July 21, 2023 - Stora Enso today released its second quarter 2023 earnings.
Stora Enso reiterates its full-year 2023 operational EBIT to be significantly lower than for the full-year 2022 (EUR 1,891 million).
On 20 April this year, Stora Enso lowered its guidance for the full-year 2023 due to rapidly worsening market outlook and, as a consequence, materially lower earnings forecasts. The market outlook for 2023 remains uncertain with low short-term visibility, persisting high inflation, higher interest rates and low consumer confidence. Q3 will be another challenging quarter due to sequentially deteriorating market conditions for many segments. The tight wood market continues due to increasing energy wood consumption and the lack of wood imports from Russia. This impacts margins and contributes to the deterioration of the competitiveness of, especially, Stora Enso's Finnish sites. Other variable costs are coming down from peak levels but are still higher compared to historic levels.
The headwinds in the first quarter of weak demand across most of the Group's segments and customer destocking, continue. Based on the current macroeconomic and market specific challenges, Stora Enso assumes continued weakness in demand and volumes especially in its Packaging Materials, Wood Products and Biomaterials divisions, with no obvious signs of recovery yet.
Packaging Materials: Weak market conditions and destocking in the value chain continues. The containerboard market has stabilised at a low level, but the demand for consumer board market is weakening. For Paper, the pace of the decline in demand is estimated to be slower as destocking is coming to an end.
Packaging Solutions: The demand for corrugated packaging is expected to have bottomed out. The potential slight improvement is not expected to reach the normal seasonal peak during the latter part of the year; the market remains unpredictable.
Wood Products: The activity in the construction sector has not improved and the expectation is that it will continue to remain challenging with a low number of issued building permits and new housing starts. This is expected to impact the demand for both sawn wood and building solutions.
Biomaterials: The market is expected to remain weak; demand is expected to decrease further due to high inventory levels which will take time to normalise. Customer destocking and new capacity entering the market during the year will add to the market imbalance.
Forest: The wood market in the Baltics and Nordics is expected to remain tight despite increasing market curtailments in the pulp and sawmill sector that have temporarily reduced demand for wood. During the autumn, the tight wood market will be mainly driven by demand from the energy sector.
To protect margins and cash flow, restructuring actions such as closures of sites and production lines, divestments, and a more de-centralised operating model with empowered divisions, and leaner Group functions are being implemented. These initiatives are expected to improve competitiveness, reduce costs, and support focused capital allocation into strategic growth markets. The bulk of them are expected to be concluded during the second half of 2023 and would support 2024 financial performance.
On the back of these initiatives, Stora Enso will be in a financially, operationally and strategically better shape to handle market fluctuations while investing for growth in renewable packaging, sustainable building solutions and biomaterials innovations.
"The weak market demand further worsened in the second quarter. Our businesses are directly impacted by inflation and the consumers' cost-of-living crisis, the drop in construction activity and customers continuing to reduce their inventories. Unfortunately, we see no imminent signs of improved market demand and we expect destocking to persist for most of our segments also in the second half of 2023. In this turbulent market we must adapt. We continue to focus on what we can impact and control: investing and restructuring to improve our future business profitability, cost-competitiveness and asset footprint, controlling our costs, and curtailing production to manage our own and customer inventories.
The demand slowdown continued for all our businesses except for Packaging Solutions and Forest division. For our largest divisions Packaging Materials, Biomaterials and Wood Products, we continue to experience destocking in the supply chain and weakening demand, in combination with margin pressure due to high input costs.
Some raw material costs have come down from their peak, however most of them, such as wood and chemicals, were still elevated compared to historic levels. For our Biomaterials division especially, we faced the fastest ever decline in global market pulp prices. A significant amount of new capacity is entering the market at a time when demand is low and the global market pulp inventories are on very high levels. This has resulted in a very weak financial performance for the quarter and naturally we are disappointed. Group sales were 2,374 million euro, a year-on-year a decrease of 22%. The Operational EBIT decreased by 93% to 37 million euro with an EBIT margin of 1.6%.
We stay committed to continue strengthening and building resilience into Stora Enso. Our strategic choices are supported by long-term drivers and megatrends such as demand for circular and bio-based packaging, the need to decarbonise construction, and the electrification of society. We aim for growth in both the segments where we have leading market positions as well as in our innovation efforts. Our solutions help the move away from a fossil-based economy, and Stora Enso has an important role to play for a greener economy.
Our focus short term, is on delivering on our committed investment projects and improving our profitability: our cost leading consumer board production line at our site in Oulu, the integration of our De Jong Packaging acquisition including the ramp up of one of Europe's largest and most modern corrugating sites in Netherlands, and the development and commercialisation of the innovative anode battery material Lignode.
We are also taking the next step in simplifying our organisation and increasingly empowering our divisions. The recently announced restructuring actions will strengthen the Group's long-term competitiveness, reduce complexity and deliver tailor-made services for the benefit of our customers. We will be reducing costs, improving efficiency,?and focusing capital allocation in strategic growth markets. These are my key priorities. The planned actions would result in an annual profitability improvement of approximately 110 million euros. The Group functions headcount would be leaner by 20%.
Restructuring and closing or divesting production is never an easy decision, especially considering the impact it has on our people. But, it is necessary to optimise our asset base to protect margins, now and for the future and I am very grateful for the commitment of our teams in these challenging times."
Stora Enso is a leading provider of renewable products in packaging, biomaterials and wooden construction, and one of the largest private forest owners in the world.
SOURCE: Stora Enso
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