Stora Enso Interim Review January-March 2011
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  • 1. Financial results Q1 201120 April 2011
  • 2. It should be noted that certain statements herein which are not historical facts, including, withoutlimitation those regarding expectations for market growth and developments; expectations for growthand profitability; and statements preceded by “believes”, “expects”, “anticipates”, “foresees”, or similarexpressions, are forward-looking statements within the meaning of the United States Private SecuritiesLitigation Reform Act of 1995. Since these statements are based on current plans, estimates andprojections, they involve risks and uncertainties which may cause actual results to materially differ fromthose 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 ofefficiencies therein, continued success of product development, acceptance of new products or servicesby 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 protectioncreated by the Group’s patents and other intellectual property rights, the availability of capital onacceptable 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 theGroup, 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 geographicmarkets or fluctuations in exchange and interest rates. Financial results Q1 2011 20 April 2011 2
  • 3. Q1 2011 Strong – Earnings more than doubledSales up 19%EBIT excl NRI and fair valuations up 108%EPS excl NRI up 47%Q1 2011 compared to Q1 2010 Financial results Q1 2011 20 April 2011 3
  • 4. Earnings improving Higher prices and continued productivity improvement EBIT excl NRI and fair valuation EBIT margin*, % 4 Q avg 300 10 % 240 8%EUR million 180 6% 120 4% 60 2% 0 0% *excluding NRI and fair valuation Financial results Q1 2011 20 April 2011 4
  • 5. Increased productivityPricing over volumes, managing assets 120 000 100 000 EUR 80 000 Sales per employee 60 000 40 000 07Q1 08Q1 09Q1 10Q1 11Q1 Financial results Q1 2011 20 April 2011 5
  • 6. RCP continued to drive inflation 200 160 EUR/tonne 120 Mixed OCC 80 De-inking 40 0 German RCP price development, free delivered Source: Verband Deutscher Papierfabriken/Stora Enso Financial results Q1 2011 20 April 2011 6
  • 7. Higher pulp prices positiveDue to 1 mill. tonnes net market pulp position 1 200 1 000 800 USD/tonne 600 Bleached softwood kraft pulp Bleached hardwood kraft pulp 400 200 0 Source: FOEX Financial results Q1 2011 20 April 2011 7
  • 8. Summary financials Q1 2011 Change % Change %EUR million I/2011 IV/2010 I/2010 Q111/Q110 Q111/Q410Sales 2 727 2 685 2 296 18.8 1.6EBITDA, excl. NRI and fair valuations 368 289 232 58.6 27.3Operating profit, excl. NRI and fair valuations 248 167 119 108.4 48.5Profit before tax, excl. NRI 213 187 137 55.5 13.9Earnings per share, excl. NRI (EUR) 0.22 0.19 0.15 46.7 15.8ROCE, excl. NRI and fair valuations (%) 11.4 7.9 7.2 58.3 44.3Cash flow from operations 163 265 119 37.0 -38.5Cash flow after investing activities 106 126 6 n/m -15.9Debt/equity 0.38 0.39 0.54 -29.6 -2.6 NRI = Non-recurring items Fair valuations include equity incentive schemes, synthetic options net of realised and open hedges, CO2 emission rights, and valuations of biological assets related to forest assets in equity accounted investments Financial results Q1 2011 20 April 2011 8
  • 9. Net debt down 15% y-o-y Net Debt Net Debt/EBITDA excl NRI and fair valuations 5 000 6,0 4 500 5,0 4 000 4,0EUR million 3 500 3,0 3 000 2,0 2 500 1,0 2 000 0,0 SENA divestment closed in Q4 2007 EBITDA: Continuing operations Merchants divestment closed in Q2 2008 Net debt: Total operations Financial results Q1 2011 20 April 2011 9
  • 10. Strong pricing improvement, inflation unfavourable450 +26400 +257350300 +1 +248250 -130 -13 -12200150 +119100 50 0 Q110 Sales price Volume Costs FX net Equity acc Other Q111 & Mix investments Change in operating profit excl. NRI and fair valuations Q1 2010 – Q1 2011 Financial results Q1 2011 20 April 2011 10
  • 11. Only European board demand above pre-crisis level Folding boxboard Std Newsprint Uncoated magazine Coated fine paper 115 2007 Q avg = 100 100INDEX 85 70 European demand Source: CEPIPRINT, PPPC, CEPIFINE Financial results Q1 2011 20 April 2011 11
  • 12. Implementing strategyHigh return growth businesses Project On target Other progress Montes del Plata Machinery and port pulp mill, Uruguay suppliers selected and contracted for MdP Ostroleka Proceeding as planned containerboard machine, Poland CLT All permits received, main investment, Ybbs, Austria machine supplier selected Skoghall Support wood handling in investment Sweden and further develop Skoghall mill
  • 13. Outlook - increasing concerns on cost inflation• Inflation and maintenance limit Q2 Demand Price earnings improvement y-o-y development development Q2/11 vs Q2/11 vs Q2/10 Q1/11• Inflation estimate increased to Consumer Board ~4% for the full year 2011 compared to 2010 Industrial Packaging• Actions to fight inflation continue Newsprint and Book Paper to be even more important Coated Magazine Paper Uncoated Magazine Paper Fine Paper Wood Products Financial results Q1 2011 20 April 2011 13
  • 14. Summary• Strong quarter• Inflation pressure• 80% of CAPEX for strategic high return growth areas in 2011• Investments in strategic high- return growth areas – Montes del Plata – Ostroleka – Ybbs – Skoghall Financial results Q1 2011 20 April 2011 14
  • 15. Rethinking continues!
  • 16. Financial results Q1 2011 20 April 2011 16
  • 17. Operating profit by segments Change % Change %EUR million I/2011 IV/2010 I/2010 Q111/Q110 Q111/Q410Consumer Board 96 52 71 35.2 84.6 % of sales 14.8 8.5 13.6 8.8 74.1Industrial Packaging 19 22 8 137.5 -13.6 % of sales 8.0 9.1 3.6 122.2 -12.1Newsprint and Book Paper 26 -3 -2 n/m n/m % of sales 8.3 -0.8 -0.7 n/m n/mMagazine Paper 28 20 4 n/m 40.0 % of sales 5.9 3.6 0.9 n/m 63.9Fine Paper 80 68 42 90.5 17.6 % of sales 14.2 12.7 8.9 59.6 11.8Wood Products 12 10 5 140.0 20.0 % of sales 2.9 2.5 1.5 93.3 16.0 excluding non-recurring items Financial results Q1 2011 20 April 2011 17
  • 18. Capital expenditure and depreciation Q1 2008 – Q1 2011 250 10 % Forecast: Capex FY 2011 200 approximately 8% EUR 550 mEUR million 150 6% 100 4% 50 2% 0 0% Capex Depreciation and impairment excl NRI Capex % of sales Total operations Financial results Q1 2011 20 April 2011 18
  • 19. Operative working capitalQ1 2008 – Q1 2011 2 800 28,0 % 2 600 26,0 % 2 400 24,0 % 2 200 22,0 %EUR million 2 000 20,0 % 1 800 18,0 % 1 600 16,0 % 1 400 14,0 % 1 200 12,0 % 1 000 10,0 % 08Q1 08Q2 08Q3 08Q4 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 Operative Working Capital at the end of Q Working Capital per Sales ratio Operative W/Cap = inventories + trade receivables – trade payables Financial results Q1 2011 20 April 2011 19
  • 20. Debt/equity2005 – Q1 20110,90,8 0,700,70,6 0,56 0,54 0,510,5 0,39 0,39 0,380,40,30,20,1 0 2005 2006 2007 2008 2009 2010 Q1 2011 Total operations Financial results Q1 2011 20 April 2011 20
  • 21. Pressure on variable costsWood pricing in Finland and in Sweden 80 600 70 500 60 400 50 EUR/m 3 SEK/m 3 40 300 30 200 20 100 10 0 0 06Q1 06Q2 06Q3 06Q4 07Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 06Q1 06Q2 06Q3 06Q4 07Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 Pulpwood, Pine Sawlogs, Pine Pulpwood Sawlogs Source: METLA Pulpwood includes pine, spruce and birch. Sawlogs include pine and spruce. Source: SDC, Skogsstyrelsen Financial results Q1 2011 20 April 2011 21
  • 22. Net Financial Items Change % Change %EUR million I/2011 IV/2010 I/2010 Q111/Q110 Q111/Q410Net interest expense -23.0 -25.6 -16.5 -39.4 10.2Foreign exchange gains and losses -11.9 1.8 11.1 n/a n/aOther financial items, of which -16.3 2.1 -0.1 n/m n/a PIK notes 1.5 1.6 1.4 Fair valuation of interest rate derivates* 13.9 4.4 -0.7 Fair valuation of long-term debt -0.5 0.1 0.1 Other items -31.2 -4.0 -0.9Total net financial items -51.2 -21.7 -5.5 n/m -135.9 *Not hedge accounted interest rate derivatives. Financial results Q1 2011 20 April 2011 22
  • 23. Transaction risk and hedgesas at 31 March 2011 EUR million USD GBP SEK Estimated annual net operating cash flow exposure 1 080 580 -1 100 Transaction hedges as at 31 March 2011 -510 -250 590 Hedging percentage as at 31 March 2011 for the next 12 months 47% 43% 54%Operating Profit: Currency strengthening of + 10%Based on estimated next 12 months net operating EUR millioncash flow exposure.USD 108SEK -110GBP 58The calculation does not take into account currency hedges, and assumes no changes occur otherthan a single currency exchange rate movement. Weakening would have the opposite impact. Financial results Q1 2011 20 April 2011 23
  • 24. Maturity profile 31 March 2011 1 000 SEK 500m 3.5% 2015 SEK 1.4 bn S+3.7% 2015 900 SEK 2.4 bn 5.75% 2015 800 EUR 750m 5.125% 2014 700EUR million 600 EUR 390m E+4.21% 2016 USD 507m 6.404% 2016 500 Other loans/liabilities 400 USD 300m 7.25% 2036 Bonds 300 Commercial paper 200 100 0 Revolving Credit Facility € 700 million matures in January 2014 and is fully undrawn. Financial results Q1 2011 20 April 2011 24
  • 25. Energy balance Q1 2011TWh/a Self sufficiency 62%50 Total energy self40 sufficiency 60% Impact* on operating profit from 10% change EUR million p.a.30 Self sufficiency 54% in:2010 Electricity market price ~6 0 Fossil fuel price ~11-10 Electricity Fuels *) Remaining impact on non-hedged volume Internal External (hedged) External (non-hedged) Financial results Q1 2011 20 April 2011 25
  • 26. Stora Enso electricity procurementGWh/a20 00018 00016 000 Sales to market14 000 Open position12 000 Local tariff10 000 Financial contracts 8 000 Physical contracts 6 000 PVO production 4 000 Own production 2 000 0-2 000 2011 2012 2013 2014 Financial results Q1 2011 20 April 2011 26
  • 27. Permanent pulp, paper and board capacity reductionssince 2006Mill Date Grade Capacity reduction, tCorbehem PM 3 and PM 4 Jun 2006 LWC 250 000Varkaus PM 1 End 2006 WFC 95 000Berghuizer Mill Oct 2007 WFU 235 000Reisholz Mill End 2007 SC 215 000Summa Mill Jan 2008 Newsprint, uncoated mag, book paper 415 000Anjala Mill PM1 Feb 2008 Coated magazine paper 155 000Baienfurt Mill End 2008 FBB 190 000Kabel Mill PM 3 End 2008 Coated magazine 140 000Kemijärvi Pulp Mill April 2008 Long-fibre (SW) pulp 250 000Norrsundet Pulp Mill Dec 2008 Long-fibre (SW), pulp 300 000Varkaus Mill coreboard machine Dec 2008 Coreboard 100 000Imatra PM 8 Mar 2010 WFU 210 000Varkaus PM 2 and PM 4 Sep 2010 Newsprint, directory paper 290 000Maxau PM 7 Nov 2010 Newsprint 195 000 Totals % of capacity as at end 2005 (adjusted for disposals) Paper and board 2 490 000 t/a 15% Pulp 550 000 t/a 9% Financial results Q1 2011 20 April 2011 27
  • 28. Permanent sawn wood capacity reductionssince 2006Mill Date Capacity reduction, m3Veitsiluoto Sawmill 2006 100 000Honkalahti Sawmill 2006 90 000Sauga Sawmill Jun 2007 130 000Sollenau Sawmill 2007 110 000Näpi Sawmill 2007-2008 100 000Kotka Sawmill 2007-2008 70 000Paikuse Sawmill End 2008 220 000Zdirec Sawmill 2008 120 000Ybbs Sawmill 2008 & Jun 2009 200 000Kitee Sawmill 2008 & Jun 2009 130 000Varkaus Sawmill Jun 2009 60 000Tolkkinen Sawmill End 2009 260 000Total 1 590 000 Reductions equal 20% of capacity as at end 2005 (adjusted for disposals) Financial results Q1 2011 20 April 2011 28