Hello, everyone, and a warm welcome to Stora Enso's First Quarter Results Presentation. Welcome also to those of you who are joining us via the webcast. My name is Ulrike Lilia. I'm Head of Communications, and I'm standing here with our CEO, Karl Nick Sundstrom and our CFO, Seppo Parry.
After
the presentation, we will open up for Q and As. And for those of you who are joining us via the webcast, please post your questions online. And with that, I hand over to you, Kalle.
Thank you, Ulrike. And good morning or good afternoon, depending on where you are in the world. So the theme of the first quarter report of 2019 is a promising start of the year, supported by the profit protection program. We came out with a sales increase of over 2%. That's the ninth consecutive time that we have top line growth for Storansone.
The other part that is interesting is that we are basically having the highest sales quarter as a quarter one since 2013. And we came out with an operation EBIT of $324,000,000, 45,000,000 lower than the year ago. And we came in, in the upper end of our guidance that we gave to the market in conjunction with this fourth quarter report earlier this year. The EBIT margin was 12.3%, and that is the seventh consecutive time where we had an EBIT margin over 10%. Cash flow continued to be at the same level as last year.
We have a little bit of working capital, and that is an area that Seppo will talk about later on. Net debt to EBITDA came in at 1.7% versus 1.3% a year ago. There are two important elements here. In this quarter, we have implemented a new accounting rule called IFRS 16. It's about leasing accounting.
That counts for 0.3%. And for the first time, we actually paid dividend in the first quarter. Return on operating capital in play came out at 14%, and that is above the target of 13%. And we also have impacts of the IFRS 16 rule here as well. But to describe what happened in the quarter, I would like to start with a slide looking at the totality of what happened in the quarter.
This is a simplified way of describing. First, you have to remember that this year, we have a different maintenance schedule compared to last year. Last year, we had a quarter without any maintenance or annual maintenance shutdown. That's about SEK 20,000,000 of the SEK 45,000,000. Then the other two parts that we have been working very, very much around is actually what we call the value management, how you balance between price and volume.
That has had a positive net effect of $43,000,000 The other area we've been working very hard on in this quarter is actually in the profit protection program. You can see here, we have variable costs increasing 68,000,000 compared to last year, whereof the fiber costs are the biggest. And that is round wood, pulp, but also other variable costs such as chemical and freight. And these are the things that has moved. And that's why we are quite happy that we came in slightly higher than expected or slightly higher than the midpoint of our guidance is because we've been more successful in the value management and better in the profit protection program.
Coming back to this, we are back to a return on capital employed above 13%. And in this number is also included an increase of working capital of almost 300,000,000, which comes with the new IFRS 16 rules. We have had a number of important events during the first quarter. We published that we are building up what we called a formed fiber unit, where we are putting up a machinery that provides various kinds of new products that we don't have today, which are 100% recyclable and or having no content of plastic. It can be cup holders.
It can be cups. It can be lids on coffee cups. The in the quarter, also the Oulu conversation feasibility study was completed. And in first way we looked upon it is actually to convert the paper machine number seven to a cross liner machine and hold for a period to come paper machine number eight that will be closed and the same with the sheeting. We are now in a discussion on the co determination.
And once they are finished, we will take a proposal to the Board for the final approval of the conversion. We have also started up the new CLT line, and we have had commercial deliveries from Gruyvern in Sweden, and that was completed basically on time. And then the flash drying capacity that we needed to improve our MFC, microfibrillated cellulose capacity, has been concluded, and now we can ramp up according to plan the MFC. Another important thing that I want to talk about is the restructuring of Bergvik Skog, and that is going according to plan. The aim is to complete this deal in Q2.
And I just want to remind you what it's about. Going from an indirect ownership of about 1,100,000 hectares, we will go to a direct ownership of 1.4 productive forest from what we used to have indirectly. This is an investment of in capital employed about $1,000,000,000 and it will have an impact on the return on capital employed about 1%. Important to note is that the structured transaction means that we will probably go over the net debt to EBITDA temporarily for Q2 and Q3 and then come back below two in towards the end of the year. With that, I would like to hand over to Seppo.
Seppo?
Thank you, Karl. And I'll start with some of the key figures from the report that we had just published earlier today. So sales line top line went up 2.2%, as Karl mentioned already. Operational EBIT was €324,000,000 or 12.3 percent. Operational return on capital employed at 14%, which is higher than our targeted 13% level as a minimum return on capital employed.
Cash flow from operations, euros $223,000,000, approximately at the same level as year ago. And net debt to last twelve months operational EBITA at 1.7%. And here, it's good to remember that it includes adaptation of IFRS 16, leasing standard, adding 0.3% to the ratio as well as good to remember that we have paid dividend already in Q1 this year compared to last year when the dividend payment took place in Q2. Moving then forward and a bit more details about the new IFRS 16 leasing standard adaptation and effects in our figures. Highlighting some key points there.
First of all, operational EBITA increased €19,000,000 for the quarter. And then EBIT, operational EBIT went up €2,000,000 So the difference is then increase in depreciation. Net financial items went up €6,000,000 and net profit for the period, there was a difference of €4,000,000 negative. Operational return on capital employed decreased 0.4% and net debt to net debt increased €526,000,000 because of the standard change. Then moving to divisions and I start with Consumer Board, where price increases are coming through gradually.
Sales decreased slightly to €634,000,000 That is because lower port deliveries were only partly offset by higher pulp deliveries and local sales prices had a slight positive impact. We still need to continue to increase prices, as said earlier, to improve the profitability. But first steps have been already taken end of last year, and we continue to work also this year. Operational EBIT decreased €37,000,000 to €54,000,000 and that is driven significantly higher variable cost, especially for wood and somewhat for pulp as well. And there was negative volume impact also affecting the profitability.
Operational return on capital decreased by decreased to 10.3%. That is because of lower profitability, as mentioned above, as well as negative impact from IFRS 16 leasing standard. We also launched new premium quality folding boxboard, Arctic Deer in China, and that is suitable for applications in food and pharmaceutical packaging as well as publications. And at the Imatra mill, we have now announced and had co determination negotiations for the PM6 closure, and that will take place by 2019. And that will decrease annual sales by approximately €70,000,000 Then moving to Packaging Solutions, where we had record first quarter sales.
Sales increased 2% to €338,000,000 thanks to higher prices in corrugated and fluting products. Operational EBIT decreased €10,000,000 to €51,000,000 There higher sales prices were offset by overall higher costs and lower China packaging sales margin. Changed maintenance schedule compared to a year ago for Osterreka Mills PM5 decreased production and increased maintenance costs. And operational return on capital employed was 21.8% and remained above the targeted 20% level for the division. At the Hainelafluting mill in Finland, we have announced industrial scale pilot plant to turn sludge from the Mills water treatment plant into renewable fuel.
That will be testing new energy efficient technology and the new biofuels will reduce the carbon dioxide emissions at the Mills power plant going forward. Then moving to biomaterials, where good performance continues and they had record quarter. Sales were up 1% to record high first quarter, €398,000,000 Slightly higher sales prices were supported by foreign exchange rates and lower deliveries mainly due to changed maintenance schedule in Veracel Mill in Brazil had negative effect on the sales line. Operational EBIT was at record high first quarter level of €103,000,000 and higher sales prices were partly offset by higher variable and fixed costs. And operational return on capital employed above the targeted 15% level at 16.2%.
Wood Products, there we also continued on record level. Sales increased 3%. Slightly higher sales prices and favorable mix changes, partly offset by lower deliveries having an effect on the sales line. Operational EBIT at record high first quarter level of €29,000,000 Higher sales prices were offset by higher fixed costs mainly related to start up preparation of the strategic investments and negative impact from volumes. Operational return on capital decreased to 17.7%.
That's partly seasonal, but also good to remember that capital increase at the Kruger new CLT plan has an effect here and is still at the ramp up phase. And IFRS 16 leasing standard also had a negative impact of 0.6 when it comes to return on capital employed in Wood Products division. Then moving to Paper division, where we had record high first quarter profitability. Sales were down 2% to €760,000,000 There are clearly higher sales prices and a better mix, but lower sales prices sorry, lower sales volumes were then offsetting the benefit partly reflecting on the sales line. Operational EBIT was stable at €69,000,000 and EBIT margin increased to 9.1%, which is highest in ten years.
Significantly higher sales prices and slightly lower fixed costs were affecting the result as well. We had higher variable costs, especially when it comes to wood, pulp and energy and lower volumes. Cash flow after investment activities to sales ratio was 6.1% compared to 6.2% a year ago, slightly below the targeted 7% level. Then to summarize and looking at the strategic targets table, we are still on red when it comes to fixed cost to sales ratio at 22.4% at the moment, coming down from 22.6% a year ago. Consumer Board, as mentioned earlier, still below the 20% targeted level.
And we are working on improving the cost structure as well as on increasing the selling prices further. And Wood Products on yellow at 17.7%, as mentioned, mainly seasonality driven issues there and Paper at 6.1% cash flow. With that, I hand over to you, Karl Ettack.
Thank you, Seppo. And first, I would like to start with the outlook for 2019. That is unchanged compared to the previous. So the tax is exactly the same as we had in the fourth quarter. Going into the guidance for the 2019, operational EBIT is expected to be in the range of $270,000,000 to EUR $250,000,000.
During the 2019, there will be an annual maintenance shutdown at Nyimola paper mill. The total negative impact of maintenance is estimated to be 35,000,000 less than in the 2018. You can clearly see here from the schedule that there is one mill this year and there were six mills last year. And that's the reason why we have less impact. Just before we open up for the Q and A, I just want to highlight a little bit.
We're working on both pricing versus volumes as well as accelerating and driving the profit protection program is actually paying off, that's the reason why we came in, in the upper end of our guidance. Sales growth of 2%, ninth consecutive quarter of growth, seventh consecutive quarter of double digit operational EBIT. Return on capital employed at 14%. We have a strong balance sheet despite the adaptation of IFRS 16. And we will continue with value management, which is price versus volume And profit protection program addressing cost structure going forward is actually about securing the future and being a competitive company.
With that, I would like to invite Ulrike and Sepo on stage, and we continue with the Q and A session.
Yes. Again, for those of you who are joining us via the web, please post your questions online. And while we wait for the questions, I can start, Kalle. We have issued a green bond during the quarter. Can you say something about that?
So this was the first green bond that we have issued. It was €600,000,000 It is part of financing the restructuring of Bergvik. We do have green demands in some of our backup facilities as well. And this is, I think, something that proves that you get a very competitive interest rates when you actually go into green bonds and green financing.
And Stepo, can you elaborate a bit on the Ouluco termination process?
Yes. Code termination negotiations are going on with the employees at the moment. We expect to finalize those by, say, May, and then it's time to make the final investment decisions.
Do we have any questions here from the audience in Helsinki? Vera?
Hello, Vera Andre from Copeland. What were the reasons for the maintenance in Veracel and the other pulp mill?
So if you're running a pulp mill, you usually have a maintenance for security reasons to secure that it works. It's either annual or it's every eighteen months. And some, like the Neumulla, that we have every eighteen months. That's why the schedule is changing every year. That is to keep the equipment competitive but also to make sure it's safe and sound for people working there.
So stable pace and normal maintenance cycle,
Yes. You could And this is partly through legislation that you have to get your permits, you have to have an inspection, and yet you do also during the maintenance period. Did that answer your question?
Yes. So you said that given the potential market weakness, you are convinced that the timing for advancing the program is right. What are these potential market weaknesses?
First of all, you had in Q1, you did not have a Brexit. That is and it's probably going to come later whenever it comes. So that's an uncertainty. The second one, which is affecting us very much, is actually the ongoing trade war between U. S.
And China. We sell a lot to China. We produce in China, and we sell to Southeast Asia. So that's one of these uncertainties. The third one is, will there be a tariff war or a custom war between EU and Europe?
That will affect us severely as well. And all these uncertainties is not good for us because we basically live on a GDP plus. So if trade is going down, there are more less boxes being demanded.
Any additional questions from you, Vera? Might have one
or Yes. Two, but we have
Yes. Then I'll take one from the webcast in the meanwhile. It's coming from Mikko Ehrvasti, and I direct this to you, Seppo. Please can you comment on the Q1 dynamics driving 5% drop in consumable deliveries and 10% in production?
Well, I think this is exactly what Karl was referring in his part of the presentation when he was talking about value management, that we have put priority on increasing selling prices and not going for the volumes. And it's not only Consumer Board, but it's the same in other divisions.
Basically all divisions? Yes.
Good. We have no more questions from the webcast. So if there are any remaining questions here in Helsinki, this is the time.
You can ask in Finnish because Sepu speaks Finnish. And there are other people who can translate if it's to me.
Okay. If we have no further questions, we thank you for your attention, and we conclude this webcast. Thank you.
Thank you. Thank you.