Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Comparable EBIT increased by 60% from last year, indicating strong financial performance.
- Paso de los Toros pulp mill reached full capacity ahead of schedule, enhancing production capabilities.
- Demand for products, including global pulp and self-adhesive labels, improved significantly from last year.
- Successful negotiation of new business-specific CLAs in Finland, supporting long-term competitiveness.
- Acquisition of Grafityp to expand in the graphic solutions market, expected to accelerate growth and strengthen competitive position.
Negative Points
- Unusually high maintenance activities in Q2, impacting performance with a cost of EUR130 million.
- Political strike in Finland negatively impacted profits by approximately EUR40 million.
- Energy business area experienced a weak quarter due to low electricity prices and high maintenance activity.
- Biofuels business faced challenges due to low-priced fuel imports from China and upstream emission reductions, leading to weaker performance.
- Communication papers profitability decreased due to lower delivery volumes and increased fiber costs.
Q & A Highlights
Q: Could you shed some light on the trajectory of biofuels profitability, forest EBIT, and restructuring within biocomposites for the second half of the year?
A: Massimo Reynaudo (CEO): The biocomposites business has been discontinued due to its inability to scale. Biofuels faced challenges due to cheap imports from Asia and upstream greenhouse gas certificates, but anti-dumping duties starting in August could rebalance the market. Tapio Korpeinen (CFO): Forest valuation changes have been balanced by higher EBITDA from forest harvests. Restructuring charges for biocomposites have been taken as items affecting comparability.
Q: Regarding Leuna, can you give us a sense of timing and pace for ramping up the business in 2025 and beyond?
A: Massimo Reynaudo (CEO): Production is expected to start by the end of the year. The ramp-up curve for a refinery is typically longer than for a pulp mill. Given that this is a new concept, we aim to ramp up as soon as possible but it will take time.
Q: Can you comment on the cost per tonne outlook for the Uruguay platform in H2 and the levers for cost reduction in 2025 or 2026?
A: Massimo Reynaudo (CEO): Our ambition is a cash cost of $280 per tonne for the entire Uruguayan platform. The start-up and ramp-up of Paso de los Toros have already driven cost improvements. The railway connection between Paso de los Toros and Montevideo port will further optimize costs.
Q: What kind of profitability are you generating at the moment in Finland with the current high pulp prices and wood costs?
A: Massimo Reynaudo (CEO): Wood costs are high, but good pulp prices have supported profitability. Despite the challenges, our large and efficient assets are in a relatively good position. Finnish pulp mills were EBIT profitable even at the bottom pulp price levels last year.
Q: After Leuna, are there any big projects in the pipeline? Will CapEx come down to EUR300 million in 2025?
A: Massimo Reynaudo (CEO): The EUR300 million level is the minimum needed to maintain current assets. We may pursue growth opportunities beyond large investments. More details will be provided at the Capital Market Day in September.
Q: Does the 15% ROCE target for Leuna still hold at current biochemical spot prices after the full ramp-up?
A: Massimo Reynaudo (CEO): The 14% ROCE target holds for all capital-intensive businesses, including biochemicals. Leuna faced start-up costs and higher CapEx, but we aim to achieve this target over time.
Q: On the self-adhesive label market in Europe, does the market plateauing at 2014-2015 levels indicate a restock at these levels?
A: Massimo Reynaudo (CEO): The peak in demand was around 2022, influenced by overstocking due to logistic disruptions. The current level is around 2018-2019 levels. We expect midterm growth to resume, driven by strong consumer demand fundamentals.
Q: What is the planned utilization for communication paper volumes in Q3, given the decline in the first half?
A: Massimo Reynaudo (CEO): The decline in demand has stressed operating rates. We have announced the closure of the Hürth mill and a line at Nordland to transfer volumes to more cost-efficient assets and restore efficient operating rates.
Q: With improved operational performance and delayed biofuel investments, what is your capital allocation strategy?
A: Massimo Reynaudo (CEO): We will consider inorganic opportunities, such as the recent expansion in the graphic market space. We will allocate capital with discipline, ensuring good returns. More details will be provided at the Capital Market Day in September. Tapio Korpeinen (CFO): Improved cash flows and earnings from new investments will support growth in shareholder distributions over time.
Q: On the biofuels market, do you have opportunities to reduce costs? How much of your feedstock is externally sourced?
A: Massimo Reynaudo (CEO): Cost reduction is a continuous effort. A significant part of the feedstock for the Lappeenranta mill comes from own sources. For Rotterdam, we aim to use proprietary technology and controlled value chain feedstock to ensure competitiveness.
Q: For Leuna, is the ramp-up more of an operational or commercial constraint? How much of the nominal capacity is already sold?
A: Massimo Reynaudo (CEO): The ramp-up is primarily operational. The commercial opportunity pipeline is robust, and we are confident in selling the production. We aim to keep some output available to maximize profitability.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
