Although sales decreased by 18.9% to EUR 2 114 million compared to Q2 2019 due to lower deliveries and prices, as a result of the impact of the Covid-19 pandemic, Stora Enso shows resilience with solid profitability and cash flow.
Annica Bresky, President and CEO of the Finnish group, commented:
“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. Governments have introduced significant stimuli to support economies and societies are gradually opening up. However, despite some optimistic signs, market conditions’ poor visibility will continue. We stay focused on what we can influence through these challenging times: serving and supporting our customers; ensuring the health of our employees; running our operations as efficiently as possible; securing our financial resilience; and driving our innovation agenda.
We 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 solid in the current circumstances. This was driven by strong performances 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%, showing the resilience of our growth businesses.
Our transformation project at Oulu Mill is proceeding as planned and the conversion to kraftliner production will start in the fourth quarter this year. Currently, 80% of our sales come from our growth businesses and after the conversion, the share of paper products will be even lower. The market remains challenging for Biomaterials with low prices and a decline in the graphical paper end uses. Compared with last year, our results are significantly lower, driven by a decline in deliveries and sales, mainly in Paper and Biomaterials. The market outlook for our other businesses will continue to be mixed.
We are focusing on serving our customers by keeping our operations running, mitigating supply chain challenges and introducing new products. I am pleased that we have limited disturbances and a limited number of Covid-19 cases among our employees, and we continue to remain true to our high safety standards. This is reflected in our total recordable incident (TRI) rate, where we have a positive trend, reaching our milestone of 4.7. We are taking extra precautionary measures related to our maintenance stops, to keep our people, our contractors and the surrounding communities safe. Several maintenance stops are scheduled for the upcoming two quarters, which will impact our production levels.
As the volatility in the market continues and the visibility going forward remains limited, it is essential to continue improving our cost competitiveness. Our EUR 350 million profit protection programme is delivering to plan and we are adding new actions as needed. We have a liquidity buffer of EUR 2.1 billion to be financially ready for the potentially longer and deeper effects of Covid-19 on the global economy. The issuance of our green bond for these purposes fits our sustainable finance strategy well. Moreover, we have increased our focus on cash flow and working capital management. We continue to build business resilience and I am impressed by the actions that we have taken across the organisation.
To prepare for a strong recovery when the market turns, we are continuing our efforts in building the businesses of the future and driving our innovation agenda. Our formed fiber production has started, offering new designs and solutions, suitable for single-use food packaging; renewable, recyclable, biodegradable and plastic free. In collaboration with Cordenka, we are seeking to develop bio-based, fossil free and cost competitive carbon fiber that replaces oil-based materials.
We have also introduced AvantForte™ by Stora Enso, a food-safe kraftliner for corrugated packaging. It will meet brand owners’ need for high-performing, safe and plastic-free packaging while using less material. Another new product is PerformaLight™ by Stora Enso, a plastic-free lightweight board for premium folding cartons. It allows a 70% reduction of CO2 emissions in production compared with the competition. As a forerunner in digitalisation in our industry, we have introduced Box Inc, a digital B2B marketplace for corrugated packaging made of renewable materials. It is a platform business designed to help companies source packaging online, while enabling suppliers to access new customers without having to create their own digital presence. In Intelligent packaging, we have also taken significant steps forward. Fashion retailers in the Nordics and China have selected our plastic-free and recyclable ECO RFID Tag technology in its clothing hangtags. We have also introduced our first live solutions for unmanned “New Retail” stores, helping consumers with contactless purchasing and enabling stock replenishment transparency.
I am pleased that the preparations for our new head office in Helsinki are well under way. After an architectural design competition with impressive entries, a world-class wooden building was chosen. It will be showcasing innovative design capabilities in a carbon-neutral building.
It is positive to see that the EU’s recovery strategy for the pandemic involves investments in green and digital solutions. There is a lot of power in this initiative and in the ambition to reduce climate impact. At Stora Enso, we offer renewable solutions to support the EU in this global transition. The Covid-19 new normal should be a more sustainable normal.
The future grows in the forest.”