Stora Enso Oyj

Hello, everyone, and welcome to Stora Enso's first quarter 2025 results presentation. Thank you for joining us today. I'm Hans Solström, the president and CEO of Stora Enso, and I'm here with our CFO, Niklas Rosenlev. Today's presentation, titled Consistent Programs in Improving Performance, will primarily address our performance, market environment and our plans to implement a new, leaner and flatter organizational structure, reflecting stronger focus on renewable packaging business. We have the broadest renewable packaging offering in the industry. Our packaging products include a diverse range of renewable wood-based materials and solutions, such as cartons, boxes, trays, cups and bags catering to industries like food and beverage, e-commerce, pharmaceutical and cosmetics. These products are daily essentials, as you can see here on the front page. We will now guide you through our performance for the first quarter of 2025 and address any questions you might have towards the end of this session. I am pleased to present our financial results for the first quarter. Sales grew by 9% and we have achieved a robust adjusted EBIT of 175 million euros representing an increase of 18% year over year with an EBIT margin of 7.4%. Operating working capital decreased by 3% points to 7%. This marks the fourth consecutive quarter of a year over year improvement in our financial performance. And for the first time since the third quarter of 2022, we have achieved positive adjusted EBIT across all divisions. This milestone has been reached as a result of our cost-saving actions and efficiency improvements, which are yielding increasingly impactful results and solidifying our resistance in disruptive markets. We are also excited to announce the successful production start of our new consumer board line at the Oulu mill, as well as the regulatory approval to proceed with the acquisition of the Finnish sawmills Junnikkala, which brings significant operational synergies and reduced wood costs at our Oulu pulp and board mill. These developments are part of our targeted actions to build a stronger, more cost competitive and profitable company. Looking ahead, we have plans to implement a new leaner and flatter customer and business oriented organization set to take effect as of the 1st of July. This reorganization will reflect the importance of our core business in renewable packaging and is designed to enhance efficiency and performance culture. I will now give you an overview of our strategy. We are a renewable materials company, focusing on replacing fossil materials with renewable solutions. Our values are to lead and do what is right, and especially now, leading and doing the right thing emphasizes improving profits and strengthening the balance sheet as well as increasing shareholder value. Our business areas operate in growing segments driven by strong sustainability trends. We aim to deliver high customer and added value through efficient and integrated production, maximizing shareholder value. Renewable, wood-based and recyclable packaging is central to our strategy, representing over 60% of our sales and a main part of our investments over the last decade. In wood products, we are one of the Europe's largest producers of sawn timber and a leading provider of sustainable wood-based construction solutions. Our sawmills also produce wood chips and sawdust, which is important cost-efficient raw material for our pulp and board mills. The foundation in biomaterials is pulp, and our goal is to increase the added value and profitability of our northern pulp mills by specializing, as well as to further strengthening the good cost competitiveness of our South American mills. To utilize the full potential of wood, we use all parts of the wood to create innovative biobased solutions that can replace fossil-based and non-renewable materials. Our pulp mills, especially the cost-competitive eucalyptus pulp mills in South America, are increasingly central raw material sources for our own boat production. Stora Enso has four pillars that it has built its leading positions on and is the essence of the renewable packaging strategy. We focus on cost competitive assets with flexible capacity and high vertical integration from fiber to final product. Owning the three largest consumer board integrated mills in Europe enhances our cost competitiveness. Our internal supply of eucalyptus pulp from Latin America joint ventures reduces dependency on volatile pulp markets and improves margins. This is a unique advantage among European and North American peers. Our strong market position and close customer relationships facilitate co-development and pilot innovations. Large global customers value us as a scale partner capable of delivering consistent high quality from multiple mills. As the fourth pillar, sustainability is crucial. Our low carbon footprint is a competitive advantage and part of our customer offering. By controlling the entire value chain, we have unparalleled control over sustainability performance, including traceability, efficiency and circularity. First comes strategy, then structure. Stora Enso plans to implement a new, leaner and flatter organization with seven P&L responsible business areas, reflecting the importance of its core business of renewable packaging in the business portfolio. This would remove one management layer and represents a further decentralization of P&L responsibility closer to customers and operations. The new, flatter and streamlined organization has carefully been structured to maximize customer and business focus, operational efficiency and synergies. This new structure will ensure the benefits of supply chain integration, reduce complexity and ultimately reflect our performance and result-oriented culture. The new organizational structure for the group will, as mentioned, transition from five divisions to seven lean business areas with P&L responsibility. The global leadership team will welcome two new members, Markku Luoto, who will be leading business area food service and liquid, and Andreas Birmoser, who will lead business area carton board. The current leader of the packaging materials division, Hannu Kassurennen, has been appointed to lead business area container board. After the changes, the global leadership team will comprise 12 members. Following the planned change, the group's renewable packaging business will consist of four business areas accounting for about 60% of Stora Enso's revenue. Food service and liquid board, carton board, container board and packaging solutions. The group's remaining businesses, accounting for approximately 40% of Stora Enso's full year revenue, continue to be divided into three business areas, biomaterials, wood products and forests. In addition to their respective businesses, they support Stora Enso's renewable packaging products through wood sourcing and their supply of raw material. To strengthen operational and supply synergies, sawmills and building solution sites in the Nordics will operationally and financially belong to their respective geographically closest board and pulp production sites. These integrated board, pulp and sawmills form new P&L responsible business units reporting into the respective business areas. Central European building solution sites and sawmills will remain in the wood products business area. Group functions are organized in a business-focused and efficient structure to support the seven business areas. In 2025, a key focus is the successful ramp-up of our new packaging board line in Oulu, Finland. This mill will become Stora Enso's largest production facility, an integrated mega-site specializing in folding box board and coated unreached craft. It will be one of the most modern and cost-competitive packaging board mills in Europe. The new line will primarily serve consumer packaging needs, including food, beverage, frozen and chilled products, and is expected to reach its full annual capacity of 750,000 tons by 2027. This expansion will also allow us to optimize production at other sites, unlocking further profitable growth. In addition, the mill produces premium pulp and fresh container board. We have signed an agreement approved by the Finnish Competition Authority to acquire the nearby Finnish sawmills company Junnikkala. This acquisition ensures a cost-efficient wood supply and enhances our competitive production resources. Adjusted EBIT for full year 2025 is expected to be adversely impacted by approximately 100 million euros due to the ramp up of the new packaging board line with the majority of this impact anticipated in Q2 of this year. The new line is expected to reach EBITDA breakeven by the end of this year. I would like to provide an update on the tariff situation that has been widely discussed in the markets. Firstly, I want to emphasize that the current tariff rates have a limited impact on our operations. Sales to the US account for less than 3% of our total sales in 2024. So the main risk lies in the overall impact on the economy. Several factors help mitigate this situation. We have production facilities in Europe, Latin America and Asia. and our raw materials are primarily sourced from Europe and Latin America, with some from China. Additionally, we have a global sales network, and we are agile in our sales efforts. The limited sales to the US can be repositioned, and sales prices are renegotiated. This situation also presents opportunities. We are Europe's leading producer of cotton board and fluff pulp, as well as one of the leading craft liner producers. As the U.S. is a major net exporter of cotton board, about 800,000 tons per year, Kraftliner, about 3.4 million tons per year, and Fluff Pulp, about 3.8 million tons per year, there are opportunities for us to grow our business in other markets which are implementing countermeasures to U.S. import tariffs or otherwise prefer to reduce imports from the U.S. I will now hand over to Niklas to cover the financial performance.

Thank you, Hans, and hello, everyone. So now let's walk through our financial results, starting with sales and adjusted EBIT. In the first quarter, our sales increased by 9%, bringing the total to 2.4 billion euros. This growth was mainly driven by higher prices across all divisions, as we implemented a number of price increases and improved deliveries in all divisions except biomaterials. Adjusted EBIT also saw an 18% increase in absolute terms, reaching 175 million euros and a 7.4% adjusted EBIT margin. This improvement was primarily due to higher prices, increased volumes, favourable foreign exchange rates and the positive impact of cost saving and value creation initiatives, which help mitigate the continued high fibre costs. Furthermore, as Hans mentioned earlier, all divisions achieved positive adjusted EBIT for the first time since the third quarter of 2022. Our adjusted return on capital employed for the last 12 months excluding forest has continued its gradual increase since its low in the first quarter of 24 and reached 3.8%. Let's take a look at the EBIT bridge. Our adjusted EBIT improved from 149 to 175 million euros. The main positive contributor was price and mix, in total 98 million. We increased prices for several products late last year and during the quarter. Price mix together with the higher volumes at 15 million euros almost offset the higher fibre costs. Fibre costs, mainly from wood, continued to increase and weigh heavily on the results, with the total negative impact in the quarter being 131 million euros. What comes to other variable costs, such as energy and pulp, they decreased slightly compared to a year ago. Other include a 29 million euro positive impact from FX, as well as the lower depreciation of 10 million euros. Also, unlike last year, we did not benefit from any larger energy compensation, but we also did not face political strikes that negatively impacted volumes last year. Moving on to the cash flow development in the quarter and in more detail. Cash flow from operations was 192 million euros. While the profit was higher than last year, the cash flow was negatively impacted by approximately 100 million euro increase in working capital. This was driven by our higher sales, which increased receivables, as well as the seasonally higher inventories, partly related to the ramp up of the new machine in Oulu. Capital expenditure remained high at approximately 240 million euros, but will start to decrease after Q2 as we come to an end of the Oulu project. Cash flow after investing activities was negative at 47 million euros, as said, driven by the last leg of the Oulu project. However, looking at the linear development of both cash flows operating and after investing activities, the trend is gradually improving, mainly due to improved profitability. And in the future, also lower capex will support further improving cash flows. Moving on to our debt position and liquidity. The ratio of net debt to the last 12 months adjusted EBITDA improved to 3.2 times from 4.0 in the same period last year, driven by enhanced profitability. Net debt increased to 3.9 billion euros as we are finalizing the Oulu project. As the intensive strategic capex phase of the last two years nears its finalization and profitability gradually improves, net debt levels and the ratio are expected to improve further. The average interest rates on borrowings decreased to 3.7% from 4.2% last year. Operating working capital continued to decrease compared to the same period last year, thanks to the good actions taken across to ransom. Sequentially, operating working capital increased slightly due to the higher inventories in the first quarter, which is typical seasonality, while the operating working capital ratio to sales remained stable at 7%. Let's move on to the divisional performance. Packaging materials had a positive result development driven by price increases and seasonally improved demand. Adjusted EBIT increased by 10 million euros to 62, driven by higher prices in both consumer board and container board. The higher fiber costs and negative impact from the startup of the new consumer packaging board line in Oulu was offset by lower energy, chemicals and fixed costs. The container board price cycle bottomed during the quarter and impact from the first price increase started to come through towards the end of the first quarter. In packaging solutions, our team is working on a turnaround, and Q1 was the first positive results since Q4 2023, driven by China demand, efficiency improvements, and lower depreciation following earlier announced impairments. While there's good progress improving performance, price pressure caused by market overcapacity and oversupply continued in the quarter. Moving from packaging to biomaterials. In biomaterials, pulp demand was relatively weaker in the first quarter compared to the seasonally strong end of 2024. Adjusted EBIT decreased to 36 million euros, mainly due to lower sales prices and higher costs, primarily wood costs. On the other hand, wood products improved the adjusted EBIT by 10 million euros and reached break-even, resulting from active margin management more than offsetting the higher wood costs. Forest had another record high quarterly adjusted EBIT, reflecting strong and stable performance. Adjusted EBIT increased to 82 million euros, And the forest assets fair value increased to 9.3 billion euros, equivalent to 11.7 euros per share, with the increase being driven primarily by a favorable currency rate impact. So with that, I will hand back to you, Hans, for concluding remarks.

Thank you, Niklas. We are confidently navigating through volatile markets, building a stronger, better, more resilient and more profitable Stora Enso by focusing on what we can control. This marks the fourth consecutive quarter of year-over-year improvements in our financial performance. Sales grew by 9% and we achieved a robust adjusted EBIT of 175 million euros, representing an 18% increase year-over-year. Additionally, operating working capital decreased by 3 percentage points to 7%. I want to emphasize that the current U.S. tariff rates have a limited impact on our operations as our sales to the U.S. can be repositioned and sales prices are renegotiated. Sales to the U.S. accounted for less than 3% of our total sales in 2024. So the main risk lies in the overall impact on the economy. During the first quarter, we had a successful production start of the new consumer board line at the Oulu Bill. Stora Enso also plans to implement a new, leaner organizational structure. These strategic initiatives are designed to position Stora Enso at the forefront of the renewable packaging industry, ensuring sustained, profitable growth. Lastly, we invite you to mark your calendars for our capital market base which will be held on the 25th and 26th of November, and we will communicate further details in due course. This event is a key opportunity for us to engage directly with you, our stakeholders, and outline our strategy, setting the stage for an exciting future together. With that said, we are now ready to take your questions.