Financial results for Q3 2019 Continued focus on cash and ...€¦ · Annica Bresky, CEO-designate. Events during Q3 •New Forest division to be established as of Jan 2020 −Including

Financial results for Q3 2019

Continued focus on cash and costs

CEO Karl-Henrik SundströmCFO Seppo Parvi

29 October 2019

Disclaimer

It should be noted that Stora Enso and its business are exposed to various risks and uncertainties and certain statements herein which are not historical facts, including, without limitation those regarding expectations for market growth and developments; expectations for growth and profitability; and statements preceded by “believes”, “expects”, “anticipates”, “foresees”, or similar expressions, are forward-looking statements. Since these statements are based on current plans, estimates and projections, they involve risks and uncertainties which may cause actual results to materially differ from those expressed in such forward-looking statements. Such factors include, but are not limited to: (1) operating factors such as continued success of manufacturing activities and the achievement of efficiencies therein, continued success of product development, acceptance of new products or services by the group’s targeted customers, success of the existing and future collaboration arrangements, changes in business strategy or development plans or targets, changes in the degree of protection created by the group’s patents and other intellectual property rights, the availability of capital on acceptable terms; (2) industry conditions, such as strength of product demand, intensity of competition, prevailing and future global market prices for the group’s products and the pricing pressures thereto, price fluctuations in raw materials, financial condition of the customers and the competitors of the group, the potential introduction of competing products and technologies by competitors; and (3) general economic conditions, such as rates of economic growth in the group’s principal geographic markets or fluctuations in exchange and interest rates. All statements are based on management’s best assumptions and beliefs in light of the information currently available to it and Stora Enso assumes no obligation to publicly update or revise any forward-looking statement except to the extent legally required.

29 October 20192

Stora Enso Q3 2019 results

Continued focus on cash and costsProfit protection programme target increased to 275 MEURQ3 2019 year-on-year

• Sales decreased by 7% to 2 402 (2 585) MEUR

− Decrease due to lower prices and volumes

− Sales excluding Paper decreased by 5%

• Operational EBIT decreased to 231 (358) MEUR

− Decrease due to lower prices and volumes, partly offset by lower costs achieved through profit protection programme

− Operational EBIT margin 9.6% (13.8%)

• EPS decreased to 0.09 (0.27) EUR and EPS excl. IAC 0.13 (0.31) EUR

• Strong cash flow from operations at 488 (457) MEUR due to active working capital management. Cash flow after investing activities 347 (319) MEUR

• Net debt to operational EBITDA at 2.2x (1.1x) slightly above the target of 2.0x

− Restructuring of Bergvik Skog impact 0.7x, IFRS 16 Leases impact 0.3x

• Operational ROCE at 8.7% (16.7%) below the strategic target of 13%

− IFRS 16 Leases impact negative 0.4 percentage points, Bergvik Skog restructuring impact negative 1.0 percentage points

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Preparing for the turn of the cycleOperational EBIT Q3 y-o-y

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Profit protection programme: savings target increased to 275 MEUR and extended until 2021

• Programme is proceeding ahead of plan

− Approximately 100 MEUR cost savings achieved by end of Q3

− Cumulatively about 200 MEUR of the savings target is expected to be achieved by the end of 2020

• Programme includes announced Paper division plans to make organisational changes to improve competitiveness and ensure efficient customer service after the Oulu Mill conversion

• Stora Enso will consolidate its Finnish spruce timber sawmilling at its integrated mill site in Varkaus

− As a result of this consolidation, the Kitee sawmill will be shut down

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Annica Bresky the new President and CEO as of 1 December 2019

• Annica Bresky

− Executive MBA, MSc Engineering, Aquatic and Environmental Engineering

− Currently Head of Stora Enso’s Consumer Board division

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“I am very honoured to have this opportunity. I am looking

forward to continuing to build the future of Stora Enso

together with our competent teams across the company. We

are well positioned to grow with our customers and support

their business with sustainable and innovative solutions.

Together with my Stora Enso colleagues, our customers and

our partners all over the world, we will accelerate our efforts

as a front runner in combatting global warming,” says

Annica Bresky, CEO-designate.

Events during Q3

• New Forest division to be established as of Jan 2020

− Including Swedish forest assets and 41% share of Tornator

− Wood supply operations in Finland, Sweden, Russia and Baltic countries

− 3.2 BEUR out of total 3.6 BEUR of biological assets

• Enocell pulp mill conversion from softwood pulp to dissolving pulp completed

− Gradual ramp-up starts during Q4

• Divestment of 60% equity stake in Dawang paper mill in China

• Minority stake in China Packaging unit acquired

• Paperboard tube for cosmetics packaging introduced as a new, climate-friendly alternative to plastic tubes

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Improved cash flowSummary financials Q3 2019

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MEUR Q3/19 Q3/18

Change%

Q3/19-

Q3/18

Change%

Q3/19-

Q2/19Q2/19

Sales 2 402 2 585 -7.1% 2 608 -7.9%

Operational EBITDA 376 502 -25.1% 435 -13.6%

Operational EBITDA margin 15.7% 19.4% 16.7%

Operational EBIT 231 358 -35.5% 287 -19.5%

Operational EBIT margin 9.6% 13.8% 11.0%

Profit before tax excl. IAC 152 305 -50.2% 214 -29.0%

Net profit for the period 59 204 -71.2% 52 12.9%

EPS excl. IAC, EUR 0.13 0.31 -56.9% 0.22 -40.3%

EPS (basic), EUR 0.09 0.27 -67.5% 0.08 17.3%

Operational ROCE 8.7% 16.7% -47.9% 11.3% -23.0%

Cash Flow from Operations 488 457 6.9% 548 -10.9%

Net debt/last 12 months’ operational EBITDA 2.2* 1.1 2.2

* Restructuring of Swedish forest holding impact 0.7x and adoption of IFRS 16 Leases impact 0.3x

Consumer Board Price increases continuingQ3 y-o-y

• Sales decreased slightly to 640 MEUR

− Lower board deliveries

− Higher pulp deliveries and higher board sales prices

• Strong operational EBIT increase of 45% to 73 MEUR

− Higher sales prices, lower pulp costs and lower fixed costs

− Lower volumes

• Operational ROOC improved around 3 percentage points to above 13%

• Trials made with Fiskeby Board in Sweden to recycle used paper cups into white-lined chipboard (WLC)

− Confirmed that used paper cups can be utilised as valuable raw material to produce WLC board

− Can be done without any investments or changes to the process conditions at Fiskeby Board Mill

− Earlier trials at Langerbrugge to recycle used paper cups

• Seven European Carton Excellence awards received

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Packaging Solutions Corrugated market benefiting from lower containerboard pricesQ3 y-o-y

• Sales decreased 9% to 299 MEUR

− Significantly lower RCP containerboard and kraftliner prices

• Operational EBIT decreased 39 MEUR from last year’s all-time high level to 29 MEUR

− Significantly lower board prices, higher wood costs

− Lower raw material prices for Corrugated units

• Operational ROOC decreased to 12.1% (30.4%) driven by significantly lower containerboard prices

• Oulu Mill conversion into kraftliner production is proceeding as planned, and construction work has started in all areas. Production is expected to start by the end of 2020.

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Biomaterials Chinese market showing positive signs Q3 y-o-y

• Sales decreased 20% from last year’s record high Q3 to 331 MEUR

− Significantly lower pulp prices

− Positive sales FX

• Operational EBIT decreased 86 MEUR to 39 MEUR from last year’s all-time high level

− Significantly lower pulp prices and higher wood costs

− Higher total volume impact

• Operational ROOC decreased to 5.9% (20.9%) in-line with lower profitability

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Wood ProductsMargin protection continuesQ3 y-o-y


− Lower classic sawn prices and slightly lower deliveries

• Operational EBIT decreased 21 MEUR to 27 MEUR from last year’s record high Q3 level

− Lower sales prices, lower volumes and higher depreciation, impacted by strategic investments

− Lower wood costs in Central Europe

• Operational ROOC decreased to 15.8% (31.6%) due to lower profitability

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PaperStrong cash generation in challenging market conditionsQ3 y-o-y


− Significantly lower paper deliveries

− Dawang paper mill divestment impact -10 MEUR

• Operational EBIT decreased by 15 MEUR to 50 MEUR

− Significantly negative total volume impact

− Good costs management, lower fixed costs due to profit protection programme and lower variable costs, mainly pulp

• Cash flow after investing activities to sales ratio increased to 14.4 (8.3)%

− Good working capital management

• Dawang Mill divestment reduced annual paper capacity by 140 kt

• Reducing paper capacity by over million tonnes, 20% of Stora Enso paper capacity, with Oulu conversion in 2020

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Divisional strategic targets Q3 18 Q3 19

Consumer Board Operational ROOC > 20% 10.3% 13.2%

Packaging Solutions Operational ROOC > 20% 30.4% 12.1%

Biomaterials Operational ROOC > 15% 20.9% 5.9%

Wood Products Operational ROOC > 20% 31.6% 15.8%

Paper Cash flow after investing activities to sales > 7% 8.3% 14.4%

Group strategic targets Q3 18 Q3 19

Dividend To distribute 50% of EPS over the cycle 0.41* 0.50*

Growth** To grow faster than the relevant market 3.6% (YoY) -5.2% (YoY)

Net debt to operational EBITDA <2.0x 1.1 2.2

Fixed costs to sales <20% 23.3% 24.2%

Net debt to equity <60% 34% 55%

Operational ROCE >13% 16.7% 8.7%

Development of strategic targets

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* Annual dividend. Payment: Q1 in 2019 and Q2 in 2018 ** Excluding Paper

Outlook for 2019

Deteriorating trading conditions caused by geopolitical uncertainties related to trade wars and a possible hard Brexit are expected to impact Stora Enso negatively. Demand growth is forecast to slow for Stora Enso’s businesses in general, and the decline in demand for European paper will continue. Due to the profit protection programme, costs are forecast to remain roughly at the same level in 2019 as in 2018. Stora Enso is still implementing additional profit protection measures to mitigate negative financial impacts of the current situation.

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Guidance for Q4 2019

• Operational EBIT is expected to be in the range of 100–180 MEUR

• During Q4, there will be annual maintenance shutdown at the Fors, Ingerois, Skoghall, Varkaus, Montes del Plata and Skutskär mills. The total maintenance impact is estimated to be at the same level as in Q4/2018 and in Q3/2019.

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Annual maintenance Q1 2020 Q4 2019 Q4 2018

Consumer Board - Fors, Ingerois and

Skoghall mills

Skoghall and Fors

mills

Packaging Solutions - Varkaus Mill -

Biomaterials - Montes del Plata

and Skutskär mills

Montes del Plata

and Skutskär mills

Paper - - -

Preparing for the turn of the cycleQ3 2019 year-on-year

• Continued deteriorating trading conditions

• Strong cash flow from operations, 488 (457) MEUR

− Active working capital management

• Profit protection programme extended to 2021 and increased to 275 MEUR from 200 MEUR

− 100 MEUR positive impact by end of Q3

− About 200 MEUR of the savings target is expected to be reached by the end of 2020

• Creation of Forest division from January 2020 increasing transparency and focus on value creation

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Operational EBIT by segments

MEUR Q319 Q318

Change %

Q319-Q318 Q219

Change %

Q319-Q219

Consumer Board 73 50 45.1% 72 0.5%

% of sales 11.3% 7.8% 10.7%

Packaging Solutions 29 68 -57.6% 39 -26.0%

% of sales 9.6% 20.6% 12.3%

Biomaterials 39 125 -68.9% 103 -62.1%

% of sales 11.7% 30.3% 26.1%

Wood Products 27 48 -42.7% 35 -23.1%

% of sales 7.2% 11.9% 8.6%

Paper 50 65 -23.0% 50 1.0%

% of sales 7.3% 8.4% 7.0%

Other 13 2 n/m -12 206.5%

% of sales 1.7% 0.2% -1.4%

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Operational ROCE development

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The impact of the adoption of IFRS 16 Leases was a negative 0.4 percentage points and Bergvik Skog restructuring a

negative impact of 1.0 percentage points in Q3 2019

Adoption of IFRS 16 Leases impact in Q3

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MEUR Q3/19 IFRS 16

impact

Q3/19 without

IFRS 16

Capital employed 10 649 479 10 170

Operational EBITDA 376 18 359

Depreciation (incl. EAI) -131 -16 -115

Operational decrease in the value of biological assets -14 -14

Operational EBIT 231 1 230

Fair valuations and non-operational items -25 -25

IAC -36 -36

Operating Profit IFRS 170 1 169

Net financial items -55 -4 -50

Income tax -57 -57

Net Profit for the Period 59 -3 62

Operational ROCE 8.7% -0.4% 9.0%

Net debt 3 745 460 3 285

Net debt to operational EBITDA 2.2 -0.3 2.0

MEUR Operational

EBITDA

Capital

employed

Consumer Board 5 238

Packaging

Solutions

1 19

Biomaterials 2 85

Wood Products 3 52

Paper 2 22

Other 6 64

Group 18 479

Year-on-year net debt/EBITDA

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Healthy cash flow generation continues

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Cash flow by divisions in Q3

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Capex raised temporarily above depreciation

25 29 October 2019


Maintenance capex

Strategic capex

Biological capex

Capex estimate for 2019 and 2020

Depreciation and operational

decrease in the value of biological

assets

Capex estimate for 2019 and 2020 includes the capitalised leasing contracts according to IFRS 16 Leases standard.

Oulu Mill kraftliner conversion

Targeted ROOC is driving CAPEX allocationCapex forecast in 2019

26 29 October 2019


* Operational ROOC target

** Cash flow after investing activities to sales target

Net Financial Items

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* Quarterly gross interest expense divided by average gross debt

EUR millionQ3

2019

Q3

2018

Change

MEUR

Q319/

Q318

Q2

2019

Change

MEUR

Q319/

Q219

Net interest expense -37 -34 -3 -35 -2

Average interest rate* 3.3% 4.4% 3.4%

Foreign exchange gains and losses -17 -15 -2 -9 -8

Other financial items, of which -1 -9 8 -4 3

Pension costs (IAS 19R) -2 -2 - -2 -

Other items 1 -7 8 -2 3

Total net financial items -55 -58 3 -48 -7

Net FX by division

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Net FX y-o-y impact

27 MEUR in Q3/2019

on operational EBIT

Revolving Credit Facility 600 MEUR matures in January 2023 and is fully undrawn

Maturity profile Q3 2019

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Bridge loan for Swedish forest holdings

Forest owner deposits

Joint Venture Financing

Other loans / liabilities

Revolving Credit Facility 600 MEUR

Commercial Papers

Loans from Financial Institutions

Bonds

Transaction risk and hedges Q3 2019

EUR Million USD SEK GBP

Estimated annual operating cash flow exposure 1 403 -975 305

Transaction hedges as at 30 September 2019 -702 609 -134

Hedging percentage as at 30 September 2019 for the next 12 months 50% 62% 44%


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Operational EBIT: Currency strengthening of +10%** EUR million

USD 140

SEK -98

GBP 31

**Before currency hedges assuming no other changes other than a single currency rate movement occurs

Sensitivity analysis Impact on operational EBIT

10% decrease in Impact*

Energy prices Positive 14 MEUR

Wood prices Positive 193 MEUR

Chemical and filler prices Positive 55 MEUR

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10% increase in Impact*

Market pulp price, total Positive 125 MEUR

10% strengthening against Euro in the value of** Impact*

US dollar Positive 140 MEUR

Swedish krona Negative 98 MEUR

British pound Positive 31 MEUR

Brazilian real Negative 12 MEUR

Chinese renminbi Negative 11 MEUR

* Impact on operational EBIT for the next twelve months

** Before FX hedges

An increase of energy, wood or chemical and filler prices or decrease of pulp prices, as well as weakening of the currencies would have the opposite impact

Pulp sensitivity analysis10% change in prices, impact on operational EBIT

10% increase in Impact*

Hardwood pulp** prices Positive 55 MEUR

Softwood pulp prices Positive 30 MEUR

Fluff pulp prices Positive 25 MEUR

Dissolving pulp prices Positive 15 MEUR

Market pulp price, total Positive 125 MEUR

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* Impact on operational EBIT for the next twelve months. A decrease of pulp prices would have the opposite impact.

** Includes 750 000 tonnes from Montes del Plata

Stora Enso energy balance Q3 2019Pulp, paper and board mills


33 29 October 2019

Impact on non-hedged

volume on operating profit

from 10% change in:

EUR million p.a.

Electricity market price ~8.1

Fossil fuel price ~6.3

External hedged volumes are secured from energy price risk exposure

Stora Enso fuels Q3 2019Pulp, paper and board mills in Europe and overseas

83 %

5 %

5 %

2 %2 %3 %

Biomass

Gas

Coal

Peat

Fuel Oil

Other fossil

34

Total Q3 fuel consumption was 9.6 TWh.

Permanent pulp, paper and board capacity reductions since 2006

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Mill Date Grade Capacity reduction, t

Corbehem PM 3 and PM 4 Jun 2006 LWC 250 000

Varkaus PM 1 End 2006 WFC 95 000

Berghuizer Mill Oct 2007 WFU 235 000

Reisholz Mill End 2007 SC 215 000

Summa Mill Jan 2008Newsprint, uncoated mag,

book paper415 000

Anjala Mill PM1 Feb 2008 Coated magazine paper 155 000

Baienfurt Mill End 2008 FBB 190 000

Kabel Mill PM 3 End 2008 Coated magazine 140 000

Kemijärvi Pulp Mill April 2008 Long-fibre (SW) pulp 250 000

Norrsundet Pulp Mill Dec 2008 Long-fibre (SW), pulp 300 000

Varkaus Mill coreboard

machineDec 2008 Coreboard 100 000

Imatra PM 8 Mar 2010 WFU 210 000

Varkaus PM 2 and PM 4 Sep 2010 Newsprint, directory paper 290 000

Mill Date Grade Capacity reduction, t

Maxau PM 7 Nov 2010 Newsprint 195 000

Hylte PM1 Dec 2012 Newsprint 180 000

Ostroleka PM2 Jan 2013 Containerboard 85 000

Hylte PM2 May 2013 Newsprint 205 000

Kvarnsveden PM11 May 2013 Newsprint 270 000

Veitsiluoto PM1 Apr 2014 Coated magazine 190 000

Corbehem Mill July 2014 LWC 330 000

Varkaus Aug 2015 WFU 280 000

Suzhou Jun 2016 WFU 240 000

Kvarnsveden PM8 Jun 2017 SC 100 000

Imatra PM 6 End of 2019 Coated spec. 90 000

Oulu PM 6 and PM7 Sep 2020 WFC 1 080 000

Total 6 090 000

Permanent sawn wood capacity reductions since 2006

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Mill Date Capacity reduction, m3

Veitsiluoto Sawmill 2006 100 000

Honkalahti Sawmill 2006 90 000

Sauga Sawmill 2007 130 000

Sollenau Sawmill 2007 110 000

Näpi Sawmill 2007-2008 100 000

Kotka Sawmill 2007-2008 70 000

Paikuse Sawmill 2008 220 000

Zdirec Sawmill 2008 120 000

Ybbs Sawmill 2008 & 2009 200 000

Kitee Sawmill 2008 & 2009 130 000

Varkaus Sawmill 2009 60 000

Tolkkinen Sawmill 2009 260 000

Kopparfors Sawmill 2011 310 000

Sollenau Sawmill 2014 400 000

Kitee End 2019 260 000

Total 2 560 000

Global bleached chemical market pulp inventories by grade in tonnes and days of supply

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Source: EPIS

Kraftliner and testliner prices

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Source: FOEX

Pulp price development

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Source: FOEX

Pulp wood and saw log pricesWood prices in Finland

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Source: Luonnonvarakeskus

Paper for recycling prices

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German RCP price development. free delivered

Source: Verband Deutscher Papierfabriken/Stora Enso

Documents

Financial results for Q3 2019 Continued focus on cash and ...€¦ · Annica Bresky, CEO-designate. Events during Q3 •New Forest division to be established as of Jan 2020 −Including