Business News
Stora Enso Interim Review January-June 2010
Thursday 22. July 2010 - Best quarterly earnings since second quarter of 2007 - testimony to early actions combined with volume recovery
EUR 213 million quarterly operating profit excluding NRI and fair valuations, up year-on-year by EUR 164 million driven by volume recovery combined with reduced cost base, currency rate impact and pulp price strength;
Quarterly operating profit margin excluding NRI and fair valuations increased year-on-year to 7.9% (2.2%), ROCE excluding NRI and fair valuations 10.5% (2.3%)
Quarterly EPS excluding NRI improved year-on-year to EUR 0.22 (0.06) and CEPS excluding NRI to EUR 0.38 (0.24);
Quarterly cash flow from operations and cash position strong at EUR 305 million and EUR 856 million respectively;
Sequential price increases realised for most of the Groups products;
Structural overcapacity in Europe remains, most clearly in publication paper
Summary of Second Quarter Results
Fair valuations include synthetic options net of realised and open hedges, CO2 emission rights, and valuations of biological assets related to forest assets in equity accounted investments.
NRI = Non-recurring items. These are exceptional transactions that are not related to normal business operations. The most common non-recurring items are capital gains, additional write-downs, provisions for planned restructuring and penalties. Non-recurring items are normally specified individually if they exceed one cent per share.
Near-term Outlook
The outlook for the third quarter is mixed and still uncertain. Market demand in all paper segments is expected to remain clearly below the pre-crisis levels of 2008. Prices are forecast to be slightly higher or higher than in the second quarter of 2010 in many of the segments. Increasing inflation in variable costs, especially in wood, will burden the third quarter clearly more than the second quarter. In addition, significant maintenance stoppages will negatively affect this years third quarter results, as described in detail in the segment reports. Continued focus on costs and capacity management is required to operate at acceptable profit level. Wood Products is facing pressure on profitability due to rapidly increasing sawlog costs.
In Europe demand for newsprint is expected to be similar to the third quarter of 2009 and the second quarter of 2010. Demand for coated magazine paper is forecast to be stronger than a year earlier and seasonally stronger than in the second quarter of 2010. Demand for uncoated magazine paper is forecast to be unchanged on the third quarter of 2009 but better than in the second quarter of 2010 due to seasonal factors.
Fine paper demand is expected to be stronger than in the third quarter of 2009 and seasonally weaker than in the second quarter of 2010. In consumer board and industrial packaging, demand is predicted to be stronger than in the third quarter of 2009 but similar to the second quarter of 2010. Demand for wood products is expected to be stronger than a year ago but seasonally weaker than in the second quarter of 2010 and well below normal. In overseas markets newsprint demand is forecast to increase slightly.
In Europe slight recovery in newsprint prices is anticipated from the third quarter onwards. However, prices are still expected to stay clearly below 2009 levels. Further increases in newsprint prices are foreseen in overseas markets. Higher magazine paper prices than in the second quarter of 2010 are predicted. Fine paper prices are expected to rise during the third quarter of 2010. Consumer board prices are forecast to increase for non-contractual business. Some selective increases are anticipated in the prices of industrial packaging grades and wood products.
In China demand for uncoated magazine paper is expected to decline seasonally to the level of a year ago but prices are forecast to rise slightly. Demand for coated fine paper is predicted to be stronger than a year ago but similar to the second quarter of 2010. However, start-ups of new capacity continue to strain the supply and demand balance, and lower coated fine paper prices are foreseen.
In Latin America demand for coated magazine paper is expected to be slightly weaker than a year ago due to inventory build-ups but stronger than in the second quarter of 2010. Slight rises in prices are anticipated.
The Group now expects its cost inflation excluding internal actions to be 2% – instead of 1% as forecast in April – for the full year 2010, including the impact of purchased pulp price increases. As the net market pulp position of the Group is positive, the earnings impact of market pulp is positive.