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Edited Transcript of MUNK1.HE earnings conference call or presentation 30-Jul-19 10:30am GMT

Q2 2019 Ahlstrom-Munksjo Oyj Earnings Call

Helsinki Aug 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Ahlstrom-Munksjo Oyj earnings conference call or presentation Tuesday, July 30, 2019 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Hans Sohlström

Ahlstrom-Munksjö Oyj - CEO & President

* Johan Lindh

Ahlstrom-Munksjö Oyj - VP of Communications & IR

* Sakari Ahdekivi

Ahlstrom-Munksjö Oyj - Deputy CEO, Executive VP of Corporate Development & CFO

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Conference Call Participants

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* Antti-Pekka Viljakainen

Inderes Oy - Analyst

* Harri Taittonen

Nordea Markets, Research Division - Senior Director & Sector Coordinator

* Linus Larsson

SEB, Research Division - Analyst

* Markku Järvinen

Handelsbanken Capital Markets AB, Research Division - Analyst

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Presentation

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Johan Lindh, Ahlstrom-Munksjö Oyj - VP of Communications & IR [1]

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Welcome to Ahlstrom-Munksjo's Second Quarter Results Presentation. My name is Johan Lindh, I'm Head of Investor Relations and Group Communications. We will start with the presentation from our CEO, Hans Sohlstrom; and our CFO Sakari Ahdekivi, please.

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Hans Sohlström, Ahlstrom-Munksjö Oyj - CEO & President [2]

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Thank you, Johan. Good afternoon, ladies and gentlemen. Ahlstrom-Munksjo is a global leader in sustainable and innovative fiber-based solutions. Fibers is the core of what we do, and we offer specialized fiber-based materials to our customers, and our value proposition is based on innovation, quality and service. The drivers of our business are very much sustainability driven. We are -- with our products contributing to a sustainable everyday life of consumers.

Key strengths of our companies are leading positions in chosen segments. We are operating in long-term growing markets with healthy demand drivers. We have a balanced geographical exposure to a broad range of end users. And we serve our customers with designed, sustainable and innovative solutions. Our strategy, in a nutshell, our vision and target is to be the global leader in chosen growth segments. And our mission is to create sustainable and innovative fiber-based solutions. Our key financial targets is an EBITDA above 14% and net gearing below 100% and a stable and annually increasing dividend paid biannually to our owners.

Sustainability is really in the core of what we do. This is a one pager of our sustainability strategy. It is based on the UN Global Compact and its 17 goal areas, out of which we have derived 3 people-related, 3 planet-related and 3 prosperity-related areas of special focus in our sustainability strategy. And out of these, we have developed 30 KPIs, 30 clear targets that we are following up and reporting also in our annual and sustainability report.

And as a good example of our sustainability -- success of our sustainability strategy implementation is that we recently received, for the third consecutive year, the EcoVadis gold labeling, meaning that we are among the 1% most sustainable companies, among all the tens of thousands of companies they have evaluated. Our offering, which is based on the sustainable and innovative fiber-based solutions offers both better performance, environmental performance, safer materials, fewer resources. So better resources, efficiency and lower impact, better material efficiency and renewability to -- and thus also contributing to sustainable everyday life.

Innovation is in the core of our strategy. About 11% of our sales comes from products that have been launched into the market during the last 3 years. And the latest of the launches is Optilam, which is a new generation of release materials to optimize RFID inlay lamination, making the lamination process easier, more efficient and improving quality of the inlay. So some highlights from Q2 of this year. Our EBITDA, our actual comparable EBITDA increased by 25%, very much supported by the Expera and Caieiras acquisitions in Q4 last year. Our comparable EBITDA increased to EUR 84 million compared to the pro forma EBITDA of EUR 83 million Q2 last year, and EUR 75 million in the first quarter of this year. So a 12% improvement from the first quarter EBITDA generation.

The profitability continued to improve. It was very much fueled by further increase in gross margin for products. So gross margin per ton. We have now managed to improve our gross margin per ton each quarter-on-quarter since the first quarter of last year. So every quarter, we have been able to achieve a new record high level. And having said that, the volumes remained on a relatively low level. Our volumes were down 5% in Q2. So the tons -- sold tons were down 5% compared to last year Q2. When looking at the comparable EBITDA development during the last quarters, and also the margin development, I think it's important to realize that in Q2, we still paid EUR 23 million more for raw materials and energy than last year Q2. If you recall from the Q1 report, in Q1, we paid about EUR 48 million more for raw materials and energy compared to 1 year earlier. And now in Q2, we paid EUR 23 million more. Actually, June was the first month where we could see a slightly positive impact of lower pulp prices in our cost structure and P&L. And I think this is important to realize when you think about the market price development of raw materials and how they impact then into our P&L with a time lag.

Cash flow improved, doubled, in fact, compared to -- more than doubled compared to last year and the earlier quarters, thanks to very good net working capital management and focus on cash flow. The market environment remained uncertain with fluctuating demand, varying demand between various segments and end users. And as mentioned, the sustainability work was awarded with the third consecutive EcoVadis Gold rating. So the market environment remained uncertain in Q2, looking a little bit more into details into the various businesses. Within Filtration & Performance, demand for engine filtration slowed, whereas growth remains solid in glass, fiber, tissue and industrial filtration applications.

Demand for the core papers weakened, and the market remained quite competitive, especially new entrants in China, bringing capacity into the world decor market. Having said this, we see that the longer-term demand drivers for the core papers are healthy, and we see this as a long-term growing market.

Within Industrial Solutions, demand for abrasive backing, coated products and specialty pulp was weak. In Q2, demand for relieve -- release liner improved, but the market remains quite competitive. There has been new capacity brought on stream in Europe lately, which was still visible. And demand for electrotechnical insulation papers improved. Within specialties, demand for food processing and packaging papers as well as beverage materials weakened. Growth continued in fibers casing materials. Growth remains solid in life science, water purification and healthcare materials, and demand weakened for tape packing in Europe and Americas, but remained strong in Asia. Within North America Specialty solution business area, there were stable demand in food processing and packaging papers, soft demand for industrial and technical papers, weak demand for commodity release liners and strong demand for coated products.

So you can see it's a varying picture for various products and end users. Overall, you could say that about half of our sales is derived from consumer-related products, and the other half from industrial, technical construction-related end users. And clearly, you can see that the consumer-related, end-use areas are much more stable in terms of demand, whereas we could see the weakening in the industrial construction and technical-related paper grades.

Our net sales was about 2.7% lower in Q2 compared to Q2 last year, which means that for the first half of the year, we are now down a little bit less than 1% in terms of top line compared to last year first half. And EBITDA margin has now been -- EBITDA and EBITDA margin has now been improving since Q4, quarter-on-quarter.

With these words, I actually now hand over to our CFO, Sakari Ahdekivi. Please.

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Sakari Ahdekivi, Ahlstrom-Munksjö Oyj - Deputy CEO, Executive VP of Corporate Development & CFO [3]

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Thank you, Hans, and welcome, everyone. My intention is to take you through a little bit more detail into the input costs and also then obviously talk a little bit about the financial items, primarily cash flow, working capital and balance sheet related items.

Hans already mentioned that the raw material, actually not only the raw material, but including the energy costs, so the total input costs into the production saw a cost increase of EUR 23 million, compared to the second quarter of 2018. This might be a little bit counterintuitive, because if you look at the table or the line items on the right-hand side of the page, you'll see that the market reference prices in Europe quarter versus the previous year same quarter of pulp actually decreased by 10%, both softwood and hardwood, and also titanium dioxide came down by 11%. Natural gas was fairly flat, and then we saw a big increase in electricity. But there are a few factors, which are important to understand. And Hans mentioned that June was actually the first month when the effective price hits our P&L in pulp decreased year-on-year. So up until that time, also the quarter first months, April and May, still saw a P&L increase in pulp cost.

And the other big items obviously were the electricity prices, which have increased significantly. And then one thing to remember also about pulp is that, of course, pulp is quoted in U.S. dollars, but we have a lot of activity in the euro area, and the pulp price decrease was less when it is calculated in euros. So those things bear -- born in mind, EUR 23 million was the impact that we were more or less successfully able to compensate in the quarter.

If we then dive a little bit deeper into pulp. Also, pulp is not one -- although it's a global market, the different regions actually behave a little bit differently. And if we dissect that a little bit, pulp prices have actually declined at different paces in the different geographies.

The drop was fastest and first in China, followed by Europe. Prices in Europe peaked in around Q4 2018. And then close to a quarter later in North America, which, of course, is reflected in the profitability of our North American Specialty Solutions business. If we then move on to the energy prices, I think the red curve here on the electricity shows clearly that the impact on electricity price has been quite significant since the second quarter of 2018, although it has now a little bit oscillated on the same level since -- but there was a steep increase during last year. Gas price development has been somewhat more favorable during 2019. However, what's not so evident is that in Brazil, particularly, there has been a steep increase in gas, close to 30% year-on-year.

Titanium dioxide prices have declined from their peak from about 1 year ago, but lately, the decline has been sort of flattening out. And it's also important to bear in mind that historically, we're still on quite a high level, which is reflected in the decor profitability. Then moving on to talking about the business areas in a few more details. Filtration & Performance continued to improve its year-on-year EBITDA profitability. Although volumes decreased, higher selling prices more than compensated for the volume shortfall and also the input cost increase.

In Industrial Solutions, the higher selling prices could not fully offset the higher input costs, especially energy. In Decor, demand was weak. On the bright side then, the variable costs were lower, thanks to lower titanium dioxide costs.

In North America Specialty Solutions, selling prices were higher, but volumes decreased and variable costs also increased, which, of course, impacted negatively in total on that BA.

In Specialties, the EBITDA improved, mainly thanks to the paper machine closure in Stenay, which, of course, then is also visible in the volumes. So the closing of one line at the Stenay plant did decrease our volumes in Specialties.

Then, moving on to the cash flow and balance sheet side. So we did produce a strong cash flow in the second quarter. And that was as a result of reduction in working capital, more focused and more active working capital management, and we were able to produce more than double the cash flow -- operating cash flow that we have in the last preceding 4 quarters.

Net debt flattened out at EUR 1.053 billion and the net debt-to-EBITDA on a comparable basis was at 3.2% and gearing at 94%. Then on this slide, we have the net debt picture again, but I will skip that and talk about CapEx. So our CapEx guidance remains as before. So we will be slightly lower than we were in 2018 on a pro forma comparable basis. And the rolling 12 months pro forma EBITDA is slightly lower than in the full year of 2018. However, the slight drop actually occurred in Q1, not in Q2.

In Q2, we were actually flat by that account. And with those words, I would like to give the word back to Hans.

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Hans Sohlström, Ahlstrom-Munksjö Oyj - CEO & President [4]

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Thank you, Sakari. So putting our journey into some longer-term perspective, you can see, basically, that Ahlstrom-Munksjö's shares, 2 separate companies in 2015, generated about EUR 200 million of EBITDA, about 8% of turnover in total. Last year, EUR 330 million, about 11% of turnover, and we are systematically working on initiatives and actions to gain synergies to reduce costs and streamline our operations in order to improve our EBITDA. We have the cost synergies from Expera and Caieiras. We have earlier guided EUR 8 million from Expera and EUR 6 million from Caieiras. We have now increased Caieiras cost synergies to EUR 8 million, so EUR 16 million in total, full run rate as from the end of this year. So integration work proceeds very well indeed. The planned closure of PM1 in Stenay, which will have an EBITDA impact of about EUR 13 million gradually in our EBITDA. And then we have business synergies from the Expera acquisition, which we have earlier guided of the magnitude of about EUR 10 million of annual EBITDA impact, plus, then, of course, the impact of the significant organic investment program we have ongoing. So we are progressing well when it comes to integration and delivering on the promised synergy benefits. As said, the near-term cost synergies, in case of North America Specialty Solutions is in the range of EUR 8 million confirmed synergies to be achieved by the end of this year, and we have increased Caieiras synergies to -- from EUR 6 million to EUR 8 million. So EUR 60 million in total, full run rate by the end of this year.

And in addition, we have the more dynamic business optimization type of synergies of at least EUR 10 million identified and validated so far with a gradual impact from 2020 onwards.

Here, we have now a list of strategic investments that we have completed, and we are in a ramp-up phase. This amounts to a total capital expenditure of EUR 69 million, 7 projects in total, driving both profitable growth, improved customer value, as well as efficiency in our operations. These 6 investments have already been decided and announced. So the 3 first one -- first ones, representing about EUR 50 million are going to be implemented still during this year, and then we have 3 other ones representing about EUR 70 million of total investment for the following years. The outlook for this year, as we have stated also before, our Ahlstrom-Munksjo pro forma comparable EBITDA reached EUR 330 million, 2018. At the beginning of this year, customers reacted to signs of slowing economic growth. Demand has slowed somewhat in certain product segments and customers have reduced inventories. The overall market environment remains uncertain, and demand continues to fluctuate. Ahlstrom-Munksjo will continue its efforts to improve performance and competitiveness. The gross margin for products continued to increase in the first half of 2019, and the targeted synergy benefits and cost reduction measures are expected to contribute positively to earnings for the full year.

So finally, a summary, wrapping up. We are taking steps -- clear steps in improving competitiveness. Profitability continued to improve, fueled by further increase in gross margin for products. As said, we have improved the gross margin per ton every quarter since the beginning of last year. Cash flow improved, actually more than doubled, compared to last year and earlier quarters. We are focusing -- putting quite a lot of efforts and focus in net working capital management and cash flow. And our sustainability work was awarded with the third consecutive EcoVadis Gold rating, putting us among the 1% of most sustainable companies among a group of tens of thousands of companies.

A good proof for our sustainability strategy. The market environment remained uncertain, with fluctuating demand, and we are proceeding with measures to improve performance and competitiveness. The integration of the recent acquisitions proceeds as planned. We are focusing on delivering on the premise -- promised synergies. And as mentioned, we have also increased our synergy estimate somewhat from the previous quarter. And of course, we're also focusing on cash flow and strengthening our balance sheet. So with these words, Johan, I hand over to you.

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Johan Lindh, Ahlstrom-Munksjö Oyj - VP of Communications & IR [5]

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Thank you, Hans. Thank you, Sakari. Before proceeding to a Q&A session, I would like to take the opportunity to warmly welcome you all to the -- to our upcoming Capital Markets Day in November here in Helsinki, where you have the opportunity to meet our management team, discuss our progress and discuss our strategy. So -- well, now it's time for questions and answers. So do we have questions here in the audience?

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Questions and Answers

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Harri Taittonen, Nordea Markets, Research Division - Senior Director & Sector Coordinator [1]

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Yes. Harri Taittonen, Nordea. Couple of questions, if I may. The geographical balance of your sales here is sort of quite diversified, less than half in Europe and then sort of you have North America and Americas close to half of sales, and then Asia covering the rest. Have you seen -- if you think of -- in geographical terms, have you seen sort of big difference in demand and sort of how do they -- how are the market dynamics, if you look at the sort of regional view?

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Hans Sohlström, Ahlstrom-Munksjö Oyj - CEO & President [2]

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We haven't seen -- on the demand side, we haven't seen significant differences between geographies. There are clearly bigger differences between consumer end-use-driven businesses, and then industry, technical construction-driven businesses. That's the big difference, generally speaking. I think another big difference between North America and Europe is -- and Asia is actually what Sakari mentioned earlier on, which is the pulp cost impact. So the pulp cost -- the pulp prices really came down first in China. And we also could benefit from the lower pulp prices earliest in our Asian operations in China, Korea -- South Korea. And then there was a clear time lag before we saw the easening in our cost structure in Europe, and then we have actually North America following almost a quarter later. So we could clearly see the impact of this pulp price peak in North America in mass performance in Q2. So that's clearly impacting the dynamics between the various areas. But if you look at the -- as such, the demand situation in various areas, I wouldn't say there is any significant differences really.

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Harri Taittonen, Nordea Markets, Research Division - Senior Director & Sector Coordinator [3]

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Okay. And I recall, at the end of the first quarter, you said that there was a bit of a pickup in quarter. It seems that the order activity was picking up then, but could you comment how the profile kind of turned out during the second quarter? Did it slow towards the end or -- and how does it look now?

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Hans Sohlström, Ahlstrom-Munksjö Oyj - CEO & President [4]

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Yes. You are right, that -- you're right that at the end of Q1, we saw a certain pickup in volumes. But, let's say, it wasn't really perhaps that robust continuing. And so Q2, let's say, volume development was somewhat better than Q1, but not significantly, let's say, like this. I mean we cannot be happy with, let's say, 5% lower volumes. So we believe that this has now -- we had Q4, we had Q1 and now Q2 with relatively low volumes. And at least, as long as there is destocking happening in the supply chain, it has to start to be very close to an end now. And -- but then of course, the question is that how much is destocking and how much is due to, let's say, lower industrial construction activity. So that's the question, I guess.

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Harri Taittonen, Nordea Markets, Research Division - Senior Director & Sector Coordinator [5]

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Okay. Maybe finally, just on the third quarter, you have 3 start-ups, and I would just like to check if there is a sort of operational impact coming from that affecting in the earnings from the start-ups? And then also the Stenay closure, it already took place at the end of Q1, but then I guess the full benefit is not yet in -- it will sort of increase towards the second half, right?

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Hans Sohlström, Ahlstrom-Munksjö Oyj - CEO & President [6]

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You are right. The Stenay communicated EUR 30 million of EBITDA impact will come gradually. Main part or a big part of it towards the end of this year, and then still something 2020. So it's a gradual impact, so we don't -- we really didn't see much of that in Q2. And when it comes to the investments and startups, I mean, we have had, of course, throughout the year start-ups. For now there is -- there are 2, let's say, bigger one -- bigger ones, which is billings force the recovery boiler rebuild and start-up, and then the Sakari rebuild and startup. So we don't really guide there any, let's say, specific, significant impact.

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Sakari Ahdekivi, Ahlstrom-Munksjö Oyj - Deputy CEO, Executive VP of Corporate Development & CFO [7]

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Of course, we've had some inventory buildup in anticipation of those CapEx startups.

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Hans Sohlström, Ahlstrom-Munksjö Oyj - CEO & President [8]

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Yes.

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Johan Lindh, Ahlstrom-Munksjö Oyj - VP of Communications & IR [9]

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Next question is from Markku.

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Markku Järvinen, Handelsbanken Capital Markets AB, Research Division - Analyst [10]

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Yes. Markku Järvinen, Handelsbanken. Maybe I continue on the investments, if we start with 7 investments that you've completed since the second half of '17, that sort of EUR 70 million altogether. Do those sort of as a group contribute positively now to earnings, or are they sort of still all in ramp up? And how does that -- or what kind of ramp-up should we expect, how long does it last?

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Hans Sohlström, Ahlstrom-Munksjö Oyj - CEO & President [11]

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Good question. As a group -- frankly, I haven't done the math. But what I know is that -- I mean there are some of these who have already started to bring in a certain, but not very significant EBITDA positive in the EBITDA impact, but there are certainly others that are still in a ramp-up phase, where we have -- where we see, let's say, where we don't see a positive, perhaps even a negative EBITDA impact. It's -- I don't know...

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Sakari Ahdekivi, Ahlstrom-Munksjö Oyj - Deputy CEO, Executive VP of Corporate Development & CFO [12]

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I mean there are investments like the food packing, something around, which is, of course, fully operational, the quarter in North America is also, but not from an EBIT contribution point of view, but technically, fully operational. So I would say that most of them are still financially in a ramp-up phase or technically in a ramp-up phase.

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Markku Järvinen, Handelsbanken Capital Markets AB, Research Division - Analyst [13]

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Okay. Good. Then, still on raw materials, could you just remind us what is your sensitivity to pulp in tons and euros? And I guess it's primarily hardwood pulp. And then the same for electricity, how much is your spend? And also titanium, what's the sort of level that we should look at?

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Hans Sohlström, Ahlstrom-Munksjö Oyj - CEO & President [14]

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Yes, I think we have the detail actually in the presentation. So I refer back to that slide. So you see -- so 1/3 of our cost base is fiber, but it's not only hardwood pulp. So there's quite a good balance of both. And then, of course, energy as an item is 8% of the total spend. But then if there's a big fluctuation now like we've seen in electricity, then that does show in the results as well. Perhaps we can add about the pulp part here that about -- I mean we are -- we have -- we are operating 4 pulp mills, and they are softwood. It's a long fiber pulp mills. We also sell some market pulp from our Expera pulp mills. So we are in long fibers or softwood, we are close to self-sufficient, roughly speaking. So when it comes to the net procurement, it's really hardwood. So hardwood is the -- and the price of hardwood is the most significant.

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Sakari Ahdekivi, Ahlstrom-Munksjö Oyj - Deputy CEO, Executive VP of Corporate Development & CFO [15]

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But of course, growth, there is a flow inwards in and out softwood.

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Hans Sohlström, Ahlstrom-Munksjö Oyj - CEO & President [16]

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Yes. Correct.

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Markku Järvinen, Handelsbanken Capital Markets AB, Research Division - Analyst [17]

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And then still on the electricity, you said that price of electricity started to go up in Q2 '18, and then it's sort of fluctuated at the same level. How does that flow into your earnings or how do you hedge electricity, how do you buy it?

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Hans Sohlström, Ahlstrom-Munksjö Oyj - CEO & President [18]

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That's really -- the hedging is by -- because electricity is a regional or a local commodity than the hedging and contracting of that is done on a country or regional basis. So it really varies quite a lot, and it's not easy to generalize that.

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Markku Järvinen, Handelsbanken Capital Markets AB, Research Division - Analyst [19]

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But we shouldn't really assume that one quarter lag for electricity as such or...

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Hans Sohlström, Ahlstrom-Munksjö Oyj - CEO & President [20]

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I wouldn't even generalize it to that extent.

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Markku Järvinen, Handelsbanken Capital Markets AB, Research Division - Analyst [21]

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Okay. Then on pricing, you still reported year-on-year pricing moving up. How does it look sequentially? I mean raw materials are now moving down. Do you see pressure?

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Hans Sohlström, Ahlstrom-Munksjö Oyj - CEO & President [22]

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Yes. I mean there is some pressure in some segments. But once again, the essence of our strategy is really differentiation and niche leadership. So the whole idea of our, let's say, commercial strategy is to be able to differentiate, to do value-based pricing, and thus, also to have a certain price stability. So certainly, there -- in some segments, there is some pressure on prices, but, let's say, not enormous as such. I mean our average contract time with our customers is about 9 months. So we make some annual contracts, we make some biannual contracts. We also make some quarterly contracts, but as a weighted average, it's about 8 to 9 months, whereas our raw materials are priced on a monthly basis. So it's typically the market price from the previous month. And then there is a certain -- that's with a global rebate determining the net procurement sourcing price and then with pulp stocks and so forth. There is this delay of about a quarter before we have it visible in our P&L.

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Antti-Pekka Viljakainen, Inderes Oy - Analyst [23]

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Antti-Pekka Viljakainen, Inderes. Could you discuss a little bit about this 5% comparable volume decline? Do you think that you lost market share in some businesses? And are you willing to give up volumes to support pricing in future?

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Hans Sohlström, Ahlstrom-Munksjö Oyj - CEO & President [24]

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Our view is that we have not lost significant market shares in our core businesses and strategically most important markets. I mean there are some businesses we have decided to give up like the coated one side businesses, with the closure of Stenay, number 1. We also, for instance, within the core, we already, last year, lost market shares to Chinese competitors outside of Europe, in Turkey and Asia. So those type of market share losses, we have had. But from a strategic point of view, when you look at our core markets, core businesses, our impression is that we have not lost market share. And when there is a situation where there is a lower demand out there, it doesn't -- also it doesn't make sense to fight for volumes that are not existing. So that's our view.

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Johan Lindh, Ahlstrom-Munksjö Oyj - VP of Communications & IR [25]

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All right. Thank you. Do we have questions, operator, on the lines.

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Operator [26]

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(Operator Instructions) We have a first question on the phone line.

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Linus Larsson, SEB, Research Division - Analyst [27]

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It's Linus Larsson with SEB. I'd like to ask a question on margins, and specifically, in North America, which had the lowest margin among your various business areas. And it's a negative trend compared to what we saw in the first quarter. You touched upon it. I wonder if you could maybe expand a bit further and say what we should expect going forward. Was this the low point in terms of North America margins?

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Hans Sohlström, Ahlstrom-Munksjö Oyj - CEO & President [28]

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Well, thank you, Linus. We don't really guide the EBITDA expected for various businesses. But repeating what we said earlier here, there is clearly a time lag between the pricing of pulp in various areas. So the decline first happened in Asia, and we could benefit from that in our Asian operations first, then Europe, and about a quarter later in North America. And actually, North America was the, let's say, the tightest of the pulp geographies globally. So there, you had also the highest, let's say, peak in pulp costs. And we saw clearly now in Q2, we saw the impact of this North American pulp price peak.

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Sakari Ahdekivi, Ahlstrom-Munksjö Oyj - Deputy CEO, Executive VP of Corporate Development & CFO [29]

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And in addition, of course, the volumes were low in the quarter.

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Hans Sohlström, Ahlstrom-Munksjö Oyj - CEO & President [30]

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Yes.

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Sakari Ahdekivi, Ahlstrom-Munksjö Oyj - Deputy CEO, Executive VP of Corporate Development & CFO [31]

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Year-on-year.

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Hans Sohlström, Ahlstrom-Munksjö Oyj - CEO & President [32]

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Correct.

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Linus Larsson, SEB, Research Division - Analyst [33]

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Right. And what's the background for that? And how much -- how low were they -- the volumes?

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Hans Sohlström, Ahlstrom-Munksjö Oyj - CEO & President [34]

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I see. Yes. Do we have? So we don't have...

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Johan Lindh, Ahlstrom-Munksjö Oyj - VP of Communications & IR [35]

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We don't actually have the volume numbers in the presentation.

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Hans Sohlström, Ahlstrom-Munksjö Oyj - CEO & President [36]

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No. Exactly, you're right. Yes. Yes, thank you, Johan. Actually, we don't disclose the volume numbers by business area. But generally speaking, you could say that when you look at our, let's say, volume development, we can see these type of, let's say, declines in all the business areas. There is not like one, especially much affected. There are some variation, of course, but...

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Johan Lindh, Ahlstrom-Munksjö Oyj - VP of Communications & IR [37]

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But there was a representative of what we saw in the group level.

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Linus Larsson, SEB, Research Division - Analyst [38]

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That's very helpful. And so if you look a couple of years down the road or like over time, compared to the other business areas, what kind of margin level do we expect from North America compared to your other business areas?

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Hans Sohlström, Ahlstrom-Munksjö Oyj - CEO & President [39]

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Well, our target is to achieve and to exceed 14% EBITDA, and that's the starting point for all our businesses and that's what we're working towards. And then it's very much a question of strategy implementation, the level of differentiation, value add, how well our strategy is implemented within the various businesses that very much then determines the EBITDA level. So of course, we have acquired Expera with a long-term view. We are happy with the acquisition. We see that there is a lot of both very concrete near-term cost synergies, but also longer-term dynamic business synergies as well as cross learning opportunities and optimization opportunities. So I cannot mention a certain figure here. But clearly, there is the 14% target is clearly in the mind of each of our 5 business area leaders.

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Linus Larsson, SEB, Research Division - Analyst [40]

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Great. And just one final question on North America, and Expera now some time into the integration process. Are there any negative or positive surprises that you'd like to share with us?

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Hans Sohlström, Ahlstrom-Munksjö Oyj - CEO & President [41]

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I think so far, when looking at operations, looking at people, how well the integration has proceeded, I think it's fair to say that we have had only positive experiences and positive surprises. Of course, the world -- last summer, the world and the world economic outlook looked different than today. That we all know that during the end of last year, the beginning of this year, there has been, let's say, the general growth prospects and the estimates have been revised downwards. So that's, of course -- that wasn't, of course -- that was not expected when we made this deal. But in any case, we feel good about the acquisition and we see that there is a lot of potential to tap, out here.

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Sakari Ahdekivi, Ahlstrom-Munksjö Oyj - Deputy CEO, Executive VP of Corporate Development & CFO [42]

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And as Hans said, it was done with the long-term in mind. So this is still a quite short period.

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Linus Larsson, SEB, Research Division - Analyst [43]

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Sure. And then just one final question from my side, more on a general note. You talked about raw material cost inflation in combination with energy cost inflation, and that impact was EUR 23 million year-on-year, given where -- yes -- I mean you've had opposite directions in raw mat and energy costs, but will that be a relief year-on-year in Q3 -- on Q3, or will that still be a drag you expect in the coming quarter?

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Hans Sohlström, Ahlstrom-Munksjö Oyj - CEO & President [44]

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Well. Yes. We don't give more specific guidance for the coming quarters, but I can repeat what I said and what also Sakari stated here is that, in Q1 of this year, we paid EUR 48 million more for raw materials and energy compared to previous year. In Q2, we paid EUR 23 million more for raw materials and energy compared to the previous year. And June was the first month in a very long time, at least my CEO tenure that we had, let's say, positive -- slight positive year-on-year impact from lower fiber costs.

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Linus Larsson, SEB, Research Division - Analyst [45]

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And was that June impact -- was it net positive also including energy or...

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Hans Sohlström, Ahlstrom-Munksjö Oyj - CEO & President [46]

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No, that's specifically related to pulp. Yes. I think including energy, it must have been -- well, difficult to say. I don't know, actually.

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Operator [47]

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(Operator Instructions) So it appears there are no further questions at the moment. And I'm handing over the call back to you.

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Johan Lindh, Ahlstrom-Munksjö Oyj - VP of Communications & IR [48]

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Thank you. Do we have more questions here in the audience in Helsinki? No, it seems not. Then I hand over Hans, to you, for final comments.

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Hans Sohlström, Ahlstrom-Munksjö Oyj - CEO & President [49]

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Thank you very much, Johan. So ladies and gentlemen, we are continuing to implement our strategy with determination and speed. And once again, as a reminder, the Capital Market Day on the 4th of November here in Helsinki, where we will then share more information about strategy and strategy implementation. Thank you very much for your interest. Have a good day.