Consumables

Stora Enso Interim Review January-March 2011

Wednesday 20. April 2011 - Strong quarter - every business improved

EUR 248 million quarterly operating profit excluding NRI and fair valuations, up by EUR 129 million (108)% year-on-year, EBITDA excluding NRI and fair valuations up by 59%.
ROCE excluding NRI and fair valuations 11% (6)%.
Improved year-on-year pricing and continued productivity improvement in all segments.
Strong growth in market pulp.
Increase in cost inflation estimate to approximately 4% for the full year 2011, actions to improve costs, productivity, product and customer mix continue to be even more important.
Cost inflation and maintenance stoppages will limit Q2 2011 earnings improvement year-on-year.
Investments announced in strategic high-return growth areas: Montes del Plata Pulp Mill, Uruguay and containerboard machine at Ostro??ka, Poland.
Summary of First Quarter Results
Q1/11
Q4/10
Q1/10
Sales
EUR million
2 726.9
2 685.2
2 295.9
EBITDA excl. NRI and fair valuations
EUR million
368.3
288.8
232.1
Operating Profit excl. NRI and Fair Valuations
EUR million
248.0
166.8
119.4
Operating profit (IFRS)
EUR million
237.2
410.9
123.4
Profit before tax excl. NRI
EUR million
213.2
187.0
136.8
Profit before tax
EUR million
186.0
389.2
117.9
Net profit excl. NRI
EUR million
175.3
148.7
121.0
Net profit
EUR million
155.9
313.0
102.1
EPS excl. NRI
EUR
0.22
0.19
0.15
EPS
EUR
0.20
0.39
0.13
CEPS excl. NRI
EUR
0.39
0.37
0.31
ROCE excl. NRI
%
12.1
9.9
7.2
ROCE excl. NRI and fair valuations
%
11.4
7.9
6.0
Fair valuations include equity incentive schemes, 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 or reversals of write-downs, provisions for planned restructuring and penalties. Non-recurring items are normally specified individually if they exceed one cent per share.
Markets
Compared with Q1/2010
Product
Market
Demand
Price
Consumer board
Europe
slightly stronger
higher
Industrial packaging
Europe
stable
significantly higher
Newsprint
Europe
slightly weaker
significantly higher
Coated magazine paper
Europe
stable
higher
Uncoated magazine paper
Europe
slightly weaker
higher
Coated fine paper
Europe
slightly weaker
higher
Uncoated fine paper
Europe
slightly weaker
significantly higher
Wood products
Europe
slightly stronger
higher
Industry inventories were higher for magazine paper, fine paper and wood products, and significantly lower for newsprint.
Compared with Q4/2010
Product
Market
Demand
Price
Consumer board
Europe
stable
slightly higher
Industrial packaging
Europe
slightly weaker
slightly higher
Newsprint
Europe
significantly weaker
significantly higher
Coated magazine paper
Europe
significantly weaker
higher
Uncoated magazine paper
Europe
significantly weaker
higher
Coated fine paper
Europe
stronger
slightly lower
Uncoated fine paper
Europe
significantly stronger
stable
Wood products
Europe
slightly weaker
slightly lower
Industry inventories were higher for newsprint, magazine paper, fine paper and wood products.
Stora Enso Deliveries and Production
Q1/11
Q4/10
Q1/10
Change % Q1/11-Q1/10
Change % Q1/11-Q4/10
Paper and board deliveries (1 000 tonnes)
2 506
2 724
2 519
-0.5
-8.0
Paper and board production (1 000 tonnes)
2 618
2 665
2 675
-2.1
-1.8
Wood products deliveries (1 000 m3)
1 238
1 259
1 149
7.7
-1.7
Market pulp deliveries (1 000 tonnes)*
313
245
244
28.3
27.8
Corrugated packaging deliveries (million m2)
247
271
250
-1.2
-8.9
*Stora Enso’s net market pulp position will be about 1 million tonnes for 2011.
Q1/2011 Results (compared with Q1/2010)
Breakdown of Sales Change Q1/2010 to Q1/2011
Sales
Q1/2010, EUR million
2 295.9
Price and mix, %
11
Currency, %
2
Volume, %
7
Other sales*, %
3
Total before structural changes, %
23
Structural change**, %
-4
Total, %
19
Q1/2011, EUR million
2 726.9
*Wood, energy, RCP, by-products etc.
**Asset closures, major investments, divestments and acquisitions
Key Figures
EUR million
Q1/2011
Q4/2010
Q1/2010
2010
Change % Q1/11-Q1/10
Change % Q1/11-Q4/10
Sales
2 726.9
2 685.2
2 295.9
10 296.9
18.8
1.6
EBITDA excl. NRI and fair valuations
368.3
288.8
232.1
1 216.5
58.7
27.5
Operating profit excl. NRI and fair valuations
248.0
166.8
119.4
754.1
107.7
48.7
Operating margin excl. NRI and fair valuations, %
9.1
6.2
6.2
7.3
46.8
46.8
Operating profit (IFRS)
237.2
410.9
123.4
1 026.8
92.2
-42.3
Operating profit, % of sales
8.7
15.3
5.4
10.0
61.1
-43.1
Profit before tax excl. NRI
213.2
187.0
136.8
745.7
55.8
14.0
Profit before tax
186.0
389.2
117.9
925.9
57.8
-52.2
Net profit for the period excl. NRI
175.3
148.7
121.0
627.0
44.9
17.9
Net profit for the period
155.9
313.0
102.1
769.3
52.7
-50.2
Capital expenditure
57.3
138.8
112.8
400.4
-49.2
-58.7
Depreciation and impairment charges excl. NRI
135.4
142.5
126.8
529.4
6.8
-5.0
ROCE excl. NRI and fair valuations, %
11.4
7.9
6.0
9.2
90.0
44.3
ROCE excl. NRI, %
12.1
9.9
7.2
10.3
68.1
22.2
Earnings per share (EPS) excl. NRI, EUR
0.22
0.19
0.15
0.79
46.7
15.8
EPS (basic), EUR
0.20
0.39
0.13
0.97
53.8
-48.7
Cash earnings per share (CEPS) excl. NRI, EUR
0.39
0.37
0.31
1.46
25.8
5.4
CEPS, EUR
0.39
0.27
0.30
1.33
30.0
44.4
Return on equity (ROE), %
9.9
20.8
7.8
13.5
26.9
-52.4
Debt/equity ratio
0.38
0.39
0.54
0.39
-29.6
-2.6
Equity per share, EUR
8.01
7.87
6.60
7.87
21.4
1.8
Equity ratio, %
48.1
48.0
43.6
48.0
10.3
0.2
Average number of employees
26 323
26 535
27 245
27 383
-3.4
-0.8
Average number of shares (million)
periodic
788.6
788.6
788.6
788.6
0.0
0.0
cumulative
788.6
788.6
788.6
788.6
0.0
0.0
cumulative, diluted
788.6
788.6
788.6
788.6
0.0
0.0
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 or reversals of write-downs, provisions for planned restructuring and penalties. Non-recurring items are normally specified individually if they exceed one cent per share.
Fair valuations include equity incentive schemes, synthetic options net of realised and open hedges, CO2 emission rights, and valuations of biological assets related to forest assets in equity accounted investments.
Reconciliation of Operating Profit
EUR million
Q1/11
Q4/10
Q1/10
2010
Change % Q1/11-Q1/10
Change % Q1/11-Q4/10
Profit from operations, excl. NRI
232.9
146.4
105.2
687.1
121.4
59.1
Equity accounted investments, operational,
excl. fair valuations
15.1
20.4
14.2
67.0
6.3
-26.0
Operating Profit excl. NRI and
Fair Valuations
248.0
166.8
119.4
754.1
107.7
48.7
Fair valuations
16.4
41.9
22.9
92.5
-28.4
-60.9
Operating Profit, excl. NRI
264.4
208.7
142.3
846.6
85.8
26.7
NRI
-27.2
202.2
-18.9
180.2
-43.9
-113.5
Operating Profit (IFRS)
237.2
410.9
123.4
1 026.8
92.2
-42.3
Q1/2011 Results (compared with Q1/2010) (continued)
Operating profit at EUR 248 million excluding non-recurring items and fair valuations was EUR 129 million higher than a year ago. This represents an operating margin of 9.1%.
Price increases in local currencies and a favourable product mix increased operating profit by EUR 257 million. Higher volumes increased operating profit by EUR 26 million. Paper and board production was curtailed by 7% (12%) and sawnwood production by 2% (6%) of capacity.
The costs of RCP, chemicals, corrugated raw materials, sawlogs, pulpwood and pulp were higher than a year ago, but productivity improvements and cost savings partly compensated for the cost increases. The net impact of the increase in variable costs and fixed costs in local currencies was a negative EUR 130 million. Market pulp had a positive net impact of EUR 9 million, mainly in Magazine Paper, as profit improvement through external pulp sales more than offset the higher cost of externally purchased pulp.
The favourable impact of exchange rates on sales was more than offset by the unfavourable impact of exchange rates on costs, especially due to the Swedish krona, the net impact being some EUR 13 million negative, after hedges.
Depreciation increased by EUR 10 million, partly due to the reversal of previous impairments in 2010.
The share of the operational results of equity accounted investments amounted to EUR 15 (EUR 14) million, with the largest contributions from Tornator and Bergvik Skog.
The Group recorded a net negative EUR 27 million of non-recurring items at operating profit level in the first quarter of 2011. The NRI relate materially to the planned closure of Kopparfors Sawmill. The other NRI relate to other restructuring actions and updates of existing provisions.
Net financial items were EUR -51 (EUR -6) million. Net interest expenses increased from EUR 17 million to EUR 23 million. Net foreign exchange losses amounted to EUR 12 (gain EUR 11) million and the net loss from other financial items totalled EUR 16 (EUR 0) million, mainly relating to the fair valuation of non-hedge accounted interest rate derivatives due to the increased market rates.
Group capital employed was EUR 8 768 million on 31 March 2011, a net increase of EUR 706 million due to the increased working capital, impairment reversal, strengthening of the Swedish krona and PVO valuation.
Q1/2011 Results (compared with Q4/2010)
Sales were slightly up by EUR 42 million on the previous quarter. Operating profit excluding non-recurring items and fair valuations was EUR 81 million higher than in the previous quarter at EUR 248 million. Higher sales prices in local currencies and a favourable product mix more than compensated for higher corrugated raw material, energy and RCP costs. The net impact of exchange rates was unfavourable.
Capital Structure
EUR million
31 Mar 11
31 Dec 10
31 Mar 10
Operative fixed assets
6 394.2
6 445.2
6 084.6
Equity accounted investments
1 725.4
1 744.0
1 572.0
Operative working capital
1 530.3
1 399.3
1 256.2
Non-current interest-free items, net
-473.2
-493.9
-499.6
Operating Capital Total
9 176.7
9 094.6
8 413.2
Net tax liabilities
-408.6
-429.9
-350.9
Capital Employed
8 768.1
8 664.7
8 062.3
Equity attributable to Company shareholders
6 318.1
6 202.9
5 206.6
Non-controlling interests
49.0
51.8
58.8
Net interest-bearing liabilities
2 401.0
2 410.0
2 811.9
Held for sale
–
–
-15.0
Financing Total
8 768.1
8 664.7
8 062.3
Financing Q1/2011 (compared with Q4/2010)
Cash flow from operations remained healthy at EUR 163 (EUR 265) million despite the increase in working capital. The increase was mainly due to higher business volumes but also to increase supply reliability. Cash flow after investing activities was EUR 106 (EUR 126) million as capital expenditure in the first quarter of 2011 was below the annual run rate. At the end of the period, interest-bearing net liabilities of the Group were unchanged at EUR 2 401 million.
Total unutilised committed credit facilities changed from EUR 1 400 million to EUR 700 million. In December 2010 Stora Enso signed a new EUR 700 million committed credit facility agreement with a syndicate of 16 banks effective in January 2011. The new facility matures in January 2014. Cash and cash equivalents net of overdrafts remained strong at EUR 1 108 million, which is EUR 5 million more than for the previous quarter. In addition, Stora Enso has access to various long-term sources of funding up to EUR 600 million.
The debt/equity ratio at 31 March 2011 was 0.38 (0.39). The currency effect on owners’ equity was negative EUR 50 million net of the hedging of equity translation risks.
Cash Flow
EUR million
Q1/11
Q4/10
Q1/10
2010
Change % Q1/11-Q1/10
Change % Q1/11-Q4/10
Operating profit
237.2
410.9
123.4
1 026.8
92.2
-42.3
Depreciation and other non-cash items
104.6
-130.3
101.2
172.4
3.4
180.3
Change in working capital
-178.9
-16.1
-105.4
-207.1
-69.7
n/m
Cash Flow from Operations
162.9
264.5
119.2
992.1
36.7
-38.4
Capital expenditure
-57.3
-138.8
-112.8
-400.4
49.2
58.7
Cash Flow after Investing Activities
105.6
125.7
6.4
591.7
n/m
-16.0
Capital Expenditure for January-March 2011
Capital expenditure for the first quarter of 2011 totalled EUR 57 million, which is 42% of depreciation in the same period. Capital expenditure for the Group for the full year 2011 will be approximately EUR 550 million. Annual depreciation in 2011 will be about EUR 570 million. The equity injection into Montes del Plata, a joint venture in Uruguay, will be approximately EUR 120 million. Close to 80% of capital expenditure including equity injections is allocated for the strategic high-return growth areas in 2011.
The main projects during the first quarter of 2011 were power plants and energy-related projects at existing mills (EUR 20 million) and development of existing production (EUR 13 million).
Near-term Outlook
Demand is expected to be slightly stronger than a year ago for consumer board and stronger for industrial packaging, similar for newsprint and coated magazine paper in Europe, and slightly stronger than a year ago for uncoated magazine paper.
Demand for fine paper is forecast to be similar to a year ago. Demand for wood products is anticipated to be slightly stronger than a year ago.
Consumer board prices are predicted to be similar but industrial packaging prices slightly higher than in the previous quarter. Newsprint and coated magazine paper prices are expected to be stable and uncoated magazine paper prices slightly higher than in the previous quarter.
Fine paper and wood product prices are forecast to be slightly higher than in the previous quarter.
Increased cost inflation and maintenance stoppages will limit the year-on-year earnings improvement in the second quarter of 2011.
The Group has increased its forecast of cost inflation excluding internal actions from 3% to 4% for the full year 2011. Actions on costs, productivity, and product and customer mix continue to be even more important.
Segments Q1/11 compared with Q1/10
Consumer Board
Consumer Board manufactures all major types of consumer board, such as liquid packaging board, food service board, graphical board and cartonboard for packaging food, cigarettes, pharmaceuticals, cosmetics and luxury products.
EUR million
Q1/11
Q4/10
Q1/10
Change % Q1/11-Q1/10
Change % Q1/11-Q4/10
Sales
647.0
611.5
523.1
23.7
5.8
EBITDA*
134.1
90.1
101.6
32.0
48.8
Operating profit*
95.8
52.1
70.5
35.9
83.9
% of sales
14.8
8.5
13.5
9.6
74.1
ROOC, %**
25.7
14.9
23.8
8.0
72.5
Paper and board deliveries, 1 000 t***
594
591
551
7.8
0.5
Paper and board production, 1 000 t***
645
596
602
7.1
8.2
Market pulp deliveries, 1 000 t
120
105
89
34.8
14.3
* Excluding non-recurring items ** ROOC = 100% x Operating profit/Operating capital *** Excluding pulp
Stora Enso launched Pharma DDSi remote access functionality that facilitates real-time adherence control in the healthcare sector.
Stora Enso will invest EUR 12 million in an environmental and safety improvement project at Enocell Pulp Mill in Finland in 2011-2013.
There will be an annual maintenance stoppage at Enocell Mill and a maintenance stoppage at Imatra Mills in Finland during the second quarter of 2011.
Consumer board sales were EUR 647 million, up 24% on the first quarter of 2010. Operating profit was EUR 96 million, up EUR 25 million on the first quarter of 2010. Supported by practically full capacity utilisation, productivity and efficiency were exceptionally good. Increased sales prices and volumes more than compensated for higher raw material and energy costs.
Markets
Product
Market
Demand Q1/11 compared with Q1/10
Demand Q1/11 compared with Q4/10
Price Q1/11 compared with Q1/10
Price Q1/11 compared with Q4/10
Consumer board
Europe
slightly stronger
stable
higher
slightly higher
Industrial Packaging
Industrial Packaging manufactures corrugated packaging and containerboard, cores and coreboard, and also paper sacks, and sack and kraft paper.
EUR million
Q1/11
Q4/10
Q1/10
Change % Q1/11-Q1/10
Change % Q1/11-Q4/10
Sales
243.4
241.7
223.2
9.1
0.7
EBITDA*
32.2
34.3
20.0
61.0
-6.1
Operating profit*
19.4
22.0
7.7
151.9
-11.8
% of sales
8.0
9.1
3.4
135.3
-12.1
ROOC, %**
12.0
14.2
5.2
130.8
-15.5
Paper and board deliveries, 1 000 t
205
195
226
-9.3
5.1
Paper and board production, 1 000 t
206
194
241
-14.5
6.2
Corrugated packaging deliveries, million m2
247
271
250
-1.2
-8.9
Corrugated packaging production, million m2
249
272
250
-0.4
-8.5
* Excluding non-recurring items ** ROOC = 100% x Operating profit/Operating capital
In January 2011 Stora Enso announced that EUR 285 million would be invested in a new containerboard machine at Ostro??ka in Poland.
Power plant investment was completed at Ostro??ka in Poland.
Regulatory approval process on Inpac International acquisition is ongoing and the acquisition is expected to be finalised in the second quarter of 2011.
Industrial packaging sales were EUR 243 million, up 9% on the first quarter of 2010. Operating profit was EUR 19 million, up EUR 12 million on the previous year as higher sales prices and volumes for containerboard and higher sales prices for corrugated packaging compensated for higher variable costs, especially for corrugated raw material. The laminating paper business was divested in summer 2010.
Markets
Product
Market
Demand Q1/11 compared with Q1/10
Demand Q1/11 compared with Q4/10
Price Q1/11 compared with Q1/10
Price Q1/11 compared with Q4/10
Industrial packaging
Europe
stable
slightly weaker
significantly higher
slightly higher
Newsprint and Book Paper
Newsprint and Book Paper manufactures a wide range of standard and improved newsprint, and book and directory paper grades.
EUR million
Q1/11
Q4/10
Q1/10
Change % Q1/11-Q1/10
Change % Q1/11-Q4/10
Sales
314.5
326.2
287.4
9.4
-3.6
EBITDA*
45.4
20.6
20.3
123.6
120.4
Operating profit/loss*
26.0
-2.7
-1.6
n/m
n/m
% of sales
8.3
-0.8
-0.6
n/m
n/m
ROOC, %**
10.9
-1.2
-0.6
n/m
n/m
Paper deliveries, 1 000 t
554
658
593
-6.6
-15.8
Paper production, 1 000 t
558
619
634
-12.0
-9.9
* Excluding non-recurring items ** ROOC = 100% x Operating profit/Operating capital
Industry inventories were significantly lower than in the first quarter of 2010, but higher than in the previous quarter.
Newsprint prices in euros increased to levels similar to 2009.
Newsprint and book paper sales were EUR 315 million, up 9% on the first quarter of 2010. Operating profit was EUR 26 million, up EUR 28 million on a year ago as higher sales prices more than compensated for higher variable costs. Volumes were slightly lower than a year earlier as the permanent shutdown of the newsprint machines at Varkaus Mill in Finland at the end of the third quarter of 2010 and the newsprint machine at Maxau Mill in Germany at the end of November 2010 reduced production volumes.
Markets
Product
Market
Demand Q1/11 compared with Q1/10
Demand Q1/11 compared with Q4/10
Price Q1/11 compared with Q1/10
Price Q1/11 compared with Q4/10
Newsprint
Europe
slightly weaker
significantly weaker
significantly higher
significantly higher
Newsprint
Overseas
slightly weaker
weaker
significantly higher
stable
Magazine Paper
Magazine Paper manufactures uncoated magazine paper mainly for periodicals and advertising, and coated matt, silk and glossy magazine paper for specialist and general interest magazines, supplements, home shopping catalogues and magazine covers.
EUR million
Q1/11
Q4/10
Q1/10
Change % Q1/11-Q1/10
Change % Q1/11-Q4/10
Sales
482.0
547.5
435.5
10.7
-12.0
EBITDA*
54.3
47.5
27.3
98.9
14.3
Operating profit*
28.2
19.5
3.9
n/m
44.6
% of sales
5.9
3.6
0.9
n/m
63.9
ROOC, %**
8.4
5.7
1.3
n/m
47.4
Paper deliveries, 1 000 t***
503
659
526
-4.4
-23.7
Paper production, 1 000 t***
558
618
550
1.5
-9.7
Market pulp deliveries, 1 000 t
151
113
127
18.9
33.6
* Excluding non-recurring items ** ROOC = 100% x Operating profit/Operating capital *** Excluding pulp
Industry inventories for magazine paper were higher than in the first quarter of 2010 and the previous quarter.
The annual maintenance and upgrade preparation stoppage at Skutskär Pulp Mill in Sweden is scheduled during the second quarter of 2011.
Magazine Paper segment’s sales were EUR 482 million, up 11% on the first quarter of 2010. Operating profit was EUR 28 million, up EUR 24 million on a year ago as higher prices more than compensated for higher wood, RCP and other variable costs.
Markets
Product
Market
Demand Q1/11 compared with Q1/10
Demand Q1/11 compared with Q4/10
Price Q1/11 compared with Q1/10
Price Q1/11 compared with Q4/10
Coated magazine paper
Europe
stable
significantly weaker
higher
higher
Coated magazine paper
Latin America
significantly stronger
significantly weaker
significantly higher
stable
Uncoated magazine paper
Europe
slightly weaker
significantly weaker
higher
higher
Uncoated magazine paper
China
significantly stronger
weaker
higher
slightly higher
Fine Paper
Fine Paper manufactures high quality graphic and office paper for printers and publishers, merchants, envelope converters, office equipment manufacturers and office suppliers.
EUR million
Q1/11
Q4/10
Q1/10
Change % Q1/11-Q1/10
Change % Q1/11-Q4/10
Sales
563.3
533.5
474.5
18.7
5.6
EBITDA*
102.4
90.6
62.1
64.9
13.0
Operating profit*
79.9
67.6
41.5
92.5
18.2
% of sales
14.2
12.7
8.7
63.2
11.8
ROOC, %**
33.3
29.1
17.7
88.1
14.4
Paper deliveries, 1 000 t ***
650
621
623
4.3
4.7
Paper production, 1 000 t ***
651
638
648
0.5
2.0
Market pulp deliveries, 1 000 t
42
27
28
50.0
55.6
* Excluding non-recurring items ** ROOC = 100% x Operating profit/Operating capital *** Excluding pulp
In the first quarter of 2011 Fine Paper launched Mediaset, Cosmoset and Lumiflex speciality papers from Uetersen Mill for labels and cans.
Industry inventories for fine paper were higher than in the first quarter of 2010 and the previous quarter.
The annual maintenance stoppages at Nymolla Mill in Sweden and Uetersen Mill in Germany will be during the second quarter of 2011.
Fine paper sales were EUR 563 million, up 19% on the first quarter of 2010. Operating profit was EUR 80 million, up EUR 38 million on the previous year as higher sales prices, the improved product mix due to restructuring and higher volumes more than offset higher pulp and chemical costs. Paper machine (PM) 8 at Imatra Mills was permanently shut down in early March 2010.
Markets
Product
Market
Demand Q1/11 compared with Q1/10
Demand Q1/11 compared with Q4/10
Price Q1/11 compared with Q1/10
Price Q1/11 compared with Q4/10
Coated fine paper
Europe
slightly weaker
stronger
higher
slightly lower
Coated fine paper
China
stronger
stronger
lower
stable
Uncoated fine paper
Europe
slightly weaker
significantly stronger
significantly higher
stable
Wood Products
Wood Products manufactures wood-based products for construction and interior decoration, and solid biofuels for the energy sector. Its recyclable products are made from high quality renewable European pine or spruce.
EUR million
Q1/11
Q4/10
Q1/10
Change % Q1/11-Q1/10
Change % Q1/11-Q4/10
Sales
409.7
410.3
331.6
23.6
-0.1
EBITDA*
22.6
21.1
14.9
51.7
7.1
Operating profit*
11.8
10.2
5.4
118.5
15.7
% of sales
2.9
2.5
1.6
81.3
16.0
ROOC, %**
8.0
6.8
3.8
110.5
17.6
Deliveries, 1 000 m3
1 199
1 223
1 119
7.1
-2.0
* Excluding non-recurring items ** ROOC = 100% x Operating profit/Operating capital

Bridport House in London is the first multi-storey building constructed from Stora Enso’s pre-manufactured construction elements.
In January 2011 Stora Enso announced further expansion in Building Solutions through investment in a new EUR 23 million pre-manufactured construction elements unit at Ybbs Sawmill in Austria.
In March 2011 Stora Enso announced the planned permanent closure of Kopparfors Sawmill and integrated pellet mill in Sweden by the end of 2011 due to several years of losses and no feasible options for improvement.
Industry inventories were higher than in the first quarter of 2010 and the previous quarter.
Wood product sales were EUR 410 million, up 24% on the first quarter of 2010. Operating profit was EUR 12 million, up EUR 6 million on a year earlier. Higher sales prices were partly offset by increased wood costs.
Markets
Product
Market
Demand Q1/11 compared with Q1/10
Demand Q1/11 compared with Q4/10
Price Q1/11 compared with Q1/10
Price Q1/11 compared with Q4/10
Wood products
Europe
slightly stronger
slightly weaker
higher
slightly lower
Wood products
Asia, Middle East and North Africa
slightly stronger
slightly weaker
significantly higher
slightly lower
Short-term Risks and Uncertainties
The main short-term risks and uncertainties are related to further increasing inflation in raw material costs and the limited ability to pass on cost increases in sales prices, and the threat of a white-collar strike in Finland. The political turmoil in North Africa and recent Japanese earthquake continue to cause uncertainties.
Energy sensitivity analysis for 2011: the direct effect on 2011 operating profit of a 10% increase in electricity, oil and other fossil fuel market prices would be about negative EUR 17 million annual impact, after the effect of hedges.
Wood sensitivity analysis for 2011: the direct effect on 2011 operating profit of a 10% increase in wood prices would be about negative EUR 236 million annual impact.
Pulp sensitivity analysis for 2011: the direct effect on 2011 operating profit of a 10% increase in yearly average pulp prices would be about positive EUR 55 million annual impact.
A decrease of energy, wood or pulp prices would have the opposite impact.
Foreign exchange rates sensitivity analysis for the next twelve months: the direct effect on operating profit of a 10% strengthening in the value of the US dollar, Swedish krona and British pound against the euro would be about positive EUR 108 million, negative EUR 110 million and positive EUR 58 million annual impact, respectively. Weakening of the currencies would have the opposite impact. These numbers are before the effect of hedges and assuming no changes occur other than a single currency exchange rate movement.
First Quarter Events
In January 2011 Stora Enso announced that Montes del Plata, its joint venture with Arauco, would invest USD 1.9 billion in building a state-of-the-art 1.3 million tonnes per year pulp mill at Punta Pereira in Uruguay. Each of the joint-venture shareholders has a 50% stake in the mill’s equity and will be entitled to half of its output. Stora Enso’s share of the equity investment is about EUR 280 million.
Veracel
On 11 July 2008 Stora Enso announced that a federal judge in Brazil had issued a decision claiming that the permits issued by the State of Bahia for the operations of Stora Enso’s equity accounted investment Veracel were not valid. The judge also ordered Veracel to take certain actions, including reforestation with native trees on part of Veracel’s plantations and a possible BRL 20 million (EUR 9 million) fine. Veracel disputes the decision and has filed an appeal against it. Veracel operates in full compliance with all Brazilian laws and has obtained all the necessary environmental and operating licences for its industrial and forestry activities from the competent authorities. In November 2008 a Federal Court suspended the effects of the decision as an interim measure. Veracel has not recorded any provision for the reforestation or the possible fine.
On 30 September 2009 a judge in the State of Bahia issued an interim decision ordering the State Government of Bahia not to grant Veracel further plantation licences in the municipality of Eunápolis in response to claims by a state prosecutor that Veracel’s plantations exceeded the legal limits, which Veracel disputes. Veracel’s position is supported by documentation issued by the State environmental authority.
Class Action Lawsuits in USA
In the context of magazine paper sales in the USA in 2002 and 2003, Stora Enso was sued in a number of class action (and other civil) lawsuits filed in the USA by various magazine paper purchasers that claimed damages for alleged antitrust violations. On 14 December 2010 a US federal court granted a motion for summary judgement that Stora Enso had filed seeking dismissal of the direct purchaser class action claims. The ruling, which the plaintiffs have appealed, means that the court has ruled in favour of Stora Enso and found the direct purchaser class action claims to be without legal foundation. Further, most of the indirect purchaser actions have been dismissed by a consent judgement, subject, however, to being reinstated if the plaintiffs’ appeal in the direct cases is successful. The ruling, if it stands on appeal, will also provide a strong legal basis for final dismissal of all remaining civil cases. No provisions have been made in Stora Enso’s accounts for these lawsuits.
Legal Proceeding in Finland
On 3 December 2009 the Finnish Market Court fined Stora Enso for competition law infringements in the market for roundwood in Finland from 1997 to 2004. Stora Enso did not appeal against the ruling.
On 31 March 2011 Metsähallitus of Finland initiated legal proceedings against Stora Enso, UPM and Metsäliitto claiming compensation for damages allegedly suffered due to the competition law infringements amounting altogether to EUR 283 million.
Stora Enso denies that Metsähallitus suffered any damages whatsoever and will forcefully defend itself. No provisions have been made in Stora Enso’s accounts for this lawsuit.
Changes in Group Management
Juan Carlos Bueno, 42, was appointed to head the Group’s operations in Latin America and as a member of the Group Executive Team as of 1 April 2011.
Share Capital
No conversions were recorded during the quarter.
On 31 March 2011 Stora Enso had 177 149 784 A shares and 612 388 715 R shares in issue of which the Company held no A shares and 918 512 R shares with a nominal value of EUR 1.6 million. The holding represents 0.12% of the Company’s share capital and 0.04% of the voting rights.
Events after the Period
On 4 April 2011 Stora Enso announced that it had signed a loan facility agreement with the International Finance Corporation (IFC) to extend the maturity of USD 128 million in syndicated loans under its existing facility with IFC.
On 18 April 2011 Stora Enso announced that due to a share lending transaction, where Norges Bank is the lender, the number of shares in the Company held by Norges Bank (The Central Bank of Norway) has decreased below 5% of the paid-up share capital and the number of shares in Stora Enso Oyj on 15 April 2011.
PVO, in which Stora Enso has a 15% shareholding, announced on 19 April 2011 that it had sold its shareholding in Fingrid. The transaction value is EUR 325 million and PVO is recording a capital gain of approximately EUR 200 million. The impact of the transaction is not expected to be material in Stora Enso’s accounts.
On 20 April 2011 Stora Enso announced that it will invest approximately EUR 90 million in Skoghall consumer board mill in Sweden.
This report is unaudited