Stora Enso Oyj - Half Year financial report

Stora Enso Oyj Half-year Report 2024: Continued profit improvement with strengthened leverage ratio

STORA ENSO OYJ HALF-YEAR REPORT 24 July 2024 at 8:30 EEST

Q2/2024 (year-on-year)

•     Sales decreased by 3% to EUR 2,301 (2,374) million; however, continuing
operations grew by 1%.

•        Adjusted EBIT increased to EUR 161 (37) million.

•        Adjusted EBIT margin increased to 7.0% (1.6%).

•        Operating result (IFRS) was EUR 99 (-253) million.

•        Earnings per share (EPS) were EUR 0.06 (-0.29) and EPS excl. fair
valuations (FV) was EUR 0.07 (-0.27).

•        The value of the forest assets increased to EUR 8.7 (8.1) billion,
equivalent to EUR 11.06 per share.

•        Cash flow from operations amounted to EUR 323(146) million. Cash flow
after investing activities was EUR 86 (-70) million.

•        Net debt increased by EUR 466 million to EUR 3,497 (3,030) million,
mainly due to the board investment at the Oulu site.

•        The net debt to adjusted EBITDA (LTM1) ratio was 3.5 (1.7). The target
to keep the ratio below 2.0 remains.

H1/2024 (year-on-year)

•        Sales were EUR 4,466 (5,095) million.

•        Adjusted EBIT was EUR 317 (271) million.

•        Operating result (IFRS) was EUR 247 (5) million.

•        Earnings per share (EPS) were EUR 0.16 (-0.05) and EPS excl. fair
valuations (FV) was EUR 0.16 (-0.04).

•        Cash flow from operations amounted to EUR 592(400) million. Cash flow
after investing activities was EUR -18 (-69) million.

•        Adjusted ROCE excluding the Forest division (LTM1) decreased to 1.3%
(10.7%), the target being above 13%.

Key highlights

•     The value creation programmes, centred on sourcing, operational and
commercial efficiencies, are making good progress across all divisions.

•     In addition, the profit improvement programme focusing on fixed costs,
initiated in the first quarter 2024, targeting EUR 120 million has continued to
progress well. This has supported an improvement in the earnings trend due to
enhanced efficiencies and cash flow, and strengthened the leverage ratio: net
debt to EBITDA.

•     Operating working capital decreased by EUR 576 million year-on-year to an
all-time low, driven by our continued focus to improve working capital
efficiency.

•     Stora Enso secured a EUR 435 million long-term loan, on 11 July, from the
European Investment Bank to fund its EUR 1 billion investment in the Oulu mill,
Finland. Loan repayment extends until 2036, improving and lengthening the
Group's debt maturity profile. The loan is currently undrawn.

•     The consumer board investment at the Oulu site in Finland is progressing
on schedule. Production is expected to start in the first half of 2025, with
full capacity estimated to be reached during 2027.

•     The plan to divest the Beihai site in China is in process. The site has
been classified as assets held for sale from the end of 2023.

Guidance
On 15 May, Stora Enso raised its guidance for the full year 2024 adjusted EBIT,
due to successful implementation of profit improvement actions and more
favourable market conditions. The new guidance is: Stora Enso's full year 2024
adjusted EBIT is expected to be significantly higher than for the full year
2023, EUR 342 million.

Outlook
Market and business outlook
Stora Enso anticipates a gradual market recovery in 2024. The positive forecast
is supported by successful initiatives to increase profitability, which have
contributed to the earnings trend over the past three quarters and helped reduce
the Group's net debt to EBITDA ratio. Despite this, high wood costs will
continue to pressure margins. Market uncertainties, including high inflation,
potential strikes, and demand and price fluctuations, are expected to continue
through the end of the year.
Packaging Materials
The outlook for Q3 is slightly positive, supported by strong order books and an
improving price outlook. Price increases announced during Q2 in both the
consumer and containerboard segments are expected to contribute positively to
the results, mainly in the second half of this year. The liquid and food service
board segments show improved stability and demand, while carton board demand
remains stable following a strong recovery. Kraftliner and testliner segments
are recovering, supported by stable demand and three rounds of price increases
announced during H1 this year. However, high fiber costs and seasonally higher
fixed costs due to annual shutdowns in virgin fiber containerboard units will
impact the second half of the year. Paper demand is expected to continue its
steady, gradual decline.
Packaging Solutions
Demand for Q3 is expected to remain stable with seasonal fluctuations. In
Western Europe, volumes are anticipated to normalise post weather-related delays
in the fresh-produce season. Asia usually experiences a downturn in Q3, with
improvements expected in Q4. Central, Northern, and Eastern Europe should see
consistent demand. Market challenges continue due to overcapacity.
Biomaterials
Looking ahead in Q3, overall pulp demand in Europe and China is projected to
remain stable. The European softwood pulp market remains balanced, with no signs
of demand improvement. In China, demand is stable. Demand for fluff pulp in
hygiene and tissue products continues to be stable, supported by global
inventories which are at or below the 5-year average.
Wood Products
Q2 experienced a seasonal surge in volumes of classic sawn products. However,
sales and volumes are projected to decrease sequentially in Q3 due to the
holiday season. Building permits are anticipated to fall below 2023 levels and
are expected to slightly decline in Western Europe in the foreseeable future.
Meanwhile, wood costs are forecast to remain elevated.
Forest
In Q3, wood market activity is expected to remain strong in Finland, Sweden, and
the Baltics, with tight conditions driven by increasing demand for industrial
wood (pulpwood and sawlogs).
Long-term growth opportunities
Stora Enso holds leading positions in markets and segments poised for long-term
growth, particularly in sustainable packaging, wood construction, and innovative
biomaterials. The Group stands to benefit from sustainability trends and
regulatory advancements which favour its offerings, thereby supporting its
market presence and facilitating development.
Key figures

EUR        Q2/24   Q2/23   Change   Q1/24   Change   Q1      Q1      Change
2023
million                    %                %        -Q2/24  -Q2/23  %

                           Q2/24-Q          Q2/24-Q                  Q1
                                                                     -Q2/24-

                           2/23             1/24                     Q1
                                                                     -Q2/23
Sales      2,301   2,374   -3.0%    2,164   6.3%     4,466   5,095   -12.4%
9,396
Adjusted   312     198     57.4%    298     4.9%     610     597     2.2%
989
EBITDA
Adjusted   161     37      n/m      156     2.8%     317     271     17.2%
342
EBIT
Adjusted   7.0%    1.6%             7.2%             7.1%    5.3%
3.6%
EBIT
margin
Operating  99      -253    139.2%   148     -33.2%   247     5       n/m
-322
result
(IFRS)
Result     50      -304    116.5%   101     -50.4%   152     -76     299.3%
-495
before
tax
(IFRS)
Net        42      -257    116.4%   84      -49.9%   126     -72     276.2%
-431
result
for the
period
(IFRS)
Forest     8,725   8,065   8.2%     8,626   1.1%     8,725   8,065   8.2%
8,731
assets1
Adjusted   2.8%    8.1%             1.9%             2.8%    8.1%
2.4%
return on
capital
employed
(ROCE),
LTM2
Adjusted   1.3%    10.7%            0.0%             1.3%    10.7%
1.0%
ROCE
excl.
Forest
division,
LTM2
Earnings   0.07    -0.27   125.3%   0.09    -23.5%   0.16    -0.04   n/m
-0.73
per
share
(EPS)
excl. FV,
EUR
EPS        0.06    -0.29   119.4%   0.11    -48.2%   0.16    -0.05   n/m
-0.45
(basic),
EUR
Net debt   3.5     1.7              4.0              3.5     1.7
3.2
to
LTM2
adjusted
EBITDA
ratio
Average    19,469  21,171  -8.0%    19,412  0.3%     19,465  21,182  -8.1%
20,822
number of
employees
(FTE)

1 Total forest assets value, including leased land and Stora Enso's share of
Tornator.
2 LTM=Last 12 months

Stora Enso's President and CEO Hans Sohlström comments on the second quarter
2024 results:
I am encouraged by the fact that our Q2 performance met our expectations,
reinforcing our recently upgraded 2024 guidance. Advances in our profitability
and cash flow improvement initiatives, coupled with more favourable market
conditions in some segments, have supported an improved earnings trend for the
third consecutive quarter. Additionally, this has strengthened our leverage
ratio in the quarter despite record high growth investments. This positive
development is a testament to our team's dedication and sets a strong foundation
for future success.
Our year-on-year Group sales dipped slightly, by 3.0%, to 2,301 million euro due
to structural changes; however, our continuing operations grew by 1%. Increasing
volumes in all divisions and favourable pricing in the Biomaterials and Forest
divisions contributed positively. Our adjusted EBIT rose significantly to 161
million euro from 37 million euro a year ago, with the margin improving to 7.0%
from 1.6%. The result was driven by higher volumes and reduced fixed and
chemical costs, despite challenges such as rising wood costs and political
strikes in Finland.
While we managed to improve our net debt to adjusted EBITDA ratio to 3.5 from
4.0 in Q1 this year, it remains above our target of 2.0 and has increased
compared to the 1.7 ratio in Q2 last year. This highlights the need for further
profitability improvement and working capital reduction actions, which remain
our priority. The stable valuation of our forest assets at 8.7 billion euro, or
11 euro per share, continues to provide a solid foundation for our future growth
and value creation.
Our value creation programmes, centred on sourcing, operational and commercial
efficiencies, are making good progress across all divisions, thanks to an
analytical and structured approach. These efforts have had a significant impact
on profits and cost competitiveness, with about 1,900 identified improvement
initiatives led by approximately 500 project owners. Additionally, our profit
improvement programme, which aims for an annual fixed cost saving of 120 million
euro, is advancing successfully. Together, these initiatives are contributing to
sustained enhancements in profitability and competitiveness. Furthermore, we
have reduced operating working capital by 576 million euro year-on-year,
reaching an unprecedented low, driven by ongoing efforts to enhance working
capital efficiency and release capital.
The plan to divest the Beihai operation in China is proceeding. We are
diligently moving forward with the process, and although it is lengthy,
achieving the right value for our assets is most crucial. Ultimately, the value
of the deal takes precedence over the timing.
Our decentralised operating model is firmly in place and progressing well
towards achieving a more focused customer and business oriented structure. I am
delighted with the strides we have made, and we are already witnessing the
advantages of a more efficient and agile framework. This not only benefits our
strategic execution, but also enhances the service we provide to our customers.
In the quarter, we conducted an Employee Engagement pulse survey across three of
our five divisions. The results indicate that the level of employee engagement
has remained consistently high and has even shown a slight increase in these
divisions. This is particularly encouraging given the challenging circumstances
in which we have been operating.
We increased our outlook for the adjusted EBIT for the full year 2024 on 15 May,
projecting it to be significantly higher than the profits of 342 million euro
achieved last year. We remain on track to deliver on that guidance, supported by
our value creation and profit improvement actions, as well as improved market
conditions in some of our key segments.
We are intensifying our focus on capital allocation and asset strategy in
growing market segments, laying the groundwork for improved competitiveness and
profitable growth across the Group. Looking ahead, we anticipate further
advancements this year. We remain committed to investing in both human and
capital resources to provide exceptional service to our customers and create
robust shareholder value growth.

Webcast for analysts, investors, and media
Analysts, investors, and media are invited to participate in the webcast with a
teleconference today at 11:00 am EEST (10:00 CEST, 9:00 BST, 4:00 EDT). The
results will be presented by President and CEO Hans Sohlström and CFO Seppo
Parvi. The presentation can be followed live via the link: https://stora-enso
-oyj-q2-earnings-presentation-2024.open-exchange.net/registration
During the webcast presentation, analysts and investors will also have the
possibility to ask questions. To participate in the teleconference, please
choose the “Teleconference” option on the homepage of the webcast. Recording of
the webcast will be available shortly after the event at the same address and at
storaenso.com/en/investors/interim
-report (https://www.storaenso.com/en/investors/interim-report)
Media representatives who wish to ask questions after the publication of the
report may contact Carl Norell, SVP Corporate Communications at Stora Enso on
+46 72 241 0349.
This release is a summary of Stora Enso's Half-year Report 2024. The complete
report is attached to this release as a pdf file. It is also available on the
company website at storaenso.com/en/investors/interim
-report (https://www.storaenso.com/en/investors/interim-report).

Media enquiries:
Carl Norell
SVP Corporate Communications
tel. +46 72 241 0349
Investor enquiries:
Anna-Lena Åström
SVP Investor Relations
tel. +46 70 210 7691
Part of the global bioeconomy, Stora Enso is a leading provider of renewable
products in packaging, biomaterials, and wooden construction, and one of the
largest private forest owners in the world. Stora Enso has approximately 20,000
employees and our sales in 2023 were EUR 9.4 billion. Stora Enso shares are
listed on Nasdaq Helsinki Oy (STEAV, STERV) and Nasdaq Stockholm AB (STE A, STE
R). In addition, the shares are traded in the USA on OTC Markets (OTCQX) as ADRs
and ordinary shares (SEOAY, SEOFF, SEOJF).
storaenso.com/investors (https://www.storaenso.com/en/investors/)
STORA ENSO OYJ

Media enquiries:
Carl Norell
SVP Corporate Communications
tel. +46 72 241 0349
Investor enquiries:
Anna-Lena Åström
SVP Investor Relations
tel. +46 70 210 7691

Attachments:

07248605.pdf