Lower prices in local currencies, mainly in Printing and Reading, decreased operational EBIT by Euro 46 million. Higher Renewable Packaging deliveries compensated for lower Printing and Reading deliveries. Harvesting conditions in the first quarter of 2013 were favourable in the Nordic countries, so Wood Supply operations reported in the segment Other performed well. Paper and board production was curtailed by 8% and sawnwood production by 6%.
Lower variable costs in local currencies increased operating profit by Euro 13 million as higher logistics costs were more than offset by lower other variable costs, mainly for fibre.
The average number of employees in the 1Q 2013 was 800 lower than a year earlier at 28 200 as the number of employees decreased in all geographical areas, except for an increase in Stora Enso’s strategic investment in China.
The Group recorded non-recurring items (NRI) with a negative impact of approximately Euro 91 million on operating profit and a positive impact of approximately Euro 19 million on income tax in its 1Q 2013 results. The non-recurring items relate to restructuring plans in the Printing and Reading and Building and Living Business Areas.
Net financial expenses were Euro 19 million higher than a year ago, mainly due to foreign exchange losses and increased net interest expenses owing to higher gross debt.
1Q sales were similar to the previous quarter at Euro 2 667 million. Operational EBIT was Euro 40 million lower at Euro 118 million. Lower sales prices in local currencies decreased operational EBIT by Euro 13 million, mainly in Printing and Reading. Higher energy and logistic costs increased variable costs by Euro 31 million. Seasonally lower fixed costs and actions to improve fixed costs increased operational EBIT by Euro 24 million. The operational EBIT from the equity accounted investments decreased by EUR 11 million mainly due to lower capital gains in the Nordic forest equity accounted investments.
Net financial items were Euro 6 million more negative than in the previous quarter, mainly due to foreign exchange losses and increased net interest expenses owing to slightly higher net debt.
1Q 2013 cash flow from operations was low at Euro 101 million, mainly because working capital increased during the quarter as receivables were Euro 100 million higher due to higher sales activity at the end of the 1Q 2013 and inventories increased by Euro 80 million, mainly in Nordic wood inventories. The working capital increase was partly offset by a Euro 60 million increase in payables and Euro 30 million increase in restructuring provisions.
Stora Enso CEO Jouko Karvinen comments on 1Q 2013 results: “The 1Q 2013 was, as expected, clearly characterised by weak markets and profitability for our Printing and Reading and Building and Living Business Areas. The combination of continuing structural decline in media-driven paper grades and economic weakness in Europe led to year-on-year declines of 9% in the Group’s operational EBITDA and 21% in operational EBIT despite the solid performance of the other two Business Areas. Seasonality also reduced the cash flow to an unsatisfactory level.
“The issues we and our industry face are clearly not just short term. Demand for printed media has continued to decline structurally for the seventh year in a row in Europe, and we foresee this continuing for several years. With the economy also structurally weak in the eurozone, this means that we must continue to adjust our capacities to the reality ahead of us, as demonstrated by the plans announced in February in Printing and Reading and in Building and Living.
“However, that is not enough. As a Group we must also once again rethink our structures and cost levels beyond the capacity and volume reductions. We need to find a way to repeat the productivity and fixed cost ratio improvements achieved since 2008 to continue to finance our strategic path to a global renewable materials company. Simplification, clarity and a stepwise fixed cost reduction of Euro 200 million with full impact starting from the 2Q 2014 is our plan, including the Euro 30 million reduction in Building and Living announced in February. The plan will also support our strategic transformation as it will decrease the interdependence and increase accountability of the Divisions and enable a shift in management focus to growth initiatives in the chosen businesses.
“In the new structure we would combine the Printing and Reading and the Building and Living Business Areas into a new division under the leadership of Karl-Henrik Sundström, and then significantly simplify the functional structures between Group level, country level and the Divisions, as described in separate release today. The segment reporting will remain as before to give the markets continued transparency.
“We understand this new plan may cause concerns among our employees. At the same time we believe the plan is crucial to enable us as a Group to stay true to our strategy and continue our transformation.”
In the 2Q 2013 Group sales are expected to be slightly higher and operational EBIT in line with or slightly higher than the 1Q 2013.
Ostrołęka Mill PM 5 is not expected to have a material impact on sales in 2013 due to sales being mainly internal, but the EBITDA margin of PM 5 from the second half of 2013 is expected to be approximately 20%.
Montes del Plata Pulp Mill is expected to have limited impact on the Group’s sales and slightly negative impact on operational EBIT in 2013. In 2014 the Group’s sales are expected to be affected by 650 000 tonnes of Montes del Plata pulp with full positive EBITDA impact in the latter part of the year 2014 provided that the current market conditions prevail.
Stora Enso is the global rethinker of the paper, biomaterials, wood products and packaging industry.