Q&A on the impacts of Covid-19 on Stora Enso’s operations

We continue to experience unprecedented times with the Covid-19 pandemic, which is affecting global health and creating uncertainty and volatility in the business environment. Stora Enso Investors Relations has received several questions from investors and analysts related to the Covid-19 and its impacts on our business operations. Please find below some typical questions and answers.

Q: What precautions have you taken against Covid-19?

A: The health and safety of Stora Enso’s employees is a key priority. A healthy workforce ensures uninterrupted operations and customer deliveries. Thanks to Stora Enso's proactive approach during Covid-19 thus far, there has been minimal impact on the Group's ability to serve customers and run operations. Stora Enso has secured the health and safety of its employees by various measures and closely monitoring the Covid-19 situation. All business travel is restricted. All visits to Stora Enso for physical meetings are banned. We have instructed our employees to monitor their health, follow the advice of the health authorities, and remote working is encouraged in the workplaces where this is possible.

Stora Enso plays an important role in the society by providing vital materials for the food, hygiene and medical industries.

Q: How Covid-19 impacted on your Q3/2020 performance?

A: Stora Enso delivered a solid result for the quarter, considering the uncertainty and volatility on markets. Although we report a decreased operational EBIT of EUR 175 million compared to last year, excluding Paper, it remained at the same level due to strong results in the Packaging Materials, Wood Products and Forest divisions. The pandemic's biggest effect continues to be on our Paper business. Excluding Paper, our operational EBIT margin increased to 11.8% in the third quarter, a sign of the resilience of our growth businesses and good cost management. We have been successful in our focus on working capital and we delivered a good cash flow amounting to close to EUR 400 million.

Q: How Covid-19 impacted on your demand by division during Q3/2020?  

A: Containerboard demand was negatively impacted by the Covid-19 especially in Europe during the third quarter. Consumer board demand and prices remained stable despite the pandemic. Due to lower international customer activity, our sales in corrugated packaging operations in China were negatively affected. Demand for tissue and hygiene market pulp remained strong, whereas in other end usage segments demand was weaker. Classic sawn and building solutions markets were better than expected in the quarter. In Forest, uncertainty in the wood market has increased. The Covid-19 continued to significantly impact on European paper demand in Q3/2020.

Q: How Covid-19 impacted on your sales prices in Q3/2020?

A: In Q3/2020, sales prices were lower in all divisions y-o-y despite active mix management, and slightly lower by-product sales decreased the top line further. Lower sales prices decreased Group’s operational EBIT by EUR 131 million in Q3/2020 y-o-y. 

By division sales price development Q3/2020 compared to Q2/2020 was as follows:

Packaging Materials
Consumer board (FBB) (Stable)
Virgin-based containerboard (Slightly lower)
Rycycled fiber based containerboard (Significantly lower)

Packaging Solutions
Corrugated Packaging (Stable)

Biomaterials
Softwood pulp (Stable)
Hardwood pulp, Europe (Stable)
Hardwood pulp, China (Stable)

Wood Products (Stable)

Paper (Slightly lower)


Q: Have your units and mills been operating normally?

A: All our units and mills operated normally in the third quarter 2020. However, due to Covid-19 pandemic, there were executed planned and unplanned production downtime, to manage inventory levels in Packaging Materials, Wood Products and Paper division.

Q: How has Covid-19 impacted on your annual maintenance shutdowns?

A: Due to the cross-border travel restrictions and safety concerns associated with Covid-19, most of Stora Enso’s annual mill maintenance shutdowns were postponed from the first half until the second half of 2020.

In Q3/2020, Stora Enso had maintenance shutdown at Beihai, Imatra and Varkaus (Packaging Materials), Sunila and Veracel (Biomaterials) and Veitsiluoto (Paper). The maintenance shutdowns during the third quarter were well managed. Total Q3/2020 negative maintenance impact on EBIT level was -49 MEUR compared to Q2/2020 and -8 MEUR compared to Q3/2019.

During Q4/2020 there will be annual maintenance shutdowns at seven mills. We will continue our diligent work together with our partners and suppliers, with the target to protect our people, contractors and the local communities from Covid-19 outbreaks. The total negative impact of maintenance is estimated to be EUR 10 million less compared to Q3/2020 and EUR 15 million less compared to Q4/2019. The upcoming maintenance shutdowns in Q4/2020 are well prepared to ensure the health and safety of the Group's employees, contractors and communities in which it operates.


Q: What have been the impacts on your supply chain and deliveries?

A: Covid-19 has had only minor impacts on supply chain inbound and outbound during Q3/2020. Our supply chain crisis management process, now solidly in place for almost three quarters, ensure swift and agile response to potential disruptions. Availability of containers continued improved in Q3/2020 compared to the previous quarter and our customer orders were fulfilled even if some increased delivery times could be noted. In addition, we have strengthened the Sourcing and Logistics On-call process to secure proactive awareness of potential issues ensuring swift and agile responses.

 
Q: How Covid-19 impacted on your harvesting in Q3/2020?

A: Our harvesting operations were running seasonally on a normal level during Q3/2020. Covid-19 negative impacts have been mainly the higher uncertainty in wood markets and impacts to graphical paper wood demand. On the positive note, an improved activity in the sawmills has resulted in strong saw log demand. 


Q: What kind of actions you have taken to mitigate the negative impacts from Covid-19 on your financial performance?

A: To address costs and mitigate negative market demand impacts, Stora Enso continues to implement additional cost reduction actions. The Group also continues to focus on sales and customer service as well as cost and working capital management, ensuring liquidity and cash flow to remain resilient and ensure quick recovery.

The target of the profit protection programme was increased to EUR 400 million for continuous cost savings in Q3/2020. The target for one-time savings remains at EUR 85 million. The programme is proceeding well and ahead of plan. The target is to achieve these savings by the end of 2021. Approximately EUR 65 million of the continuous cost savings were achieved during Q3/2020. Including the onetime cost savings, the total implemented cost saving amounted to EUR 70 million in Q3/2020. In 2019, we achieved EUR 105 million in continuous savings, and in2020, with over EUR 150 million delivered already by the end of Q3, we will clearly exceed the previous year's level.

During Q3/2020, we concluded temporary lay-off discussions in several divisions, continued tight control of variable and fixed costs and continued to take market related downtime in our mills due to Covid-19 pandemic. Stora Enso maintains a Covid-19 risk assessment process to determine the potential near- and medium-term implications of the direct and indirect impacts on Stora Enso’s business operations.


Q: Will you postpone your Oulu kraftliner conversion project due to Covid-19?

A: Our transformation project at Oulu Mill is proceeding as planned. Paper production at Oulu Mill stopped in the end of September. The kraftliner production is expected to start up around the New Year. After the conversion, we will have a new world-class line for virgin-fibre based kraftliner (both brown and white-top) with an annual capacity of 450 000 tonnes.

Stora Enso invests approximately EUR 350 million to convert the Oulu paper mill into packaging production. This conversion is estimated to have EUR 30-40 million negative impact on the Packaging Materials Q4/2020 operational EBIT. The mill is planned to reach designed capacity by the end of Q2/2021 and commercialisation of product portfolio by the end of 2021.

Q: What is Stora Enso’s current liquidity position?

A: We have further strengthened our strong liquidity position in Q3/2020.  Cash and cash equivalents net of overdrafts increased by EUR 294 million to EUR 1 356 million. Net debt decreased by EUR 281 million to EUR 3 008 million mainly as a result of solid cash flow from operations after investments. The ratio of net debt to the last 12 months’ operational EBITDA was 2.4, compared to the ratio of 2.5 in the previous quarter.

Stora Enso has a EUR 600 million committed revolving credit facility that was fully undrawn at the end of the quarter. In addition, Stora Enso has undrawn committed bilateral credit facility arrangements with commercial banks up to EUR 250 million. The original tenor of these bilateral arrangements varies from 18 to 24 months and they mature in 2021 and 2022. Additionally, Stora Enso has access to statutory pension premium loans in Finland up to EUR 950 million.

Going forward we continue to monitor the situation, its impacts on Stora Enso and take steps to keep adequate liquidity at all times. We continue to have a good access to various funding sources.

Q: Will you continue to pay dividends during Covid-19 crisis?

A: In June 2020, the Annual General Meeting approved the proposal by the Board of Directors that the Company distributes a dividend of EUR 0.15 per share for the year 2019. On 8 December 2020, Stora Enso Oyj's Board of Directors decided that a second dividend instalment of EUR 0.15 per share will be distributed based on the balance sheet adopted for the year 2019. Following the dividend payment on 17 December 2020, the total dividend for the financial year 2019 is EUR 0.30 per share.

Q: What is your guidance for Q4/2020?

A: Stora Enso has discontinued its quarterly guidance and annual outlook until further notice, due to the uncertainty in the global economy. The Covid-19 crisis has created mixed market conditions for the Group's products. 

The Oulu Mill conversion from coated fine paper to kraftliner packaging material is planned to be completed during Q4. The packaging production is expected to start around the New Year. This conversion is estimated to have EUR 30-40 million negative impact on the Packaging Materials Q4/2020 operational EBIT. The mill is planned to reach designed capacity by the end of Q2/2021 and commercialisation of product portfolio by the end of 2021. Paper production at the Oulu Mill stopped during Q3/2020. Paper division is planning to complete the sale of the mill's coated fine paper inventories during Q4/ 2020. Therefore, Oulu Mill is still expected to have a EUR 5-10 million negative impact on the Paper division Q4/2020 operational EBIT. During Q4/2020 there will be annual maintenance shutdowns at seven mills. The total negative impact of maintenance is estimated to be EUR 10 million less compared to Q3/2020 and EUR 15 million less compared to Q4/2019.

Q: When you will resume guidance and annual outlook?

A: We will continue following the business environment and consider the guidance when appropriate.