Stora Enso Oyj Half-year Report January–June 2020
STORA ENSO OYJ HALF-YEAR FINANCIAL REPORT 21 July 2020 at 8.30 EEST
Resilient in the headwinds
Solid profitability and cash flow
Q2/2020 (compared with Q2/2019)
- Sales decreased by 18.9% to EUR 2 114 (2 608) million, due to lower deliveries and prices, as a result of the impact of the Covid-19 pandemic.
- Operational EBIT decreased to EUR 178 (299) million. The impact of lower sales was partly offset by good cost management.
- Operational EBIT margin was 8.4% (11.5%).
- Operating profit (IFRS) was EUR 226 (142) million.
- EPS was EUR 0.19 (0.08) and EPS excl. IAC and fair valuations was EUR 0.14 (0.27).
- Cash flow from operations amounted to EUR 363 (550) million. Cash flow after investing activities was EUR 239 (428) million.
- The net debt to operational EBITDA ratio at 2.5 (2.1) was above the target level of less than 2.0.
- Strong liquidity at EUR 2.1 billion, including cash and committed credit facilities and good access to funding sources.
- Operational ROCE was 6.8% (11.8%), below the strategic target of over 13%.
- Sales were EUR 4 321 (5 242) million.
- Operational EBIT was EUR 357 (634) million.
The health and safety of Stora Enso’s employees is a key priority. Stora Enso has secured the health and safety of its employees by various measures and is closely monitoring the Covid-19 situation. Thanks to Stora Enso's proactive approach thus far, there has been minimal impact on the Group's ability to serve customers and run operations.
Stora Enso's liquidity and funding position is strong. At the end of Q2/2020, cash and cash equivalents were at EUR 1 062 million. Additionally, the Company has undrawn committed credit facilities of EUR 1 000 million, and a possibility to have EUR 950 million statutory pension premium loans in Finland. There are no financial covenants on Stora Enso Oyj's debt.
To address costs and mitigate negative market demand impacts, Stora Enso continues to implement additional cost reduction actions. The Group also continues to focus on ensuring liquidity and cash flow, and working capital management to remain resilient and ensure quick recovery.
Due to the cross-border travel restrictions and safety concerns associated with Covid-19, most of Stora Enso’s annual mill maintenance shutdowns were postponed from the first half until the second half of 2020. The upcoming maintenance shutdowns are well prepared to ensure the health and safety of the Group's employees, contractors and communities in which it operates.
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 accelerated the decline in demand for European paper, and the market conditions for the Group's other products continue to be mixed.
During Q3/2020 there will be annual maintenance shutdowns at six mills. The total negative impact of maintenance is estimated to be EUR 45 million more compared to Q2/2020 and similar to Q3/2019.
|EUR million||Q2/20||Q2/19||Change % Q2/20-Q2/19||Q1/20||Change % Q2/20-Q1/20||Q1-Q2/20||Q1-Q2/19||Change % Q1-Q2/20−Q1-Q2/19||2019|
|Sales||2 114||2 608||-18.9%||2 207||-4.2%||4 321||5 242||-17.6%||10 055|
|Operational EBITDA||332||455||-27.0%||335||-0.7%||667||939||-29.0%||1 614|
|Operational EBIT||178||299||-40.5%||180||-1.2%||357||634||-43.6%||1 003|
|Operational EBIT margin||8.4%||11.5%||8.1%||8.3%||12.1%||10.0%|
|Operating profit (IFRS)||226||142||59.2%||262||-13.9%||487||454||7.3%||1 305|
|Profit before tax excl. IAC and FV||142||250||-43.3%||126||12.4%||268||554||-51.6%||835|
|Profit before tax (IFRS)||190||93||103.7%||209||-9.0%||398||375||6.2%||1 137|
|Net profit for the period (IFRS)||144||52||177.2%||149||-3.3%||293||278||5.7%||856|
|Net interest-bearing liabilities||3 289||3 973||-17.2%||3 399||-3.2%||3 289||3 973||-17.2%||3 209|
|Operational ROCE, %||6.8%||11.8%||6.8%||6.8%||13.0%||10.3%|
|Earnings per share (EPS) excl. IAC and FV1, EUR||0.14||0.27||-47.9%||0.12||14.9%||0.26||0.59||-55.9%||0.84|
|EPS (basic), EUR||0.19||0.08||148.0%||0.19||-3.6%||0.38||0.37||2.7%||1.12|
|Net debt/last 12 months’ operational EBITDA ratio||2.5||2.1||2.3||2.5||2.1||2.0|
|Average number of employees||25 077||26 553||-5.6%||25 037||0.2%||25 017||26 352||-5.1%||26 096|
1 Earnings per share (EPS) excl. IAC and FV was added to the list of non-IFRS measures replacing the key figure of EPS excl. IAC. Comparatives are recalculated.
Stora Enso’s President and CEO Annica Bresky comments on the second quarter 2020 results:
“We continue to experience unprecedented times with the Covid-19 pandemic, which is affecting global health and creating uncertainty and volatility in the business environment. Governments have introduced significant stimuli to support economies and societies are gradually opening up. However, despite some optimistic signs, market conditions' poor visibility will continue. We stay focused on what we can influence through these challenging times: serving and supporting our customers; ensuring the health of our employees; running our operations as efficiently as possible; securing our financial resilience; and driving our innovation agenda.
We delivered an operational EBIT of EUR 178 million, about the same as in the first quarter this year (EUR 180 million). Operational EBIT excluding Paper was EUR 216 million, much stronger than during the first quarter (EUR 159 million). Cash flow from operations was EUR 363 million. We consider the second quarter result solid in the current circumstances. This was driven by strong performances in the Packaging Materials and Forest divisions, and Wood Products division delivering a better result than expected. The pandemic's biggest effect on our business has been in the Paper division, accelerating the structural decline in all paper grades. Excluding Paper, our operational EBIT margin stayed at 13%, showing the resilience of our growth businesses.
Our transformation project at Oulu Mill is proceeding as planned and the conversion to kraftliner production will start in the fourth quarter this year. Currently, 80% of our sales come from our growth businesses and after the conversion, the share of paper products will be even lower. The market remains challenging for Biomaterials with low prices and a decline in the graphical paper end uses. Compared with last year, our results are significantly lower, driven by a decline in deliveries and sales, mainly in Paper and Biomaterials. The market outlook for our other businesses will continue to be mixed.
We are focusing on serving our customers by keeping our operations running, mitigating supply chain challenges and introducing new products. I am pleased that we have limited disturbances and a limited number of Covid-19 cases among our employees, and we continue to remain true to our high safety standards. This is reflected in our total recordable incident (TRI) rate, where we have a positive trend, reaching our milestone of 4.7. We are taking extra precautionary measures related to our maintenance stops, to keep our people, our contractors and the surrounding communities safe. Several maintenance stops are scheduled for the upcoming two quarters, which will impact our production levels.
As the volatility in the market continues and the visibility going forward remains limited, it is essential to continue improving our cost competitiveness. Our EUR 350 million profit protection programme is delivering to plan and we are adding new actions as needed. We have a liquidity buffer of EUR 2.1 billion to be financially ready for the potentially longer and deeper effects of Covid-19 on the global economy. The issuance of our green bond for these purposes fits our sustainable finance strategy well. Moreover, we have increased our focus on cash flow and working capital management. We continue to build business resilience and I am impressed by the actions that we have taken across the organisation.
To prepare for a strong recovery when the market turns, we are continuing our efforts in building the businesses of the future and driving our innovation agenda. Our formed fiber production has started, offering new designs and solutions, suitable for single-use food packaging; renewable, recyclable, biodegradable and plastic free. In collaboration with Cordenka, we are seeking to develop bio-based, fossil free and cost competitive carbon fiber that replaces oil-based materials.
We have also introduced AvantForte™ by Stora Enso, a food-safe kraftliner for corrugated packaging. It will meet brand owners’ need for high-performing, safe and plastic-free packaging while using less material. Another new product is PerformaLight™ by Stora Enso, a plastic-free lightweight board for premium folding cartons. It allows a 70% reduction of CO2 emissions in production compared with the competition. As a forerunner in digitalisation in our industry, we have introduced Box Inc, a digital B2B marketplace for corrugated packaging made of renewable materials. It is a platform business designed to help companies source packaging online, while enabling suppliers to access new customers without having to create their own digital presence. In Intelligent packaging, we have also taken significant steps forward. Fashion retailers in the Nordics and China have selected our plastic-free and recyclable ECO RFID Tag technology in its clothing hangtags. We have also introduced our first live solutions for unmanned "New Retail" stores, helping consumers with contactless purchasing and enabling stock replenishment transparency.
I am pleased that the preparations for our new head office in Helsinki are well under way. After an architectural design competition with impressive entries, a world-class wooden building was chosen. It will be showcasing innovative design capabilities in a carbon-neutral building.
It is positive to see that the EU’s recovery strategy for the pandemic involves investments in green and digital solutions. There is a lot of power in this initiative and in the ambition to reduce climate impact. At Stora Enso, we offer renewable solutions to support the EU in this global transition. The Covid-19 new normal should be a more sustainable normal.
The future grows in the forest.”
Webcast and conference call for analysts, investors and media today at 14.00 EEST
The webcast and conference call for analysts, investors and media will take place at 14.00 EEST (13.00 CEST, 12.00 UK time, 07.00 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/65ie587j.
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 Half-year Report is published, may contact Carl Norell, press officer at Stora Enso at +46 72 2410349.
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 14.00 EEST|
|UK||+44 (0)2071 928 338|
|Finland||+358 (0)9 2311 3291|
|Sweden||+46 (0)8 5661 8467|
|USA||+1 6467 413 167|
|Replay Dial-In #:|
|UK/International||+44 (0)3333 009 785|
The conference call replay will be available until Tuesday 28 July 2020. The webcast will be archived on storaenso.com/en/investors/reports-and-presentations.
This release is a summary of Stora Enso’s Half-year Report January–July 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.
For further information, please contact:
tel. +46 72 221 9228
SVP, Investor Relations
tel. +358 40 763 8767
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
STORA ENSO OYJ
For further information, please contact:
tel. +46 72 221 9228
SVP, Investor Relations
tel. +358 40 763 8767