financial results for q2 2019 fit for the future, protecting profit and cash … · 2019-07-19 ·...

Financial results for Q2 2019

Fit for the future, protecting profit and cash flow – Bergvik Skog transaction completed

CEO Karl-Henrik SundströmCFO Seppo Parvi

19 July 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.

19 July 20192

Stora Enso Q2 2019 results

Focusing on cash flow and costs– Profit protection programme increased to 200 MEURQ2 2019 year-on-year

• Sales decreased by 2.1% to 2 608 (2 664) MEUR, sales excluding Paper -0.9%

− Decrease due to lower volumes and prices

• Operational EBIT margin 11.0% (12.3%), above 10% for 8th consecutive quarter

− Operational EBIT 287 (327) MEUR

− Decrease due to volumes and prices partially offset by profit protection programme with impact of +45 MEUR

• IAC negative 120 MEUR due to Bergvik Skog transaction, environmental provisions, restructuring and profit protection programme

• EPS decreased to 0.08 (0.28) EUR and EPS excl. IAC 0.22 (0.31) EUR

• Strong cash flow from operations at 548 (357) MEUR. Cash flow after investing activities 428 (231) MEUR

• Net debt to operational EBITDA ratio at 2.2x (1.3x) increased temporarily slightly over the target level of 2.0x

− Restructuring of Bergvik Skog impact 0.6x, IFRS 16 Leases impact 0.3x

• Operational ROCE at 11.3% (15.5%) below the strategic target of 13%

− IFRS 16 Leases impact negative 0.4 percentage points, Bergvik Skog restructuring impact negative 0.8 percentage points

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Protecting profitabilityOperational EBIT Q2 y-o-y

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Profit protection programme target increased to 200 MEUR

• Programme is proceeding ahead of plan

− 60 MEUR cost savings achieved by end of Q2

− About half of the increased target will be achieved during 2019 and the full impact by the end of 2020

• Programme includes announced Wood Products related actions for value creation

19 July 2019


5

Bergvik Skog forests holdings restructuring finalised

• Indirect forest holdings from 1.1 million hectares to direct ownership of 1.4 million hectares in Sweden

− Productive forest land increase from 0.94 to 1.15 million hectares

• Financial impacts

− Increase of net debt by about 1.0 BEUR. Issued a 600 MEUR green bond dedicated to finance Bergvik Skog acquisition

− The net debt to EBITDA ratio exceeds the strategic target of <2.0x temporarily before all the steps of the transaction have been finalised

− Increase of capital employed ~1.0 BEUR, resulting in a decrease in the operational ROCE of 0.8 percentage point in Q2 2019

− Fully owned subsidiary and consolidated in segment Other from 1 June 2019 onwards

19 July 2019


IAC Income statement MEUR

A net gain in Share of results of equity

accounted investments

+82

Reclassification from Other comprehensive

income in equity to Other operating

expenses of a currency translation

adjustment (CTA)

-171

Total -88

Equity movements

CTA +171

Total IAC -88

Interest rate swap termination +10

Total change in Equity +93

6

Bergvik Skog transaction

Hectares Price per ha

(EUR)

Value

(BEUR)

Indirect ownership* 1 150 000 2 000 2.3

EUR to SEK translation impact on indirect

ownership (June 2019 vs Dec 2018)

-0.1

Acquired additional forest 250 000 2 400 0.6

Total forest holdings in Sweden 1 400 000 2 000 2.8

Forest value based on Billerud Korsnäs/AMF** 1 400 000 3 700 5.1

Forest value based on LRF** 1 400 000 5 700 7.9

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* As at 31 Dec 2018 indirect ownership 49.79% of Bergvik Skog

** AMF Pensionsförsäkring AB, LRF Konsult

Events during Q2

• Decision on Oulu conversion

− 350 MEUR investment

− Conversion of PM7 into 450 000 t/a high-quality virgin-fibre-based kraftliner production

− Closure of PM6 and the sheeting plant

− Paper production ending in Sept 2020

− Production of kraftliner to start by the end of 2020

• A new renewable paperboard for paper cups, Cupforma Natura Solo™ introduced

− Without a traditional plastic coating layer

− Designed for full fibre recovery in a recycling process

• DuraSense White launched

− Biocomposite with lower carbon footprint suitable for replacing plastic packaging components as caps, lids and other types of food contact closures

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Expansion evaluation in Wood Products

• Feasibility study for a possible cross laminated timber (CLT) unit in connection with Ždírecsawmill in Czech Republic

− CLT capacity approximately 120 000 m3/a

− Study to be completed by the end of 2019

• Feasibility study for a new construction beam mill at Ybbs sawmill in Austria

− Construction beams capacity of 60 000 m3/a

− Study to be completed by end of Q1 2020

• Capex estimate approximately 90 MEUR

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Investment in bio-based carbon materials for energy storage

• Investment further strengthens Stora Enso’s opportunities to replace fossil-based and mined raw materials as well as to connect sustainable materials to ongoing technology innovations.

• Wood-based carbon can replace fossil-based graphite and be utilised as a crucial component in batteries typically used in consumer electronics, the automotive industry and large-scale energy storage systems

• 10 MEUR investment to build a pilot facility for producing bio-based carbon materials based on lignin

− Pilot plant to Sunila Mill in Finland

− Construction of the pilot facility to be complete by early 2021

− Decisions about commercialisation will follow after evaluating the results of the pilot-scale production

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Strong cash flowSummary financials Q2 2019

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MEUR Q2/19 Q2/18

Change%

Q2/19-

Q2/18

Change%

Q2/19-

Q1/19Q1/19

Sales 2 608 2 664 -2.1% 2 635 -1.0%

Operational EBITDA 435 466 -6.6% 471 -7.6%

Operational EBITDA margin 16.7% 17.5% 17.9%

Operational EBIT 287 327 -12.3% 324 -11.4%

Operational EBIT margin 11.0% 12.3% 12.3%

Profit before tax excl. IAC 214 285 -25.0% 286 -25.2%

Net profit for the period 52 213 -75.6% 226 -76.9%

EPS excl. IAC, EUR 0.22 0.31 -27.5% 0.30 -25.8%

EPS (basic), EUR 0.08 0.28 -73.2% 0.29 -74.5%

Operational ROCE 11.3% 15.5% -27.1% 14.0% -19.3%

Cash Flow from Operations 548 357 53.4% 223 145.6%

Net debt/last 12 months’ operational EBITDA 2.2* 1.3 1.7

* Restructuring of Swedish forest holding impact 0.6x and adoption of IFRS 16 Leases impact 0.3x

Consumer Board Value management continuesQ2 y-o-y

• Sales decreased slightly to 675 MEUR

− Lower carton board deliveries

− Price increases coming through in Europe

• Operational EBIT increased 7 MEUR to 72 MEUR

− Lower variable costs and price increases coming through

− Production issues in Fors Mill and lower board volumes

• Operational ROOC remained stable at 12.8%

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Packaging Solutions Focusing on cost managementQ2 y-o-y

• Sales decreased 4% to 316 MEUR

− Clearly lower RCP containerboard and kraftliner prices

− Slight delivery growth

• Operational EBIT decreased 18 MEUR from record high Q2 level a year ago to 39 MEUR

− Clearly lower RCP containerboard and kraftliner prices

− Lower fixed costs related to altered maintenance schedule and lower costs in corrugated units

• Operational ROOC at 16.3% (25.6%) decreased due to lower profitability driven by clearly lower containerboard prices

• Oulu conversion proceeding according to plan

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Biomaterials Stable performance in a rocky environmentQ2 y-o-y

• Sales decreased 5% from record high Q2 last year to 394 MEUR

− Higher deliveries

− Clearly lower pulp prices

• Operational EBIT decreased only 6 MEUR from record high Q2 level last year to 103 MEUR

− Clearly lower pulp prices

− Higher volumes and lower fixed costs related to altered maintenance schedule in Enocell Mill

• Operational ROOC remained above strategic target level at 15.6%

• Investment in bio-based carbon materials for energy storage

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Wood ProductsFocusing on value managementQ2 y-o-y

• Sales decreased 4% to 412 MEUR

− Lower sales prices and deliveries

• Operational EBIT decreased 12 MEUR from record high Q2 level last year to 35 MEUR

− Lower sales prices, especially in classic sawn products

− Negative impact from volumes, mainly due to decreased overseas sales

• Operational ROOC above strategic target at 20.3%

• Feasibility study for a possible (CLT) unit in connection with Ždírec mill, Czech Republic and a new construction beam unit at the Ybbs Mill, Austria initiated

− Plans to consolidate production to increase focus on efficiency and to streamline asset base

• The plan is to consolidate spruce production in Finland including possible closure of Kitee sawmill

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PaperStable performance in a declining marketQ2 y-o-y

• Sales -6% to 712 MEUR

− Clearly lower deliveries

− Prices higher in all segments

• Operational EBIT decreased slightly to 50 MEUR

− Higher sales prices and lower fixed costs

− Clearly lower volumes

− Higher variable costs, especially in wood

• Cash flow after investing activities to sales ratio 6.6 (5.7)%

− Positive working capital development

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

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Divisional strategic targets Q2 18 Q2 19

Consumer Board Operational ROOC > 20% 13.1% 12.8%

Packaging Solutions Operational ROOC > 20% 25.6% 16.3%

Biomaterials Operational ROOC > 15% 18.6% 15.6%

Wood Products Operational ROOC > 20% 31.7% 20.3%

Paper Cash flow after investing activities to sales > 7% 5.7% 6.6%

Group strategic targets Q2 18 Q2 19

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

Growth** To grow faster than the relevant market 5.4% (YoY) -0.9% (YoY)

Net debt to operational EBITDA <2.0x 1.3 2.2

Fixed costs to sales <20% 23.5% 23.3%

Net debt to equity <60% 40% 59%

Operational ROCE >13% 15.5% 11.3%

Development of strategic targets

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

Outlook for 2019

Further deteriorating trading conditions caused by geopolitical uncertainties related to trade wars and a possible hard Brexit are expected to impact StoraEnso negatively. Demand growth is forecast to slow down for Stora Enso’s businesses in general and demand decline is escalating for European paper. Costs are forecast to increase in 2019 compared to 2018. Stora Enso will implement additional Profit Protection measures to mitigate these cost increases and the geopolitical uncertainties. Due to the current uncertainties in the business environment Stora Enso will not comment on estimated sales development in the outlook.

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Guidance for Q3 2019

• Operational EBIT is expected to be in the range of 200–280 MEUR

• During Q3, there will be annual maintenance shutdown at the Beihai, Imatra, Heinola, Ostrołęka, Enocell and Veitsiluoto mills. The total maintenance impact is estimated to be on the same level as in Q3/2018 and 30 MEUR more than in Q2 2019.

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Annual maintenance Q3 2019 Q3 2018

Consumer Board Beihai and Imatra mills Imatra and Ingerois mills

Packaging Solutions Heinola and Ostrołęka

kraft mills

Ostrołęka Mill

Biomaterials Enocell Mill Sunila Mill

Paper Veitsiluoto Mill Veitsiluoto Mill

Fit for the future, protecting profit and cash flow Q2 2019 year-on-year

• Eighth consecutive quarter of double digit operational EBIT margin

• Bergvik Skog transaction completed

• Strong cash flow from operations, 548 (357) MEUR

• Further deteriorating trading conditions

• Profit protection programme increased to 200 MEUR from 120 MEUR

− 60 MEUR positive impact so far

− About half of the increased target will be achieved during 2019 and the full impact by the end of 2020

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Welcome to Stora Enso Forest and Wood Products day for capital marketson 19 September 2019 in Stockholm

19 July 201921

Followed by Gruvön

Mill and logging site

visits on 20

September 2019


Operational EBIT by segments

MEUR Q219 Q218

Change %

Q219-Q218 Q119

Change %

Q219-Q119

Consumer Board 72 65 11.1% 54 32.8%

% of sales 10.7% 9.5% 8.6%

Packaging Solutions 39 57 -31.6% 51 -23.9%

% of sales 12.3% 17.2% 15.1%

Biomaterials 103 109 -5.7% 103 -0.1%

% of sales 26.1% 26.5% 25.8%

Wood Products 35 47 -24.5% 29 21.5%

% of sales 8.6% 10.9% 7.2%

Paper 50 54 -7.9% 69 -27.8%

% of sales 7.0% 7.2% 9.1%

Other -12 -5 -147.4% 17 -172.4%

% of sales -1.4% -0.6% 1.9%

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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 0.8 percentage points in Q2 2019

Adoption of IFRS 16 Leases impact in Q2

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MEUR Q2/19 IFRS 16

impact

Q2/19 without

IFRS 16

Capital employed 10 162 461 9 701

Operational EBITDA 435 20 415

Depreciation (incl. EAI) -136 -18 -118

Operational decrease in the value of biological assets -13 -13

Operational EBIT 287 2 284

Fair valuations and non-operational items -25 -25

IAC -120 -120

Operating Profit IFRS 142 2 139

Net financial items -48 -6 -43

Income tax -41 -41

Net Profit for the Period 52 -3 55

Operational ROCE 11.3% -0.4% 11.7%

Net debt 3 973 506 3 467

Net debt to operational EBITDA 2.2 -0.3 1.9

MEUR Operational

EBITDA

Capital

employed

Consumer Board 5 228

Packaging

Solutions

2 20

Biomaterials 3 83

Wood Products 3 52

Paper 2 19

Other 6 59

Group 20 461

Year-on-year net debt/EBITDA

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Healthy cash flow generation continues

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Cash flow by divisions in Q2

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Capex on targeted levels

29 19 July 2019


Maintenance capex

Strategic capex

Biological capex

Capex estimate for 2019Depreciation and

operational decrease in

the value of biological

assets

Capex estimate for 2019 includes the capitalised leasing contracts according to IFRS 16 Leases of approximately 40 MEUR.

Targeted ROOC is driving CAPEX allocationCapex forecast in 2019

30 19 July 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 millionQ2

2019

Q2

2018

Change

MEUR

Q219/

Q218

Q1

2019

Change

MEUR

Q219/

Q119

Net interest expense -35 -31 -4 -38 3

Average interest rate* 3.4% 4.1% 4.3%

Foreign exchange gains and losses -9 -26 17 12 -21

Other financial items, of which -4 -3 -1 -5 1

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

Other items -2 -1 -3

Total net financial items -48 -60 12 -31 -17

Net FX by division

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Net FX y-o-y impact

8 MEUR in Q2/2019

on operational EBIT

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

Maturity profile Q2 2019

Bridge loan for Swedish forest holdings

Bonds

Forest owner deposits

Joint Venture Financing

Other loans / liabilities Revolving Credit Facility 600 MEUR

Commercial Papers

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Loans from Financial Institutions

Transaction risk and hedges Q2 2019

EUR Million USD SEK GBP

Estimated annual operating cash flow exposure 1 475 -972 326

Transaction hedges as at 30 June 2019 -742 568 -154

Hedging percentage as at 30 June 2019 for the next 12 months 50% 58% 47%


19 July 201934

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

USD 148

SEK -97

GBP 33

**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 13 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 148 MEUR

Swedish krona Negative 97 MEUR

British pound Positive 33 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 50 MEUR

Softwood pulp prices Positive 30 MEUR

Fluff pulp prices Positive 25 MEUR

Dissolving pulp prices Positive 20 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 700 000 tonnes from Montes del Plata

Stora Enso energy balance Q2 2019Pulp, paper and board mills


37

TWh/a

19 July 2019

Impact on non-hedged

volume on operating profit

from 10% change in:

EUR million p.a.

Electricity market price ~7.5

Fossil fuel price ~5.3

External hedged volumes are secured from energy price risk exposure

Stora Enso fuels Q2 2019Pulp, paper and board mills

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Total Q2 fuel consumption was 10.3 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 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 Jul 2014 400 000

Total 2 300 000

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

financial results for q2 2019 fit for the future, protecting profit and cash … · 2019-07-19 ·...

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