We continue to experience unprecedented times with the Covid-19 pandemic, which is affecting global health and creating uncertainty and volatility in the business environment. Stora Enso Investors Relations has received inquiries from investors and analysts related to the Covid-19 and its impacts on our business operations. Please find below some typical questions and answers.
Q: What precautions have you taken against Covid-19?
A: The health and safety of Stora Enso’s employees is a key priority. Stora Enso has secured the health and safety of its employees by various measures and closely monitoring the Covid-19 situation.
Thanks to Stora Enso's proactive approach thus far, there has been minimal impact on the Group's ability to serve customers and run operations. Stora Enso plays an important role in the society by providing vital materials for the food, hygiene and medical industries.
Q: How has Covid-19 impacted your Q2/2020 performance?
A: Group sales decreased by 19% in Q2/2020 from the previous year, negatively impacted by the Covid-19 pandemic. Sales prices were lower for most grades despite active mix management and a slightly positive foreign exchange rate impact. Volumes were also clearly lower in all other divisions except Packaging Materials, because the Covid-19 pandemic reduced demand, accelerated structural decline of paper demand and created uncertainty.
In Q2/2020, Stora Enso delivered an operational EBIT of EUR 178 million, about the same as in the first quarter this year (EUR 180 million). Operational EBIT excluding Paper was EUR 216 million, much stronger than during the first quarter (EUR 159 million). Cash flow from operations was EUR 363 million. We consider the second quarter result good in the current circumstances. This was driven by strong performance in the Packaging Materials and Forest divisions, and Wood Products division delivering a better result than expected. The pandemic's biggest effect on our business has been in the Paper division, accelerating the structural decline in all paper grades. Excluding Paper, our operational EBIT margin stayed at 13% in Q2/2020, showing the resilience of our growth businesses.
Q: How has Covid-19 impacted your sales prices?
A: In the following, we have compared prices in Q2/2020 compared to Q1/2020.
In consumer board business, majority of our customer contracts are annual or longer validity, and the prices remained stable in Q2/2020. In containerboard and wood products businesses, price level increased slightly in Q2/2020. For market pulp, prices remained flat during the quarter. Corrugated packaging prices were slightly lower level in Q2/2020. Due to Covid-19 pandemic and overcapacity in Europe, paper prices decreased slightly in Q2/2020 compared to previous quarter.
Q: Have your units and mills been operating normally?
A: All our units and mills operated normally in the second quarter 2020. However, due to Covid-19 pandemic, production was curtailed during the quarter.
Q: How has Covid-19 impacted your annual maintenance shutdowns?
A: Due to the cross-border travel restrictions and safety concerns associated with Covid-19, most of Stora Enso’s annual mill maintenance shutdowns were postponed from the first half until the second half of 2020. The upcoming maintenance shutdowns are well prepared to ensure the health and safety of the Group's employees, contractors and communities in which it operates.
In Q2/2020, Stora Enso had 14 days annual maintenance shutdown at Heinola fluting mill in Finland. In Q3/2020, maintenance works will be performed at Beihai, Imatra and Varkaus mills (Packaging Materials), Sunila and Veracell mills (Biomaterials) and Veitsiluoto (Paper). In Q3/2020, the total negative impact of maintenance is estimated to be EUR 45 million more compared to Q1/2020 and similar to Q3/2019.
Q: What have been the impacts on your supply chain and deliveries?
A: Covid-19 has had only minor impacts on our supply chain operations. Our supply chain crisis management process, now solidly in place for almost two quarters, ensure swift and agile response to potential disruptions. Availability of containers improved in Q2/2020 compared to the previous quarter and our customer orders were fulfilled even if some increased delivery times could be noted.
Q: What has been the Covid-19 impact on harvesting?
A: In Finland, wood deliveries were clearly lower due to lower production volumes related to Covid-19.
We have decreased our harvesting volumes in order to adjust our operations to prevailing market conditions. Share of harvesting from own forests has increased, which has positively impacted on our cash flow.
Q: What kind of actions you have taken to mitigate the negative impacts from Covid-19 on your financial performance?
A: To address costs and mitigate negative market demand impacts, Stora Enso continues to implement additional cost reduction actions. The Group also continues to focus on ensuring liquidity and cash flow, as well as working capital management to remain resilient and ensure quick recovery.
Already in Q1/2020, we increased our profit protection programme target to EUR 350 million for continuous cost savings by the end of 2021, and an additional EUR 85 million for one-time savings. Approximately EUR 40 million of the continuous cost savings were achieved during Q2/2020. Including the one-time cost savings, the total implemented cost saving amounted to EUR 50 million in Q2/2020. The programme is proceeding well and ahead of plan. In 2019, we achieved EUR 105 million in continuous savings, and in 2020 we expect to achieve the same level of new cost reductions.
During Q2/2020, we concluded temporary lay-off discussions in several divisions, continued tight control of variable and fixed costs and increased market related downtime in our mills due to Covid-19 pandemic. Stora Enso maintains a Covid-19 risk assessment process to determine the potential near- and medium-term implications of the direct and indirect impacts on Stora Enso’s business operations.
Q: Will you postpone your Oulu kraftliner conversion project due to Covid-19?
A: Our transformation project at Oulu Mill is proceeding as planned and the conversion to kraftliner production will start in the fourth quarter this year. Paper production at the mill will stop at the end of Q3/2020. After the conversion, we will have a new world-class line for virgin-fibre based kraftliner (both brown and white-top) with an annual capacity of 450 000 tonnes. Stora Enso invests approximately EUR 350 million to convert the Oulu paper mill into packaging production.
In Q2/2020, we introduced AvantForte™ by Stora Enso, a food-safe kraftliner. AvantForte meets the customers' need for high-performing, safe and plastic-free packaging while using less material. AvantForte will be produced at Oulu Mill.
Q: What is Stora Enso’s current liquidity position?
A: Stora Enso’s liquidity and funding position is strong. At the end of Q2/2020, cash and cash equivalents were at EUR 1 062 million. Additionally, the Company has undrawn committed credit facilities of EUR 1 000 million, and a possibility to have EUR 950 million statutory pension premium loans in Finland. There are no financial covenants on Stora Enso Oyj's debt. Going forward we continue to monitor the Covid-19 situation, its impacts on Stora Enso and take steps to keep adequate liquidity at all times. We continue to have a good access to various funding sources.
Q: Why were dividends lowered from EUR 0.50 per share in 2019 to EUR 0.15 per share in 2020?
A: In June, the Annual General Meeting approved the proposal by the Board of Directors that the Company distributes a dividend of EUR 0.15 per share for the year 2019. In addition, the AGM approved the proposal that the Board of Directors to decide at its discretion on the payment of dividend up to a maximum of EUR 0.35 per share. A resolution on the distribution of a dividend will be made at a later stage when it is possible to make a more reliable estimate on the impacts of the Covid-19 pandemic on Stora Enso’s business and liquidity.
Q: How do you expect Covid-19 to impact Q3/2020 demand?
A: Stora Enso has discontinued its quarterly guidance and annual outlook until further notice, due to the uncertainty in the global economy. The current situation has accelerated the decline in demand for European paper, and the market conditions for the Group's other products continue to be mixed.
Q: When you will resume guidance and annual outlook?
A: We will continue following the business environment and consider the guidance when appropriate.