Stora Enso Oyj

Hello, everyone, and welcome to Stora Enso's fourth quarter 2024 result presentation. Thank you for joining us today. I'm Hans Solström, the president and CEO of Stora Enso, and I'm here with our new CFO, Niklas Rosenthal. Today's presentation is titled Improved Results in Challenging Markets. We will today guide you through our performance for 2024, and we will address any questions you might have towards the end. Before we start the formal presentation, let's take a moment to look at this image of the lobby in our new headquarters in Helsinki, where we moved last autumn. This remarkable mass timber building, owned by the Finnish insurer Varma, is the largest of its kind in Finland, and it's a new low-carbon marvel capturing attention across the architectural world. The structure is composed of over 2,000 bespoke load-bearing wooden elements produced by Stora Enso. Choosing wood over concrete for the structure resulted in a significant 35% reduction in greenhouse gases. Besides having a lower carbon footprint than concrete, wood also has the unique ability to store carbon. No other commercially available building material offers this benefit. It's more than just a building. It embodies nature at its core. Now, let's shift our focus to the key highlights of the full year 2024. In the full year 2024, we achieved a robust 75% year-on-year growth in adjusted EBIT. This success is a result of our focused actions on improved sourcing, enhanced operational efficiency and commercial excellence, despite challenging market conditions and rising wood costs. we reduced our fixed costs by 110 million euros. And all profit improvement actions more than offset food cost escalation. I'm also very pleased that we reached an all-time low operating working capital, which in the last 18 months has decreased by more than 700 million euros, meaning a reduction in operating working capital to sales from over 14% to 7%. All in all, it's been a year of significant progress, and it's satisfying that our efforts and improvement actions are starting to bear fruit. In our fourth quarter last year, we announced our plans to sell approximately 12% of our forest assets in Sweden. We are actively engaging in discussions with several potential buyers. In addition to strengthening our balance sheet, it would also underscore the economic value and resilience of our forest holdings. A key focus in 2025 is the successful ramp-up of our new packaging board line in Oulu, Finland. In connection to that, we signed an agreement to acquire 100% of the Finnish sawmill company Junnikkala to secure cost-efficient wood supply to this new packaging board site in Oulu and to support Stora Enso's wood products division with new production assets. Furthermore, reflecting our commitment to shareholder value, the board will propose a dividend of 25 euro cents per share, up from 20 euro cents last year, with payments scheduled for Q2 and Q4 of this year. In 2025, we need to continue to enhance efficiency, performance and reduce costs, which will be crucial for our success despite the subdued demand forecast. Let's now take a closer look at the detailed financial results. Following a challenging year in 2023, the market began to gradually recover in 2024, although consumer confidence and spending have not yet fully rebound. Market uncertainties and fluctuations in demand and pricing persisted throughout 2024. Full-year sales declined by 4% to €9 billion, primarily due to capacity closures and divestments in 2023. However, sales for continuing businesses increased by 1%, mainly driven by higher deliveries. In 2024, as I mentioned earlier, we increased our adjusted EBIT by 75%, reaching €598 million. This improvement was supported by higher deliveries across all divisions. We reduced our fixed costs by 110 million euros and countered the continued escalation of wood costs through efficiency improvements and reductions in other variable cost categories. Including mill closures, our fixed costs decreased by 155 million euros. The fourth quarter sales increased to 2.3 billion euros, and the adjusted EBIT increased to 121 million euros, marking a 139% increase from the same quarter previous year, which had been seen notably low levels. Although good fiber costs increased significantly, the improvement was driven by higher sales prices and volumes, as well as cost-saving actions. Let's dwell deeper into the key factors that influenced adjusted EBIT for the full year. Increased in 2024 profitability improved by €256 million to reach €598 million, with the adjusted EBIT margin increasing to 7% from 4% the year before. Lower sales prices, primarily in packaging, were offset by clearly higher volumes, despite the political strikes in Finland in the first half of 2024. Stora Enso made significant strides in profit improvement, working capital reduction and value creation actions. This progress was achieved through improved sourcing, operational and commercial efficiencies across all divisions. Lower variable costs contributed to increased profitability, as a rise in pulpwood cost was more than offset by reductions in other variable costs, particularly in energy and chemical expenses. As mentioned earlier, fixed costs were reduced by 110 million euros on a comparable level, thanks to cost-saving measures. As a result of these efficiency improvements and cost-saving actions across the entire company, we were able to deliver a significantly higher adjusted EBIT. However, we are still far from our long-term financial targets, and our systematic, determined efforts to improve profitability will continue. Next, we will explore the progress of our capital expenditures as we approach the completion of the heavy investment phase. In 2024, additions to fixed and biological assets amounted to slightly over 1 billion euros, consistent with the level recorded in 2023. A key focus and a great part of the strategic capex has been the build of our new packaging board line in Oulu. The investment is scheduled and production ramp-up is expected to commence in the coming months. Production will start with small volumes and lower grades with full capacity anticipated during 2027. Now that the heavy investment phase is concluding, the average range of capital expenditure expected to return to the historical average between 600 and 800 million euros per year after, as from this year onwards. The remaining capex related to the Oulu investment is approximately 160 million euros, with total capex expected to be around 730 to 790 million euros in 2025. Having reviewed now our capex, let's now explore how these investments strategically position us for robust growth in fiber-based packaging sector. We are well positioned for growth in fiber-based sustainable renewable packaging. Looking at the growth numbers for fiber-based packaging, we see a trajectory of steady annual growth rate of 2% throughout 2033. With our strategic investments in Oulu in Finland and Delirium in Belgium, we will be better positioned in growing packaging segments for the future. On the previous slide, we discussed the ramp-up of our Oulu site in Finland during 2027. The site is projected to reach full production capacity of 750,000 tons annually, meaning 800 million euros in top-line growth. This investment targets key segments such as food, drink, and chilled goods primarily in Europe and North America. Thanks to produced products, transfers between our mills. The Olo investment increases our total consumer board offering and capacity in a total of about 50 million tons per year market, thus representing about 1.5% of global demand when fully ramped up in 2027. Our investment in a new state-of-the-art corrugated packaging site in Delire in Belgium enhances our long-term competitiveness in Western Europe. The site will increase our corrugated capacity by approximately 20% and will reach full operation during 2026. Products primarily include boxes and trays for fresh products, industrial applications and e-commerce. In October last year, we terminated the divestment process of our consumer board packaging site and forestry business in Beihai in China. Since initiating the divestment in late 2022, global increases in wood and logistic costs have improved the Bay High site's relative cost competitiveness. The potential for further development and enhancement of the site now surpasses the value of any possible transaction. The Bay High site will reinforce Durant's role as a leading global supplier of premium packaging board and food, drink, and two other segments, serving both existing and new customers in the vast Asia-Pacific region and primarily in China, which is the world's largest liquid packaging board market. We will now move on to take a look at the performance of the divisions. In 2024, the packaging division accounted for nearly 60% of our external sales, with biomaterials, wood products and forests each contributing about 15%. With the ramp-up of the new investment in oil, the share of packaging is expected to increase further. One of the challenges during 2024 has been the ongoing volatility in market weakness and rising wood costs. To address these challenges, our targeted actions mentioned earlier have made significant progress across all divisions. Packaging solutions faced challenges with overcapacity and market volatility in 2024. However, packaging materials and biomaterials showed significant adjusted improvement from the 2023 levels. Wood products adjusted EBIT improved as well, but remained negative, while forest continued and even improved its strong operational performance throughout the year, reaching record high result levels. Now we'll take a closer look at the details of the performance per division. Packaging materials faced a challenging quarter due to weak market cycle and planned annual maintenance shutdowns, primarily in consumer board units, which affected profitability. Sales rose by 5% to 1.1 billion euros, driven by higher container board prices and increased consumer board volumes. Consumer board price increases were successfully implemented on renewed contracts, but container board prices started to decline towards end of the quarter for both recycled and virgin fiber grades following declining recycled fiber prices. And order inflow remained weak across all segments during the fourth quarter. Adjusted EBIT increased by 37 million euros from last year, but was still negative at 6 million euros. Now, continuing with the packaging solutions division, where we continue to navigate through challenging market conditions. Packaging solutions continues to face margin pressure due to market overcapacity. Sales remain stable at 247 million euros with higher volumes, but lower prices. Adjusted EBIT fell to a negative 6 million euros. Profitability was adversely impacted by price pressure. and higher container board costs, while the ramp-up of the new corrugated packaging site in the Netherlands continued. Let's take a look at the biomaterials division. Despite a generally soft market, the biomaterials division was able to enhance both sales and profitability. Additionally, the division achieved strong deliveries, which supported its performance despite challenging market conditions. Volumes increased due to a changed sequence of planned annual maintenance shots compared to last year. Sales prices in Europe increased year on year. However, sequentially, pulp prices decreased across all pulp grades and markets. Adjusted EBIT rose by €32 million to €67 million, driven by higher sales prices, cost-saving actions and increased emission certificate sales. Shifting focus to the wood products division, it was impacted by continued low demand. The generally weak markets continued for the wood price division. Although demand was stronger year on year, it remained suppressed due to lower construction activity. Sales increased by 57 million euros to 400 million euros due to higher prices and volumes for sawn goods. The demand for cross-laminated timber and laminated veneer lumber remained suppressed. Adjusted EBIT improved by 50 million euros, but was still negative at 12 million euros. The increase was driven by higher volumes and prices, which offset the increase in raw material costs. Ongoing cost-saving measures helped to improve the results. Now let's have a look at the forest division that continues its strong performance also this quarter. Forest Division had a robust result driven by increased food prices, strong demand and good operational performance in all areas. Demand for all wood assortments remained high in the Nordics. Sales increased by 134 million euros to 784 million euros due to higher volumes and prices. Prices increased year on year and slightly quarter on quarter. Adjusted EBIT increased to 81 million euros, reflecting strong operational performance in the group's forest assets and wood supply. Let's move on to take a look at the development of the fair valuation of our forest assets. We are pleased to report a continued steady increased forest value of 8.9 billion euros, which translates to 11.28 euros per share. This improvement underscores the strength, enduring value and potential of our forest assets. The year-on-year increase of 163 million euro was mainly driven by increased in estimated wood prices and standing stock in the Swedish assets. Now I will hand over to Niklas to go through the details of some key financials.

Thank you, Hans. And hello, everyone. And very happy to have joined this great company. And actually look forward to meeting you, many of you in person here going forward. As Hans commented, there was a clear improvement in profitability in 2024. This was a result of the efforts across the company to improve sourcing, increase operational efficiency, for instance, in mills, and the ongoing work within commercial activities such as pricing and portfolio. Also, cost reductions, as Hans commented, was a focus area throughout 2024. And while we are still far away from our target performance levels, it's good to see that we are moving in the right direction. Our net debt continued to increase somewhat in Q4 to 3.7 billion. This was driven by the near final stages of the old investment. However, our net debt to adjusted EBITDA ratio continued to improve also in Q4 and ended at three times. Our net debt to adjusted EBITDA target remains at two times and we continue to work our way towards it. Besides performance improvements, we are preparing to sell approximately 12% of our forest assets in Sweden, as announced in the fourth quarter and as Hans commented on. And this move aims to further reduce our net debt and increase our financial flexibility. When it comes to our operating working capital, we saw clear improvement throughout the year. This was thanks to dedicated and focused actions, and the working capital ended at a record low, 544 million euros in the fourth quarter. This was actually a reduction of more than 700 million euros since the peak some one and a half years ago. The operating working capital to sales was 7% in Q4, actually a record low, down from 14% at the peak. If we then move on to cash flow, the full year cash flow from both operations and after investment activities improved compared to last year due to the actions taken to improve profit on the one hand and lower working capital or reduced working capital. As previously mentioned in the presentation, we have had quite high investments in both 2023 and 2024, driven by the strategic consumer board expansion at the Oulu site. The investments in Oulu are now getting close to completion, and this means total investments in 2025 will go down, from roughly a billion in 2024 to an estimated below 800 million in 2025, and thus also support an improved cash flow. In the fourth quarter, the cash flow from operations was at a reasonably solid and stable level at 325 million, and cash flow after investing activities improved to 88 million euros. due to less cash spent on capex. And with that, let's switch from financials to sustainability. And back to you, Hans.

Thank you, Niklas. Our growth is driven by global megatrends and sustainability, which not only offer us strategic advantages, but also sharpen our competitive edge. In line with this, we remain committed to our sustainability targets. We are actively focusing on critical areas such as climate change, circularity and biodiversity, while also supporting our customers' sustainability goals. I'm particularly pleased to share the significant progress on our path towards climate neutrality and our long-term commitment to sustainability. By the end of 2024, we achieved a 53% reduction in scope 1 and 2 emissions, surpassing our target of a 50% reduction by 2030 from the 2019 base year. The decrease is mainly due to efforts in both reduction measures, such as fuel switches and the impact from site and production line closures. We have reduced scope 3 emissions by 39% from our 2019 levels, aiming for a 50% reduction by 2030. In terms of circularity, our products are now 94% recyclable with a target of 100% by 2030. Now moving on to the sequential market and business outlook for the first quarter. I will now cover the sequential market and business outlook for this quarter, Q1 compared to the previous quarter, Q4 2024. Overall, we expect demand to remain subdued and volatile, mainly due to macroeconomic confidence and ongoing geopolitical uncertainty. We also anticipate that wood prices will continue to be high. Let's begin with the Packaging Materials Division. Peer demand continues to be soft, yet we expect a rise in consumer board volumes following maintenance and the typical low seasonal demand in Q4. However, it's important to note that margin pressures are still present due to the high costs of wood fiber. Price increases have been achieved in some consumer board segments and price increases have been announced in container board markets this quarter. The division's average price level is expected to remain stable quarter on quarter. The packaging solution division still navigates through market volatility and OE capacity with continuous to impact demand. Despite these challenges, we see stability in Q1 European volumes with gradual normalization in China. But high costs from container board and new site ramp up limit margin expansion. Looking at biomaterials, the pulp market is nearing a cyclical low with supply curtailments helping balancing the market. Price increases have been announced with effects expected in Q2 of this year. However, demand continues to be uncertain, shaped by economic and geopolitical factors. For wood products, the outlook for classic sawn products remains stable despite low demand. Slight price increases are driven by escalating raw material costs while construction activities anticipated stay subdued. The forest division food demand is projected to remain robust. This is despite decreased consumption in pulpwood, which has been driven by cutbacks in the packaging and pulp sectors. Given these market dynamics throughout 2025, we need to keep pushing forward with our actions to cut costs and strengthen our operational and commercial excellence. Our goal here is to improve our operational performance and competitiveness. With this outlook, I will move to the key takes and how we are building a stronger future. To conclude this presentation, and before we open the floor for your questions, I'd like to emphasize that we are truly powering ahead. Our financial results and strategic initiatives demonstrate our strong position and commitment to growth, all made possible by the hard work and dedication of our team. Let's take a moment to reflect on these critical achievements. In 2024, we achieved 75% growth in adjusted EBIT, driven by improved sourcing, commercial and operational efficiencies, alongside a significant reduction in operating working capital by over 700 million euros and a 110 million euro cut in fixed costs. and all profit improvement actions more than offset good cost escalation. All in all, it's been a year of significant progress, and it's satisfying that our efforts on improvement actions are starting to bear fruit. We remain dedicated to further improving financial performance and cost efficiency in 2025 to ensure continued success. And now we are ready to take your questions.