Stora Enso Oyj Half-year Report January–June 2023: Accelerating restructuring in challenging markets

Q2/2023 (year-on-year)

• Sales decreased by 22% to EUR 2,374 (3,054) million.

• Operational EBIT decreased by 93% to EUR 37 (505) million.

• Operational EBIT margin decreased to 1.6% (16.5%).

• Operating profit (IFRS) decreased to EUR -253 (399) million.

• EPS was EUR -0.29 (0.38) and EPS excl. fair valuations (FV) was EUR -0.27 (0.42).

• Cash flow from operations amounted to EUR 146 (404) million. Cash flow after investing activities was EUR -70 (247) million.

• The net debt to operational EBITDA ratio (last 12 months) was 1.7 (1.0). The target is to keep the ratio below 2.0.

• Operational ROCE excluding the Forest division (last 12 months) decreased to 10.7% (21.7%), the target being above 13%.

Q1–Q2/2023 (year-on-year)

• Sales were EUR 5,095 (5,852) million.

• Operational EBIT was EUR 271 (1,008) million.

• Operating result (IFRS) was EUR 5 (793) million.

Key highlights

• Stora Enso plans to permanently close down its Sunila pulp production unit in Finland, the De Hoop containerboard site in the Netherlands, one containerboard line at its Ostrołęka site in Poland, and the Näpi sawmill in Estonia.

• Stora Enso has taken the next step in driving a decentralised operating model and increased independency of the divisions by initiating change negotiations regarding the planned decentralisation and leaner Group functions.

• The above-mentioned planned restructuring actions are expected to improve operational EBIT by approximately EUR 110 million annually.

• One of the two paper machines at the Anjala site in Finland will be permanently closed down in Q4/2023.

• A new, high-tech corrugated packaging unit started operations at Stora Enso's De Lier site in the Netherlands.

• The consumer board investment at the Oulu site in Finland is moving ahead according to schedule. Production is expected to start during 2025.

• Stora Enso launched a new framework for green and sustainability-linked financing to further integrate sustainability into its funding, and issued EUR 1 billion of green bonds. In addition, EUR 550 million bilateral loans were arranged to strengthen liquidity.

• Stora Enso's ISS Corporate ESG rating improved from B- to B, the highest in the industry.

Guidance
Stora Enso reiterates its full-year 2023 operational EBIT to be significantly lower than for the full-year 2022 (EUR 1,891 million).

Outlook for the full year 2023
On 20 April this year, Stora Enso lowered its guidance for the full-year 2023 due to rapidly worsening market outlook and, as a consequence, materially lower earnings forecasts. The market outlook for 2023 remains uncertain with low short-term visibility, persisting high inflation, higher interest rates and low consumer confidence. Q3 will be another challenging quarter due to sequentially deteriorating market conditions for many segments. The tight wood market continues due to increasing energy wood consumption and the lack of wood imports from Russia. This impacts margins and contributes to the deterioration of the competitiveness of, especially, Stora Enso’s Finnish sites. Other variable costs are coming down from peak levels but are still higher compared to historic levels.

The headwinds in the first quarter of weak demand across most of the Group’s segments and customer destocking, continue. Based on the current macroeconomic and market specific challenges, Stora Enso assumes continued weakness in demand and volumes especially in its Packaging Materials, Wood Products and Biomaterials divisions, with no obvious signs of recovery yet.

Packaging Materials: Weak market conditions and destocking in the value chain continues. The containerboard market has stabilised at a low level, but the demand for consumer board market is weakening. For Paper, the pace of the decline in demand is estimated to be slower as destocking is coming to an end.

Packaging Solutions: The demand for corrugated packaging is expected to have bottomed out. The potential slight improvement is not expected to reach the normal seasonal peak during the latter part of the year; the market remains unpredictable.

Wood Products: The activity in the construction sector has not improved and the expectation is that it will continue to remain challenging with a low number of issued building permits and new housing starts. This is expected to impact the demand for both sawn wood and building solutions.

Biomaterials: The market is expected to remain weak; demand is expected to decrease further due to high inventory levels which will take time to normalise. Customer destocking and new capacity entering the market during the year will add to the market imbalance.

Forest: The wood market in the Baltics and Nordics is expected to remain tight despite increasing market curtailments in the pulp and sawmill sector that have temporarily reduced demand for wood. During the autumn, the tight wood market will be mainly driven by demand from the energy sector.

To protect margins and cash flow, restructuring actions such as closures of sites and production lines, divestments, and a more de-centralised operating model with empowered divisions, and leaner Group functions are being implemented. These initiatives are expected to improve competitiveness, reduce costs, and support focused capital allocation into strategic growth markets. The bulk of them are expected to be concluded during the second half of 2023 and would support 2024 financial performance.

On the back of these initiatives, Stora Enso will be in a financially, operationally and strategically better shape to handle market fluctuations while investing for growth in renewable packaging, sustainable building solutions and biomaterials innovations.