Stora enso financial result q2 2014

Financial Results Q2 2014

CEO Jouko Karvinen, Karl-Henrik Sundström (CEO as of 1 August) and CFO Seppo Parvi21 July 2014

It should be noted that certain statements herein which are not historical facts, including, withoutlimitation those regarding expectations for market growth and developments; expectations for growthand profitability; and statements preceded by “believes”, “expects”, “anticipates”, “foresees”, or similarexpressions, are forward-looking statements within the meaning of the United States Private SecuritiesLitigation Reform Act of 1995. Since these statements are based on current plans. estimates andprojections, they involve risks and uncertainties which may cause actual results to materially differ fromthose 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 ofefficiencies therein, continued success of product development, acceptance of new products or servicesby 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 protectioncreated by the Group’s patents and other intellectual property rights, the availability of capital onacceptable 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 theGroup, 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 geographicmarkets or fluctuations in exchange and interest rates.

Stora Enso Q2 2014 Financial Results 221 July 2014

Significant operational earnings improvement continuesQ2 2014 year-on-year

• Sales EUR 2 579 (EUR 2 726) million, structural paper demand decline• Operational EBITDA margin of 12.6 (9.4) %, EUR 326 (EUR 257) million • Operational EBIT margin of 8.1 (4.5) %, EUR 209 (EUR124) million• Net debt to Operational EBITDA 2.8 (3.2)• Operational ROCE 9.8 (5.4)%

• Fixed costs reduction programme completed– Savings of MEUR 244 million, exceeding target by 22%

• Transformation to renewable materials company continues– Virdia acquisition and Varkaus packaging materials conversion

• Corbehem Mill closure plan announced


Global ResponsibilityNew section in quarterly reports

• Health and safety • TRI 11 (13.4) and LTA 4.3 (5.7) Q2/14 year-on-year• Safety campaign in Guangxi

• Human rights• Collaboration agreement with Save the Children signed early July• Group-wide human rights assesment ready by the end of 2014• Bulleh Shah in Pakistan conducted 123 on-site supplier audits during H1 2014

– 7 child labour cases and 5 young worker cases were identified in the OCC chain– No children identified in the wheat straw chain within the audit scope

• Global Responsibility in China• Correction of social land lease contracts in Guangxi on-going• Three shared value projects in Guangxi• Stora Enso ranked number one among paper industry in IPE’s CITI report in terms of green

supply chain performance in China


Operational EBIT up 69%Record Renewable Packaging Performance, Fixed Cost Take Out Target Exceeded

Stora Enso Q2 2014 Financial Results 5

MEUR

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12Q2 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4 14Q1 14Q2

Operational EBIT Operational EBIT margin

21 July 2014

Fixed costs reduction programme target exceeded by EUR 44 million or 22%Quarterly fixed cost development Q2 2012–Q2 2014, annualised impact

Stora Enso Q2 2014 Financial Results 21 July 2014 6

*Restated in accordance with IFRS11

Fixed cost decrease continuedFixed cost 4 quarter rolling average


MEUR

21 July 2014

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12Q2 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4 14Q1 14Q2

Fixed costs, 4Q rolling average

Virdia acquisition – enabling step-change entry into high value renewable materials technologies


Fine paper machine to be converted to light-weight containerboard in Varkaus Mill

• EUR 110 million for transformation

• EBITDA margin above 15%

• Start up Q4 2015

• Capacity 390 000 tonnes

21 July 2014 9Stora Enso Q2 2014 Financial Results

38 %

32 %

18 %

10 %2 %

2014 H1

66 %

24 %

11 %‐1 %

2006*

The JourneyTo be continued


Breakdown of sales

*Including North America and Merchants. Pulp produced was used internally.

2006* 2014 H1

New Leadership, journey continuesCEO as of 1 August: Karl-Henrik Sundström

• EVP, Printing and Living Division

• Joined in August 2012 as a CFO

• Wide global experience in manufacturing industry

• A solid background in financial management

21 July 2014Stora Enso Q2 2014 Financial Results 11

Summary financialsQ2 2014

13Stora Enso Q2 2014 Financial Results 21 July 2014

Printing and Reading Operational EBIT improved EUR 53 millionQ2 2014 year-on-year

• Operational EBIT:– Costs lower– Depreciation EUR 20 million lower– Lower volumes due to machine

closures

• Cash flow improved sequentially

• Uetersen Mill non-core asset divestment

• Corbehem Mill closure plan

• Maintenance at Oulu, Kvarnsvedenand Veitsiluoto Mills in Q3


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Operational EBITDA

Cash flow from operations, 4Q rolling

Biomaterials Operational EBIT EUR 10 millionQ2 2014 year-on-year

15Stora Enso Q2 2014 Financial Results

• Operational EBIT :– EUR 4 million lower

• MdP start-up costs• Increased activity in Biorefinery

• MdP Pulp Mill– Started-up early June – First deliveries mid-July– Share of production 300 000-350

000 tonnes in 2014

• Maintenance stoppage at SkutskärMill in Q3

21 July 2014

Building and Living highest quarterly Operational EBIT since Q2 2007Q2 2014 year-on-year

• Operational EBIT EUR 37 million:– Increase of 32%– Lower fixed costs due to own

actions– Operational ROOC 27%

• Several sawmills have maintenance stoppages during Q3


MEUR

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Operational EBIT ROOC, 4Q rolling

Renewable Packaging Operational EBIT increased by almost 50%, all time highQ2 2014 year-on-year

MEUR


• Operational EBIT EUR 114 million– Improved operational efficiency– Lower variable and fixed costs– Sales prices slightly higher– Operational ROOC 18.3%

• Maintenance stoppages at Imatra, Inkeroinen and Heinola mills in Q3

• Guangxi consumer board machine:– Investment proceeding as planned– Over 90% levelling work completed– Expected to be operational in early

2016

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Operational EBIT ROOC, 4Q rolling

21 July 2014

Forecast for Capex and Equity Injections in 2014Forecast unchanged

* Capital expenditure includes approximately EUR 300 million for the project in Guangxi, China. These figures do not include theacquisition of Bergvik Skog and Virdia shares.


EUR million Forecast 2014*

Capital expenditure 760–840

Equity injections 30

Total 790–870

Depreciation 550–580

Guidance for Q3 2014Compared to Q2 2014

• Sales are forecast to be roughly similar to the EUR 2 579 million

• Operational EBIT similar to or slightly lower than the strong EUR 209 million in Q2

• The maintenance impact in Q3/2014 is expected to be approximately EUR 30 million higher than in Q2/2014.


”We will continue on the chosen path”

• To build a winning team

• More resources to the Corporate Responsibility area

• Company transformation with increased customer focus

– MdP Pulp Mill– Virdia acquisition– Varkaus machine conversion to

packaging materials– Guangxi Consumer Board Mill


Operational EBIT by segments


EUR million Q2/14 Q2/13Change % Change %

Q2 14 / Q2 13

Q1/14 Q2 14 / Q1 14

Printing and Reading 36 -17 n/m 35 2.9% of sales 3.7 -1.5 3.5

Biomaterials 10 14 -28.6 21 -52.4% of sales 4.1 5.3 8.0

Building and Living 37 28 32.1 20 85.0% of sales 7.6 5.6 4.5

Renewable Packaging 114 77 48.1 92 23.9% of sales 13.4 9.2 11.2

Other 12 22 -45.5 14 -14.3% of sales 1.8 3.2 2.0

Cash flow in Q2 2014


MEUR

21 July 2014

‐100

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50

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150

Printing andReading

Biomaterials Building andLiving

RenewablePackaging

Other

Cash flow from Operations Cash flow after investments

Balance Sheet strengthQ2 2012 – Q2 2014


*Last twelve months’ operational EBITDA

MEUR

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2,7

2,8

2,9

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Net Debt Net Debt/Operational EBITDA*

21 July 2014

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

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

Total 3 970 000

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

Sollenau Sawmill Mar 2014 150 000

Total 2 050 000

Net Financial Items


*Non hedge accounted interest rate derivatives.

21 July 2014

EUR million Q2/2014

Q2/2013

Change % Q214/Q213

Q1/2014

Change % Q214/Q114

Net interest expense -45 -53 15 -48 6

Foreign exchange gains and losses 15 -22 n/m -10 n/m

Other financial items. of which -16 16 n/m -7 -129PIK notes - 3 -

Fair valuation of interest rate derivatives* -9 7 -7

Fair valuation of long-term debt - - -

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

Other items -4 10 3

Total net financial items -46 -59 22 -65 29

Transaction risk and hedgesas at 30 June 2014

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.

Stora Enso Q2 2014 Financial Results

USD has additional hedge for 13-18 months which will increase the hedging percentage with 7%.

2921 July 2014

EUR million USD SEK GBP

Estimated annual net operating cash flow exposure 950 -790 470

Transaction hedges as at 30 Jun 2014 -440 410 -250

Hedging percentage as at 30 Jun 2014 for the next 12 months 46% 52% 53%

Operational EBIT: Currency strengthening of + 10 % EUR millionUSD 95

SEK -79

GBP 47

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Paper and Board Wood Products

Curtailmentsof capacity


% of the capacity

21 July 2014

Softwood pulp pricesStora Enso’s market pulp is softwood


Source: FOEX

21 July 2014

Pulp wood and saw log pricesWood prices in Finland

Source: METLA


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/m3

Pulpwood, Pine Sawlogs, Pine

Paper for Recycling prices


German RCP price development. free deliveredSource: Verband Deutscher Papierfabriken/Stora Enso

21 July 2014

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eMixed OCC De-inking

MEUR Other loans / liabilitiesBondsCommercial papers

Revolving Credit Facility € 700 million matures in January 2017 and is fully undrawn

Maturity profile Q2 2014


0100200300400500600700800900

1 000

2014 2015 2016 2017 2018 2019 2020 2021-2035

2036

Energy balance* Q2 2014


**) Remaining impact on non-hedged volume*) Pulp. paper and board mills. Europe and overseas

21 July 2014

Impact** on operating profit from 10% change in: EUR million p.a.

Electricity market price ~3

Fossil fuel price ~10

Stora Enso Electricity procurement* Q2 2014


*) Pulp. paper and board mills. Europe and overseas3621 July 2014

Economy & Finance

Stora enso financial result q2 2014