Stora Enso Q1/2014 financial results, presentation

Financial Results Q1 2014 CEO Jouko Karvinen and CFO Seppo Parvi

23 April 2014

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 1995. 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.

2 23 April 2014 Stora Enso Q1 2014 Financial Results

Jouko Karvinen decides to leave his position as CEO

after heading the Company for seven years

“Jouko Karvinen initiated

discussions with the Board of

Directors late last year about

his wish to retire from the

Company during 2014. The

Board regrets his decision

and Jouko Karvinen will

continue as CEO until a

successor is found,” says

Stora Enso Chairman

Gunnar Brock.

23 April 2014 Stora Enso Q1 2014 Financial Results 3

Lower costs improved profits Q1 2014 year-on-year

• Clearly higher Operational EBIT due to lower costs, lower depreciation and

restructuring

– Operational EBIT EUR 182 million or 7.1% (4.4%), increase EUR 64 million

• Nearly all of the original cost reductions of the EUR 200 million programme

visible in the financial results, earlier than anticipated

• Net debt to Operational EBITDA decreased to 2.8 (3.1)

• Operational ROCE 8.6% (5.1%)


Stora Enso portfolio – Paper sales below 40% Q1 2014

Group Sales, EUR 2 568 million Operational EBIT, EUR 182 million


European paper 33% of Group sales

Other and eliminations

39%

17%

32%

2%

10%

19%

12%

11%

51%

7%

Operational EBIT 54% improvement year-on-year Lower costs and depreciation


MEUR

Fixed cost decrease continued Fixed cost 4 quarter rolling average


MEUR

European paper demand continued to decline, at slightly

lower rate European paper demand trend development

23 April 2014 8

SA = seasonally adjusted Source: PPPC, Euro-Graph

Stora Enso Q1 2014 Financial Results

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

30000

31000

32000

33000

34000

35000

36000

37000

38000

39000

40000

Jan

-11

Ap

r-1

1

Jul-

11

Oct

-11

Jan

-12

Ap

r-1

2

Jul-

12

Oct

-12

Jan

-13

Ap

r-1

3

Jul-

13

Oct

-13

Jan

-14

Y-o

-Y c

han

ge %

An

nu

aliz

ed

de

man

d [

kt/a

]

Y-o-Y Paper

Annualized Paper

Printing and Reading improved Operational EBIT by

EUR 33 million Q1 2014 year-on-year

• Operational EBIT:

– Costs significantly lower

– EUR 21 million lower

depreciation

– Capacity closures

• Seasonally lower cash flow

• Veitsiluoto PM 1 closure

• No production at Corbehem

since January 2014


MEUR

Biomaterials generated stable operational EBIT Q1 2014 year-on-year


• Operational EBIT at the same level:

– Higher deliveries and clearly lower

variable costs

– Q1 2013 included gain from land

sales (EUR 10 million)

– Higher biorefinery R&D costs

• MdP Pulp Mill ready for start-up

after receiving operation permits

– In 2014 Stora Enso’s share of

production 350 000-400 000 tonnes

• Veracel and Sunila mills in

maintenance in Q2 0%

2%

4%

6%

8%

10%

12%

14%

Q1 2013 Q1 2014

ROOC (%) ROOC (%) excl str. projects

Building and Living continued solid performance Q1 2014 year-on-year

MEUR



– Sales prices higher

– Costs clearly lower, partially due

to early cost reductions

• Efficiency improvement:

– Closure of Sollenau, Austria and

Investment to Murow, Poland

Renewable Packaging increased profit by EUR 24

million Q1 2014 year-on-year

MEUR



– Higher sales prices

– Clearly lower costs

• Guangxi:

– IFC equity and loan

– 2/3 of the levelling work completed

– Key equipment selected

– Harvesting the plantations and

selling the wood

– Board machine operational early

2016 as previously announced

• Q2 maintenance Ostrołęka and

Imatra pulp

Summary financials Q1 2014

EUR million Q1/14 Q1/13

Change % Change %

Q1 14 /

Q1 13

Q4/13

Q1 14 /

Q4 13

Sales 2 568 2 672 -3.9 2 612 -1.7

Operational EBITDA 302 254 18.9 260 16.2

Operational EBITDA, % 11.8 9.5 10.0

Operational EBIT 182 118 54.2 152 19.7

Operational EBIT margin, % 7.1 4.4 5.8

Profit before tax excl. NRI 106 56 89.3 111 -4.5

EPS excl. NRI, EUR 0.09 0.07 0.15

EPS (basic), EUR 0.13 -0.02 -0.18

Operational ROCE, % 8.6 5.1 7.0

Operational ROCE, % excl. transformation

investments 10.9 5.8 9.0

Cash Flow from Operations 152 126 20.6 462 -67.1

Net debt/last 12 months’ operational

EBITDA 2.8 3.1 2.9


Forecast for Capex and Equity Injections in 2014

EUR million Forecast 2014*

Capital expenditure 760–840

Equity injections 30

Total 790–870

Depreciation 550–580

* Capital expenditure includes approximately EUR 260 million for the project in Guangxi, China and approximately EUR 125

million for Montes del Plata Pulp Mill in Uruguay.


Guidance Compared to Q1 2014

• Sales expected to be similar

• Operational EBIT in line with

EUR 182 million

• Maintenance in Biomaterials

and Renewable Packaging • Ostrołęka Mill shutdown extended

by Polish national electricity grid

maintenance break in Q2


Summary

• 54% higher operational EBIT and

improved profitability due to lower

costs

• Seasonally lower cash flow

• Nearly all originally targeted cost

reductions achieved ahead of

schedule

• MdP pulp ready for start-up

• Guangxi proceeding according to

plan


18

Operational EBIT by segments


Change % Change %

Q1 14 /

Q1 13

Q4/13

Q1 14 /

Q4 13

Printing and Reading 35 2 n/m 36 -2.8

% of sales 3.5 0.2 3.4

Biomaterials 21 22 -4.5 24 -12.5

% of sales 8.0 8.4 9.0

Building and Living 20 4 n/m 19 5.3

% of sales 4.5 0.9 4.1

Renewable Packaging 92 68 35.3 73 26.0

% of sales 11.2 8.3 9.3

Other 14 22 -36.4 - n/m

% of sales 2.0 3.1 -


Cash flow in Q1 2014


MEUR

Fixed costs to sales


Balance Sheet strength Q1 2012 – Q1 2014

*Last twelve months’ operational EBITDA


MEUR

Permanent pulp, paper and board capacity reductions since 2006

Mill Date Grade Capacity reduction, t

Corbehem PM 3 and PM 4 Jun 2006 LWC 250 000

Varkaus PM 1 End 2006 WFC 95 000

Berghuizer Mill Oct 2007 WFU 235 000

Reisholz Mill End 2007 SC 215 000

Summa Mill Jan 2008 Newsprint, uncoated mag, book paper 415 000

Anjala Mill PM1 Feb 2008 Coated magazine paper 155 000

Baienfurt Mill End 2008 FBB 190 000

Kabel Mill PM 3 End 2008 Coated magazine 140 000

Kemijärvi Pulp Mill April 2008 Long-fibre (SW) pulp 250 000

Norrsundet Pulp Mill Dec 2008 Long-fibre (SW), pulp 300 000

Varkaus Mill coreboard machine Dec 2008 Coreboard 100 000

Imatra PM 8 Mar 2010 WFU 210 000

Varkaus PM 2 and PM 4 Sep 2010 Newsprint, directory paper 290 000

Maxau PM 7 Nov 2010 Newsprint 195 000

Hylte PM1 Dec 2012 Newsprint 180 000

Ostroleka PM2 Jan 2013 Containerboard 85 000

Hylte PM2 May 2013 Newsprint 205 000

Kvarnsveden PM11 May 2013 Newsprint 270 000

Veitsiluoto PM1 Apr 2014 Coated magazine 190 000

Total 3 970 000


Permanent sawn wood capacity reductions since 2006

Mill Date Capacity reduction, m3

Veitsiluoto Sawmill 2006 100 000

Honkalahti Sawmill 2006 90 000

Sauga Sawmill Jun 2007 130 000

Sollenau Sawmill 2007 110 000

Näpi Sawmill 2007-2008 100 000

Kotka Sawmill 2007-2008 70 000

Paikuse Sawmill End 2008 220 000

Zdirec Sawmill 2008 120 000

Ybbs Sawmill 2008 & Jun 2009 200 000

Kitee Sawmill 2008 & Jun 2009 130 000

Varkaus Sawmill Jun 2009 60 000

Tolkkinen Sawmill End 2009 260 000

Kopparfors Sawmill End 2011 310 000

Sollenau Sawmill Mar 2014 400 000

Total 2 300 000


Net Financial Items


Change %

Q1 14/

Q1 13

Q4/13

Change %

Q1 14/

Q4 13

Net interest expense -48 -52 8 -50 4

Foreign exchange gains and losses -10 -4 -150 6 n/m

Other financial items. of which -7 - n/m -27 74

PIK notes - 3 -

Fair valuation of interest rate derivatives* -7 2 -8

Fair valuation of long-term debt - - -

Pension costs (IAS 19R) -3 -3 -4

Other items 3 -2 -15

Total net financial items -65 -56 -16 -71 8

*Not hedge accounted interest rate derivatives.

Stora Enso Q1 2014 Financial Results 23 April 2014 25

Transaction risk and hedges as at 31 March 2014

Operational EBIT: Currency strengthening of + 10 % EUR million

USD 98

SEK -77

GBP 48

EUR million USD SEK GBP

Estimated annual net operating cash flow exposure 980 -770 480

Transaction hedges as at 31 Mar 2014 -450 400 -230

Hedging percentage as at 31 Mar 2014 for the next 12 months 46% 52% 48%

The sensitivity is based on estimated next 12 months net operating cash flow. The

calculation does not take into account currency hedges, and assumes no changes occur

other than a single currency exchange rate movement. Weakening would have the

opposite impact.

Stora Enso Q1 2014 Financial Results 23 April 2014

Additional GBP hedge for 13-15 months increase the hedging percentage by 5%.

26

Curtailments of capacity


0

2

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16

18

20

Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413 Q114

% o

f th

e c

ap

ac

ity

Paper and Board Wood Products

Softwood pulp prices Stora Enso’s market pulp is softwood

Source: FOEX


450

550

650

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1 050

07Q

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14Q

1

US

D/t

on

ne

Bleached softwoodkraft pulp

Bleached hardwoodkraft pulp

Pulp wood and saw log prices Wood prices in Finland

Source: METLA


0

10

20

30

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50

60

70

80

06

Q1

06

Q2

06

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Q1

EU

R/m

3

Pulpwood, Pine Sawlogs, Pine

Paper for Recycling prices

German RCP price development. free delivered

Source: Verband Deutscher Papierfabriken/Stora Enso


MEUR

Revolving Credit Facility € 700 million matures in January 2017 and is fully undrawn

Maturity profile Q1 2014


0

100

200

300

400

500

600

700

800

900

1 000

2014 2015 2016 2017 2018 2019 2020 2021-2035

2036

Commercial papers Bonds Other loans / liabilities

Energy balance* Q1 2014

Impact** on operating profit from

10% change in: EUR million p.a.

Electricity market price ~2

Fossil fuel price ~12

**) Remaining impact on non-hedged volume

23 April 2014 Stora Enso Q1 2014 Financial Results

*) Pulp. paper and board mills. Europe and overseas

32

Stora Enso Electricity procurement* Q1 2014

23 April 2014 Stora Enso Q1 2014 Financial Results

*) Pulp. paper and board mills. Europe and overseas

33 33

Investor Relations

Stora Enso Q1/2014 financial results, presentation