Stora Enso Oyj

Good morning everyone and welcome to Stora Enso's first quarter 2024 result presentation. Thank you for joining us today. I'm Hans Solström, the President and CEO of Stora Enso. I'm here with CFO Seppo Parvi to take you through our performance and outlook before we take your questions. Let's start the presentation by looking at this image of the newly opened world of Volvo experience and of wooden construction where the latest mass timber techniques and materials from Stora Enso was used. For every ton of wood we use in buildings, we tie up one ton of carbon and avoid at least another ton of carbon dioxide emissions from alternative construction materials. But let's now shift our focus to the key highlights of the quarter. Before we dive into the details, let's start by reviewing some of the most important highlights for the quarter. Despite the weaker year-on-year performance compared to the relatively strong Q1 of last year, we achieved a sequential improvement in EBIT, a tripling of EBIT from Q4, which is encouraging and a good sign of progress. Unfortunately, the political strike in Finland has impacted our results negatively by about 25 million euros. I'm pleased to say that we have managed to reduce our operating working capital by a significant amount with a reduction of 551 million euros from the corresponding quarter last year. And in light of additional cost savings, we have raised our profit improvement targets and savings program to 120 million euros from 80 million euros, which will take full effect in 2025. However, this cost reduction program may unfortunately result in a reduction of around 1,000 employees. Laying off people is a last resort, but it's necessary to improve our financial performance. We are proud to have been awarded the Green Bond of the Year, Corporate EMEA, which recognizes our commitment to sustainability. And as a part of this commitment to sustainability, we are partnering with IUCN to advance positive impacts on biodiversity. During the first quarter, we focused on continuous efforts to improve profits, competitiveness and cash flow. Group sales decreased by 20% to 2.2 billion euros annually. This was largely due to the inclusion of divested paper sites and the closed mills of De Hope, Sunilam, as well as closed production lines in Australiika and Anjalan in last year's Q1 2023 results. Additionally, lower sales prices across all divisions, except for forest, contributed to decreased profitability. Our group adjusted EBIT fell to 156 million euros, with the negative impact from the Finnish political strikes of about approximately 25 million euros, being more than offset by positive one-off compensation of electricity costs in packaging materials. Excluding the structural impact, The volumes were higher supported by lower maintenance activity, which also improved fixed costs in addition to our fixed cost reduction measures. Thanks to systematic and determined sourcing and operational efficiency actions, we were able to achieve cost savings in many variable cost categories apart from fiber costs, maybe wood. Cash flow from operations amounted to 269 million euros, and we were able to improve this by reducing our operating working capital. In fact, we were able to significantly reduce it by 551 million euros compared to the same period of last year. We were able to reduce operating working capital in relation to sales by almost three percentage units from 12.6% of sales last year Q1 to 9.7% of sales this year's Q1. Through our cost-saving efforts and reductions in many variable cost categories, we were able to achieve lower costs apart from fiber costs made a good which continued to increase. Compared to last year's first quarter, the group's adjusted EBIT decreased by a third to 156 million euros, down from 234 million euros. This was primarily due to lower sales prices across all divisions, except the forest. Despite this, we did see higher volumes for continuing operations, particularly in container board and our biomaterials and packaging materials volume were also supported by lower maintenance activity. This helped to offset the negative impact of the strikes, which amounted to approximately 25 million euros in Q1. Additionally, our focus on cost savings actions and the fact that we did not have Major annual plant maintenance shutdowns during the first quarter supported the reduction of these costs. Furthermore, depreciation was lowered due to the significant impairments from last year, and Bay High being classified as an asset held for sale, which stopped the depreciation. In packaging materials, the demand started to show gradual improvements both in consumer and container products. In consumer board, the demand improved as destocking ended, and in container board, demand gradually improved with cost-driven price increases announced across the industry. Sales decreased by 15% or 200 million euros to approximately 1.1 billion euros, mainly due to production unit and line closures during 2023. Also, the lower board and paper prices and delayed shipments due to the political strikes in Finland impacted sales negatively. However, the adjusted EBIT increased from last year to 60 million euros. Valuable costs declined, except for wood costs, which continued to increase. One of the compensations of energy production costs related to CO2 emissions, more than offset negative effects of the political strikes in Finland. Regarding the fixed costs, this quarter we did, as mentioned earlier, not have any major planned annual maintenance shutdowns, which improved profitability. However, in the second quarter, we will have planned maintenance shutdowns in both Beihai China and Langeberg. Next up is our packaging solution segment, which experienced ongoing weak market conditions and rising pressure. Packaging solutions had low season in most segments. The demand stabilized at the lower level across most markets and segments. There is significant overcapacity in the market that continued to wait on the performance. Sales decreased by 19% to 224 million euros, driven by lower price levels, which have followed the lower container board prices. Adjusted EBIT decreased to minus 1 million euro, mainly impacted by high pressure on prices and margins. Ramp-up costs, such as the depreciation level, has also increased due to expansion of the new corrugated packaging production facility in the Netherlands. Moving on to biomaterials, which is on the other hand, so continuously increasing pulp prices. The biomaterials division showed improvement from the previous quarter, supported by positive price changes and global pulp inventories remaining below the five-year average. The overall demand was stable with solid demand for flat pulp. Sales decreased by 23% to Prices were significantly lower as were deliveries due to the closure of our Sumila pulp mill. However, sequentially, prices improved in all pulp grades and markets. Adjusted EBIT decreased from last year to 57 million euros, mainly due to lower sales prices, partly offset by actions to reduce fixed costs. The political strikes in Finland had a slight negative effect. We had no planned annual shutdowns, which reduced fixed costs further. However, in the second quarter, we will have planned maintenance shutdowns in Montesterplata and Skutsjärvi. Now, let's take a look at the development in our Good Products Division. The Good Products Division continues to face weak overall market demand, with margins remaining at the low levels. The market weakness continued, and especially in building solutions, as the construction market is still struggling. Low building permit and project activity led to sustained low demand for cross-laminated timber and laminated veneer lumber. Sales decreased by 23% to €349 million, mainly impacted by lower sales prices and volumes, especially for sawn wood. Adjusted EBIT increased year-on-year to minus 9 million euros, improved by lower fixed and variable costs. In order to mitigate the impact of the weak demand, cost-saving actions and market curtailments were implemented. The forest division, however, experienced a complete opposite market situation. The forest division had a strong quarter result driven by increased prices, strong good demand and good harvesting conditions. Wood prices increased compared to the same period in 2023, but remained at the same level quarter on quarter. The political strikes in Finland reduced wood consumption and challenged logistics and deliveries. Sales decreased by 4% to €659 million. Adjusted EBIT increased from last year by 24% to €70 million, reflecting a strong operational performance in the group's forest assets. Our stable forest asset fair value is currently 8.6 billion euro, equal to 10.94 euros per share, despite a quarter-and-quarter decrease of 106 million euro due to the exchange rate impact, mainly impacted by a weak Swedish krona. Important to note is that the market transaction-based forest property prices in Finland and Sweden are only updated in the second and fourth quarter. Our forests are our largest assets and we remain confident in the long-term value that we can create from them. Let's now take a look at our actions to build a more profitable and competitive company. Our actions to build a more profitable and competitive company is to deliver on our long-term strategy to position Stora Enso for current and future growth opportunities. In the current weak market conditions, we have emphasized improving profitability through more efficient sourcing, production and sales, freeing up capital, including working capital, execution and the right people in the right jobs. At the beginning of 2023, we discontinued our paper division, which had been suffering from structural market decline for a long time. Instead, we focused on expanding our business in growing segments of renewable and recyclable packaging. The acquisition of the Dutch corrugated packaging company, the Young Packaging Group, for an enterprise value of approximately 1 billion euro, was completed at the beginning of 2023. Ongoing ramp-up of a new corrugated packaging production site in Western Europe is further strengthening our position in the region and is estimated to be fully wrapped up during 2026. The estimated capacity of approximately 375 million square meters will double the capacity at the site to around 700 million square meters per year. In addition, we continued the ongoing 1.1 billion euro consumer packaging investment at our home in Finland, and production is expected to start in the first half of 2025, with full capacity estimated to be reached during 2027. Estimated annual sales at maturity is circa 800 million euros. To strengthen the group's long-term competitiveness and improve profitability, we launched a restructuring which impacted approximately 1,150 employees who unfortunately had to leave their positions. From that program, we also closed several production units with weak long-term competitiveness. Through these actions, we achieved an annual adjusted EBIT improvement of 110 million euros. This year, we launched another profitability improvement program, targeting on improving of 80 million euros annually by reducing fixed costs. The program has progressed well, and the target is now raised to 120 million euros of fixed cost reduction, thanks to additional fixed cost reduction measures. As mentioned earlier, this could unfortunately lead to about 1,000 redundancies. This plan does not include new mill closures. Rather, it is based on streamlining existing operations by focusing on what is essential for business and performance. In other words, doing more with less. In addition to these, we have moved to a new decentralized operating model and performance organization based on P&L responsible divisions and business units within them. We improve our commercial and operational excellence with a leaner organization to improve decision-making and customer orientation and to achieve faster implementation. We are also reviewing and optimizing our commercial strategies. We are freeing up capital by reducing working capital and divesting non-core business. The plan to divest the Beihai site in China is proceeding according to plan. And as mentioned earlier, the site is classified as assets held for sale from the end of 2023 onwards. I will now hand over to our group CFO Seppo Parvi to cover more detailed information on our financials. Over to you, Seppo.

Thank you, Hans. This year, our estimated complex remains at the level of about 1 to 1.1 billion euros. as the whole consumer investment is moving ahead according to the schedule. Long-term, we keep CapEx at or below depreciation over the cycle. Our aim is to quickly revert to the average range of 6 to 800 million euros after the whole investment is ready. Due to the current business environment and to protect our balance sheet and cash flow, we are continuing to be restrictive on new major CapEx initiatives. Moving to the next important topic, our cash flow. We have achieved significant reduction in operating working capital. The strong balance sheet is crucial for the future. Our net debt to adjusted EBITDA ratio was four at the end of the first quarter. We recognize that this is higher than our target of remaining below two and are taking steps to improve profitability and to reduce our debt levels. Despite facing big market conditions and making strategic investments, we were able to improve our cash flow from operations by reducing our operating working capital. In fact, as Hans mentioned earlier, we were able to reduce it by €551 million compared to the previous year. We had to release capital through working capital management and divestments. These measures will help us reduce debt and increase liquidity, which remains strong. To ensure that we can fulfill our obligations and invest in growth, we are holding on to a strong liquidity position. This is also important during the time of uncertainty. This includes cash and cash equivalents of approximately 2.1 billion euros, along with unused credit facilities of up to 1.9 billion euros. We do not have any financial governance and have investment grade ratings by both Fitch and Moody's. Next, let's see how our long-term financial targets have developed. We are not meeting all of our long-term financial targets due to a challenging business environment and unsatisfactory financial performance. And as you have just heard from Hans, we are taking further actions to strengthen the business, short, medium and long-term, in order to improve our competitiveness. The distribution of dividends is one of our long-term financial targets, and we are committed to maintaining this target, even in the challenging times. Our ability to pay dividends despite the weak results demonstrates our dedication to creating long-term value to our shareholders. The Board of Directors therefore decided on a dividend of €10 per share, which was paid on the 4th of April. The AGM has also authorized the Board to decide on the payment of an additional dividend of up to €20 per share until 31st of December. Maintaining a healthy balance sheet is crucial going forward. Our target to net debt adjusted EBITDA remains below two times, although the ratio increased to four times in the previous year. One of our focus areas is releasing capital through working capital management and divestments, such as pay high. These actions are reducing leverage and increasing liquidity. Also, profitability improvement is in our focus through various actions on variable and fixed costs, as well as commercial side. All divisions, with the exception of the strong performance in the forest division, are falling behind the return on capital targets. With that, I pass back to Hans, who will provide an overview of our sustainability targets and market demand outlook. Please, Hans.

Thank you, Seppo. Our demand and growth are driven by sustainability, which is not only a strategic business enabler, but also a competitive advantage. We are committed to achieve our clear and ambitious sustainability targets on climate, circularity and biodiversity. In terms of climate, we have been enhancing our energy efficiency and using more clean energy for scope one and two emissions. Our production emissions have decreased by 44% since 2019, and we are committed to reaching net zero carbon emissions by 2040. As for circularity, we have achieved 94% recyclability of our products and aim to reach 100% by 2030. We also monitor and report on the quality of our forestry operations to have a net positive effect on biodiversity in our own forests and plantations by 2050. Now moving on to the sequential market demand outlook. For the second quarter, we expect stronger demand for our products due to seasonal effects and other factors. However, profits are expected to be adversely impacted mainly due to the sequential cost increases for planned maintenance, higher wood costs and the recent political strikes in Finland. In Europe, we anticipate stronger demand for corrugated packaging driven by the seasonally higher demand for fruit and vegetables. Additionally, we expect slightly stronger demand for pulp in Europe and China, with stable demand for fluff pulp and hardwood pulp. Softwood pulp demand is expected to be slightly stronger in China. Demand for sawn wood is expected to be significantly stronger due to seasonal effects, while weak demand is expected to continue for building solutions from the construction segment. In Sweden, we anticipate slightly stronger demand for pulpwood, with significantly stronger demand for sawdust. In Finland, we expect significantly stronger demand for both pulpwood and sawdust, with stronger demand for pulpwood for energy use due to seasonality. Overall, we are optimistic about the long-term demand outlook for our products and remain committed to meeting our customers' needs while prioritizing sustainability and innovation. To conclude, we are powering ahead to build a more profitable and competitive Stora Enso for a stronger future. Our actions are focused on improving profits, competitiveness, and cash flow. We are achieving this through our systematic, structured and determined improvement actions in procurement, operational and commercial excellence. A healthy balance sheet is crucial for the future of our company and we are taking determined actions to free up capital by reducing working capital and divesting or closing non-core businesses. We believe that strategy and its execution are critical to our success, and we are committed to having the right people in the right jobs to make this happen. Our profit improvement program, the fixed cost reduction program, has been increased to €120 million from €80 million due to additional fixed cost savings. And we have completed last year's restructuring program, which yielded on annual adjusted EBIT improvement of 110 million euros. Based on our analysis and market trends, we expect our full year 2024 adjusted EBIT to be higher than the 342 million euros in 2023. In summary, we are making good progress in our efforts to improve profitability and cash flow through operational and commercial excellence and working capital management. Our profit and result-oriented leadership culture is based on four As, ambition, agility, analytics, and accountability. We are executing with determination and speed, and we are confident in our ability to deliver stronger results and shareholder value in the future. Now, let's open up the floor for questions.