Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Stora Enso Oyj (SEOAY, Financial) reported a significant increase in adjusted EBIT, more than quadrupling year on year, marking the third consecutive quarter of growth.
- The company successfully reduced its operating working capital to an all-time low, enhancing liquidity and financial flexibility.
- Stora Enso Oyj (SEOAY) achieved a substantial reduction in fixed costs, contributing to improved profitability and competitiveness.
- The forest division saw a strong performance with an 11% increase in sales, driven by higher wood prices and favorable harvesting conditions.
- The company is committed to sustainability, targeting net zero carbon emissions by 2040 and achieving a 46% reduction in production emissions since 2019.
Negative Points
- Group sales decreased by 3% due to structural changes, including site divestments and closures.
- The packaging solutions division faced challenges with a 12% decrease in sales due to lower pricing levels and industry overcapacity.
- High fiber costs, particularly in Finland, continue to pressure margins and impact profitability.
- The net debt to adjusted EBITDA ratio, although improved, remains above the targeted ratio of 2.0.
- The company faces ongoing challenges in the construction segment with weak demand for building solutions.
Q & A Highlights
Q: The guidance seems stable. Does this mean Q2 volumes are the new normal, with revenue and profitability increases mainly from price and mix? Also, regarding CapEx, does the EUR600 million to EUR800 million range include the Beihai disposal and Oulu conversion?
A: Yes, we see stable volume development at a better level than last year, with prices moving up. Regarding CapEx, the range is a general guidance and Beihai's CapEx figures are not large. For Oulu, this is a CapEx-heavy year, with about half of the budget spent. The ramp-up is due to the scale of the investment and the need to open potential bottlenecks.
Q: How are you managing high fiber costs in Finland, and is this a new normal?
A: Wood costs in Finland are high, and we manage this by producing high-value products with efficient integrates. Consumer board grades, for example, have a higher price point, reducing the impact of wood costs. We also focus on improving efficiency and cost reduction. The high wood costs affect the entire industry, which supports price increases.
Q: Can you quantify the incremental benefit from value creation and profit initiatives in H2 versus H1? Also, the 'Other' segment reported a significant loss; how should we view this going forward?
A: We have announced several price increases and are working on value creation and profit improvement programs. We expect a EUR120 million impact from fixed cost reductions next year, with some benefits in H2. The 'Other' segment loss is due to legacy costs and energy market factors, and we are working to reduce these costs.
Q: How do you view the overcapacity in packaging solutions, and what will it take for the business to provide meaningful EBIT contribution?
A: Demand for corrugated packaging is stable, but overcapacity persists. However, there are strong demand drivers, such as EU packaging waste regulations. Historically, higher containerboard prices lead to improved margins in packaging solutions, despite a time lag.
Q: How are you thinking about your asset base given high wood costs in the Nordics? Is there a plan to optimize capacity?
A: We conducted an extensive asset strategy review and have a clear plan for developing competitiveness. We have already closed some capacity and are continuously evaluating optimization opportunities, but no specific plans can be disclosed at this stage.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
