Stora Enso is hosting its Forest and Wood Products Day for investors in Stockholm tomorrow. The focus is on recently acquired Swedish forest assets and the establishment of a new Forest division. The Wood Products division will be also covered, including a visit to the newly inaugurated CLT (cross-laminated timber) mill in Gruvön. Stora Enso is now publishing an illustrative statement of income and operating capital for the new Forest division and the Group’s capital expenditure forecast for 2020.
To increase transparency, Stora Enso will establish a Forest division and start reporting it separately at the beginning of 2020. The new Forest division will include Stora Enso’s Swedish forest assets (including the recently-acquired Bergvik Skog Väst AB) and its 41% share of Tornator with the majority of its forest assets located in Finland. The Forest division will also include wood supply operations in Finland, Sweden, Russia and Baltic countries. Tree plantations in the southern hemisphere linked to local pulp mills continue to be reported as before under the Biomaterials and Consumer Board divisions. After establishing the new Forest division, segment Other reporting will include Group functions, logistics and other operations.
Stora Enso’s CEO, Karl-Henrik Sundström, says: “As a major player in the bioeconomy, access to wood is critical for us. Taking forest assets under direct ownership gives us more flexibility to optimise our wood supply and operations. Furthermore, as wood is the single most important raw material and the biggest share of our costs, as well as a large part of the balance sheet, it will make sense to increase the transparency of reporting now, when we have successfully finalised the acquisition of Swedish forest holdings.”
Today, Stora Enso has forest assets valued at more than EUR 4.1 billion (land and biological assets) in its balance sheet, the highest value being of biological assets of EUR 3.6 billion among Nordic companies. In Sweden, Stora Enso owns 1.4 million hectares of forest, of which 1.14 million hectares are productive forest land with standing stock of 143 million m³.
Forest division segment reporting
The new division will begin its segment reporting on 1 January 2020. The restated historical figures will be published in the first quarter of 2020. Stora Enso is now disclosing an illustrative statement of income and operating capital for the new division for 2018 and first half of 2019.
Forest growth represents an important component of the annual operative return for long-term rotation forest assets, where the typical annual wood sales and related costs do not reflect the total profitability of the forest assets. The long-term value change of the standing forests is an important component of the forestry business’s profitability.
Under current presentation principles, all changes in fair valuation of biological assets are excluded from Operational EBIT, with the exception of depletion of capitalised silviculture costs in southern tree plantations. From 1 January 2020 onwards, the changes in fair valuation of biological assets will be categorised in two categories: non-operational fair value changes and operational fair value changes. Non-operational fair value changes of biological assets reflect changes made to valuation assumptions and parameters, usually during the annual valuation process. Operational fair value changes of biological assets contain all other fair value changes, mainly due to inflation and differences in actual harvesting levels compared to the harvesting plan. Operational fair value changes will be reported in Operational EBITDA, whereas non-operational fair value changes will be excluded from Operational EBITDA.
In conjunction with the new segment reporting, Stora Enso will reclassify the silviculture costs of the new Forest division from Operational EBITDA to Operational EBIT. Silviculture costs mainly relate to the replanting, tending and fertilisation of trees. As per current presentation principles, the depletion of capitalised silviculture costs in southern hemisphere tree plantations is already included in Operational EBIT, so this change will align the presentation of Nordic forests and southern hemisphere plantations.
All of the above changes are related to non-IFRS alternative performance measures. The Operating Profit (IFRS) remains unchanged, with both operational and non-operational fair valuation changes to be included in the line change in the net value of biological assets.
Capital expenditure for 2020
In 2020, the estimated capital expenditure will be EUR 800–850 million, including EUR 200–230 million for the Oulu mill conversion and EUR 80–100 million for biological assets. The forecasted annual depreciation is EUR 550–570 million and the operational decrease in the value of biological assets is EUR 50–70 million. The capital expenditure, depreciation and operational decrease in the biological asset values forecasts also include the impact of IFRS 16 Leases. The capital expenditure spend has been raised temporarily in order to accelerate Stora Enso’s transformation into a renewable materials company.
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