Moving now to other updates for value creation on some of the strategic initiatives that we have completed during this year -- or this quarter. We continue with the feasibility study in our Oulu site. And just a reminder here, where we explore the expansion of renewable packaging board for consumer board applications. The decision here is due by the end of second half of this year. And we have launched a new product that's fully plastic-free packaging based on 100% virgin kraftliner, it's called AvantForte WhiteTop, and the target is demanding premium segments. So this is a product that is very sought after on the market and where we can get a premium position for our production. We've also taken significant steps in strengthening our presence in the French wood products market. France is one of the big kind of drivers for construction based on engineered wood. And this is benefiting our Building Solutions business but also our classic sawn business. So we are becoming -- we have become a 35% shareholder of the French wood processing company ACDF Industrie SAS, and we have also signed a business partnership with Bouygues, securing a stable delivery of CLT to their building projects. And this is really an important step for us in gaining more presence to the growth market of France for wood and construction. Last but not least, we constantly want to challenge ourselves on what we can accomplish -- what the tree can do actually. So we have partnered up with Modvion, a Swedish company that's targeting to build 100-plus meters high wind turbine made out of -- wind turbine towers made out of wood. And this is a fantastic kind of win-win situation, renewable energy using renewable materials for the construction. So this is an area where we are very excited to see how far we can push this. And the wind towers are then replacing steel as such. They have the same durability and of course, are more cost efficient and quickly to construct. Moving on now a few updates on the divestments. We are proceeding with the divestment of 4 of our 5 paper production sites to be able to focus on growth and this will also give us funds to be able to fund the continuous growth within Renewable Packaging, Building Solutions and Biomaterials innovations. And the sales is proceeding according to plan. We are having a lot of potential buyers visiting our mills, and so we are in the middle of that process right now. And the Russian operations from a divestment perspective, we have divested the industrial sites, the 3 corrugated packaging sites and the 2 sawmill sites to the local Russian management, and that has been completed. There are minor formalities left for the Russian legal entities in the wood supply operations, and they are expected to be completed during the second half of this year. So I'm very happy that we are now not any more significantly exposed to the Russian market and that we have been able to do that in a good way also for our former Stora Enso employees in Russia. Looking now at our resilience, I believe that we are very well positioned, especially in the energy price environment that we see. It is resilient, our business, because we have a high self-sufficiency. If you look at the slide here, you will see that we have 70% self-sufficiency in electricity and 70% also in fuels. And if we look at the fuel split, 84% is biomass and only 4% for us is gas. We are pushing forward investments also to get even less exposure of gas. But so far, we're using LNG gas outside of Russia for the facilities that need that. When we divest paper and we complete that, our total energy self-sufficiency will be 78%, which is in a very good position to be, especially as we see what's happening in our surrounding world. If we look at a 10% kind of sensitivity analysis for us, it would mean about EUR 20 million of impact if the electricity market price changes 10% or fossil fuel price changes by the same amount. And the hedging is high. We have 80% hedged for this year and next year, we are 70% hedged. So I believe that we are in a very good position and have a competitive advantage compared to Central European players in this field. Moving on also to the bridge, a little bit to explain what are the moves within the quarter. We can see that we have clearly been able to mitigate the pressures from increased inflation in energy, logistics, chemicals and so on, by sales price increases and mix improvements. So here, we have a positive impact for the quarter by EUR 476 million. We see a negative impact on volume of EUR 39 million, and that has to do with a few factors. First of all, Biomaterials had the biggest impact in this area by EUR 31 million volume impact. The reason for that is that we have seen continued turmoil in logistical area. So we get continuous delayed vessels and ships, lack of containers and so on, making it very difficult to transport our produced pulp from the mills that we have, for instance, in Latin America towards China. So the logistical turmoil impact between one quarter to the other, if a vessel is delayed by the end of the month, you will not get the volumes in your quarter. So this is what happened for Biomaterials. Also Biomaterials had 2 maintenance shuts in Montes del Plata and Enso that impacted on a negative way, the volume for the quarter. The Russian exit from -- for Wood Products and Packaging Solutions had a total impact of roughly EUR 20 million. So a negative volume impact for stepping out of Russia. And then, of course, we had a positive impact for -- from Packaging Materials, Forest division and Paper. But all in all, we ended up with minus EUR 39 million volume impact for the quarter. And for the variable cost on fiber and other variable costs and fixed costs, the major we see that fiber costs are moving up. It has primarily influenced the pulpwood whilst the sawmills have stayed more stable. For energy, prices -- higher prices impact by EUR 90 million, logistics by EUR 75 million and chemical and fillers by EUR 65 million for the quarter compared to last year. But as said, we have been proactive and we have been able to mitigate these increases by price increases and mix improvements. Our forest assets have continued to appreciate. With the closing of this quarter, the value was EUR 8.2 billion, and this is equivalent to EUR 10.4 per share, an improvement of -- from EUR 8 billion compared to last year. The reason for that is fair value increased by EUR 196 million due to higher market transaction prices in Sweden. And then there are minor FX-related changes in plantations and some land acquisitions in the Tornator holding. We are 30% self-sufficient of wood supply, in Sweden 52%, and we have good wood supply agreements through our holdings in the Baltics and in the rest of the Nordics. So therefore, we have also been able to mitigate the effects from the Russian wood not being available on the market anymore. So all in all, our forests are a great asset to have, and we can see kind of the synergy effects of this holding in our performance. If we now summarize kind of where we stand before I hand over to Seppo to take you through each divisions, if we look at kind of the long-term group financial targets, it's mostly green. We have improved, continued growing with a strong growth, our net debt to operational EBITDA is for the first time at 1x, and our target is to be below 2. And this enables us and gives us headroom for continuing our growth actions, both in terms of having growth within our own operations, but also possibilities for M&A should attractive targets arise. Our net debt to equity is 21%, and as previously said, our returns from -- return on capital employed, excluding Forest, reached almost 23%, a significant improvement compared to last year. And for the different divisions, we see strong performance in our Packaging Materials and overall in Biomaterials and Wood Products exceeding the long-term targets in operational work. And if we look at Packaging Solutions, the main impact there has been the loss of the Russian operations. Paper has been turned around and shows kind of improvement and the retained assets are very competitive, and we are very positive about the prospects of completing the divestment process. And with that, I hand over to you, Seppo, to take us through the different division performances.

Thank you, Annica. And I start with Packaging Materials. The strong financial performance continued. Sales were up 24%, reaching EUR 1.222 billion, and it's all-time high. Sales was driven by higher sales prices and deliveries and supported by the new containerboard site ramping up at Oulu in Finland. Operational EBIT up 31% year-on-year and that is driven especially by containerboard performance. We had higher sales prices and volumes that more than offset higher variable costs that the division was faced. And operational return on capital at 22%, that is above the long-term target of 20%. In Packaging Solutions, our profitability was impacted by divested Russian operations and investments in the new businesses. Sales were up 11% year-on-year, reaching EUR 189 million. That is a reflection of higher prices in European corrugated packaging business as well as the growth in the new businesses. Operational EBIT was down by EUR 5 million year-on-year at negative EUR 3 million, and this is affected by exit from Russia as well as higher ramp-up costs in the new businesses. They were partly compensated by improved corrugated packaging prices. And operation return on capital negative at 4.7%. In Biomaterials division, we had higher sales prices and sales were increased by that. Sales were up 15% year-on-year. This was a record high second quarter at EUR 522 million. We had stronger pulp prices in Europe and China supported by good performance in by-products sales as well. Operations and market pulp deliveries continued to be negatively impacted, especially by logistical constraints, as Annica already mentioned that wood availability. Operational EBIT was down 15% year-on-year at EUR 123 million. Higher sales prices of pulp did not fully offset higher variable and annual maintenance costs and lower volumes. Our return on capital at 18.4%. That is above the long-term target of 15%. Then moving to Wood Products, where we have all-time high quarter both for sales and profitability and also historically high price levels. Sales were up 32% year-on-year, and this was all-time high quarter at EUR 631 million, as mentioned, driven by higher sales prices. Operational EBIT up 35% year-on-year, it is all-time high quarter in record. High profitability continued to be driven by prices, and that has more than offset higher costs, especially for raw materials for the division. And operational return on capital at excellent level of 74.9%, clearly above the long-term target of 20%. In Forest division, stable financial results continued. We can see strong demand for pulp, [ solos ] , and pulpboard. Sales were up 11%, reached to EUR 649 million and higher wood prices were clearly driven by tight wood market. Wood availability was impacted by the discounted Russian wood imports. Operational EBIT continued at a stable level. Our return on capital was at 3.4%, slightly below the long-term target of 3.5%. Then Paper, where strong demand continued with tight markets and order books [ are full ]. Sales were up 4% year-on-year. Higher sales prices from the retained business after the closures of Veitsiluoto and Kvarnsveden paper sites in Q3 were reflected in the sales and markets are very tight at the moment. Sales of retained business increased by 62%. Operational EBIT was up EUR 100 million year-on-year, reaching EUR 51 million, reflected by higher prices that were partly offset by higher variable costs. There were also structural changes that reduced fixed costs and volumes relating to the capacity closures done last year. And cash flow to sales for retained business was 3.7%, still below the long-term target of 7%. The cash to profitability has been improving. We are confident that we will be back on track going forward. Then shortly on CapEx before handing over back to Annica, we have now updated our CapEx estimate for the year and increased it to 700 -- to EUR 700 million to EUR 750 million from previous range of EUR 640 million to EUR 680 million. And this is a reflection of cost inflation and some additional investments that we are doing to mitigate the impacts of the war in Ukraine, but also relating to energy solutions and some other items and things. And then back to you, Annica on annual guidance.

Yes. And if we look at the annual guidance, we updated that on 13th of June. So we are staying with confidence that our full year for 2022 will be better than our record year in operational EBIT that we had last year. Last year, we ended up in roughly EUR 1.5 billion. And we see that there are still uncertainties due to geopolitics and changing macroeconomic environment, inflationary pressures and continued logistical turmoil, but we have been able to mitigate for those. And we see that overall, we see a solid demand for Stora Enso's products. Consumer board demand remains strong, both for liquid packaging board and folding boxboard and other qualities, and the demand for corrugated packaging in Europe is expected to stay stable. Strong demand in pulp is expected to continue both in Europe and China. And we see now a normalization happening in containerboard and traditional sawn goods. But it is also from very high peak levels that we experienced during the pandemic. So for containerboard, for instance, it is the end use of e-commerce that is reducing from very, very high levels during the pandemic. And for sawn goods, it is the slowdown in the construction industry that we can see reducing the need for sawn goods. However, both of those come down from extreme levels. So it's more about the normalization than anything else. And this gives us, as I said, confidence that we can reiterate a strong year going forward. And other company, I see that we have taken significantly important steps to position ourselves for growth, agility and resilience. And all of these things, I think, are crucially important in the environment that we operate now. We have a competitive advantage. We have flexibility and security with high self-sufficiency of energy, fiber and internal pulp integration. This gives us a competitive edge compared to many other players. We have decentralized our operating model, which drives market and customer centricity. Our people are enabled and empowered to drive operational excellence and cost savings and stay close to the changing market environment. And this means that we are quicker in decision-making and implementation of action. And we are accelerating our growth and innovation agenda by reducing cyclicality and risk. We have seen that we have been able to very quickly successfully divest the main parts of our business in Russia, and therefore, we can put management focus and attention to other topics than that business environment that's very challenging. We are on the way to divest our Paper business, freeing up funds and management focus. And after the completion, the growth businesses will represent almost 75% of sales and 65% of our EBIT. So this is showing clearly also that women in business, we say what we're going to do, and we do what we say. We have reduced unintegrated pulp exposure as we are growing our Renewable Packaging materials business. We make sure that we integrate our pulp mix and therefore, also reduce cyclicality. And if we can make positive decisions on our 2 feasibility studies, this will further enhance that. We are actively engaging and driving partnerships and collaborations in our value chain to improve and drive commercialization of new innovative materials that are bio-based and renewable, and being a solution provider to the many sustainability challenges that are an opportunity for us as a company. And by a reduced net debt, we gain headroom for investing and continue investing in our growth businesses, be it through conversions or M&A. So with that, I would like to just summarize and that I'm very happy with our performance during quite challenging circumstances. We are actively taking the strategic initiatives we need for long-term growth in our key strategic areas. We -- the partnership with Northvolt is an important milestone for the development of the world's first green battery made out of Lignode. And we are positioning ourselves to accelerate growth in renewable materials and answering to all the important transformation needs of our societies towards better sustainability. And with that, I hand over to you for the Q&A.

[Operator Instructions] Our first question comes from the line of Linus Larsson from SEB.

Thank you very much, and a good day to everyone. I'd like to start off with the announced cooperation with Northvolt that you announced today. What does that mean practically? And also overall, if you could update us on the timing of the Lignode project, CapEx and what is really the format of this cooperation with Northvolt? Previously, you have been talking about co-ownership. Is that still the plan? Are you still looking for additional partners. So an update here would be appreciated.

Thank you for that question. If we look at the collaboration, what it practically means is that it is the first step that we take together now to actively commit resources to put our material in the Northvolt, kind of qualification process to do common research together to customize our product to fit the needs of Northvolt. And what that means is that we develop now together a pathway to be able to commercialize a local supply of the Lignode material. And we will come back as we progress, but this is a very important milestone in terms of showing the commitment together with an important partner such as Northvolt. That doesn't mean that this is the only partner we are discussing with. We have more than 50 other partners that we discuss the different types of partnerships, take-off agreements or collaborations like the one with Northvolt. Joint venture or any other kind of setup is more to make sure that we can finance kind of full scale up. But for the first phase that we have announced, the feasibility study for first industrial site, that we can fully finance by ourselves. So we do not need a JV to do that. And of course, a partnership and collaboration with Northvolt gives us now more security to be able to move forward when we assess the feasibility study. And that is, of course, going to be completed by end of this year, and then we will come back to CapEx needs and so on and can disclose that once we are done. So unfortunately, I cannot open up for that right now.

Okay. I think previously, you've talked about, if I remember right, EUR 1 billion in 2025. Is that -- has that now been delayed in any way or is that still valid?

Well, look, as we've said also, when we did that -- or when we brought that up, it was a total different reality than we are living in today with the Russian war, a pandemic and so on. So a lot of things have happened. But what we can see now with this partnership, this is the first step in commercialization in the electrical vehicles area. . There are many other products as well. It's not only about the cars, it's also about energy storage systems and anything really, any tool or type of equipment that has a battery has the potential to use Lignode, but the longest qualification time is, of course, for the automotive industry. So we continue and as we progress with partnerships, we will also be able to kind of come back with more specific time lines. But so far, the things that we have in our control are proceeding according to plan. And if we can make a positive decision for the industrial scale up, that is, I think, the first milestone in achieving the EUR 1 billion sales and being able to set up a business of its own. And as we can see in Europe, I think the growth of electrification of mobility is just accelerating. We can also see that the impact of geopolitical factors that make even more pressing to have a local supply of some of the crucial materials for these batteries that today are sourced from mainly China, especially the anode materials. This brings to the center in a way that was not present before when we announced our ambition for sustainable batteries. So that is what we can kind of disclose right now. So we are staying fully committed now to drive this scale up.

Great. Great. My second question would be more on -- relating to your various guidance statements. You talked about normalizing of demand for -- I think you mentioned containerboard and sawn wood going into the third quarter. If you could just add some color on that? Are you seeing declining prices in these segments and in -- if so in which subcategories? And also, you obviously reiterated your full year guidance that operational EBIT should be up year-on-year. Is that also valid for the second half? Do you expect operational EBIT to increase H2 on H2 of last year?

So if I comment on containerboard and the end uses mainly where we see a normalization, as I said, e-commerce is one of these areas where we see that it was a very, very high demand during the pandemic, and now it's coming down. Other end uses such as industrials and for instance, agricultural purposes for food packaging, the fruit trays and so on, they are more stable. So there, we have not seen that effect yet. . So I think that pricing, we do not comment, of course, from a demand perspective, we do expect a normalization and a little bit lower kind of not so overheated containerboard market. And the prices in kind of end of Q2 are strong going into Q3. Kraftliner demand is expected to remain on par with the previous year and also testliner demand is expected overall to be stable year-on-year. And then your second question was if second half of the year is projected to be better than the first half. And we give full year guidance. So I will not be able to disclose that.

And the next question comes from the line of Justin Jordan from BNP Paribas.

Just following up on Linus' sort of question, I guess, specifically on Packaging Materials. Just specifically in your Slide 9 -- sorry, Page 9 of your result statement, you talk about slightly weaker recycled container -- sorry, recycled fiber-based containerboard demand in Q2 sequentially on Q1. So I just want to check that we should infer that means volumes in Q2 were down sequentially on Q1. Is that actually correct?

Yes, minor volume. That going into Q3, we see that there is a normalization in containerboard.

Yes. As you've outlined in e-commerce and consumer durables and the rest, industrial. Yes. Okay. And then just one quick, I guess, really a question for Seppo, thank you so much for the disclosure you've given on Slide 10 regarding energy. And clearly, there were a lot of nervous investors out there in terms of gas availability and reliability and security of supply in the second 6 months of this year. Can you help us understand what's contingency plans store ends have in place if gas availability becomes slightly challenged, shall we say, in the second half of this year. I appreciate you are relatively well positioned relative to many peers, but I'd just be curious to know what plans you have in place?

Yes, sure. First of all, like I mentioned earlier, already since March, we have been bringing LNG for our needs for use in Finland. And that has worked well, and we have good supply channels open there. Also, we have done and we continue to do some investments in our energy setup in order to make sure that we have different alternatives available in case there would be tighter markets when it comes to availability of LNG as an example or other fuels that we are using, that we are more able to use biomaterials also in those sites that have not been able to do that earlier. Also, it will help us going forward when in [indiscernible] starts, and that will improve our self-sufficiency even further going forward. And then just to remind you that in Central Europe, we are not very dependable on gas. For instance, our Maxau Mill in Germany is using biofuel. So in that sense, if there would be a cut of energy supply to Central Europe, that will not really affect us directly. Obviously, it can affect demand for our products or demand of our customers' customers and depending on dependency of our customers in their process when it comes to natural gas.

And the next question comes from the line of Cole Hathorn from Jefferies.

Just one on the wider pulp market. You mentioned operational and some logistics challenges. I just wanted to understand, does this mean that there's potentially some pulp shipments in transit potentially that will benefit the third quarter? And I'm just wanting to also understand if the logistics impact is also to your mills to kind of getting pulpwood, et cetera, out of the forest is the first question. And then the second one following on the Wood Products market. You've called out opportunities in France, you called out some opportunities in replacing turbines with wood. I'm just wondering how big could those potential opportunities be, taking the wind turbines as an example?

If we look at Biomaterials, as I said, the strong demand continues in both Europe and China. And that means that we transport -- and pulp is a global business, as you're well aware. So we are dependent on the big ships arriving to the ports in Latin America loading the pulp and then unloading in, for instance, the Port of Shanghai and getting it to the customers. And these are kind of logistical turmoils we have lived with ever since the pandemic has started, really. So it's nothing new. It's just that this month, if a ship comes at the end of the month and it doesn't get in during this quarter, it's delayed and you get it the next quarter. But the logistical turmoil as such and dependability on getting trucks, getting kind of the right things in at the right time has been one of the things that we have constantly kind of worked with ever since the pandemic started. And we have been really good at handling this. So I see that we just need to continue to be flexible and so on. Since the war in Russia started, we got an additional complexity with wood not anymore entering Europe and then having to relocate wood from one site to the other. And cutting out, for instance, the birch that used to be a big kind of export species from Russia on the European market. And once again, you need then very quickly to be able to get the wood from one side to the other and adjust product mix. So in our Biomaterials operations, for instance, we have changed product mix reducing the birch -- the use of birch and increasing the use of other species. But that takes kind of some time until it stabilizes and it becomes more kind of imbalance and that has affected Biomaterials operations as such when we do these product mixes and transports and also packaging materials for that sake, but it's not visible in the numbers.

There was also a shortage of tray [indiscernible] before summer because of the increased transportation domestically in Finland, and now that situation is improving as the rules and regulations were changed so that foreign wagons are also allowed to be used for domestic transportation. So that is going to help a bit during the second half.

No. As Seppo said, containers are in the wrong places. So this kind of is something that we have been living with for 2 years now. And if we then look at the wood products, I wouldn't draw too kind of high expectations on collaborations such as Modvion. It is pilot project, but it still shows kind of the potential of where you can use wood for very challenging construction kind of opportunities because constructing 100-plus meters of a wind turbine that has to withstand kind of the material or the surrounding environment impact is significant. And we have seen that we can construct already 50-plus meters. So taking it to this level also will kind of enable us to find new areas of growth. But it is too early to say anything significantly about that. On the other hand, if we look at building solutions and expansion in France, that is a significant opportunity as that market is very much driven by changed policy in France to enable more than 45% of all public and governmental buildings to be constructed out of wood. And if we look now how the market is changing, the easiest applications such as sawn timber or sawn wood that is normalizing from peak levels, but the engineered products, they are often longer projects and there we have not seen a decline, and Building Solutions is where we want to grow. We also want to grow with sawn wood, but in engineering wood, that is contracyclical compared to kind of wood products, normal sawn, that is more cyclical and spot price driven. So this is an opportunity for us to leverage on the French market, which is the biggest one in Europe and actively driving wood construction. And in Europe, we see this market increasing by 10% to 15% over kind of in growth. And wood is still such a small part of the total amount of construction materials that are used. So therefore, we do believe that we can take market share from other materials.

And the next question comes from the line of Robin Santavirta from Carnegie.

Thank you very much, and hello to everybody. Now two questions. First of all, if I look at Q2, your cost per tonne, and I guess all divisions are up by double-digit Q-on-Q. And I was wondering, I can understand the pressure in the input cost, but what is the outlook for Q3? Do you still see some upward pressure when it comes to energy, logistics, chemicals and pulpwood going into Q3? And the other question I have is related to the supply chain problematics. And I can understand essentially sort of your deliveries might be a bit delayed. Do you see -- I mean, everybody is facing the same situation, and I can assume the buyers are trying to make sure that they have something to produce or sell. Do you see a risk that once this surely normalize at some stage, the customers, in fact, will be oversupplied when it comes to pulp or containerboard or consumer board?

I will start with the second question and then let the first one Seppo take. But if we look at the inventory levels, we follow, of course, very closely our customers' inventory levels, and we do not see heightened inventory kind of levels for the products that we do. If you look pulp for instance, we are on a normal region compared to the 5-year average. So I wouldn't say that, that is the case. And also it takes a while before such a turmoil that we have logistically actually normalizes. It's not going to be from one day to the other if we come back and many expect this is going to continue for another year minimum before everything is in balance, if nothing more kind of unexpected happens now. So I do not see that kind of -- that the inventory levels are high. And then managing kind of the inventories is something that we constantly do with our customers and follow up where we have our products and how we kind of support them through special arrangements with inventories and so on. And here, I'm very happy to say that our operating working capital to sales is on the level of 11%, which shows that we also have good control of our working capital. Even though it's increased, it's still on good levels compared to sales for our type of business. So we are managing that in a good way as well despite this turmoil.

And when it comes to cost pressures that you are asking, Robin. I think it's fair to say that the biggest pressure in most of the cases seems to ease. It's not coming down but getting more stable. There is still probably some pressure depending a bit how market and situation develops on recycled paper and wood. So fiber prices, some additional pressure. But other than that rather stable.

And the next question comes from the line of Lars Kjellberg from Crédit Suisse.

I just wanted to come back a bit to the volume outlook. You're exiting the quarter with somewhat slowing demand trends it appears in parts of the cyclical business and the, I guess, second quarter volumes weren't quite as good as potentially one would have expected. So I just wanted to hear about your order book situation. You mentioned, of course, on consumer board, you fully booked, sold out for the year. What about the balance of the business? How is it looking now if you compare to where you stood when we spoke after Q1?

So we are fully sold out for pulp, we're fully sold out for consumer board. We have a good balance there. As I said, we see some weakening in demand for Wood Products, but we still have strong order book. So yes, I think that what we see is that we have a solid kind of pipeline of orders and then we do inventory management as we see better, if the situation changes. So that is what I think we can comment on that. I don't know if you can give more insights, Seppo, if you have any other perspective.

Well, in general, I would say that underlying market sentiment is still quite good and positive. But we don't give guidance on volumes, but there is some more maintenance in Q3.

Quarter 3 and quarter 4 are normally kind of the time of the year when we do the annual shutdowns of many of our mills. They are more maintenance heavy compared to other periods of the year.

And we have one more question from the line of Brian Morgan from Morgan Stanley.

I just got a question, perhaps it's a long shot to ask it but talking about the logistics issues and the constraints and all of that. In Biomaterials, in particular, would you have an idea, perhaps an order of magnitude idea of how much was that on the table in, say, millions of euros as a result of the logistics issues, either through volumes or through additional costs that you had to absorb? Just trying to get an idea of what that business would be able to earn under normal circumstances.

We do not disclose any kind of breakdowns like that. But for the full volume effect that -- including kind of the operational challenges from the maintenance shut and the logistical kind of impact for Biomaterials, it was EUR 31 million.

But in general, you could say that in Biomaterials or any of our business, when it comes to logistic constraints, doesn't mean that we would necessarily miss sales. It's that the deliveries are delayed and in some case, might move from one quarter to another, if there are some quarter-end deliveries. So it's more a logistics cost issue that is then affecting the business input costs, so to speak.

And as there are no further questions, I'll hand it back to the speakers.

Thank you very much for all the questions. And I still believe that we made a very good quarter, a strong quarter with a 40% improvement compared to last year on operational EBIT level almost and continued strong growth. And I would like to thank you all for all the questions and welcome you back on our virtual Capital Markets Day, which we will have on the 13th of September, where we will go through in more detail and you get to meet the business people behind our growing business of Packaging Materials and Wood Products and also in Biomaterials. So see you all back then, and I wish you a good summer.

This concludes our conference call. Thank you all for attending. You may now disconnect your lines.