Navigating through the storm

Transcription

1 Navigating through the storm Jouko Karvinen, CEO 27 May 2009

2 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 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. May

3 Contents Navigating through the storm Future direction and its implementation Financials Market outlook Summary May

4 Navigating through the storm

5 Navigating through the storm Past two years Unforeseen challenges Critical to secure the company s vital strengths Start of 2009 Dramatic weakening of demand for end products Strong cash flow; healthy pricing Aggressive cost cutting showing benefits; more to come May

6 Critical actions Divestment of North America and Papyrus (merchant) Optimising pulp production, buying Sunila Pulp Mill Reduced short term debt Eliminated Russian wood dependency Three restructuring programmes Sharply reduced capital expenditure Pricing push, at the expense of volume Drive for cash May

7 Early action gives tangible benefits 25 Oct 2007 Closure of mills and reduction in Group functional staff.» annual cost improvement EUR million - full impact in Sep 2008 Closure of unprofitable mills, productivity improvements and a reduction in personnel.» annual EBIT improvement EUR 140 million - full impact by end Apr 2009 Business Area consolidation and significantly leaner administration.» annual cost savings target EUR 250 million - majority by end 2009, remainder by end 2010 May

8 Permanent capacity reductions since 2006 Mill Date Grade Capacity reduction, t Corbehem PM 3 and PM 4 Jun 2006 LWC Varkaus PM 1 End 2006 WFU Reisholz Mill End 2007 SC Berghuizer Mill Oct 2007 WFU Summa Mill Jan 2008 Newsprint, uncoated mag, book paper Anjala Mill PM1 Feb 2008 Coated magazine paper Baienfurt Mill End 2008 FBB Kabel Mill PM 3 End 2008 Coated magazine Paikuse Sawmill End 2008 Sawn goods m 3 Kemijärvi Pulp Mill April 2008 Long-fibre (SW) pulp Norrsundet Pulp Mill Dec 2008 Long-fibre (SW), pulp Varkaus Mill coreboard machine Dec 2008 Coreboard Totals % of capacity as at end 2005 (adjusted for disposals) Paper and board t/a 11% Pulp t/a 9% Sawmilling m 3 /a 2% May

9 Future direction and its implementation

10 Stora Enso s future direction New growth markets Fibre-based packaging Maintain and develop global leadership position Plantation-based pulp Selected paper grades May

11 Stora Enso and Arauco buy Grupo ENCE s operations in Uruguay Stora Enso and Arauco to buy from Grupo ENCE in Uruguay on a 50/50 basis about ha of owned land and plantations ha of leased lands other operations Enterprise value USD 344 million (EUR 253 million) Incl. USD 33 million assumed debt Transaction expected to close by the end of 2009 May

12 Creating a leadership position in low-cost pulp Cost-competitive plantation-based pulp is a cornerstone of Stora Enso s strategy Securing strategic raw material supply for a world class pulp mill Combining existing assets with Arauco in Uruguay with the acquired operations Total land base of ha, nearly half planted with hardwood and softwood No decision concerning the construction of a pulp mill taken yet May

13 Stora Enso ENCE Arauco Other M'Bopicua/Fray Bentos Mill site & wood yard Barge terminal Chipping Plant Nursery ENCE will keep its Atlantic region plantations Punta Pereira Mill site Port May

14 Focus areas in Latin America Veracel Pulp Mill in Brazil (JV with Aracruz) Producing 1.1 m t/y of eucalyptus pulp ha of eucalyptus plantations Short-fibre pulp shipped to Finland, Germany and China Stora Enso Arapoti (JV with Arauco) LWC machine ( t/a) ha of eucalyptus and pine plantations 20% of LWC machine and 80% of timberland owned by Arauco Land purchase / plantation programme in Southern Brazil Rio Grande do Sul ha land area, ha planted with eucalyptus Plantations in Uruguay (JV with Arauco) (to be concluded by the end of 2009) Land base of ha About ha planted with eucalyptus and with pine Plan to build a pulp mill with Arauco May

15 Present operations in China The world s greatest demand potential Dawang Mill, SC machine (JV with Shandong Huatai Paper) Production capacity t/a Started production in early 2008 Suzhou Fine Paper Mill (CWF) Production capacity t/a Serving the domestic market Utilising imported pulp from Veracel Coreboard production (Corenso) Hangzhou: t/a Foshan: t/a + Stora Enso own sales offices near major markets across the country Plantations & mill site land in Guangxi ha (primarily eucalyptus) Mill site acquired in Beihai City (250 ha) May

16 Financials

17 Overview of Q results year-on-year comparison Cash flow from operations EUR 264 million Strong working capital management Operating profit decreased to EUR 3 million Production down 23% Sales volume down 22% Fixed costs reduced by EUR 78 million = 4 margin points Higher prices for newsprint magazine paper coated fine paper consumer board May

18 Capacity utilisation Q Q of total production capacity 100 % 90 % 80 % 70 % 60 % 50 % 40 % 30 % 20 % 10 % 15% 21% 20% 13% 30% 35% 0 % Paper and board Pulp Sawn goods Q Q Curtailments in Q Curtailments in Q May

19 Summary financials Q Continuing operations EUR million I/09 IV/08 I/08 % Change Q109/Q108 % Change Q109/Q408 Sales EBITDA, excl. NRI and FV Operating profit, excl. NRI and FV Profit before tax, excl. NRI Earnings per share, excl. NRI (EUR) ROCE, excl. NRI (%) Cash flow from operations n/m 11.4 Cash flow after investing activities n/m Debt/equity* *Total Operations NRI = Non-recurring items FV = Fair valuations and related items; include Total Return Swaps (TRS), synthetic options and CO 2 emission rights, and valuations of biological assets mainly related to associated companies forest assets May

20 Change in operating profit excl. NRI & fair valuations Q1/08 Q1/09, including closed units EUR million excluding non-recurring items Q108 Sales Price Sales FX Sales Volume Energy Fibre Other Variable Costs Fixed Costs Depr. Assoc Other Q109 May

21 Strong liquidity cash exceeds 2009 debt maturities Cash and cash equivalents EUR 490 million at end of Q Debt maturities remaining in 2009 EUR 450 million Committed credit facility EUR 1.4 billion fully undrawn, no covenants Potential EUR 600 million available as Finnish pension loans, and EUR 265 million under negotiation from the European Investment Bank EKN have allocated SEK 3 billion of guarantees Budgeted working capital reduction; lower capex improves cash flow May

22 Maturity profile May 2009 EUR million CP s Bonds Other loans/liabilities Credit facility Eurobond tap SEK 3.6 Bn 3.875% 2009 EUR 500m 3.25% 2010 EUR 1.4 Bn RCF 2012 Undrawn USD 469 (750)m 7.375% 2011 EUR 233m 5.125% 2014 Tap EUR 517m 5.125% 2014 Exchange USD 507m 6.404% 2016 USD 300m 7.25% May

23 Market outlook

24 Demand forecasts 2009 Europe (change % year-on-year) Newsprint SC Mag. Coated Mag. Coated Fine Uncoated Fine 0 % -2 % -4 % -6 % RISI Forecast Nov 08 RISI Forecast Jan 09 RISI Forecast Mar 09 RISI Western Europe forecast Apr 09-8 % -10 % -12 % May

25 Paper deliveries in Western Europe /2009 Tonnes Sources: PPPC (Magazine paper and Newsprint) Cepifine (Fine Paper) May

26 Paper price development in Germany YTD /tonne Germany: PPI pricewatch New sprint 45g SC roto 56g LWC roto 60g 200 LWC offset 60g UWF offset reels 80g UWF A4 80g 0 Jan 2000 Apr 2000 Jul 2000 Oct 2000 Jan 2001 Apr 2001 Jul 2001 Oct 2001 Jan 2002 Apr 2002 Jul 2002 Oct 2002 Jan 2003 Apr 2003 Jul 2003 Oct 2003 Jan 2004 Apr 2004 Jul 2004 Oct 2004 Jan 2005 Apr 2005 Jul 2005 Oct 2005 Jan 2006 Apr 2006 Jul 2006 Oct 2006 Jan 2007 Apr 2007 Jul 2007 Oct 2007 Jan 2008 Apr 2008 July 2008 Oct 2008 Jan 2009 Apr 2009 May

27 Long-term estimated demand growth by region through 2025 Paper and Paperboard Demand growth, %/a 7 6 India China Russia Middle East Africa Eastern Europe Latin America Rest of Asia Oceania Western Europe Average 1.9%/a -1 North America Japan Share of consumption in 2006, % Source: Pöyry May

28 Outlook Q More of the same as Q Fight for pricing and cash preservation CAPEX reduced to EUR 400 million (EUR 700 million in 2008) Order flow directed to lowest cost production units Temporary curtailments and cost-cutting measures to continue May

29 Summary

30 Summary We have the strength to navigate through the storm Proceeding with future direction Q2 outlook: more of the same curtailments of higher cost assets focus on cash flow and margin quality control of capital spending and expenses good liquidity situation Reduce fixed costs by a further EUR 250 million p.a. Assume no recovery short term May

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32 Appendix

33 Current credit rating situation Moody s Standard & Poor s Long-term rating: Ba2 Short-term rating: NP Outlook: Negative Long-term rating: BB Short-term rating: B Outlook: Negative Last change 8 May 2009 Last change 14 May 2009 May

34 Operating profit by business area EUR million I/09 IV/08 I/08 % Change Q109/Q108 % Change Q109/Q408 Newsprint % of sales Magazine Paper n/a n/a % of sales n/a n/a n/a Fine Paper % of sales Consumer Board % of sales Industrial Packaging % of sales Wood Products % of sales excluding non-recurring items May

35 Net Financial Items Continuing Operations EUR million I/09 IV/08 I/08 % Change Q109/Q108 % Change Q109/Q408 Net interest expense % 25% Foreign exchange gains and losses % -44% Other financial items, of which % Na PIK notes Fair valuation of interest rate swaps* Fair valuation of long-term debt Other items Total net financial items % 23% * Not hedge accounted interest rate swaps. May

36 Debt/Equity Total operations 2004 Q Objective < Q1 May

37 Transaction risk and hedges Continuing Operations as at 31 March 2009 EUR million USD GBP SEK JPY Estimated annual net operating cash flow exposure Transaction hedges as at 31 March Hedging percentage as at 31 Mar for the next 12 months 68% 60% 68% 71% USD and GBP hedges for 2009 increased to 70 75% Operating Profit: Currency effect +/- 10%* Based on expected 2009 net operating cash flows EUR m USD 55 SEK -100 GBP 50 *Before currency hedges assuming no other changes other than a single currency rate movement occurs. May

38 Operating cash flow Continuing operations EUR million 600 Cash flow from operations including restructuring pay-out Cash flow after investing activities Q1 05Q2 05Q3 05Q4 06Q1 06Q2 06Q3 06Q4 07Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4 09Q1 May

39 Capital expenditure and depreciation Total Operations EUR million Capex target EUR 400 m FY Q1 05Q2 05Q3 05Q4 06Q1 06Q2 06Q3 06Q4 07Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4 09Q1 Capex Depreciation Capex % of sales Depreciation excluding Impairments of Goodwill and Fixed Assets 0 May

40 Energy balance 2009 Excluding Summa, Norrsundet, Kemijärvi and Baienfurt TWh/a Total energy self sufficiency 64% Self sufficiency 72% Impact** on operating profit from 10% change in: EUR million p.a. 20 Self sufficiency 47%* Electricity market price <5 Oil price ~ Electricity Fuels Internal External (hedged) External (non hedged) *) situation for Energy costs 2009 vs will increase due to; 1) delay in oil market price pass through into gas prices 2) indexation of regulated prices and tariffs 3) incresed prices of hegded electricity **) Remaining impact on non-hedged volume May

41 Total cost comparison, 2008 vs 2006 Cost savings in 2008 compared to 2006 cost level Personnel 10% +1.5 margin points Other fixed 18% +2.3 margin points Production services 14% +1.3 margin points Depreciation 22% +1.5 margin points TOTAL 15% +6.5 margin points Cost increase in 2008 compared to 2006 cost level Fibre 22% -4.6 margin points Energy 17% -1.3 margin points Chemicals 14% -1.2 margin points TOTAL 19% -7.0 margin points Sales volume & price 4% -3.3 margin points Total costs difference 2006 vs margin points Total costs in million Euros. / Continuing operations = Excluding discontinued operations (SENA, Merchants) Excluding non-recurring items May

42 Composition of costs 2006-Q I/2009 Variable costs 61% 64% 67% 64% Fibre 23% 25% 28% 26% Chemicals and Fillers 9% 9% 10% 9% Energy 9% 8% 10% 11% Production Service and Material 10% 12% 9% 8% Logistics & Commissions 10% 10% 10% 10% Fixed costs 31% 28% 27% 30% Personnel 17% 16% 15% 17% Other 15% 12% 12% 13% Depreciation 8% 8% 6% 6% Total costs 100% 100% 100% 100% Total costs (excl. NRIs), EUR million Forecast deflation excluding internal actions 4% for the full year 2009, mainly through reduced fibre cost May

43 Reductions of sawn wood capacity Plan to permanently reduce capacity m 3 50 people affected Co-determination negotiations started at Kitee, Varkaus, Puumerkki in Finland; and in Latvia Plans to take long-term production curtailments during Q Świętajno sawmill in Poland one sawing line in Ybbs sawmill in Austria annual capacity reduction m people affected Together with earlier actions long term capacity reduction m 3 11% of 2008 production capacity May

44 Stora Enso acquires remaining shares of Sunila Pulp Mill Transaction price EUR 6 million Easier to optimise total pulp production as the sole owner of the mill Production at Sunila halted in 2009 for a long curtailment May

45 Recovered paper price YTD 160 /ton RCP Price Development Germany Average price market and long term contracts - free delivered German mills. Source VDP Mont h Year May

46 Reclassification of equity & distribution of funds Reclassification of equity components Incorrect classification related to cancellation of repurchased shares => MEUR reclassified from retained earnings to share premium account without impact on the total equity in the Parent Company Distribution of capital in respect of 2008 Proposed distribution of EUR 0.20 per share from the share premium fund of the parent company = a maximum aggregate of EUR 158 million Distribution paid after consent from the Finnish National Board of Patents and Registration Estimated record date 31 July 2009 Estimated payment date 10 August 2009 May