Stora Enso Oyj : Interim Report January-September 2020

STORA ENSO OYJ INTERIM REPORT 20 October 2020 at 8.30 EEST

Solid performance continues in challenging business environment
Focus on cash flow and profit protection
Q3/2020 (compared with Q3/2019)

· Sales decreased by 13.5% to EUR 2 079 (2 402) million, due to lower deliveries and prices.
· Operational EBIT decreased to EUR 175 (245) million. The impact of lower sales was partly offset by continued cost management.
· Operational EBIT margin was 8.4% (10.2%).
· Operating profit (IFRS) was EUR 145 (170) million.
· EPS was EUR 0.11 (0.09) and EPS excl. IAC and fair valuations was EUR 0.14 (0.18).
· Cash flow from operations amounted to EUR 399 million, cash flow after investing activities was EUR 250 million.
· The net debt to operational EBITDA ratio at 2.4 was above the target level of less than 2.0.
· Operational ROCE was 6.7% (9.2%), below the strategic target of more than 13%.

Q1-Q3/2020 (year-on-year)

· Sales were EUR 6 400 (7 644) million, mainly as a result of the impact of the Covid-19 pandemic, and the Finnish union strikes during the first quarter.
· Operational EBIT was EUR 532 (879) million.

Managing uncertainties
The health and safety of Stora Enso's employees is a key priority. Thanks to Stora Enso's proactive approach during Covid-19 thus far, there has been minimal impact on the Group's ability to serve customers and run operations.
The upcoming maintenance shutdowns in Q4 are well prepared to ensure the health and safety of the Group's employees, contractors and communities in which it operates.
The Group also continues to focus on sales and customer service as well as cost and working capital management, ensuring liquidity and cash flow to remain resilient and ensure quick recovery.
Stora Enso has taken all necessary precautions to manage a possible "no-deal" Brexit in order to avoid negative impacts to its business.
Guidance and outlook
Stora Enso has discontinued its quarterly guidance and annual outlook until further notice, due to the uncertainty in the global economy. The Covid-19 crisis has created mixed market conditions for the Group's products.
The Oulu Mill conversion from coated fine paper to kraftliner packaging material is planned to be completed during Q4 within budget. The packaging production is expected to start around the New Year. This conversion is estimated to have EUR 30-40 million negative impact on the Packaging Materials Q4/2020 operational EBIT. The mill is planned to reach designed capacity by the end of Q2/2021 and commercialisation of product portfolio by the end of 2021.
Paper production at the Oulu Mill stopped during Q3/2020. Paper division is planning to complete the sale of the mill's coated fine paper inventories during Q4/2020. Therefore, Oulu Mill is still expected to have a EUR 5-10 million negative impact on the Paper division Q4/2020 operational EBIT.
During Q4/2020 there will be annual maintenance shutdowns at seven mills. The total negative impact of maintenance is estimated to be EUR 10 million less compared to Q3/2020 and EUR 15 million less compared to Q4/2019.

Key figures

EUR million Q3/20 Q3/19 Change Q2/20 Change Q1 Q1 Change 2019
% % -Q3/20 -Q3/19 % Q1
Q3/20 Q3/20 -Q3/20−
-Q3/19 -Q2/20

Q1
-Q3/19
Sales 2 079 2 402 -13.5% 2 114 -1.7% 6 400 7 644 -16.3% 10
055
Operational 330 397 -17.0% 332 -0.7%  997 1 337 -25.4% 1 614
EBITDA
Operational 175 245 -28.6% 178 -1.5% 532 879 -39.4% 1 003
EBIT
Operational 8.4% 10.2% 8.4% 8.3% 11.5% 10.0%
EBIT margin
Operating 145 170 -14.6% 226 -35.6% 633 624 1.3% 1 305
profit
(IFRS)
Profit 144 191 -24.3% 142 1.7% 413 745 -44.6% 835
before tax
excl.
IAC and FV
Profit 115 115 -0.7% 190 -39.6% 513 490 4.6% 1 137
before tax
(IFRS)
Net profit 86 59 46.9% 144 -40.1% 380 336 12.9% 856
for the
period
(IFRS)
Net 3 008 3 745 -19.7% 3 289 -8.5% 3 008 3 745 -19.7% 3 209
interest
-bearing
liabilities
Operational 6.7% 9.2% 6.8% 6.8% 12.1% 10.3%
ROCE, %
Earnings 0.14 0.18 -19.3% 0.14 2.2% 0.40 0.77 -47.5% 0.84
per
share (EPS)
excl. IAC
and FV, EUR
EPS 0.11 0.09 26.1% 0.19 -40.3% 0.49 0.46 7.2% 1.12
(basic),
EUR
Net 2.4 2.1 2.5 2.4 2.1 2.0
debt/last
12
months'
operational
EBITDA
ratio
Average 24 26 414 -7.5% 25 077 -2.6% 24 26 -5.8% 26
number of 428 817 347 096
employees

Stora Enso's President and CEO Annica Bresky comments on the third quarter 2020 results:
"We have delivered a solid result for the quarter and I am satisfied with our performance, considering the unprecedented uncertainty and volatility on markets around the world.
Although we report a decreased operational EBIT of EUR 175 million compared to last year, excluding Paper, operational EBIT remained at the same level due to strong results in the Packaging Materials, Wood Products and Forest divisions. The pandemic's biggest effect continues to be on our Paper business. I was very glad to see a return to positive cash flow for the quarter. The market also remains challenging for Biomaterials, with low pricing. On a positive note, excluding Paper, our operational EBIT margin increased to 11.8%, a sign of the resilience of our growth businesses and good cost management.
We have been successful in our focus on working capital and we delivered a good cash flow amounting to close to EUR 400 million. We continue to stay focused on what we can influence through these challenging times: ensuring the health of our employees, serving and supporting our customers, running our operations as efficiently as possible, securing our financial resilience and building our future businesses through our innovation agenda. We want to be in a strong position when the tide turns.
I am satisfied that our major maintenance stops during the quarter have been well managed. We continue our normal safety work and our performance has improved compared to last year, even if we are not yet reaching our target level. Since we have several maintenance shutdowns planned for the last quarter of the year, we will continue our diligent work together with our partners and suppliers, with the target to protect our people, contractors and the local communities from Covid-19 outbreaks.
We have decided to start using a valuation method for our forest assets in the Nordics based on market transaction data and change the accounting policy from the fourth quarter of 2020 onwards. This method provides a more transparent, and less subjective valuation basis of the total value of the forest assets. Preliminary estimations indicate that the value of our forest assets is expected to be between EUR 6.5 billion and EUR 7.0 billion, compared with the end of Q3/2020 book value of EUR 5.4 billion.
Regarding our transformation projects, our proactive Oulu Mill conversion to packaging board proceeds according to plan and production will begin around New Year. On the note of the structural decline in paper, it was with regret that we announced the plans to shut down one paper machine at Hylte Mill in Sweden. Closures are always tough decisions impacting many people, but through this action we ensure the competitiveness of the mill. Stora Enso is committed to support the employees who will be affected by the closure. And at the same time, we have started the production of formed fiber food service products in Hylte. PureFiber[TM] by Stora Enso is an eco-product range produced without e.g. plastic. We have a positive momentum and see strong demand for these products.
To further strengthen our position as a global provider of high-quality engineered wooden elements, we invest close to EUR 80 million in a new production line for cross laminated timber in the Czech Republic. It further improves our capabilities to offer a high-quality range of building solutions for customers around the world. It also supports our market leading position in CLT.
As additional steps in our innovation agenda, we invest around EUR 10 million in dispersion barrier technology in Sweden. This enables the development and production of paperboard with sustainable barrier properties that are easier to recycle, have a lower carbon footprint and can be compostable. Moreover, we will build a pilot facility for producing biofoam, a lightweight, fiber-based foam material for protective packaging and cushioning. It replaces the widely used oil-based polymer foams in packaging. With these investments, we help our customers and consumers become more eco-friendly while creating value in the circular bioeconomy.
Unfortunately, in the short-term outlook, we can see the pandemic increasing and once again creating uncertainty in the pace and strength of the global financial recovery. I am convinced that the poor visibility of the market conditions will continue. In this environment, we don't give guidance, but it is fair to say that the outlook for our businesses remains mixed. Therefore, when I look at our resilience going forward, I am pleased that our liquidity is secured, and our profit protection programme is moving ahead with speed. We have also identified additional savings opportunities and will increase the saving target further to EUR 400 million.
The winners as I see it, will be companies that have long-term sustainable businesses, from environmental, social and financial perspective; that stay close to their customers and innovate based on the consumer future needs; that can manage volatility and are agile in adapting to this changed reality. This is Stora Enso's competitive edge.
The future grows in the forest."
Webcast and conference call for analysts, investors and media today at 15.00 EEST
The webcast and conference call for analysts, investors and media will take place at 15.00 EEST (14.00 CEST, 13.00 UK time, 08.00 EDT). It will be hosted by President and CEO Annica Bresky, CFO Seppo Parvi, and SVP, Head of Investor Relations Ulla Paajanen, and may be accessed at https://edge.media-server.com/mmc/p/ex8fdjfo.

Those analysts and investors who wish to ask questions should join the conference call (details below). All participants can follow the presentation over the webcast.

Media representatives who wish to ask questions after the Interim Report is published, may contact Carl Norell, press officer at Stora Enso at [phone].

The link to the webcast will be also available on the Stora Enso website: storaenso.com/investors

Dial-in details for the conference call

Live event at 15.00 EEST
UK [phone]
Finland [phone]
Sweden [phone]
USA [phone]
Confirmation Code: 9182064
Replay Dial-In #:
UK/International [phone]
Access Code: 9182064

The conference call replay will be available until Tuesday 27 October 2020. The webcast will be archived on storaenso.com/en/investors/reports-and-presentations. (https://www.storaenso.com/en/investors/reports-and-presentations)
This release is a summary of Stora Enso's Interim Report January-September 2020. The complete report is attached to this release as a pdf file. It is also available on the company website at storaenso.com/investors (http://www.storaenso.com/investors).
For further information, please contact:
Ulrika Lilja
EVP, Communications
tel. [phone]

Investor enquiries:
Ulla Paajanen
SVP, Investor Relations
tel. [phone]
 

Part of the bioeconomy, Stora Enso is a leading global provider of renewable solutions in packaging, biomaterials, wooden constructions and paper. We believe that everything that is made from fossil-based materials today can be made from a tree tomorrow. Stora Enso has some 25 000 employees in over 30 countries. Our sales in 2019 were EUR 10.1 billion. Stora Enso shares are listed on Nasdaq Helsinki (STEAV, STERV) and Nasdaq Stockholm (STE A, STE R). In addition, the shares are traded in the USA as ADRs (SEOAY). storaenso.com (http://www.storaenso.com)

STORA ENSO OYJ

For further information, please contact:
Ulrika Lilja
EVP, Communications
tel. [phone]

Investor enquiries:
Ulla Paajanen
SVP, Investor Relations
tel. [phone]

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