Stora Enso Oyj
Interim report (Q1 and Q3)

Stora Enso Interim Review January–September 2014

Solid quarterly performance - the transformation journey continues

Helsinki, Finland, 2014-10-22 12:00 CEST -- STORA ENSO OYJ INTERIM REVIEW 22 October 2014 at 13.00 EET

Q3/2014 (compared with Q3/2013)*

• Sales at EUR 2 514 (EUR 2 553) million declined 1.5%.
  • Sales excluding the structurally declining paper business increased 3%.
• Operational EBIT EUR 210 (EUR 184) million, 14% higher than a year ago due to continued focused cost management.
  • Renewable Packaging continued strong performance for the third quarter in a row. Operational EBIT increased by 30%.
  • Biomaterials improved its performance despite Montes del Plata ramp-up.
  • Building and Living performance similar to last year’s good Q3.
  • Stable performance in Printing and Reading. Cash flow from operations to sales ratio 7.5% (5.4%).
• EPS excluding NRI EUR 0.12 (EUR 0.13).
• Cash flow from operations EUR 257 (EUR 347) million, cash flow after investing activities EUR 28 (EUR 164) million.
• Net debt to operational EBITDA 2.8 (3.1), liquidity remained strong at EUR 1.5 (2.1) billion.
• Operational ROCE 9.7% (8.3%).

Q1–Q3/2014 (compared with Q1–Q3/2013)*

• Sales EUR 7 661 (EUR 7 951) million, operational EBIT EUR 601 (EUR 426) million due to lower costs.
   

Stora Enso’s CEO Karl-Henrik Sundström comments the third quarter 2014 results:
“Stora Enso delivered solid performance during the third quarter. Sales, excluding the structurally declining paper business, were up by 3%. We are successful in our cost management and the operational EBIT increased 14% year-on-year. Return on capital employed increased to 9.7%, which is yet another step in the right direction. Furthermore, we have improved Net debt/EBITDA compared to a year ago from 3.1 to 2.8.

We have taken several steps in our transformation into a customer focused renewables materials company. A key milestone was the inauguration of the pulp mill in Montes del Plata, Uruguay, and we are now ready to ramp up its production capacity. During the quarter, we also initiated the process to convert the Varkaus Mill in Finland for production of virgin-fibre-based containerboard. Moreover, we have invested in a demonstration and market development plant in the USA for the extraction and separation of highly pure sugars from biomass to be converted into differentiated biochemicals. The investment in the consumer board machine in Guangxi, China, proceeds as planned. Our non-core asset disposal programme is moving ahead with the divestment of Corenso as the most recent step. Together with innovation in our existing product range, these initiatives will play a major role in our transformation.

During the quarter, we have put a partly new Group Leader ship Team in place. There is a clearer focus, partly due to the fact that we have split Global Communications and Global Responsibility. Our focus on Responsibility is partly reflected by the section in our quarterly reporting. We are moving ahead. 

When it comes to outlook, the fourth quarter 2014 sales are estimated to be roughly similar to the EUR 2 514 million in the third quarter 2014. Operational EBIT is expected to be somewhat lower than the EUR 210 million in the third quarter 2014 due to normal seasonal weakness in the Renewable Packaging and Building and Living divisions.

This was my first quarter as the CEO and I am very impressed by all our competent and committed employees who together build the future of Stora Enso. It is all about creating value for our customers, today and tomorrow.”


Transformation

• Montes del Plata Pulp Mill in Uruguay started up in early June and the ramp-up is moving ahead, but at a slower pace than previously expected. In 2014 Stora Enso’s share of its production is expected to be 245 000–275 000 tonnes, 55 000–75 000 tonnes less than anticipated in July.
• Stora Enso Guangxi Integrated Project and Operations proceeding as planned.
• Conversion of Varkaus Mill fine paper machine in Finland to produce virgin-fibre-based containerboard proceeding as planned, expected to start at the end of 2015.
• New investment in a demonstration and market development plant in the USA for the extraction and separation of highly pure sugars from biomass to be converted into differentiated biochemicals.
   

Restructuring

• Stora Enso has signed an agreement to divest its Corenso business operations to Powerflute Oyj in order to streamline its business and to transform Stora Enso into a customer-focused renewable materials company. Closing is expected during Q4/2014.
• In October the buyer of Uetersen Mill withdrew the merger approval application due to indicated negative outcome by the competition authorities. As a consequence the parties agreed to terminate the share purchase agreement. Stora Enso is currently considering its alternative options.

Outlook

Q4/2014 sales are estimated to be roughly similar to the EUR 2 514 million in Q3/2014. Operational EBIT is expected to be somewhat lower than the EUR 210 million in Q3/2014 due to normal seasonal weakness in the Renewable Packaging and Building and Living divisions.

Key Figures*

* Data for the comparative periods in 2013 have been restated following adoption of the new IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities standards. Data for the comparative periods have been restated in all tables affected.

Operational EBIT comprises the operating profit excluding NRI and fair valuations of the segments and Stora Enso’s share of the operating profit excluding NRI and fair valuations of its equity accounted investments (EAI). Fair valuations and non-operational items include equity incentive schemes, synthetic options net of realised and open hedges, CO2 emission rights and valuations of biological assets and the Group’s share of tax and net financial items of EAI.
NRI = Non-recurring items. These are exceptional transactions that are not related to normal business operations. The most common non-recurring items are capital gains, additional write-downs or reversals of write-downs, provisions for planned restructuring and penalties. Non-recurring items are normally disclosed individually if they exceed one cent per share.
TRI (Total recordable incident) rate = number of incidents per one million hours worked.
LTA (Lost-time accident) rate = number of lost-time accidents per one million hours worked.


Webcast and conference call for analysts and investors
CEO Karl-Henrik Sundström, CFO Seppo Parvi and SVP Investor Relations Ulla Paajanen-Sainio will be hosting a combined conference call and webcast today at 14.00 Finnish time (13.00 CET, 12.00 UK time, 07.00 EDT).

To participate, please dial: 

  
The live webcast may be accessed at http://www.media-server.com/m/p/ziaee455

For further information, please contact:
Seppo Parvi, CFO, tel. +358 2046 21205
Ulla Paajanen-Sainio, SVP, Investor Relations, tel. +358 2046 21242
Ulrika Lilja, EVP, Global Communications, tel. +46 1046 71668

Stora Enso’s fourth quarter and full year 2014 results will be published on 4 February 2015.

www.storaenso.com
www.storaenso.com/investors

Stora Enso is the global rethinker of the paper, biomaterials, wood products and packaging industry. We always rethink the old and expand to the new to offer our customers innovative solutions based on renewable materials. Stora Enso employs some 29 000 people worldwide, and our sales in 2013 amounted to EUR 10.6 billion. Stora Enso shares are listed on NASDAQ OMX Helsinki (STEAV, STERV) and Stockholm (STE A, STE R). In addition, the shares are traded in the USA as ADRs (SEOAY) in the International OTCQX over-the-counter market.

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 OYJ