Stora Enso Fourth Quarter and Full Year Results 2006


Stora Enso Fourth Quarter and Full Year Results 2006Annual results boosted by profit improvement actions; proposed dividend unchanged at EUR 0.45 per share.Stora Enso Oyj Stock Exchange Release 7 February 2007 at 11:00 GMT Fourth quarter operating profit excluding non-recurring items largely unchanged from the third quarter. Sales volumes and some prices rose moderately from the previous quarter, which were offset by higher fixed costs. Summary of Fourth Quarter Results (compared with Q3/2006)Sales were EUR 3 731.8 (EUR 3 638.1) million.Operating profit was EUR 186.0 (EUR 195.2) million excluding non-recurring items. Operating profit was EUR 246.0 (EUR 18.0) million including non-recurring items.Profit before tax was EUR 141.4 (EUR 197.0) million excluding non-recurring items. Profit before tax was EUR 234.4 (EUR 19.8) million including non-recurring itemsEarnings per share were EUR 0.13 (EUR 0.18) excluding non-recurring items. Cash earnings per share were EUR 0.49 (EUR 0.52) excluding non-recurring items. Earnings per share including non-recurring items were EUR 0.33 (EUR 0.07).Cash flow after investing activities was EUR 415.2 (EUR 473.8) million. MarketsCompared with Q3/2006In Europe market demand for the Group's products was slightly better than in the previous quarter. Market demand was seasonally stronger in publication paper grades, with prices stable except for some price erosion in coated magazine paper. Market demand for fine paper strengthened in Europe. Prices for uncoated fine paper rose and were unchanged for coated fine paper during the quarter. Packaging board demand was seasonally weaker, but the market for industrial packaging grades was stronger and prices for packaging boards were unchanged. Demand for wood products remained good in Europe, Asia, North Africa and the Middle East. Buoyant demand and low stock levels supported further price increases in these markets. In North America demand for wood products was still weak and prices were depressed. In North America demand for newsprint and uncoated magazine paper strengthened during the quarter, mainly for seasonal reasons, but demand for coated magazine paper weakened. Newsprint and magazine paper prices decreased. Market demand for coated fine paper weakened and coated fine paper prices declined slightly. In Latin America demand for coated magazine paper was clearly better than in the previous quarter and prices were stable. In China demand for coated fine paper was weaker than in the previous quarter and downward price pressure intensified. Compared with Q4/2005In Europe market demand for the Group's products was generally firmer than a year ago. Demand was stronger in newsprint and uncoated magazine paper, but somewhat weaker in coated magazine paper. Prices were higher in newsprint and virtually unchanged in magazine paper. Market demand was stronger than a year ago in coated fine paper but slightly weaker in uncoated fine paper. Uncoated fine paper prices rose slightly, whereas coated fine paper prices remained stable. Demand for packaging boards was steady and prices were unchanged. In wood products, demand and prices were higher than a year ago. In North America demand for magazine paper was firmer, but newsprint demand was clearly weaker than a year ago. Newsprint prices rose, uncoated magazine paper prices remained stable and coated magazine paper prices declined. Market demand for coated fine paper was stronger and coated fine paper prices were higher. In Latin America demand for coated magazine paper was clearly better than a year ago with prices stable. In China demand for coated fine paper strengthened during the year and prices were unchanged. Key FiguresEUR millionQ4/0520054)Q1/06Q2/06Q3/06Q4/062006Sales3 636.113 187.53 607.73 616.33 638.13 731.814 593.9EBITDA1)2)411.61 487.4463.3451.2462.8470.91 848.2Operating profit2)120.9357.5194.1 Other Financial Items, of which3.3-1.0166.4-78.448.034.5170.5 Capital gains, listed shares3.95.8136.7--2.137.6172.2 Unrealised fair valuation of option hedges (TRS)0.99.741.7-61.236.0-7.49.1 Unrealised fair valuation of other financial items-4.5-17.8-8.9-10.715.7-5.2-9.1 Other items3.01.3-3.1-6.5-1.69.5-1.7Net Financial Items Total-48.9-151.6115.2-149.2-8.4-37.0-79.4Stora Enso utilises Total Return Swaps (TRS) to partially hedge the exposure to changes in the share price of synthetic options granted under the option programmes for Management, which are settled with cash payments. While these TRS instruments allow the Group to partially stabilise the future cash flows related to the settlement of outstanding synthetic options, they expose the Group to certain market risks. The TRS instruments do not qualify for hedge accounting; therefore periodic changes to their fair value are recorded in the income statement. Net financial items were EUR -79.4 (EUR -151.6) million, including non-recurring capital gains of EUR 163.0 million from the sale of Sampo and Finnlines shares. Net interest expenses increased by EUR 59.8 million to EUR -224.8 (EUR -165.0) million, mainly due to higher average net debt and interest rates. The net foreign exchange loss on borrowings, currency derivatives and bank accounts was EUR 25.1 (gain of EUR 14.4) million. Other financial items, excluding non-recurring capital gains of EUR 163.0 million, rose to EUR 7.5 million from EUR -1.0 million, mainly due to unrealised changes in fair values of financial instruments, including Total Return Swaps. These unrealised fair value changes are non-cash items. Profit before taxes and minority interests excluding non-recurring items totalled EUR 602.5 (EUR 273.1) million. Net taxes totalled EUR -42.6 (EUR 36.8) million; taxes were positively impacted by EUR 102.0 million of tax provisions released following the settlement of tax cases. The tax rate for the year was 27.1% excluding non-recurring items. The profit attributable to minority shareholders was EUR 4.2 (EUR 3.7) million, leaving a profit of EUR 585.0 (EUR -111.1) million attributable to Company shareholders. Earnings per share were EUR 0.55 (EUR 0.28) excluding non-recurring items. Earnings per share including non-recurring items were EUR 0.74 (EUR -0.14). Cash earnings per share were EUR 1.94 (EUR 1.70) excluding non-recurring items. The return on capital employed was 6.6% (3.3%) excluding non-recurring items. Capital employed was EUR 11 331.8 million on 31 December 2006, a net decrease of EUR 346.1 million. Operative working capital was EUR 2 174.5 million, a decrease of EUR 158.5 million during the year as inventories were reduced. Other financial items totalled EUR 34.5 (EUR 48.0) million, including a capital gain of EUR 33.0 million from the sale of Finnlines Plc shares. The unrealised changes in fair values of financial instruments, including TRS, amounted to EUR -12.6 (EUR 51.7) million. These unrealised fair value changes have no cash impact. Profit before tax amounted to EUR 141.4 (EUR 197.0) million excluding non-recurring items. Profit before tax amounted to EUR 234.4 (EUR 19.8) million including non-recurring items. Net taxes totalled a positive EUR 30.4 (positive EUR 37.3) million and were positively impacted by EUR 102.0 million of tax provisions released following the settlement of tax cases, leaving a net profit for the quarter of EUR 264.8 (EUR 57.1) million. The profit attributable to minority shareholders was EUR 1.8 (EUR 1.3) million, so the profit attributable to Company shareholders was EUR 263.0 million. Earnings per share were EUR 0.13 (EUR 0.18) excluding non-recurring items. Earnings per share including non-recurring items were EUR 0.33 (EUR 0.07). Cash earnings per share were EUR 0.49 (EUR 0.52) excluding non-recurring items. The return on capital employed was 6.7% (7.0%) excluding non-recurring items. Financing during Fourth QuarterCash flow from operations was EUR 594.9 (EUR 602.5) million and cash flow after investing activities EUR 415.2 (EUR 473.8) million. Cash flow decreased mainly because capital expenditure increased. Interest-bearing net liabilities decreased to EUR 4 233.9 million. Fourth Quarter Events OctoberStora Enso initiated exclusive discussions with the aim of joint-venture ownership regarding assets of Stora Enso Arapoti in Brazil with Arauco, a Chilean forest products company. Although the period of exclusivity expired on 31 January 2007, the negotiations continue. Stora Enso announced investments in Finland, where the Group is investing EUR 32.4 million in rebuilding the finishing department at