Stora Enso Oyj Interim Report January–March 2022

Q1/2022 (year-on-year)
• Sales increased by 23% to EUR 2,798 (2,276) million.
• Operational EBIT increased by 53% to EUR 503 (328) million.
• Operational EBIT margin increased to 18.0% (14.4%).
• Operating profit (IFRS) increased to EUR 394 (161) million.
• EPS was EUR 0.37 (0.18) and EPS excl. fair valuations (FV) was EUR 0.35 (0.22).
• Strong cash flow from operations amounted to EUR 403 (185) million. Cash flow after investing activities was EUR 224 (-9) million.
• The net debt to operational EBITDA ratio improved to 1.1 (2.3). The target is to keep the ratio below 2.0.
• Operational ROCE excluding the Forest division almost doubled to 23.6% (12.0%), the target being >13%.

Key highlights
• Sales process initiated to divest four out of five paper production sites to focus on growth in the key strategic areas: renewable packaging, building solutions and biomaterials innovations.
• Feasibility study for the conversion of an idle paper machine at the Oulu site, Finland to explore expansion in renewable packaging board with an additional capacity of 750,000 tonnes.
• Lignode: feasibility study started at the Sunila site, Finland, to assess the first production site for local supply of fossil-free hard carbon in Europe. A pre-feasibility study to investigate the extraction of lignin has started at the Skutskär site, Sweden.
• All import and export activities from and to Russia are halted, wood supply in Russia has stopped. Mitigation and re-routing are in place to manage supply and risk. In April, Stora Enso announced that it is divesting its two sawmills in Russia to local management of the sites, including its Russian forest operation which through its harvesting, supplies wood to the sawmills. Sales in Russia represented approx. 3% of total Group revenues (2021). The impact from these initiatives on Stora Enso’s sales and operational EBIT is not material.
• A dividend of 0.55 euros per share was paid on 24 March 2022 for the full year 2021.

Stora Enso’s President and CEO Annica Bresky comments on the first quarter 2022 results:

“This year has started on a very strong note for Stora Enso. We delivered record high profitability and maintained our growth momentum from last year in a very turbulent environment. Our sales reached close to EUR 2.8 billion, an increase of 29% excluding Paper. We have seen strong demand for our products with high prices and solid volumes in all our segments and regions. Our strategic positioning and investments in growth within renewable materials is paying off, with our key focus areas being our star performers. This has led to our highest quarterly operational EBIT in around 20 years, up by 53% from a year ago, and an all-time high EBIT margin of 18%.

It has undeniably been a quarter with additional geopolitical challenges on top of lingering pandemic effects and supply chain headwinds. We were early in taking a stand on supporting Ukraine by ceasing our Russian operations. At the same time, safeguarding the safety of our 1,100 people employed in Russia has been, and still is, a key priority, along with minimising the disruption for our customers. Our direct and indirect forest ownership in Sweden and Finland have enabled valuable wood sourcing alternatives to compensate for ceased Russian volumes. Overall, the impact on sales and operational EBIT is not material as Russia represented 3% of Group sales in 2021.

As the next step in our strategy implementation, we have taken the decision to streamline our business to further favour growth in our key focus areas. Paper is not a strategic growth area for us and as such, we have initiated a process to divest four of our five paper sites, retaining our site in Belgium for a possible future conversion. Since 2006, we have reduced our exposure in this segment from 70% of our sales, to around 15% in the first quarter this year. The sites that are up for sale are competitive and operate in attractive paper segments with improving market conditions. We have no deadline for the conclusion of the divestment, and I am confident we will find responsible new owners that can continue to develop the businesses further.

To further accelerate our growth within the packaging segment, we are exploring expansion in renewable consumer board. We have initiated a feasibility study for the possible conversion of an idle paper machine into a high-volume consumer board line. In this market, we target customer segments in which we already hold a leading, global market position.
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