© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Hello everyone and a warm welcome to Stora Enso's first quarter results presentation. Welcome also to those of you who are joining us via the webcast. My name is Ulrika Lilja, I'm Head of Communications, and I'm standing here with our CEO, Karl-Henrik Sundstrom; and our CFO, Seppo Parvi.
Hello.
After the presentation, we will open up for Q's and A's. And for those of you who are joining us via the webcast, please post your questions online.And with that, I hand over to you, Karl.
Thank you, Ulrika. And good morning or good afternoon depending on where you are in the world. So the theme of the first quarter report of 2019 is a promising start of the year supported by the profit protection program. We came out with the sales increase of over 2%. That's the ninth consecutive time that we have a top line growth for Stora Enso. The other part that is interesting is that we are basically having the highest sales quarter as a quarter 1 since 2013. And we came out with an operation EBIT of EUR 324 million, EUR 45 million lower than the year ago. And we came in the upper end of our guidance that we gave to the market in conjunction with this fourth quarter report earlier this year.The EBIT margin was 12.3% and that is the seventh consecutive time where we had an EBIT margin over 10%. Cash flow continued to be at the same level as last year. We have a little bit of working capital and that is an area that Seppo will talk about later on. Net debt to EBITDA came in at 1.7x versus 1.3x a year ago. There are 2 important elements here. In this quarter, we have implemented a new accounting rule called IFRS 16. It's about leasing accounting that counts for 0.3x. And for the first time, we actually paid dividend in the first quarter. Return on operating capital employed came out at 14% and that is above the target of 13%. And we also have impacts of the IFRS 16 rule here as well.But to describe what happened in the quarter, I would like to start with the slide looking at the totality what happened in the quarter. This is a simplified way of describing. First you have to remember that this year we have a different maintenance schedule compared to last year. Last year, we had a quarter without annual maintenance or annual maintenance shut down. That's about EUR 20 million of the EUR 45 million. Then the other 2 parts that we have been working very, very much around is actually what we call the value management; how you balance between price and volume. That has had a positive net effect of EUR 43 million.The other area we've been working very hard on in this quarter is actually in the profit protection program. You can see here we have variable cost increasing EUR 68 million compared to last year, whereof the fiber cost are the biggest. And that is roundwood pulp, but also other variable cost such as chemical and freights. And these are the things that has moved and that's why we are quite happy that we came in slightly higher than expected or slightly higher than the midpoint of our guidance is because we've been more successful in the value management and better in the profit protection program.Coming back to this, we are back to a return on capital employed above 13%. And in this number is also included an increase of working capital of almost EUR 300 million, which comes with the new IFRS 16 rules.We have had a number of important events during the first quarter. We published that we are building up what we call a formed fiber unit where we are putting up a machinery that provides various kinds of new products that we don't have today which are 100% recyclable and/or having no content of plast. It can be cup holders, it can be cups. It can be lids on coffee cups.In the quarter, also the Oulu conversion feasibility study was completed. And in first way we looked upon it is actually to convert the paper machine #7 to a kraftliner machine and hold for a period to come paper machine #8 that will be closed and the same with the sheeting. We are now in a discussion on the co-determination and once they are finished, we will take a proposal to the board for the final approval of the conversion.We have also started up the new CLT line and we have had commercial delivers from Gruvon in Sweden and that was completed basically on time. And then the flash-drying capacity that we needed to improve our MFC, micro-fibrillated cellulose, capacity has been concluded and now we can ramp up according to planned MFC.Another important thing that I want to talk about is the restructuring of Bergvik Skog and that is going according to plan. The aim is to complete this deal in Q2. And I also want to remind you what it's about. Going from an indirect ownership about 1.1 million hectares, we would go to a direct ownership of 1.4 million hectares. And we will increase also the productive forests from what we used to have indirectly. This is an investment of a in-capital employed about a EUR 1 billion. And it will have an impact on return on capital employed about 1%. Important to notice that the structured transaction means that we will probably go over the net debt to EBITDA temporarily for Q2 and Q3 and then come back below 2.0x in towards the end of the year.With that, I would like to hand over to Seppo. Seppo?
Thank you, Karl. And I start with some of the key figures from the report that we had just published earlier today. So sales line, top line went up 2.2% as Karl mentioned already. Operational EBIT was EUR 324 million or 12.3%. Operation return on capital employed at 14% which is higher than our targeted 13% level as a minimum return on capital employed.Cash flow from operations, EUR 223 million, approximately at the same level as year ago. Net debt to last 12 months operational EBITDA at 1.7x. And here it's good to remember that includes adaptation of IFRS 16 leasing standard adding 0.3x to the ratio as well as good to remember that we have paid dividend already in Q1 this year compared to last year when the dividend payment took place in Q2.Moving then forward and a bit more details about the new IFRS 16 leasing standard adaptation effects in our figures. Highlighting some key points there, first of all, operational EBITDA increased EUR 19 million for the quarter. And then EBIT -- operational EBIT went up EUR 2 million. So the difference is then increase in depreciation. Net financial items went up EUR 6 million and net profit for the period, there was a difference of EUR 4 million negative. Operational return on capital employed decreased 0.4% and net debt to -- net debt increased EUR 526 million because of the standard change.Then moving to divisions and I start with Consumer Board where price increases are coming through gradually. Sales decreased slightly to EUR 634 million. That is because lower board deliveries were only partly offset by higher pulp deliveries, and local sales prices at a slight positive impact. We still need to continue to increase prices as said earlier to improve the profitability. But first steps have been already taken end of last year and we continue to work also this year.Operational EBIT decreased EUR 37 million to EUR 54 million. And that is still significantly higher variable cost especially for wood and somewhat for pulp as well. And there was negative volume impact also affecting the profitability. Operational return on capital decreased by -- decreased to 10.3%. That is because of lower profitability, as mentioned above, as well as negative impact from IFRS 16 leasing standard.We also launched new premium quality folding boxboard, Arctic Deer, in China and that is suitable for applications in food and pharmaceutical packaging as well as publications. And at Imatra mill, we had co-determination negotiations for the PM6 closure that will take place by end of 2019. That will decrease annual sales by approximately EUR 70 million.Then moving to packaging solutions where we had record first quarter sales. Sales increased 2% to EUR 338 million, thanks to higher prices in corrugated and fluting products. Operational EBIT decreased EUR 10 million to EUR 51 million. Their higher sales prices were offset by overall higher costs and lower China Packaging sales margin. Changed maintenance schedule compared to a year ago for Ostroleka Mill's PM5 decreased production and increased maintenance costs. And operational return on capital employed was 21.8% that remained above the targeted 20% level for the division.At the Heinola mill -- Heinola fluting mill in Finland, we have announced industrial scale pilot plant to turn sludge from the mill's water treatment plant into renewable fuel. That will be testing new energy-efficient technology and the new biofuels will reduce the carbon dioxide emissions at the mill's power plant going forward.Then moving to biomaterials where good performance continues and they had the record quarter. Sales were up 1% to record high first quarter EUR 398 million. Slightly higher sales prices were supported by foreign exchange rates and lower deliveries mainly due to changed maintenance schedule in Veracel Mill in Brazil had negative effect on the sales line.Operational EBIT was at record high first quarter level of EUR 103 million and higher sales prices were partly offset by higher variable and fixed costs. And operational return on capital employed above the targeted 15% level at 16.2%.Wood Products. There we also continue on record level. Sales increased 3%. Slightly higher sales prices and favorable mix changes partly offset by lower deliveries had an effect on the sales line. Operational EBIT at record high first quarter level of EUR 29 million. Higher sales prices were offset by higher fixed costs, mainly related to start-up preparation of the strategic investments and negative impact from volumes.Operational return on capital decreased to 17.7%. That's partly seasonal, but also good to remember that capital increase at the Gruvon new CLT plant has an effect here and it is still at the ramp up phase. And IFRS16 leasing standard also had the negative impact of 0.6 percentage points when it comes to return on capital employed in Wood Product division.Then moving to Paper division, where we had record high first quarter profitability. Sales were down 2% to EUR 760 million. There clearly higher sales prices and a better mix, but lower sales prices -- sorry, lower sales volumes were then offsetting the benefit partly and reflecting on the sales line. Operational EBIT was stable at EUR 69 million and EBIT margin increased to 9.1%, which is highest in 10 years. Significantly higher sales prices and slightly lower fixed costs were affecting the result as well. We had higher variable cost especially when it comes to wood, pulp and energy, and lower volumes. Cash flow after investing activities to sales ratio was 6.1% compared to 6.2% a year ago, slightly below the targeted 7% level.Then to summarize, I'm looking at the strategic targets table. We are still on rate when it comes to fixed cost to sales ratio at 22.4% at the moment, coming down from 22.6% a year ago. Consumer Board, as mentioned earlier, still below the 20% targeted level and we are working on improving the cost structure as well as on increase the selling prices further. And Wood Products on yellow at 17.7% as mentioned mainly seasonality driven issues there, and Paper at 6.1% cash flow.With that, I hand over to you Karl-Henrik.
Thank you, Seppo. And first I would like to start with the outlook for 2019. That is unchanged compared to the previous. So the takes is exactly the same as we had in the fourth quarter. Going into the guidance for the second quarter of 2019, operational EBIT is expected to be in the range of EUR 270 million to EUR 350 million. During the second quarter 2019, there will be an annual maintenance shutdown at Nymolla paper mill. The total negative impact of maintenance is estimated to be EUR 35 million less than in the second quarter of 2018. You can clearly see here from the schedule that there is 1 mill this year and there was 6 mills last year, and that's the reason why we have less impact.Yes, before we open up for the Q&A, I just want to highlight a little bit. We working on both pricing versus volumes as well as accelerating and driving the profit protection program is actually paying off and that's the reason why we came in in the upper end of our guidance. Sales growth of 2%, ninth consecutive quarter of growth, seventh consecutive quarter of double digit operational EBIT. Return on capital employed at 14%. We have a strong balance sheet despite the adaptation of IFRS 16. And we'll continue with value management, which is price versus volume. And profit protection program addressing cost structure going forward is actually about securing the future and being a competitive company.With that, I would like to invite Ulrika and Seppo on stage, and we continue with a Q&A session.
Yes. Again for those of you who are joining us via the web, please post your questions online. And while we wait for the questions, I can start, Karl. We have issued a Green Bond during the quarter. Can you say something about that?
So this was the first Green Bond that we have issued. It was a EUR 600 million and is part of financing the restructuring of Bergvik. We do have green demands in some of our backup facilities as well. And this is, I think, something that proves that you get a very competitive interest rates where you actually go into Green Bonds and green financing.
And Seppo, can you elaborate a bit on the Oulu co-determination process?
Yes, co-determination negotiations are going on with the employees at the moment. We expect to finalize those by say second half of May and then it's time to make the final investment decisions.
Okay. Do we have any questions here from the audience in Helsinki? [ Viara ].
[Indiscernible] What were the reasons for the maintenance in Veracel and the other mill?
So if you're running a pulp mill, you usually have a maintenance for security reasons to secure that it works. It's either annual or it's every 18 months. And depend -- and some like the Nymolla that we have every 18 months. That's why the schedule is changing every year. That is to keep the equipment competitive, but also to make sure it's safe and sound for people working there.
So stable base and normal maintenance cycle inputs.
Yes. And this is partly through legislation that you have to get your permits, you have to have an inspection and yet you do also during the maintenance period. Did that answer your question?
So you said that given the potential market weakness, you are convinced that the timing for advancing the program is right. What are these potential markets weaknesses?
First of all, you had -- in Q1, you did not have a Brexit. That is -- and it's probably going to come later whenever it comes. So that's an uncertainty. The second one which is affecting us very much is actually the ongoing trade war between U.S. and China. We sell a lot to China. We produce in China and we sell to Southeast Asia. So that's one of these uncertainties. The third one is will there be a tariff war or a custom war between EU and Europe? That will affect us severely as well. And all these uncertainties is not good for us because we basically lives on a GDP plus. So if trade is going down, there are more less books is being demanded.
Any additional questions from you, Viara?
I might have 1 or 2 once.
Yes.
Yes.
Yes, then I take one from the webcast in the meanwhile. It's coming from Mikko Ervasti and I direct this to you, Seppo.
Okay.
Please, can you comment on the Q1 dynamics driving 5% drop in Consumer Board deliveries and 10% in production?
Well, I think this is exactly what Karl was referring in his part of the presentation when he was talking about the value management, that we had put priority on increasing selling prices and not going for the volumes. And it's only Consumer Board, but it's the same in other divisions also.
Basically all divisions.
Yes.
Good. We have no more questions from the webcast. So if there are any remaining questions here in Helsinki, this is the time.
You can ask in Finnish because Seppo speaks Finnish. And there are other people can translate if it's to me.
Okay. If we have no further questions, we thank you for your attention and we conclude this webcast. Thank you.
Thank you.
Thank you.