stora enso financial result q3 2014

Financial Results Q3 2014

CEO Karl-Henrik Sundström and CFO Seppo Parvi 22 October 2014

It should be noted that certain statements herein which are not historical facts, including, without

limitation those regarding expectations for market growth and developments; expectations for growth

and profitability; and statements preceded by “believes”, “expects”, “anticipates”, “foresees”, or similar

expressions, are forward-looking statements within the meaning of the United States Private Securities

Litigation Reform Act of 1995. Since these statements are based on current plans. estimates and

projections, they involve risks and uncertainties which may cause actual results to materially differ from

those expressed in such forward-looking statements. Such factors include, but are not limited to: (1)

operating factors such as continued success of manufacturing activities and the achievement of

efficiencies therein, continued success of product development, acceptance of new products or services

by the Group’s targeted customers, success of the existing and future collaboration arrangements,

changes in business strategy or development plans or targets, changes in the degree of protection

created by the Group’s patents and other intellectual property rights, the availability of capital on

acceptable terms; (2) industry conditions, such as strength of product demand, intensity of competition,

prevailing and future global market prices for the Group’s products and the pricing pressures thereto.

price fluctuations in raw materials, financial condition of the customers and the competitors of the

Group, the potential introduction of competing products and technologies by competitors; and (3)

general economic conditions, such as rates of economic growth in the Group’s principal geographic

markets or fluctuations in exchange and interest rates.

Stora Enso Q3 2014 Financial Results 2 22 October 2014

Solid quarterly performance –transformation journey

continues Q3 2014 year-on-year

• Renewable Packaging continued its

strong performance for the third

quarter in a row

– Operational EBIT increased by 30%

• Biomaterials improved its performance

despite Montes del Plata ramp-up

• Building and Living performance

similar to last year’s good Q3.

• Stable performance in Printing and

Reading

– Cash flow from operations to sales

ratio 7.5% (5.4%)

• Group operational ROCE 13%

(10.2%) excluding strategic

investments

22 October 2014 Stora Enso Q3 2014 Financial Results 3

1000

1100

1200

1300

1400

1500

1600

13Q3 14Q3

Sales, excluding Printing and Reading, MEUR

4000

4100

4200

4300

4400

4500

4600

4700

4800

Q3 2013 YTD Q3 2014 YTD

Sales, excluding Printing and Reading, MEUR

1000

1200

1400

1600

1800

2000

2200

2400

2600

2800

13Q3 14Q3

Group sales, MEUR

4000

4500

5000

5500

6000

6500

7000

7500

8000

8500

Q3 2013 YTD Q3 2014 YTD

Group sales, MEUR

Quarterly sales at EUR 2 514 million up by 3% y-o-y,

excluding structurally declining paper


2.8% 1.0%

-3.6% -1.5% 2 553 2 514 7 951

7 661

1 512 1 555

4 686 4 733

0

100

200

300

400

500

600

700

13Q3 14Q3 Q3 2013 YTD Q3 2014 YTD

Operational EBIT increased sequentially by 14% and

YTD y-o-y by 41%

Stora Enso Q3 2014 Financial Results 5

MEUR

22 October 2014

14.1%

41.1%

184 210

426

601

Investing in sustainable business


Guangxi

Partnering with IFC (equity and loan)

FSC certified plantation

Key equipment selected

Site levelling work mainly completed, next steps

waiting for the permits

Phase one: board machine operational early 2016

as previously announced

Montes del Plata

Pulp mill investment of EUR 1 721 million in

Uruguay, joint operation

Annual production capacity 1.3 million tonnes

- Stora Enso’s share 650 000 tonnes

- Stora Enso’s share of 2014 production

245 000 - 275 000 tonnes, due to typical

instability of the ramp-ups

Virdia – demonstration plant

New investment in a demonstration and market

development plant in the USA for the extraction

and separation of highly pure sugars from

biomass to be converted into differentiated

biochemicals.

Demonstration and market development plant to

be built at Raceland, Louisiana, USA

Varkaus conversion

EUR 110 million for conversion

EBITDA margin above 15%

Start up Q4 2015

Capacity 390 000 tonnes of kraftliner

Uncoated fine paper capacity to reduce

by 280 000 tonnes

Non-core asset divestment and restructuring

• Non-core asset divestments:

– Corenso core and coreboard

operations to Powerflute, cash

consideration approximately EUR

75 million expected Q4, announced

Q3 2014

– Thiele Kaolin, cash consideration

EUR 56 million, Q1 2014

• Restructuring:

– Uetersen Mill sales purchase

agreement was discontinued in Q3

– Planned divestment cancelled


30 %

70 %

Paper Growth businesses

16 %

11 %

10 %62 %

1 %

Transformation journey continues Sales and operational EBIT

20XX Sales

62 %

6 %

35 %

-3 %

70 %

12 %

21 %

-3 %

2006 Sales


38 %

11 %17 %

34 %

0 %

Q3 2014 Operational EBIT 2006 Operational EBIT

Q3 2014 Sales

Summary financials Q3 2014

10 Stora Enso Q3 2014 Financial Results 22 October 2014

EUR million Q3/14 Q3/13

Change % Change %

Q3 14 /

Q3 13

Q2/14 Q3 14 /

Q2 14

Sales 2 514 2 553 -1.5 2 579 -2.5

Operational EBITDA 333 319 4.4 326 2.1

Operational EBITDA, % 13.2 12.5 12.6

Operational EBIT 210 184 14.1 209 0.5

Operational EBIT margin, % 8.4 7.2 8.1

Profit before tax excl. NRI 116 126 -7.9 145 -20.0

EPS excl. NRI, EUR 0.12 0.13 0.13

EPS (basic), EUR 0.15 0.11 0.00

Operational ROCE, % 9.7 8.3 9.8

Operational ROCE, % excl. transformation

investments13.0 10.2 12.7

Cash Flow from Operations 257 347 -25.9 288 -10.8

Net debt/last 12 months’ operational

EBITDA 2.8 3.1 2.8

0

500

1000

1500

2000

2500

3000

13Q3 14Q3 Q3 2013 YTD Q3 2014 YTD

Sales, MEUR

0

50

100

150

200

250

300

350

400

13Q3 14Q3 Q3 2013 YTD Q3 2014 YTD

Operational EBIT, MEUR

Renewable Packaging operational EBIT increased

by 30% Q3 2014 year-on-year

11 Stora Enso Q3 2014 Financial Results

• Sales increased by 2.7%

– Higher volumes, especially

Consumer board

– Higher wood sales in Guangxi

• Operational EBIT EUR 130 million

– Higher volumes and prices

– Lower variable costs

– Improved operational efficiency

• Operational ROOC increased from

16.9% to 20.2%, excluding Guangxi

project from 19.3% to 27.0%

22 October 2014

2.7%

1.6%

37.1%

30.0%

829 851

2 484 2 523

336

245

130 100

0

100

200

300

400

500

600

700

800

900

13Q3 14Q3 Q3 2013 YTD Q3 2014 YTD

Sales, MEUR

0

10

20

30

40

50

60

13Q3 14Q3 Q3 2013 YTD Q3 2014 YTD


Biomaterials operational EBIT improved by 41% Q3 2014 year-on-year


• Sales increased by 18.8%

– Mainly due to MdP


– Higher volumes

– Activity in innovation (lignin and

Virdia) increased fixed costs

– Softwood pulp prices higher,

hardwood lower

• Operational ROOC increased from

3.3% to 4.2%, excluding MdP from

9.0% to 11.1%

22 October 2014

18.8%

3.0%

41.2%

3.8%

239 284

767 790

55 53

24

17

0

200

400

600

800

1000

1200

1400

1600

13Q3 14Q3 Q3 2013 YTD Q3 2014 YTD

Millions

Sales, MEUR

0

10

20

30

40

50

60

70

80

13Q3 14Q3 Q3 2013 YTD Q3 2014 YTD

Millions


Building and Living operational EBIT EUR 22 million Q3 2014 year-on-year

• Sales decreased by 6.7%

– Lower volumes in Japanese market


– Lower volumes and slightly lower

prices

– Lower fixed costs

• Operational ROOC decreased from

17.7% to 16.0%

• Murow Sawmill investment

proceeding as planned


-6.7%

-2.6%

-8.3%

41.1%

460

1 401 1 364

24 22

56

429

79

0

500

1000

1500

2000

2500

3000

3500

13Q3 14Q3 Q3 2013 YTD Q3 2014 YTD

Sales, MEUR

0

50

100

150

200

250

300

13Q3 14Q3 Q3 2013 YTD Q3 2014 YTD

Operational EBITDA, MEUR

Printing and Reading cash flow to sales improved from

5.4% to 7.5% Q3 2014 year-on-year

• Sales declined by 7.9%

– Corbehem and Veitsiluoto PM1 closure

– Structural paper demand decline

• Operational EBITDA EUR 84 million,

improved by 3.7%

– Lower costs

– Sales prices in local currencies lower

– Lower volumes due to machine closures

• Operational ROOC increased from 1.9 %

to 6.7%

• Cash flow improved y-on-y and q-on-q


-7.9%

-10.3%

3.7%

23.5%

3 265 2 928

959 1 041

81 84

204

252

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0

20

40

60

80

100

120

140

160

180

200

13Q1 13Q2 13Q3 13Q4 14Q1 14Q2 14Q3

Cash flow from operations, MEUR Cash flow to Sales

Sensitivity analysis 10% change, impact on operational EBIT


10% increase in Impact*

Market pulp price, total Positive EUR 95 million

*Impact on operational EBIT for the next twelve months.

An increase of energy, wood or chemical and filler prices or decrease of pulp prices, as well as weakening of

the currencies would have the opposite impact.

10% decrease in Impact*

Energy prices Positive EUR 13 million

Wood prices Positive EUR 187 million

Chemical and filler prices Positive EUR 59 million

10% strengthening against Euro

in the value of Impact*

US dollar Positive EUR 103 million

Swedish krona Negative EUR 74 million

British pound Positive EUR 46 million

Forecast for capex in 2014

EUR million Forecast 2014*

Capital expenditure 790–840

Depreciation 550–560

* Capital expenditure includes approximately EUR 260 million for the project in Guangxi, China. These figures do not include the

acquisition of Bergvik Skog and Virdia shares.


Guidance for Q4 2014 Compared to Q3 2014

• Sales are estimated to be roughly

similar to the EUR 2 514 million

• Operational EBIT is expected to

be somewhat lower than EUR 210

million

– Due to normal seasonal weakness

in the Renewable Packaging and

Building and Living divisions


Conclusion y-o-y comparison

• Transformation journey continues

• Solid third quarter

– Operational EBIT increased

by 14%

– Net debt /EBITDA improved from

3.1 to 2.8

– Operational ROCE improved from

8.3% to 9.7%


Operational EBIT by segments


EUR million Q3/14 Q3/13

Change % Change %

Q3 14 /

Q3 13

Q2/14 Q3 14 /

Q2 14

Renewable Packaging 130 100 30.0% 114 14.0%

% of sales 15.3% 12.1% 13.4%

Biomaterials 24 17 41.2% 10 140.0%

% of sales 8.5% 7.1% 4.1%

Building and Living 22 24 -8.3% 37 -40.5%

% of sales 5.1% 5.2% 7.6%

Printing and Reading 33 13 153.8% 36 -8.3%

% of sales 3.4% 1.2% 3.7%

Other 1 30 -96.7% 12 -91.7%

% of sales 0.2% 4.9% 1.8%

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

2 800

2 900

3 000

3 100

3 200

3 300

3 400

3 500

3 600

12Q1 12Q2 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4 14Q1 14Q2 14Q3

Net Debt, MEUR Net Debt/Operational EBITDA*

Balance sheet strength Q1 2012 – Q3 2014


*Last twelve months’ operational EBITDA

22 October 2014

Cash flow from operations


0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0

50

100

150

200

250

300

350

400

450

500

13Q1 13Q2 13Q3 13Q4 14Q1 14Q2 14Q3

Cash flow from operations, MEUR Cash flow to sales

Cash flow by divisions in Q3


-100

-50

0

50

100

150

200

Printing andReading

Biomaterials Building andLiving

RenewablePackaging

Other

Cash flow from operations, MEUR Cash flow after investments, MEUR

Permanent pulp, paper and board capacity reductions since 2006


Mill Date Grade Capacity reduction, t

Corbehem PM 3 and PM 4 Jun 2006 LWC 250 000

Varkaus PM 1 End 2006 WFC 95 000

Berghuizer Mill Oct 2007 WFU 235 000

Reisholz Mill End 2007 SC 215 000

Summa Mill Jan 2008 Newsprint, uncoated mag, book paper 415 000

Anjala Mill PM1 Feb 2008 Coated magazine paper 155 000

Baienfurt Mill End 2008 FBB 190 000

Kabel Mill PM 3 End 2008 Coated magazine 140 000

Kemijärvi Pulp Mill April 2008 Long-fibre (SW) pulp 250 000

Norrsundet Pulp Mill Dec 2008 Long-fibre (SW), pulp 300 000

Varkaus Mill coreboard machine Dec 2008 Coreboard 100 000

Imatra PM 8 Mar 2010 WFU 210 000

Varkaus PM 2 and PM 4 Sep 2010 Newsprint, directory paper 290 000

Maxau PM 7 Nov 2010 Newsprint 195 000

Hylte PM1 Dec 2012 Newsprint 180 000

Ostroleka PM2 Jan 2013 Containerboard 85 000

Hylte PM2 May 2013 Newsprint 205 000

Kvarnsveden PM11 May 2013 Newsprint 270 000

Veitsiluoto PM1 Apr 2014 Coated magazine 190 000

Corbehem MIll July 2014 LWC 330 000

Total 4 300 000

Permanent sawn wood capacity reductions since 2006


Mill Date Capacity reduction, m3

Veitsiluoto Sawmill 2006 100 000

Honkalahti Sawmill 2006 90 000

Sauga Sawmill Jun 2007 130 000

Sollenau Sawmill 2007 110 000

Näpi Sawmill 2007-2008 100 000

Kotka Sawmill 2007-2008 70 000

Paikuse Sawmill End 2008 220 000

Zdirec Sawmill 2008 120 000

Ybbs Sawmill 2008 & Jun 2009 200 000

Kitee Sawmill 2008 & Jun 2009 130 000

Varkaus Sawmill Jun 2009 60 000

Tolkkinen Sawmill End 2009 260 000

Kopparfors Sawmill End 2011 310 000

Sollenau Sawmill Mar 2014 150 000

Total 2 050 000

Net financial items


*Not hedge accounted interest rate derivatives.

EUR millionQ3/

2014

Q3/

2013

Change %

Q314/

Q313

Q2/

2014

Change %

Q314/

Q214

Net interest expense -48 -53 9 -45 -7

Foreign exchange gains and losses -16 11 n/m 15 n/m

Other financial items. of which -7 -11 36 -16 56

PIK notes - 3 -

Fair valuation of interest rate derivatives* - -4 -9

Fair valuation of long-term debt - - -

Pension costs (IAS 19R) -2 -4 -3

Other items -5 -6 -4

Total net financial items -71 -53 -34 -46 -54

Net cash flows and foreign exchange hedges Q3 2014


Additionally there are USD hedges for 13-15 months worth of EUR 30

million.

€ million USD SEK GBP

Estimated annual net operating cash flow exposure 1030 -740 460

Transaction hedges -480 390 -230

Hedging percentage for the next 12 months 47%* 53% 50%

0

2

4

6

8

10

12

14

16

11Q111Q211Q311Q412Q112Q212Q312Q413Q113Q213Q313Q414Q114Q214Q3

Paper and Board Wood Products

Curtailments of capacity


% of the

capacity

22 October 2014

Softwood pulp prices Stora Enso’s market pulp is softwood


Source: FOEX

22 October 2014

450

550

650

750

850

950

1 050

07Q

107Q

207Q

307Q

408Q

108Q

208Q

308Q

409Q

109Q

209Q

309Q

410Q

110Q

210Q

310Q

411Q

111Q

211Q

311Q

412Q

112Q

21

2Q

312Q

413Q

113Q

213Q

313Q

414Q

114Q

214Q

3

US

D/t

on

ne

Bleached softwoodkraft pulp

Bleached hardwoodkraft pulp

Pulp sensitivity analysis 10% change in prices, impact on operational EBIT


* Impact on operational EBIT for the next twelve months. A decrease of pulp prices would have the opposite impact.

** Includes 550 000 tonnes from Montes del Plata

10% increase in Impact*

Hardwood pulp** prices Positive EUR 35 million

Softwood pulp prices Positive EUR 35 million

Fluff pulp prices Positive EUR 15 million

Dissolving pulp prices Positive EUR 10 million

Market pulp price, total Positive EUR 95 million

Pulp wood and saw log prices Wood prices in Finland

Source: METLA


0

10

20

30

40

50

60

70

80

06

Q1

06

Q2

06

Q3

06

Q4

07

Q1

07

Q2

07

Q3

07

Q4

08

Q1

08

Q2

08

Q3

08

Q4

09

Q1

09

Q2

09

Q3

09

Q4

10

Q1

10

Q2

10

Q3

10

Q4

11

Q1

11

Q2

11

Q3

11

Q4

12

Q1

12

Q2

12

Q3

12

Q4

13

Q1

13

Q2

13

Q3

13

Q4

14

Q1

14

Q2

14

Q3

EU

R/m

3

Pulpwood, Pine Sawlogs, Pine

0,0

40,0

80,0

120,0

160,0

200,00

7Q

1

07

Q3

08

Q1

08

Q3

09

Q1

09

Q3

10

Q1

10

Q3

11

Q1

11

Q3

12

Q1

12

Q3

13

Q1

13

Q3

14

Q1

14

Q3

EU

R/t

onn

e

Mixed OCC De-inking

Paper for recycling prices


German RCP price development. free delivered

Source: Verband Deutscher Papierfabriken/Stora Enso

22 October 2014

MEUR

Other loans / liabilities Bonds Commercial paper

Revolving Credit Facility € 700 million matures in January 2017 and is fully undrawn

Maturity profile Q3 2014 (including joint arrangements according to IFRS11)


0

100

200

300

400

500

600

700

800

900

1 000

2014 2015 2016 2017 2018 2019 2020 2021-2035 2036

Energy balance* Q3 2014


Impact** on operating profit from

10% change in: EUR million p.a.

Electricity market price ~3

Fossil fuel price ~10

**) Remaining impact on non-hedged volume *) Pulp. paper and board mills. Europe and overseas

Stora Enso electricity procurement* Q3 2014


*) Pulp. paper and board mills. Europe and overseas

36

stora enso financial result q3 2014

Economy & Finance