Stora Enso Oyj

Hello and welcome to Stora Enso's second quarter 2025 results presentation. My name is Jutta Mikkola. I'm the Head of Investor Relations. I'm joined by Hans Solström, President and CEO of Stora Enso and CFO Niklas Rosenlev. The title of today's presentation is Solid Business Performance in a Volatile Demand Environment. The agenda will begin with key highlights and strategic focus areas presented by Hans. Then Niklas will review the company's financial performance. And then Hans will conclude with a summary of key takes and focus for 2025. Thank you for joining us today. And I will now hand over to Hans Solström.

Thank you, Jutta. During the second quarter of 2025, we continued to make good progress in building a stronger and more competitive Stora Enso. While market conditions remained challenging, we focused on the areas within our control. Driving efficiencies, insourcing operations, commercial excellence, working capital and fixed costs. In addition, during the second quarter, we took significant steps to strengthen our strategic focus on renewable packaging. To begin with, it's notable that all operational segments achieved positive adjusted EBIT for our second consecutive quarter, despite continued weakness in board and pulp markets. Consumer demand remained at relatively low levels and was impacted by geopolitical uncertainty. Sales at 2.4 billion euros grew 5% year on year supported by high demand for wood products and packaging solutions. Adjusted EBIT was 126 million euros as the old ramp up had an approximately 50 million euro negative impact on the second quarter adjusted EBIT. Our continuous dedication efforts to improve cashflow resulted in operating working capital to sales of 7%, a decrease of two percentage points year on year. During the quarter, we reached a major milestone with the agreement to divest approximately 175,000 hectares of forest land equivalent to 12.4 percent of our total forest land holdings in Sweden for an enterprise value of about 900 million euros. The value is in line with our Swedish forest book value. This transaction reduces our debt and enhances our financial flexibility as well as confirms the true market value including a long-term wood supply agreement. Tuura Enso will retain a 15% ownership and will enter into a 15-year wood supply agreement with a possible additional 15 years extension. Following this, we initiated a strategic review of our remaining 1.2 million hectares of Swedish forest assets, reinforcing our commitment to attractive portfolio managing and shareholder value creation. As part of this review, Stora Enso will explore various options, including a potential separation and listing of the forest business through a demerger into a new company that would be wholly owned by all Stora Enso shareholders. Over the past months, Stora Enso has taken decisive steps to sharpen our strategic and operational focus. These actions are not isolated. They are part of a broader transformation, focusing on profit, performance and portfolio with people in the center and to become a more focused renewable packaging company. These initiatives are guided by three objectives. Firstly, we are increasing strategic business and operational focus and simplifying the corporate structure. Secondly, we are realizing synergies and improving cost competitiveness. And thirdly, we are deleveraging and unlocking asset values. This recent initiative, the sale of 12% Swedish forest and the strategic review of the remaining Swedish forest assets, the Oulu Consumer Board ramp up the acquisition of Junnikkala and the new leaner organizational structure mark a significant phase in Stora Enso's transformation. This puts Turainso in a good position to deliver sustainable value creation, both operationally and financially. We are building a more agile, focused and resilient company to maximize value and deliver long-term returns for our shareholders. Let's then look more closely on the strategic rationale behind the recently initiated strategic review of the Swedish forest assets. In June, we announced that we initiate a strategic review of our Swedish forest assets. With the review, we aim to enhance business focus and unlock the full potential of both our forests and industrial assets. Initiating this strategic review highlights our commitment to maximize shareholder value. If we then have a look at the two different parts of the business. Stora Enso, the industrial part, is a global leading renewable packaging company with sustainability at the heart of what we do. We have leading market positions with a customer-centric offering and one of the market's broadest offerings within packaging. We have strong culture of innovation and sustainability underpinning the business. The business has a leading asset base with cost-competitive integrated sites and diversified material supply, including pulp. With several ongoing initiatives, we are continuing to strengthen the company. If we look at the Swedish forests, we are a leading Swedish forest owner with optimally located assets in central Sweden with proximity to strong sources of demand, such as pulp and soils. There are strong tailwinds when it comes to renewable materials and the forest is the raw material. And this will drive market growth in both short and long term. We are a leader in biodiversity where we have a long history and culture. We have strong assets and an adaptive forest management. The Swedish forest is a source of consistent and strong cash flows and growth. We also see new emerging business opportunities within renewable energy, carbon credits and beyond. The rationale of the strategic review is to look at the two parts of the business and to conclude whether it is better to have them as separate businesses or continue as is. As said, this is the start of a strategic review and we have not concluded anything yet, but we have a clear hypothesis of what creates the best business and shareholder value. And we will come back with the conclusions of this review at the end of the year. As said, we are in our strategy emphasizing growth within renewable packaging. Nearly 80% of investments over the past decade have been allocated to this area. The following outlines the approach and focus on enhancing synergies to support the profitability and growth of renewable packaging. Let's start with our consumer board, the core of Stora Enso. This business includes liquid packaging board, bleached and unbleached folding box board, and barrier coated board for food and beverage applications. We serve global consumer facing brands, which demand the highest standards in quality and sustainability. Stora Enso owns the three largest integrated consumer board mills in Europe, including the most cost competitive Oulu site ramping up. These sites combine large-scale board production with integrated pulp manufacturing with efficient wood supply. This is a critical competitive advantage and highly valued by our global customers who rely on consistent quality across multiple sites. Regarding the Oulu ramp-up, customer feedback on product quality has been very encouraging. While the ramp-up will continue to wait on earnings in the short term, we remain confident the Oulu board line will be very cost-competitive and deliver some of the best quality products in the industry. This investment is central to our strategy of growth in renewable packaging. Then if we look at our container board production, we produce fresh fiber-based liner in Finland and recycled fiber-based test liner in Poland. Our Langebrygge mill in Belgium currently produces newsprint and magazine paper. We have publicly stated our intention to convert it to test liner when market conditions and financials allow. Our largest liner customer is ourselves. enabling significant synergies between liner production and box conversion. We have conversion capacity across Poland, Sweden, Finland and the Baltics. In 2022, we acquired the Young Packaging Group in the Netherlands, now the largest and most modern conversion facility in Europe. Conversion is a local business. Empty boxes are not economical to transport long distances. Our strategy is not to be the largest converter, but to maximize synergies, especially between recycled fiber liner production and conversion. We have 2.5 million tons of market pulp capacity split evenly between eucalyptus pulp from Latin America and Nordic production. A significant portion is virtually integrated with our board mills with flows from the Nordics and Latin America to both Europe and China. we are increasing focus on this integration. Internal access to eucalyptus pulp reduces exposure to volatile markets and improve margins. No other European or North American packaging material producer has internal cost-efficient eucalyptus pulp access at this scale, giving us greater flexibility and optionality. Coming back to wood supply, it's good to note that we have many sawmills, including the recent acquisition of Junnikkala in Finland, around our production sites. Our sawmills produce, on top of sawn products, wood chips and sawdust, which are cost-efficient raw materials for our pulp and board mills. This is the strategic rationale behind the Junnikkala acquisition. You'll notice many new orange dots around Oulu on the map. To sum things up, Stora Enso is establishing a strong position in renewable packaging, leveraging recent investments and strengthening the focus on integration, efficiency and cost competitiveness. Now, I will hand over to Niklas to go through our financial performance during the second quarter.

Thank you, Hans. And hello, everyone. Now let's look at our second quarter financial results, which marked a solid performance given the volatile demand environment and ramping up of our new Oulu line. In the second quarter, our sales increased by 5%, bringing the total to 2.4 billion euros. This growth was mainly driven by stable prices and improved deliveries. Structural changes had a smaller positive impact as both the unical acquisition and the Oulu consumer board line ramp up increased the top line. Our adjusted EBIT decreased to 126 million euros, mainly due to ongoing Oulu consumer board line ramp up, impacting second quarter results negatively by approximately 50 million. Furthermore, as Hans mentioned, all segments achieved positive adjusted EBIT for the second time since the third quarter of 2022. Now let's take a closer look at the EBIT bridge. Here, as you can see, the main impact in the second quarter is the old ramp up weighing on earnings. Adjusted EBIT was 126 million, a decrease of 27 million euros compared to last year. Price and mix had a negative impact of 6 million, mainly driven by biomaterials with pulp prices coming down. This was more than offset by the positive 12 million impact from higher volumes. Variable costs were flat as higher wood and paper for recycling costs were offset by lower energy, logistics and chemicals costs. Fixed costs decreased slightly. FX had a positive 6 million euro impact. So in summary, solid performance with the main impact coming from the Oulu ramp up. If we then turn the focus to cash flow, the cash flow from operations was positive 145 million and after investing activities negative 37. This was, as expected, driven by the final investments at the Olo site. When looking at EBITDA, you can see that it has been gradually improving since 2023. Even though market conditions have been and still are challenging, we have focused on the areas within our control, being enhancing sourcing, operational efficiency, commercial excellence, working capital, and reducing fixed costs. During the previous year, cash flow from operations has benefited from the significant operating working capital reduction actions that were in focus throughout 2024. This focus on reducing operating working capital continues, but naturally the amount of decrease isn't as large as we saw in 2024. On the other hand, when it comes to CapEx investments, the heavy investment phase related to Oulu is now coming to an end, and we expect CapEx to come down from the high levels of 24 and 23. If we then turn to net debt, the ratio of net debt to the last 12 months adjusted EBITDA improved to 3.3 times from 3.5 in the same period last year. Net debt increased slightly to 4 billion as we are finalizing the whole project. As the intensive strategic capex phase of the last two years nears finalization and profitability gradually improves, net debt levels and the ratio are expected to improve. In addition, when completing the divestment of the 12% of Swedish forest asset, which, as Hans mentioned, has an enterprise value of approximately 900 million, being in line with the Swedish forest book value, our net debt will go down further, which improves our financial flexibility. Operating working capital to sales was 6.9%, which is an improvement of 1.8 percentage points year on year. The operating working capital reduction is stabilizing and we intend to keep it at this level and further decrease when possible. So with that, let's move on to the segment performance. Starting with packaging materials, sales increased slightly, driven by higher prices for container board and a slight increase for consumer board. Packaging materials profitability declined primarily due to the ramp up of Oulu. Adjusted EBIT was 29 million with Oulu accounting for a negative impact of 50 million on adjusted EBIT. Deliveries excluding the new machine in Oulu decreased slightly driven by weak market conditions in China. Fiber costs remained persistently at the high level, offset by lower other variable costs. Packaging solutions had a positive result for the second quarter in a row. Adjusted EBIT increased by 4 million euros, driven by actions taken to improve the business, as well as higher prices and reduced depreciation following the previously announced impairments. In general, markets continue to be challenging with both overcapacity and oversupply. Moving from packaging to biomaterials. Biomaterials is navigating in challenging market conditions with the weaker pulp demand, a weaker dollar and lower prices. Sales decreased due to lower sales prices and a negative currency rate impact, partly offset by higher volumes. Adjusted EBIT decreased, mainly due to lower sales prices. This was partly offset by lower costs as we continued to work on making the operations more efficient. Wood costs remained high. On the other hand, wood products had a positive adjusted EBIT for the second quarter in a row. This was driven by higher prices and volumes, partly offset by increased raw material and fixed costs. Forest had another record high quarterly adjusted EBIT, reflecting strong operational performance and high prices. The forest assets fair value is 9 billion euros, equivalent to 11.4 per share. With that, I hand back to you, Hans, for the key takeaways and our focus areas for 2025.