Financial Results Q2 2013 - Stora Ensoassets.storaenso.com/se/com/DownloadCenterDocuments/Financial... · Financial Results Q2 2013 CEO Jouko Karvinen and EVP Karl-Henrik Sundström

Financial Results Q2 2013 CEO Jouko Karvinen and EVP Karl-Henrik Sundström

19 July 2013

It should be noted that 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 within the meaning of the United States Private Securities

Litigation Reform Act of 1995. 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.

Stora Enso Q2 2013 Financial Results 19 July 2013 2

Q2 results as expected

• Operational EBIT EUR 124 million

• Cash flow from Operations EUR 344

million

• Liquidity EUR 1.8 billion

• Net debt/Operational EBITDA LTM 2.7x

19 July 2013 Stora Enso Q2 2013 Financial Results 3

Continued Solid Cash Flow from Operations Reduced working capital


All business areas contributed to cash flow generation

in Q2 2013


European paper seasonally adjusted demand trend

development and y-o-y change

Source: Euro-Graph SA = seasonally adjusted Latest data point: Jun-2013


Progress report: Streamlining and structure

simplification programme EUR 200 million of annual net fixed cost savings, compensating also for inflation

EUR million Fixed Costs Annualized (Qx4) Progress

Q2 2012 703 2 812

Q2 2013 677 2 708

Change -26 -104

Programme impact -7 -28 14%

Other change -19 -76


• The new divisional organizations announced

• EUR 200 million of annual fixed cost savings - full impact from Q2 2014

• EUR 43 million NRIs announced year to date - rest mainly planned in Q3 2013

• Other change represents impact of capacity closures, previously announced

programmes, new businesses, significant currency movements and M&A

Progress report: Montes del Plata

• Estimated to begin the start-up at the

end of Q3 2013

• Slightly negative impact on operational

EBIT in 2013


Progress report: Ostrołęka mill PM 5

• Proceeding according to plan

• EBITDA margin approximately

20% during the latter part of 2013

as targeted


Accelerating transformation: Guangxi, China

• Final approval from Chinese NDRC received

• Faster access to the Chinese consumer board

market

• Two phase implementation

– First phase consumer board machine operational in

the beginning of 2016

– Second phase chemical pulp mill

• Project clearly exceeds the ROCE target of 13%


Accelerating innovation: Biorefinery at Sunila

• EUR 32 million investment

• Replacing fossil raw materials:

– Insulation

– Adhesive for construction materials

• Scalable technology

• Start-up Q1 2015



Printing and Reading Structural Paper Demand Decline Operational EBITDA

Q2 2012 vs Q2 2013

19 July 2013 13

• Year-on-Year demand decline 6%

• Structural decline continues

Paper Market

Stora Enso Printing and Reading

• Lower pricing mainly in News and

SC

• Sales volume decline 6% or [110 kt]

despite 3 PM closures

• No fixed cost improvement –

announced cost reduction top

priority

• Limited savings impact from Hylte

PM2 and Kvarnsveden PM11 during

Q2

• Solid cash flow generation Q2 –

needed for the transformation Stora Enso Q2 2013 Financial Results

Summary financials Q2 2013

EUR million Q2/13 Q1/13 Q2/12 Change % Change %

Q2 13 / Q2 12 Q2 13 / Q1 13

Sales 2 717 2 667 2 721 -0.1 1.9

Operational EBITDA 247 240 251 -1.6 2.9

Operational EBITDA, % 9.1 9.0 9.2 -1.1 1.1

Operational EBIT 124 118 144 -13.9 5.1

Operational EBIT margin, % 4.6 4.4 5.3 -13.2 4.5

Profit before tax excl. NRI 60 55 31 93.5 9.1

EPS excl. NRI, EUR 0.05 0.07 0.02 150.0 -28.6

EPS (basic), EUR 0.02 -0.02 0.08 -75.0 200.0

Operational ROCE, % 5.8 5.4 6.6 -12.1 7.4

Operational ROCE, % excl. transformation

investments 7.3 6.2 7.9 -7.6 17.7

Cash Flow from Operations 344 101 246 39.8 240.6

Net debt/last 12 months’ operational EBITDA 2.7 2.7 2.7 - -


Fairly stable despite challenging paper market Group operational EBIT

Q2 2012 vs Q2 2013 Q1 2013 vs Q2 2013


Guidance for Q3 2013

• Compared to Q2 2013:

– Sales expected to be

slightly lower

– Operational EBIT in

line with or slightly

higher


Summary


• Q2 result as guided

• Solid cash flow - strong liquidity

• EUR 200 million fixed costs savings on plan

• European paper - to get ahead of the game

• Accelerated transformation:

– MdP

– Ostrołęka

– Guangxi

– Sunila Biorefinery


Projected Capex and Equity Injections for 2013 Including China investment

Capital Expenditure, Equity Injections and Depreciation Forecast 2013

EUR million Forecast 2013

Capital expenditure* 440-490

Equity injections 100-120

Total 540-610

Depreciation 590-610


*Capital expenditure includes approximately EUR [90] million for project in Guangxi, China

Working capital reduced Q1 2011 – Q2 2013

*Operative working capital = trade receivables + inventories – trade payables


Balance Sheet strength Q1 2010 – Q2 2013

Stora Enso Q2 2013 Financial Results 19 July 2013

*Last twelve months’ operational EBITDA

21

Operational EBIT by segments

EUR million Q2/13 Q1/13 Q2/12 Change % Change %

Q213/Q212 Q213/Q113

Printing and Reading -17 2 43 -139.5 n/m

% of sales -1.5 0.2 3.6 -141.7 n/m

Biomaterials 14 22 15 -6.7 -36.4

% of sales 5.4 8.6 6.1 -11.5 -37.2

Building and Living 28 4 11 154.5 n/m

% of sales 5.6 0.9 2.5 124.0 n/m

Renewable Packaging 77 68 73 5.5 13.2

% of sales 9.2 8.3 8.8 4.5 10.8

Other 22 22 2 n/m -

% of sales 3.2 3.1 0.3 n/m 3.2


Timeline for the restructuring announcements in 2013

Q2 2013

Hylte PM 2, Kvarnsveden PM11

closed in May

Q3 2013

Impact starts

Q4 2013 Q1 2014

Full impact Q2 2014


February 2013

Announcement of Hylte PM 2 and Kvarnsveden PM 11 closures EUR 24 million

Q2 2013

Impact starts

Q3 2013 Q4 2013 Q1 2014 Q2 2014

Full impact

February 2013

Building & Living EUR 30 million

Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014

Full impact

April 2013

Business structure and organisation EUR 200 million (out of which EUR 30 million B&L)

Permanent pulp, paper and board capacity reductions since 2006

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 2008 Newsprint, uncoated mag, book paper 415 000

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 machine Dec 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

Maxau PM 7 Nov 2010 Newsprint 195 000

Hylte PM1 Dec 2012 Newsprint 180 000

Hylte PM2 May 2013 Newsprint 205 000

Kvarnsveden PM11 May 2013 Newsprint 270 000

Total 3 695 000

24 19 July 2013 Stora Enso Q2 2013 Financial Results

Permanent sawn wood capacity reductions since 2006

Mill Date Capacity reduction, m3

Veitsiluoto Sawmill 2006 100 000

Honkalahti Sawmill 2006 90 000

Sauga Sawmill Jun 2007 130 000

Sollenau Sawmill 2007 110 000

Näpi Sawmill 2007-2008 100 000

Kotka Sawmill 2007-2008 70 000

Paikuse Sawmill End 2008 220 000

Zdirec Sawmill 2008 120 000

Ybbs Sawmill 2008 & Jun 2009 200 000

Kitee Sawmill 2008 & Jun 2009 130 000

Varkaus Sawmill Jun 2009 60 000

Tolkkinen Sawmill End 2009 260 000

Kopparfors Sawmill End 2011 310 000

Total 1 900 000


Net Financial Items

EUR million Q2/2013 Q1/2013 Q2/2012 Change %

Q213/Q212

Change %

Q213/Q113

Net interest expense -51 -50 -42 -21 -2

Foreign exchange gains and losses -12 -5 -18 33 -140

Other financial items, of which 16 -1 -10 n/m n/m

PIK notes 3 3 3

Fair valuation of interest rate derivatives* 7 2 -15

Fair valuation of long-term debt - -1 -

NewPage lease provision - - 9

Pension costs (IAS 19R) -4 -3 -3

Other items 10 -2 -4

Total net financial items -47 -56 -70 33 16

*Not hedge accounted interest rate derivatives.


Transaction risk and hedges as at 30 June 2013

Operational EBIT: Currency strengthening of + 10 % EUR million

USD 104

SEK -81

GBP 51

EUR million USD SEK GBP

Estimated annual net operating cash flow exposure 1 040 -810 510

Transaction hedges as at 30 Jun 2013 -500 450 -250

Hedging percentage as at 30 Jun 2013 for the next 12 months 48% 56% 49%

The sensitivity is based on estimated next 12 months net operating cash flow. The

calculation does not take into account currency hedges and assumes no changes occur

other than a single currency exchange rate movement. Weakening would have the

opposite impact.

Additional USD and GBP hedges for 13-15 months increase the hedging percentages by

1% and 3% respectively.


Curtailments of capacity


Softwood pulp prices Stora Enso’s market pulp is softwood

Source: FOEX


Pulp wood and saw log prices Wood prices in Finland

Source: METLA


Paper for Recycling prices

German RCP price development. free delivered

Source: Verband Deutscher Papierfabriken/Stora Enso


Maturity profile Q2 2013


Energy balance* Q2 2013

Impact** on operating profit from

10% change in: EUR million p.a.

Electricity market price ~2

Fossil fuel price ~13

**) Remaining impact on non-hedged volume

19 July 2013 Stora Enso Q2 2013 Financial Results

*) Pulp, paper and board mills, Europe and overseas

33

Stora Enso Electricity procurement* Q2 2013

19 July 2013 Stora Enso Q2 2013 Financial Results

*) Pulp, paper and board mills, Europe and overseas

34 34