Stora Enso investor kit

Transcription

1 investor kit strategy and market environment, and financial performance

2 Disclaimer It should be noted that and its business are exposed to various risks and uncertainties and certain statements herein which are not historical facts, including, without limitation those regarding expectations for market growth and developments; expectations for growth and profitability; and statements preceded by believes, expects, anticipates, foresees, or similar expressions, are forward-looking statements. Since these statements are based on current plans, estimates and projections, they involve risks and uncertainties which may cause actual results to materially differ from those expressed in such forward-looking statements. Such factors include, but are not limited to: (1) operating factors such as continued success of manufacturing activities and the achievement of efficiencies therein, continued success of product development, acceptance of new products or services by the group s targeted customers, success of the existing and future collaboration arrangements, changes in business strategy or development plans or targets, changes in the degree of protection created by the group s patents and other intellectual property rights, the availability of capital on acceptable terms; (2) industry conditions, such as strength of product demand, intensity of competition, prevailing and future global market prices for the group s products and the pricing pressures thereto, price fluctuations in raw materials, financial condition of the customers and the competitors of the group, the potential introduction of competing products and technologies by competitors; and (3) general economic conditions, such as rates of economic growth in the group s principal geographic markets or fluctuations in exchange and interest rates. All statements are based on management s best assumptions and beliefs in light of the information currently available to it and assumes no obligation to publicly update or revise any forward-looking statement except to the extent legally required. 2

3 Content SECTION 1: INTRODUCTION & BUSINESSES SECTION 2: INNOVATIONS SECTION 3: FINANCIALS & GOVERNANCE SECTION 4: LATEST INTERIM REPORT Strategy Businesses and capacities Markets Innovation in packaging Innovation in Biomaterials Innovation in Wood Products Financial performance Balance sheet strength Cost structure Capital expenditure Dividend policy Ownership structure Management & the Board ADR programme 3

4 in brief Leading global provider of renewable solutions in packaging, biomaterials, wooden constructions and paper Sales EUR 9.8 billion in 2016 Operational EBIT EUR 884 million in 2016 shares are listed on NASDAQ OMX Helsinki and Stockholm. In addition, the shares are traded in the USA as ADRs Some employees in 35 countries 4

5 Progress in a few snapshots Transformation is nearly completed Varkaus kraftliner reached EBITDA break-even 67% of sales from growth businesses Beihai Mill started up EUR 0.37 Dividend 13% Operational ROCE Excluding Beihai operations 5

6 Majority of the portfolio is aimed at growth group 2016: Sales MEUR / Operational EBIT 884 MEUR / Operational ROCE 10.2% / Operational ROCE excluding Beihai 13.0% + Consumer Board Expansion of relative market share in profitable niches + Packaging Solutions Selective profitable growth Biomaterials Strengthening current business and creating new profitable growth Wood Products Accelerating growth Paper Strategy for maximum cash generation 6

7 Our road to success in the bioeconomy Introducing Addressing Delivering Generating xxxx xxxx new products xxxx superior xxxx and services ROCE attractive end-use segments sustainable profitable growth 7

8 Our transformation strategy continues s strategy is about sustainable profitable growth based on customer insights and innovation, supported by structured processes and motivated employees Innovation Focus on bio-based materials and chemicals, digitalisation, intelligent packaging and new packaging solutions. Customer insight Developing offerings according to customers requirements to create value and growth, with sales excellence. Sustainable profitable growth Structured processes Clear roles and responsibilities, standardised and harmonised working methods, operational excellence. Motivated employees Focus on inspiring leadership, good communication, performance management and target setting. 8

9 delivering sustainable profitable growth Continued strategic growth investments Sustainable profitable growth Strong balance sheet Dividend Dividend To distribute 50% of net income over the cycle. Consecutive increase of 10% and 12% between Strategic growth investments Capex at or below depreciation and depletion* over the business cycle Cash flow from operations Sustainable profitable growth Business and CAPEX driven by ROCE Strong balance sheet Net debt to EBITDA down to 1.8 Net debt 2.5 BEUR *Operational decrease in the value of biological assets 9

10 Profitable growth Improving sales and innovation MdP Mill investment Beihai Mill investment Varkaus Mill conversion Murów sawmill investment Varkaus LVL investment Imatra de-bottlenecking Sunila bio-refinery Innovation Centre Helsinki Innovation Centre Stockholm NXP and Rennovia JDA Launch of first MFC product Intelligent packaging Launch of Performa Brilliance Launch of CKB Nude Launch of Natura life LPB Launch of fibre-cup Launch of Multicopy Zero Launch of FlyoBrite Product & Sales Management, S&OP, CRM Asset transformation Innovation & customer focus 10

11 Developing further in the bioeconomy PRODUCT / TECHNOLOGY CUSTOMER USE EXAMPLES R&D PILOTING SCALING FULLY ADOPTED BY MARKETS ADOPTED BY MARKETS 1. BIO-BASED CHEMICALS INDUSTRIAL INTERMEDIATES REPLACING FOSSIL MATERIALS IN PRODUCTS 2. Lignin Xylose Biomass polymers Dissolving pulp Modified fibres Building systems Modified wood Replace phenol Sweetener, personal care Replace oil-based plastic Textiles, packaging Performance chemicals Personal care ingredients Micro-fibrillated Bio-barrier in food cartons cellulose Lightweight board Strengthening liner Biocomposites Building & construction Lignin bio-carbon fibre Lightweight structures, energy storage, transportation High rise buildings Cladding, decking ENABLING 3. INNOVATIONS OF NEW CONSUMER EXPERIENCES 11 Nano cellulose Digitalisation Transparent / Electronic Programmable / Foam / Spheres Material with in-built monitoring and tracking capabilities for intelligent packaging

12 These are our drivers for accelerating renewable growth Biocomposites Intelligent packaging In 2017, close to 5% of our sales comes from NEW products and services High-quality packaging solutions Bio barriers Building components and systems Future biochemicals Next generation liquid and food packaging 12

13 group 2013 Q3/2017 Sales Sales of growth businesses Operational EBIT Net debt Note: * Excluding paper and Barcelona Mill. 13

14 Strategic targets Group targets Q3 16 Q3 17 Dividend To distribute 50% of net income over the cycle Growth* To grow faster than the relevant market 1.8% (YoY) 11.1% (YoY) Net debt to operational EBITDA <3.0x Fixed costs to sales <20% 25.5% 23.8% Debt to equity <80% 52% 43% Operational ROCE >13% 10.1% 13.9% Operational ROCE excl. Beihai op. 13.5% 16.3% Divisional targets Q3 16 Q3 17 Consumer Board Operational ROOC > 20% 12.9% 17.7% Consumer Board excl. Beihai op. 42.3% 40.5% Packaging Solutions Operational ROOC > 20% 9.6% 22.4% Biomaterials Operational ROOC > 15% 6.7% 14.8% Wood Products Operational ROOC > 18% 17.5% 21.3% Paper Cash flow after investing activities to sales > 7% 11.7% 0.8% *Excluding Paper 14

15 Capacities by grade Grade Capacity t Consumer Board Containerboards Corrugated Packaging (Mm 2 ) Sawn goods (km 3 ) Grade Capacity t Newsprint Uncoated Magazine (SC) Coated Magazine 250 Total Magazine Paper Short-fibre pulp 900 Long-fibre pulp 800 Fluff pulp 250 Dissolving pulp 150 Unbleached kraft pulp 50 Market pulp Coated Fine Uncoated Fine Total Fine Paper Paper Total

16 Global position capacity and biological asset allocation Board capacity by country 2017 Paper capacity by country 2017 Chemical Pulp capacity by country 2017 Finland 49% Finland 43% Finland 55% Finland 15% Finland 30% Biological assets by country as at Dec 2016 Total assets by country as at Dec 2016 Sweden 29% Sweden 28% Sweden 22% Sweden 70% Sweden 23% Poland 5% Poland 2% Poland 14% Germany 16% Germany 3% Brazil 4% Brazil 4% Brazil 10% China 8% China China 3% 3% China China 10% 5% China 11% Other countries 10% Other countries 10% Uruguay 14% Uruguay 6% Uruguay 11% 16

17 responds to global megatrends Major global trends drive the world s demand for renewable materials Global warming Growing population Urbanisation Digitalisation Changing lifestyles Growing middle class Eco-awareness Bio-based products are not only reusable, but also renewable 17

18 The renewable materials growth company Everything that s made with fossil-based materials today can be made from a tree tomorrow 18

19 Bioeconomy 100 % utilised renewable raw material The smallest pieces of wood are used to make particleboard and chipboard, or can be used as biofuel. Small trunk parts are used to make paper and paperboard. We are innovating to develop tomorrow s products made of tree Thicker parts of the trunk are sawn. Sawmill by-products are used to make paper and particle board. 30% of the wood can be used for sawn products. 70% for pulp and paper. 19

20 Transformation steps since 2016 Investments Beihai Mill start-up Gruvön CLT production unit Ongoing Varkaus LVL start-up Tychy corrugated plant Ongoing Murów inauguration Dissolving pulp capacity increase at Enocell Mill Ongoing Varkaus kraftliner EBIT break-even CTMP drying capacity at Imatra Mill Ongoing Beihai PE coating line Ongoing Capacity expansion and quality upgrade in China Packaging Ongoing Skoghall Mill, chemical plant Ongoing Divestment and closure announcements Skutskär Mill, environmental investment Ongoing Hartola production unit, Finland Imatra PE coating line and automated roll warehouse Ongoing Kabel Mill, Germany Skutskär pulp mill, fluff Ongoing Suzhou Mill, China Lahti corrugated packaging investment Ongoing Heinola corrugated planned closure Imatra, Ingerois and Fors MFC Heinola Fluting Mill capacity increase Ongoing Ongoing Packaging machine manufacturing company Formeca, Finland SC 100kt paper machine at Kvarnsveden Mill closed 20 Hylte biocomposite granules Ongoing Re-board business divested in Sweden Divestment of holding in Bulleh Shah Packaging in Pakistan

21 Transformation journey Growth businesses 71% of sales and 90% of operational EBIT Sales 2006 Sales Q3/2017-3% 21% 1% 30% 71% 25% 29% 12% 13% 70% 17% 15% Operational EBIT 2006 Operational EBIT Q3/2017 Consumer Board Packaging Solutions (1) Biomaterials Wood Products Paper (2) Other & eliminations -3% 38% 90% 10% 3% (1) In 2006 included in Consumer Board (2) In 2006 includes merchants 35% 10% 30% 62% 6% 30% 17% 21

22 Financial performance - divisions Sales, EBITDA margins, EBIT margins and ROOC Consumer Board Biomaterials Packaging Solutions Wood Products Paper 22

23 Consumer Board Consumer Board division aims to be the world s leading provider of virgin-fibre-based board solutions for printing and packaging applications A wide board and barrier coating selection suitable for the design and optimisation of packaging for liquid, food, pharmaceutical and luxury goods Serves converters and brand owners globally Expanding in growth markets to meet rising demand for high-quality, functional and safe packaging 23

24 Consumer Board geared towards growth Divisional strategic target Q3/16 Q3/17 Consumer Board Operational ROOC > 20% 12.9% 17.7% Consumer Board excl. Beihai operations 42.3% 40.5% *Excluding Barcelona Sample product categories Liquid Packaging: Natura Food Service Board: Cupforma, Tamfold General Packaging and graphical board: CKB, Trayforma, Performa, Ensocoat, Tambrite Chocolate and confectionary Cosmetics and luxury Pharmaceuticals Food Packaging Drinks, wines and spirits Cigarette board: Koppar Speciality paper: Lumiflex, LumiLabel Main competitors include BillerudKorsnäs, Metsä Board, Klabin and International Paper 24

25 Geographical exposure Consumer Board Production Facilities Sales Worldwide sales network R&D: Karlstad, Sweden and Imatra, Finland Sweden Fors Mill Sweden Skoghall Mill Finland Imatra Mill Finland Ingerois Mill China Beihai Mill - under construction Grade Capacity t Consumer Board

26 2.6% CAGR until 2030 for virgin fibre board grades +1.8% (5.3 mt) +1.2% (6.9 mt) +4.3% (7.3 mt) +3.3% (1.4 mt) +2.5% (0.2 mt) +3.4% (3.3 mt) Virgin fibre board grades: Coated Unbleached Kraft (CUK) Solid Bleached Sulphate (SBS) Liquid Packaging Board (LPB) Folding Box Board (FBB) Food Service Boards (FSB) Source: Pöyry 26

27 We have a strong position with global customers Top 10 customers account for 53% of sales and 60% of EBITDA Market share per product vs. competitors Market position Relative market share CUK SE Europe kt 1 131% SBS SE 1 103% LPB SE 1 110% FBB SE 2 56% CUK SE Global kt 5 13% LPB SE 1 110% SBS SE 7 23% FBB SE 5 29% Coated Unbleached Kraft (CUK), Solid Bleached Sulphate (SBS), Liquid Packaging Board (LPB), Folding Box Board (FBB) SE = Source:, Pöyry 27

28 China demand continues to grow driven by urbanization China urban population Million people % p.a China s packaged food market growth to maintain growth momentum driven by: Urbanization Increasing income 600 million urban population today; 1 billion urban population by Source: IHS global insights 28

29 China continues to be one of the fastest-growing markets Chinese consumption today matches US in 1920s Nominal Private Consumption (USD, Tn) 18 Middle class and urbanisation driving the change Growth Private Consumption Source: BCG Source: McKinsey, as of Jan

30 Packaging Solutions Packaging Solutions provides products and services to meet the demands of the growing renewable packaging industry Leading provider of corrugated packaging Modern light-weight containerboard offering Vertically integrated board production and converting Customer-centric solutions including design, packaging automation and support Grade Capacity t Containerboards Corrugated Packaging (Mm 2 ) 30

31 Packaging Solutions geared towards growth Packaging Solutions Divisional strategic target Operational ROOC > 20% Q3/16 Q3/17 9.6% 22.4% Sample product categories Containerboards: AvantFlute Recycled, AvantFlute SC, AvantKraft, AvantLiner Recycled Corrugated Packaging: Flexo-printed packaging, Offset printed packaging, Protective packaging Main competitors for containerboards include Mondi, Prinzhorn, BillerudKorsnäs and SCA and for corrugated packaging Smurfit Kappa and DS Smith 31

32 Geographical exposure Packaging Solutions Production Facilities Sales Russia Arzamas Balabanovo Lukhovitsy Sweden Jönköping Skene Vikingstad Estonia Tallin Finland Heinola Kristiinankaupunki Lahti Varkaus Latvia Riga Lithuania Kaunas Poland Lodz Mosina Ostroleka Tychy Beijing Shanghai Dongguan 32

33 We have strong market position and growth in our home packaging markets Europe China Using virgin fibre boards from Beihai and Europe Nordics Nordics 0.7 BEUR 0 1% CAGR #1 107%* Source: analysis Note: CAGR * Relative market share, measured as a share of largest competitor 33 Poland & Baltics 1.5 BEUR 3 5% CAGR #2 85%* Corrugated packaging Russia Russia 1.7 BEUR 3% CAGR #4 62%* China Russia 1.8 BEUR 5 6% CAGR #5 ~20%* Corrugated & consumer packaging

34 Packaging for online shopping has the strongest growth Europe Online retail market grows faster than other retail markets % p.a. Different retail categories face different challenges for successful online packaging. China % p.a New reality for brand owners and retailers packaging is clearly a strategic tool to gain from the growth in online retailing Excluding categories services and large travel SOURCE: Euromonitor May

35 Corrugated packaging is also growing in Europe Source: Kraftliner global (mt) Global CAGR 1 % kt CAGR +1-2 % Pöyry, ICCA, analysis SC Fluting global market size (mt) +160 kt Global CAGR 0.2 % CAGR 0.3% North America Global excl. NA North America Global excl. NA Recycled containerboard Europe (mt) Corrugated boxes packaging* (mt) kt CAGR 2 % kt CAGR 2-4 % *) Sweden, Finland, Poland, Russia, Baltic 35

36 Biomaterials Variety of pulp grades for paper, board and tissue End uses: printing and writing papers, specialty papers, graphic papers, packaging paperboards and tissue Fluff pulp primarily used in diapers and hygiene products Dissolving pulp for textiles 36

37 Biomaterials geared towards growth Divisional strategic target Q3/16 Q3/17 Biomaterials Operational ROOC > 15% 6.7% 14.8% Sample product categories: Paper, packaging and tissue production: Supreme (Softwood), Perform (Hardwood) and Select (Hardwood). Fluff pulp for hygiene products; diapers, and feminine care products: Care Dissolving pulp for viscose fabrics e.g textiles but also fine applications in the food and pharmaceutical industries: Pure By-products: tall oil, turpentine, lignin (adhesive for construction and cosmetics industries) Main competitors include UPM, Metsä Fibre, Södra, Fibria and Suzano 37

38 Biomaterials worldwide Grade Capacity t Short-fibre pulp 900 Long-fibre pulp 800 Fluff pulp 250 Dissolving pulp 150 Market pulp Skutskär Capacity: 540kt/a Enocell Capacity: 460kt/a Sunila Capacity: 370kt/a Montes del Plata Capacity: 1.3Mt/a, For Mt Veracel Capacity: 1,1Mt/a Shared Ownership (50%) Biomaterials Mills 38

39 Pulp demand is growing in our strategic segments Pulp demand to 2021 in million tonnes (Mt) by end-uses CAGR: + 2.5% ~ million tonnes (Mt)/year Grade Mt Hardwood 4.2 Softwood Source: Hawkins Wright, Pöyry, 39 Fluff 1.1 Dissolving Pulp 2.4 TOTAL 8.4

40 Balanced market expected Hardwood and softwood average capacity growth (Mt/year) Cash cost CIF Europe (USD/tonne) Cash cost by country Mt/y (90% ratios) Solid Not sustainable Best in class Mt/y Announced capacity growth : 6.2 Mt (1.2 Mt/year) Cumulative capacity, thousand tonnes/y Q Softwood 2.4Mt Hardwood 3.8Mt Source: Pöyry, Hawkins Wright 40

41 Our three focus areas Maximize value from eucalyptus pulp Continue to improve production efficiency Improve cost competitiveness in Montes del Plata Differentiate our Nordic pulp business Reduce exposure in softwood Grow in fluff and dissolving pulp Continue to improve production efficiency Innovate on pulp applications with current customers Create new platforms for growth We build and develop strong business on: -Improved pulp properties -Regenerated cellulose and MFC -Lignin -Bio-based chemicals -Extraction and separation technologies 41

42 We are differentiating our pulp mix Maximize value from eucalyptus pulp Today Target % 15% 37% 42% Improve competitiveness of our Nordic mills (Fluff and dissolving) 42% Softwood Hardwood Fluff/dissolving 43% 42

43 Innovation is key for sustainable profitable growth Product platforms 1. Improved pulp properties 2. Regenerated cellulose & MFC 3. Lignin 4. Bio-based chemicals Technology platform for extraction & separation 43

44 Forest assets Northern and Southern hemisphere Fair value of 3.4 BEUR Bergvik Skog, Sweden 2.3 million ha of land in Sweden, ha in Latvia (ownership of 49%) Tornator, Finland ha of land in Finland, ha in Estonia, and ha in Romania (ownership 41%) Guangxi, Southern China (leased) ha of land of which ha eucalyptus, ha other species Rio Grande do Sul, Brazil ha of land of which ha eucalyptus plantations Note: Fair value of Biological assets and Group s indirect share of forest assets is as of 31 Dec 2016, in total MEUR 44 Veracel plantations, Brazil ha of land of which ha eucalyptus plantations (ownership of 50%) Montes del Plata, Uruguay ha of land of which ha planted (ownership of 50%) In addition, leased plantations: - Laos: trial plantation, ha - Russia: ha

45 Forests are a strategic asset for the future 31 Dec 2016 Biological assets SCA Holmen UPM Klabin 3.4 BEUR 3.2 BEUR 1.8 BEUR 1.7 BEUR 1.1 BEUR Exchange rates, European central bank 31 Dec 2016 SEK/EUR BRL/EUR

46 intends to acquire forest assets of Bergvik Skog To secure our competitive raw material supply in the long term would transform 49% ownership of Bergvik Skog group to approximately 70% of the value of the forest assets in Bergvik Väst Financial impacts estimate for Bergvik Väst consolidated as a subsidiary Cash out effect of MEUR to Debt would increase through consolidation by 800 MEUR Net debt to operational EBITDA ratio would increase by 0.6 Capital employed would increase by 1 BEUR resulting a decrease in ROCE of 1%-point 46

47 Wood Products Wood-based innovations and solutions for everyday living and housing needs Public and private sector customers, such as construction companies, merchandisers and retailers Massive wood elements Interior Exterior Modular system Frame construction Window and door components Environmental construction Sawn timber Pellets 47

48 Modular building material for modern buildings Cross laminated timber (CLT) and laminated veneer lumber (LVL) fast and sustainable building solutions 48

49 Innovations taking wood to new heights Växjö, Sweden, apartment buildings, 7 000m 3 CLT Ris-Orangis, apartment buildings, Paris France, 1 800m 3 CLT Moholt 50 50, student homes, Trondheim, Norway, 6 500m 3 CLT International House Sydney, office building, Barangaroo, Australia, 2 000m 3 CLT Wood City, apartment buildings, Helsinki, Finland, 2 600m 3 LVL Crome Court, student accommodation, Norfolk, UK, 1 680m 3 CLT Geological research base, Svalbard, Norway, 300m 3 CLT La Cité du Vin, wine museum, Bordeaux, France 49

50 New projects being constructed Green Office Enjoy, France. BBCA (low carbon building) certified Yoker, Scotlands tallest timber structure Trummen Strand, Sweden. Scandinavias largest CLT projects (6 300m 3 ) 5 King the tallest engineered timber building in Australia and the tallest and largest engineered timber office building by gross floor area in the world. Kongsvinger Skole, Norway m³ CLT /300 m³ gluelam. Starts May

51 Wood Products accelerating growth Wood Products Divisional strategic target Operational ROOC > 18% Q3/16 Q3/ % 21.3% Sample product categories: CLT (Cross laminated timber) Construction beams* LVL (Laminated Veneer Lumber)* Industrial components* Classic sawn Pellets* Building Solutions* Main competitors include Schweighofer, SCA and Metsä Wood *) Value added products = Building Components and Systems products 51

52 Strong global player # 1 wood products company in Europe More than 20 production units in Europe Grade Capacity Sawn goods 5.4 Mm 3 Further processing 2.4Mm 3 CLT m 3 LVL m 3 Pellets t Gruvön Ala Varkaus Honkalahti Näpi Imavere Uimaharju Kitee Impilahti Launkalne Nebolchi Alytus Amsterdam Murow Planá Pfarrkirchen Ybbs Zdírec Brand Bad St. Leonhard 52

53 Getting the right log is critical for profitability in Wood Products Customer demand Sawing pattern Log pricing Cutting Purchasing $ Demand flow Material flow 53

54 Transformation continues towards higher margin innovative solutions in Wood Products Sales 2006 Sales 2015 Target % 24% >35 % Classic sawn Building Components and System % share of Wood Products sales 54

55 Paper Paper solutions for print media and office use Customers: publishers, printing houses, merchants, retailers, converters and office suppliers End uses: newspapers and supplements, books, magazines, advertising, note books, art books, office 55

56 Paper geared to cash generation Paper Divisional strategic target Cash flow after investing activities to sales >7% Q3/16 Q3/ % 0.8% Sample product categories Paper selection for print media: Newsprint and book papers, Uncoated mechanical papers (SC), Coated papers (Brands: e.g Nova, InnoPress) Paper selection for office use: transactional needs, office printing, writing and educational needs (Brands: e.g 4CC, MultiCopy, Zoom) Main competitors include UPM, Sappi, Norske Skog, Holmen and International Paper 56

57 Paper worldwide Grade Capacity t Newsprint Uncoated Magazine (SC) Coated Magazine 250 Total Magazine Paper Coated Fine Uncoated Fine Total Fine Paper Paper Total

58 We are delivering on our transformation strategy Sales excluding Paper growing 4.3% CAGR while Paper sales are decreasing CAGR 4.3% Sales excl. Paper and closed and divested assets Sales Paper LTM = Q4/16-Q3/17 58

59 Innovations 59

60 Innovations a few snapshots 60

61 Innovation in packaging Advancing the renewable packaging industry with innovations Microfibrillated cellulose (MFC) Biobarrier coatings Replacing plastics Intelligent packaging Design driven innovation 61

62 MFC: Innovation In Cellulose The main areas of usage for Consumer Board are strength enhancement and source reduction in paperboard and in the future new barrier solutions 62

63 Biobarrier coatings - Barrier Board Provide mineral oil barrier and dispersion coating solutions for packaging Mineral oil barrier First product available Dispersion coating Proof of concept in manufacturing Customer trials Investment proposal preparations Biobarrier coating R&D phase development ongoing 63

64 Sustainable Packaging Components - Biocomposites Reduce plastic in packaging and provide biocomposite solutions to packaging materials and components Sustainable Packaging Components is investing 12 MEUR at Hylte mill to biocomposite competence center managed by Wood Products Consumer Board has established a Flagship Program on sustainable packaging components which will fully align with sister divisions and link to the competence center 64

65 Latest technology and market developments RFID market development example Macy s men's and women's undergarments, men's slacks, denim apparel and women's shoes all lines of businesses at its stores, except for jewelry and cosmetics. 27B $ all items in every store tagged Source: RFID Journal October % % %

66 Intelligent Packaging Consumer Engagement Brand Protection Supply chain management 66

67 Intelligent Packaging - Our offering A one-stop-shop solution 8. Apps, Installations, SW Customer-tailored smartphone apps, system installations with partners. 1. Solution design Customer needs, system topology, technology selection, data flow. 7. Analysis Data analytics and dashboards 2. Package design Package structure, functionality, RF properties, electronics placement, features. 6. Connect /Data/Information Cloud platform, data collection, data management. 3. Connectivity design Tag design, selection, sourcing, qualification, quality control. 5. Integration Physical integration of tag into package. 4. Personalization Tag programming, Variable Information Printing. 67

68 From great packaging design to 3D shapes and value addition 68

69 Innovative and award-winning design Leak-tight renewable and 100% recyclable packaging for fresh fish WorldStar packaging award Sustainability award by World Packaging Organisation Original design replacing traditional pressed pulp packaging for eggs Best packaging and label award for Food at ProdExtraPack 69

70 Innovation in Biomaterials Pulp applications Cellulose modification and pulp process by-products Developing the extraction technology Further development of sugars 70

71 From wood to bio-chemicals Extraction and separation technologies Polymers, chemicals, coatings, adhesives, textiles and food ingredients 71

72 Innovation is key for sustainable profitable growth Product platforms 1. Improved pulp properties 2. Regenerated cellulose & MFC 3. Lignin 4. Bio-based chemicals Technology platform for extraction & separation 72

73 Platform 1: improving pulp properties for existing products Fluff pulp Hygiene and health, growing by 3.6% per year Life expectancy and increased disposable income in developing countries Improve fluff pulp properties to increase customer value Dissolving pulp Pulp Dissolving pulp to textiles is a 6.1 Mt market, growing 6.8% per year The increase of cellulosic fibre in textiles is driven by global brand owners Improve quality to be able to differentiate in the value chain Pulp for specialty papers Source: Smithers Pira, Hawkins Wright Flexible packaging, labels, security, décor, among others 28 Mt market, growing 1.8% per year Fibre improvements, special additives, sustainable coatings & barriers, source reduction and other innovation opportunities 73

74 Platform 2: Developing new technologies for using wood fibre in textiles, non-woven and specialty papers Regenerated cellulose Participate in the development of new technologies for using wood fibre in textile Growing interest from global brand owners increases demand for renewable fibres Opportunity to leverage on existing assets to enter this new market MFC MFC has potential to be used in specialty papers and non-woven MFC is a versatile material with potential to work as strength enhancer, additive, binder and barrier material has a long history in the research of MFC and has a demonstration plant in Imatra, Finland Source: 74

75 Platform 3: Lignin big opportunities in many markets Phenol replacement Phenolic resins is a 2.8 Mt market, growing at 4% CAGR It replaces phenol in adhesives for plywood, OSB (oriented strand board), laminates, LVL and other wood construction materials The carbon footprint for lignin is roughly 1/10 of the carbon footprint of phenol Carbon fibre Lignin Light-weight high performance composites Kt market, growing at 9 12% CAGR Low-carbon-footprint carbon fibre is unoccupied market space Energy storage Source:, Carbon Composites, IDTechEx, LuxResearch, Markets and Research, Zion Research 75 Substitution of conventional hard carbon anode materials in energy storage, namely Li-Ion Batteries and Supercapacitors Market growing on average by 20% CAGR Key applications: portable consumer electronics, power tools, electrical vehicles, stationary applications and back-up systems

76 Platform 4: Bio-based chemicals replacing fossil-based materials Bioplastics and intermediates C5 and C6 sugars from wood Source: PwC, Kline and Industry experts Growing interest in packaging/bottling markets for renewable solutions Reduction on carbon footprint and enhanced properties are key target areas Market clearly favoring second generation biomass as the raw material source It is a very populated market place, thus, strategic alliances will be crucial to win in this industry Xylose Key application is the xylitol (sweetener) market (approximately 120 Kt at 4 6% CAGR) Compared to C6 sugars it still is a rather undeveloped market, mainly due to lack of pure xylose availability. This is changing with the biorefinery concepts Growing interest and developments taking place in the market well positioned to be a frontrunner here 76

77 Innovation in Wood Products Product innovations Building Systems Digitalisation 77

78 From a classic sawn producer to a leading provider of innovative wood-based solutions Classic sawn Cross Laminated Timber (CLT) Laminated Veneer Lumber (LVL) Building Solutions Industrial components Construction beams Pellets Online services and e-business 78

79 Building Systems driving growth Residential multi storey panel construction Residential multi storey modular construction Find the film from s YouTube page (youtube.com/storaenso), or use a direct link youtube.com/watch?v=3ei9hhp_t5k 79

80 New ways of improving efficiency through digitalisation Forest categorisation & log value Cloud Buyer takes pictures Pictures to cloud service Calculation ProCalc data - Value of logs Quality class Value for sawmills Pricing proposal for buyer Results 80

81 Digitalisation in Wood Products Intelligent products Digital customer interaction Market information Scan each single product Markets Products Automate, robotise and mobilise production Wood Products end-to-end Digitalisation IndustriesCustomers Competitors Supplier Product demand forecast based on market Simulate production, based on demand and log info Scan each single log Optimised raw material specification based on demand Individualisation of leach log and digital data transfer to mill Trees cut based on profit optimisation Forest categorisation based on collected info 81

82 Group s financial performance, dividend policy, ownership and top management 82

83 Financial performance - Group 83

84 Cost structure 2016 % of costs 12% 11% 15% 6% 6% 34% Logistics and commissions Fibre Chemicals and fillers Energy Material Personnel Depreciation Other 7% 9% 84

85 Capital allocation Capex on its way to the level of depreciation 85

86 Targeted ROOC is driving CAPEX allocation Capex forecast in 2018 *Operational ROOC target ** Cash flow after investing activities to sales target 86

87 Net debt and Net debt to last twelve months operational EBITDA 87

88 We have good access to debt markets Maturity profile Q3/17 successfully issued a new 300 MEUR bond, under its Euro Medium Term Note (EMTN) programme on 31 May year bond Pays a fixed coupon of 2.5% Improving credit ratings Rating agency Long / Short-term rating Valid from Standard & Poor's BB+ (stable) / B 21 August 2017 Revolving Credit Facility 700 MEUR matures in January 2019 and is fully undrawn Moody's Ba2 (positive) / NP 4 August

89 dividend policy Strive to pay stable dividends linked to the long-term performance Half of the net income over the cycle EUR Earnings and distribution per share 89

90 Ownership Distribution as of 29 September 2017 % of shares % of votes % of shares held Solidium Oy* 12.3% 27.3% FAM AB 10.2% 27.3% Social Insurance Institution of Finland (KELA) 3.3% 10.1% Finnish institutions (excl. Solidium and KELA) 11.5% 9.1% Swedish institutions (excl. FAM) 6.8% 5.2% Finnish private shareholders 3.9% 2.4% Swedish private shareholders 3.2% 2.2% ADR holders 1.9% 0.6% Under nominee names (non-finnish/non-swedish shareholders) 46.9% 15.7% * Entirely owned by the Finnish State 90

91 Major Shareholders as of 29 September 2017 By voting power A shares R shares % of shares % of votes 1 Solidium Oyj* FAM AB** Social Insurance Institution of Finland (KELA) Varma Mutual Pension Insurance Company MB-Bolangen i Vetlanda AB (incl. Stiftelsen Seydlitz Småland) Ilmarinen Mutual Pension Company Erik Johan Ljungberg's Education Foundation Swedbank Robur Funds Nordea Investment Fund The State Pension Fund Bergslaget's Healthcare Foundation SEB Investment Management Unionen (Swedish trade union) Keva (Local Government Pensions Institution) Investment Fund OP Suomi Lannebo Funds Folketrygfondet Investment Fund Nordea Pro Suomi Schweizerische Nationalbank Etera Mutual Pension Insurance company largest total *Entirely owned by the Finnish State. **As confirmed to. List has been compiled by the company, based upon shareholder information from Euroclear Finland Oy and Euroclear Sweden AB share registers and a database managed by Citibank, N.A. (as the company's ADR agent bank). This information includes only direct registered holdings, thus certain holdings (which may be substantial) of ordinary shares and ADRs held in nominee or brokerage accounts can not be included. The list is therefore incomplete. 91

92 Group Leadership Team CEO Karl-Henrik Sundström CFO Seppo Parvi HR Malin Bendz Consumer Board Annica Bresky Sourcing Johanna Hagelberg Paper Kati ter Horst Communication Ulrika Lilja Legal Per Lyrvall Biomaterials Markus Mannström Sustainability Noel Morrin Packaging Solutions Gilles van Nieuwenhuyzen Wood Products Jari Suominen 92

93 Board of Directors Jorma Eloranta since April 2016 Chairman Hans Stråberg since April 2009 Vice chairman Anne Brunila since April 2013 Elisabet Fleuriot since April 2013 Hock Goh since April 2012 Christiane Kuehne since April 2017 Mikael Mäkinen since March 2010 Richard Nilsson since April 2014 Göran Sandberg since April

94 ESG indices and other external recognition 94

95 Sponsored ADR Programme has established a sponsored Level I ADR programme in the US. The ADRs trade on the premier tier of Over-The-Counter ( OTC ) market in the US. Details are as follows: Ticker Symbol CUSIP Ratio ADR depositary SEOAY 86210M106 1 ADR : 1 Ordinary Shares Citibank Share price information or Please contact the Citibank s dedicated ADR broker desks: Scott Pollak (New York) Mike Woods (London) Tel: Tel: scott.h.pollak@citi.com michael.woods@citi.com 95

96 Financial results for Q CEO Karl-Henrik Sundström CFO Seppo Parvi 25 October

97 Solid Performance Q year-on-year Sales MEUR, +4.8%, excl. Paper +11.1% Growth third quarter in a row y-o-y Operational EBIT 290 MEUR, EBIT margin 11.6% (9.2%) Due to favourable price development, strategic investments and good cost management Cash flow from operations 430 MEUR (390 MEUR) Operational ROCE was 13.9% (10.1%), above long-term target of 13% Operational ROCE excluding the Beihai operations 16.3% (13.5%) Net debt to operational EBITDA continued strengthening to 1.8 The 50 MEUR profit improvement programme Proceeding according to plan One third of the cost-savings achieved Full effect end of

98 A step change in our transformation Operational EBIT Q3 y-o-y MEUR % % Q Consumer Board excl. Beihai Beihai operations Packaging Solutions Biomaterials Wood Products Paper Other Q

99 Investing 94 MEUR to grow in renewable materials Enocell mill 52 MEUR investment to dissolving pulp production capacity increase by tonnes tonnes total dissolving capacity Expected to be completed during second half of 2019 Targeted ROOC over 15% Imatra mill 42 MEUR investment to increase CTMP drying and repulping capacity The objective is to improve the CTMP availability at Imatra mills to further enable the commercialisation of MFC Expected to be completed during first half of 2019 Targeted ROOC over 20% 99

100 Transformation steps since 2016 Investments Beihai Mill start-up Gruvön CLT production unit Ongoing Varkaus LVL start-up Tychy corrugated plant Ongoing Murów inauguration Dissolving pulp capacity increase at Enocell Mill Ongoing Varkaus kraftliner EBIT break-even CTMP drying capacity at Imatra Mill Ongoing Beihai PE coating line Ongoing Capacity expansion and quality upgrade in China Packaging Ongoing Skoghall Mill, chemical plant Ongoing Divestment and closure announcements Skutskär Mill, environmental investment Ongoing Hartola production unit, Finland Imatra PE coating line and automated roll warehouse Ongoing Kabel Mill, Germany Skutskär pulp mill, fluff Ongoing Suzhou Mill, China Lahti corrugated packaging investment Ongoing Heinola corrugated planned closure Imatra, Ingerois and Fors MFC Ongoing Packaging machine manufacturing company Formeca, Finland 100 Heinola Fluting Mill capacity increase Ongoing SC 100kt paper machine at Kvarnsveden Mill closed Hylte biocomposite granules Ongoing Re-board business divested in Sweden Divestment of holding in Bulleh Shah Packaging in Pakistan

101 Beihai Board mill ramp-up ahead of plan kt EBITDA break-even in Q4/17 The consumer board machine in Beihai is expected to reach operational EBITDA break even in Q4/2017 Production volume was (52 000) tonnes in Q3/2017 Total production since the start up of the mill tonnes E 2018E 2019E 2020E 2021E 2022E Full production expected in the first half of 2018 Liquid packaging board (LPB), Coated unbleached kraftboard (CUK), Food service board (FSB) Folding box board (FBB) 2nd grade and waste 101

102 Transformation journey Growth businesses 71% of sales and 90% of operational EBIT Sales 2006 Sales Q3/2017-3% 21% 1% 30% 71% 25% 29% 12% 13% 70% 17% 15% Operational EBIT 2006 Operational EBIT Q3/2017 Consumer Board Packaging Solutions (1) Biomaterials Wood Products Paper (2) Other & eliminations -3% 38% 90% 10% 3% (1) In 2006 included in Consumer Board (2) In 2006 includes merchants 35% 10% 30% 62% 6% 30% 17% 102

103 Sales grew for third consecutive quarter; operational ROCE above strategic target Summary financials Q EUR million Q3/17 Q3/16 Change% Q3/17- Q3/16 Q2/17 Change% Q3/17- Q2/17 Sales % % Operational EBITDA % % Operational EBITDA margin 16.3% 14.3% 13.5% Operational EBIT % % Operational EBIT margin 11.6% 9.2% 8.7% Profit before tax excl. IAC % % EPS excl. IAC, EUR EPS (basic), EUR Operational ROCE 13.9% 10.1% 10.3% Operational ROCE excl. Beihai operations 16.3% 13.5% 12.4% Cash Flow from Operations % % Net debt/last 12 months operational EBITDA

104 Consumer Board Beihai Mill ramp-up continues ahead of plan Q3 y-o-y Sales +7% to 639 MEUR Due to the ramp-up of Beihai Mill Operational EBIT 86 MEUR +28% Due to the ramp-up of Beihai Mill Beihai development The power turbine is back in operation Beihai operations operational EBIT -7 MEUR (-38 MEUR) in Q4/2017 EBITDA break even expected during Q4/2017 Operational ROOC 17.7% (12.9%) Excluding Beihai operations 40.5% (42.3%) 42 MEUR investment at Imatra Mills in Finland for additional drying capacity for CTMP and an extension of the pulp warehouse MEUR MEUR Sales 639 7% 599 Q316 Q317 Operational EBIT 86 28% 67 Q316 Q

105 Packaging Solutions Profitable growth continues Q3 y-o-y Sales +23% to 318 MEUR Varkaus Kraftliner ramp-up, favourable prices and increased deliveries Operational EBIT record high at 48 MEUR Clearly higher sales prices, better volumes and operational improvements in China Packaging and Varkaus kraftliner Varkaus kraftliner mill Full production expected to be reached during Q4/2017 Reached targeted operational EBITDA run-rate of 15% Investment of 16 MEUR was decided in capacity expansion and quality upgrade in China Investment is expected to be completed by mid-2019 MEUR MEUR Sales % 259 Q316 Q317 Operational EBIT % 21 Q316 Q

106 Biomaterials Favourable pulp cycle continues Q3 y-o-y Sales +14% to 379 MEUR Increased deliveries and higher sales prices Operational EBIT more than doubled to 88 MEUR Higher pulp prices, increased volumes and lower maintenance costs mainly due to changed sequence of maintenance shutdowns Operational ROOC 14.8% Target 15% An 52 MEUR investment at Enocell Mill to increase its dissolving pulp capacity from 150k tonnes to 430k tonnes MEUR MEUR Sales % Q316 Q317 Operational EBIT % 0 Q316 Q

107 Wood Products Continued solid performance Q3 y-o-y Sales increased 10.5% excluding the transfer of Baltic wood sourcing - Sales growth in Building Components and Systems 14% - Mainly due to increased volumes, higher prices and product mix The highest third quarter operational EBIT in 10 years - Higher wood costs were more than offset by higher sales prices and volumes Operational ROOC 21.3% - Target 18% MEUR Sales 8% 385 Q Q317 CLT investment at Gruvön, Sweden proceeding according to plan Scheduled to begin during Q1/2019 MEUR Operational EBIT 29 32% 22 0 Q316 Q

108 Paper Temporary headwinds effecting profitability and cash flow Q3 y-o-y Sales of ongoing operations stable -1% Veitsiluoto Mill PM2 incident and negative FX impact. The divestments of Kabel Mill and Suzhou Mill site decreased sales by 55 MEUR Operational EBIT decreased by 24 MEUR Higher cost of paper for recycling, energy, wood and chemicals and negative net FX Cash flow after investing activities to sales ratio for the first 9 months 5.2%, for Q3 0.8% Mainly due to lower EBITDA and normalised level for operative working capital after a low level at the end of Q2/2017 Negotiations at Kvarnsveden Mill regarding the closure of paper machine 8 concluded 122 people affected Annual cost savings of 12 MEUR MEUR MEUR Q316 Sales -8% Cash flow 727 Q317 Q116 Q216 Q316 Q416 Q117 Q217 Q317 14% 12% 10% 8% 6% 4% 2% 0% Cash flow after investing activities Cash flow after investing activities to sales 108

109 Strategic targets Group targets Q3 16 Q3 17 Dividend To distribute 50% of net income over the cycle Growth* To grow faster than the relevant market 1.8% (YoY) 11.1% (YoY) Net debt to operational EBITDA <3.0x Fixed costs to sales <20% 25.5% 23.8% Debt to equity <80% 52% 43% Operational ROCE >13% 10.1% 13.9% Operational ROCE excl. Beihai op. 13.5% 16.3% Divisional targets Q3 16 Q3 17 Consumer Board Operational ROOC > 20% 12.9% 17.7% Consumer Board excl. Beihai op. 42.3% 40.5% Packaging Solutions Operational ROOC > 20% 9.6% 22.4% Biomaterials Operational ROOC > 15% 6.7% 14.8% Wood Products Operational ROOC > 18% 17.5% 21.3% Paper Cash flow after investing activities to sales > 7% 11.7% 0.8% *Excluding Paper 109

110 Guidance for Q Compared to Q Sales are estimated to be similar to or slightly higher than the amount of MEUR recorded in Q3/2017 Operational EBIT is expected to be somewhat lower than or even in line with the 290 MEUR recorded in Q3/2017 The operational EBIT estimate for Q4/2017 includes the negative 7 MEUR impact of the ramp-up of the Beihai operations. Beihai Mill expected to reach operational EBITDA break even in Q The impact of annual maintenance shutdowns is expected to be approximately 10 MEUR higher than in Q3/2017, and it is included in the above guidance. Annual maintenance Q Consumer Board Q Q Skoghall and Fors mills Imatra and Ingerois Mills Packaging Solutions Heinola Mill Varkaus Mill Biomaterials Veracel and Skutskär mills - Paper Nymölla Mill Veitsiluoto Mill 110

111 A step change in our transformation Sales growth three consecutive quarters Strategic projects in China, Varkaus and Murów drive sustainable profitable growth Sales growth 4.8%, excl. paper 11.1% ROCE 13.9% at the highest level since Q1/2001 Solid cash flow generation Net debt/ebitda 1.8 Moving from asset transformation to innovation and sales transformation 111

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