Clear sequential improvement in operating profit; third consecutive quarter of solid cash flow from operations - early cost cuts pay off
STORA ENSO OYJ INTERIM REVIEW 23 July 2009 at 06.00 GMT
- EUR 49 million operating profit excluding NRI and fair valuations through EUR
276 million (13 margin point) year-on-year reduction mostly in fixed and fibre
costs
- EUR 189 million cash flow from operations through third consecutive quarter of
working capital and net debt reductions
- EUR 418 million non-cash write-down due to refinancing of NewPage jointly with
Cerberus; 19.9% shareholding in NewPage maintained
- Continuing losses in Finland with structural external cost issues, further
capacity cuts necessary
Summary of Second Quarter Results
|
Continuing Operations
|
|
Q2/09
|
Q1/09
|
Q2/08
|
|
Sales
|
EUR million
|
2 184.8
|
2 130.5
|
2 871.8
|
|
EBITDA excl. NRI and fair valuations
|
EUR million
|
190.4
|
134.3
|
262.6
|
|
Operating Profit excl. NRI and Fair Valuations
|
EUR million
|
48.5
|
3.0
|
94.4
|
|
Operating loss/profit (IFRS)
|
EUR million
|
-209.4
|
-0.9
|
71.3
|
|
Profit/loss before tax excl. NRI
|
EUR million
|
47.2
|
-82.1
|
31.7
|
|
Loss/profit before tax
|
EUR million
|
-370.6
|
-48.1
|
30.4
|
|
Net profit/loss excl. NRI
|
EUR million
|
44.9
|
-60.2
|
27.5
|
|
Net loss/profit
|
EUR million
|
-368.3
|
-36.1
|
28.6
|
|
EPS excl. NRI
|
EUR
|
0.06
|
-0.08
|
0.04
|
|
EPS
|
EUR
|
-0.46
|
-0.05
|
0.04
|
|
CEPS excl. NRI
|
EUR
|
0.24
|
0.10
|
0.26
|
|
ROCE excl. NRI
|
%
|
2.8
|
-1.6
|
2.8
|
|
ROCE excl. NRI and fair valuations
|
%
|
2.3
|
0.1
|
3.6
|
Fair valuations include synthetic options net of realised and open hedges, CO2
emission rights, and valuations of biological assets mainly related to
associated companies' forest assets.
NRI = Non-recurring items. These are exceptional transactions that are not
related to normal business operations. The most common non-recurring items are
capital gains, additional write-downs, provisions for planned restructuring and
penalties. Non-recurring items are normally specified individually if they
exceed one cent per share.
Message from CEO Jouko Karvinen:
“Three months ago we expected the second quarter of 2009 to be a repetition of
the extraordinarily difficult first quarter. We were unfortunately right about
the demand remaining weak. Our continued push for pricing quality, including
heavy curtailments, paid off with a slightly positive year-on-year development
in paper and board pricing, however combined with materially lower pricing of
wood products and market pulp.
“What is important as well is that our cost improvement actions in the past two
years are now paying off. The overall costs went down by about EUR 280 million
(13 margin points) year on year in the second quarter, mostly through a EUR 109
million year-on-year improvement in quarterly fixed costs and EUR 83 million
lower fibre costs. A material part of the latter is due to our actions in
curtailing the high cost Finnish asset base and directing the limited volumes to
our lowest cost assets.
“With all these actions, and in spite of a 17% year-on-year volume reduction,
our second quarter operating profit excluding NRI and fair valuations at EUR 49
million was clearly better than the EUR 3 million in the first quarter, although
still unacceptably poor. Also, the cash flow from operations at EUR 189 million
and cash flow after investments at EUR 81 million remained solid for a third
quarter in a row. This led to another quarter of net debt reduction in an
unprecedentedly difficult demand environment.
“The refinancing plan for NewPage, undertaken jointly with Cerberus, turned the
second quarter operating profit including NRI into an operating loss, with no
cash impact. At the same time, if anything this proves that our early decision
two years ago to disengage ourselves from our North American operations was
correct as we now can, and will, continue optimising our present asset base
further and review strategic growth options.
“We foresee that demand will continue to be weak during the third quarter of
2009. Our lower cost level will help us to defend our earnings against price
pressure in certain paper grades. Our Next Step programme announced in April to
streamline the organisation and cut overhead costs by a further EUR 250 million
is progressing on time and cost targets. However, the completed and announced
actions are still not enough to solve the external cost issues that have made
some of our assets unprofitable, especially in Finland. For three consecutive
quarters, the profit the Group has made outside Finland has been to a large
extent or even completely lost in Finland. We are therefore preparing plans for
not only continuing curtailments, but also permanent capacity closures in areas
where we cannot see a rapid recovery to clearly positive returns. The specific
plans, once finalised will be announced separately during the third quarter of
2009.
“We have not waited for better times, but instead acted, and that has proved to
have been absolutely the right thing to do. We will never say we are ready, we
have done everything - on the contrary, now we want to move even faster.”
Near-term Outlook
The market environment for the Group's products is expected to stay challenging
as no immediate improvement in the economic outlook can be seen. Forecasts for
advertising expenditure have been further revised downwards as a declining share
of GDP is spent on advertising, and printed advertisements are still losing
market share in total advertising expenditure.
Though the pace of contraction is slowing, demand is forecast to remain weaker
than a year ago for newsprint, magazine paper and fine paper in the third
quarter of 2009. However, some seasonal improvement in the newsprint and
magazine paper market in the third quarter is predicted compared with the
previous quarter. Demand for liquid packaging board is forecast to remain the
same as last year, but demand for other packaging products is expected to be
weaker. The demand outlook for wood products remains weak due to depressed
construction markets throughout Europe, Japan and USA.
In Europe some graphic paper grades are exposed to price pressure. Prices for
consumer board and industrial packaging products are forecast to remain largely
unchanged. Production curtailments have led to an improved balance between
supply and demand in wood products. Some wood product prices are expected to
increase.
In China the economy is recovering and demand for uncoated magazine paper is
predicted to be stronger than a year ago. Prices for uncoated magazine paper are
expected to stabilise. Market demand for coated fine paper is forecast to
improve further and prices to maintain their slow improvement. In Latin America
a seasonal improvement in coated magazine paper demand is anticipated in the
autumn. Prices are expected to stabilise.
Stora Enso continues to forecast that its cost deflation excluding internal
actions will be at about 4% for the full year 2009, the main contributor being
the lower costs of fibre raw material (wood, recycled paper and purchased pulp).
For further information, please contact:
Jouko Karvinen, CEO, tel. +358 2046 21410
Markus Rauramo, CFO, tel. +358 2046 21121
Lauri Peltola, Head of Group Communications, tel. +358 2046 21380
Ulla Paajanen-Sainio, Head of Investor Relations, tel. +358 2046 21242
Stora Enso’s third quarter 2009 results will be published on 22 October 2009.
The full-length version of the interim review
