Stora Enso's financial results presentation for the first quarter 2018. A special welcome also to those of you who are joining us via the webcast. My name is Ulrika Lilja. I'm head of communications, standing here with our CEO, Karl-Henrik Sundström, and our CFO, Seppo Parvi. After the presentation, we will open up for a Q&A session. Those of you who are joining us via the web can post your questions online. With that, I hand over to you, Kalle.
Thank you. Even though we pre-announced pretty much the essentials of the results the 13th of April, it's actually still a fairly good story to tell. It is a very good start of the year. It's a very promising start of a new year. Sales grow 3.3%, excluding divested Puumerkki is actually up 4.5%. This is the fifth consecutive quarter with growth. Operational EBIT came in 72% higher than the same period a year ago. It's actually the highest since 2001 when you look on the profit margin of 14.3%. We have had a strong operational performance. We have profit improvement program that is yielding more than we initially thought. The EUR 50 million is actually up to EUR 70 million now. That's important to holding your cost even when you're growing. Cash flow came in strong. The balance sheet had continued to strengthen.
The net debt to EBITDA has actually improved from 1.9 times a year ago to 1.3 times. The icing of the cake of today is actually that the third consecutive quarter over 13% on return on capital employed, in this quarter, 17.7 percentage points, which is the highest since year 2000. It's been a long journey, but it's going in the right direction. If I go shortly into the results, before Seppo goes into the details, I think this picture explains pretty much what happened in the first quarter. Consumer Board improved EUR 30 million or almost 50%, of which about one third is coming from the European mills, and two-thirds is coming from the ramp-up of Beihai, which continues to ramp up over the full year-over-year. You remember, we just passed EBITDA breakeven in the fourth quarter of 2017.
Packaging Solutions increased 154% or EUR 37 million versus the same period a year ago. That is driven a lot by the kraftliner in our Varkaus investment plus China. Overall, a very strong performance across the whole division. Biomaterials increased EUR 49 million or 93%. This is basically driven by favorable pulp prices. We also had some tailwinds. That is basically that we were running the mills slightly lower than a year ago. We had some challenges when it comes to shipping in the quarter end, moving from one quarter to another. That all in all consist about 50,000 tons. Wood Products, EUR 7 million increase or 32%. This is the highest first quarter result in the history of wood product. Then in paper, 64% increase or EUR 27 million, driven by increased prices and high utilization during the quarter.
It is important to remember this is the highest EBIT margin in 10 years, and this is a good result. The areas on transformation continues. In this first quarter of 2018, we have actually sold off the Baienfurt Sheeting operations in Germany. We have made final closure of the Heinola corrugated plant. Obviously, we continue with the mill. We have actually signed an agreement to divest the forest holding we are having in Rio Grande do Sul, and the deal is expected to be closed during Q2. We also been working on a number of new investments. The Lahti corrugated packaging unit, which is improved and better than before, is ready. We have concluded an environmental investment in Skutskär, and we have actually started a production in the Hylte biocomposite granules, which is a new area for the old paper mill to move into the biocomposite area.
As we say, the transformation journey continues. Now 70% of sales in a good strong sales quarter represents of the growth divisions. We had growth across all divisions in this quarter, and 81% of the profitability, which means that we are on the right path, and this is promising for the future. With that, I would like to hand over to Seppo to give you further details on the various divisions and other areas. Seppo.
Thank you, Kalle. I start by going through some key figures for the quarter. First of all, sales top line increased 3.3%, another quarter of top-line growth. It is not only that top line growth would be growing, but we are also improving profitability, which means that there is profitable growth that continues. Operational EBIT reached EUR 369 million. That is increase of 71.6% compared to a year ago. Operational EBIT margin at record level of 14.3%. Earnings per share at EUR 0.35 a share, significant increase compared to EUR 0.14 a share a year ago. Operational return on capital employed at 17.7%, clearly above the targeted 13% level. Also, balance sheet continues to strengthen, and during the quarter, we reduced net debt by almost half a billion euros compared to a year ago.
Our net debt to last 12 months operational EBITDA came down to 1.3. Moving to divisions, I start with Consumer Board, where record operational EBIT was driven by strong growth and improved operational efficiency. Sales was up 6% and was at all-time high, EUR 646 million. That is driven by better volumes in European mills and successfully continued ramp-up of the Beihai mill. Operational EBIT was up 49% to record high Q1 of EUR 91 million. Operational return on capital, slightly below the targeted 20% level at 18.5%. Also, Baienfurt Sheeting Center divestment was completed in January as announced earlier. Moving to Packaging Solutions, where we had another record quarter. This was now fourth consecutive quarter with both record sales and profitability.
Sales increased 15% to record high Q1 of EUR 333 million, thanks to favorable pricing environment, as well as continued growth in our China packaging unit. Operational EBIT was at all-time high level of EUR 61 million. That was increase of 154% compared to a year ago. Operational return on capital, a record high 27.7%, compared to 11% level a year ago. We also finalized our consolidation of corrugated packaging manufacturing in Finland during the beginning of this year, now we have Center of Excellence created in Lahti. We closed our corrugated plant in Heinola permanently. We continue in Heinola our fluting manufacturing operation as earlier. Moving forward to Biomaterials, where we're also at all-time high, despite the headwinds relating to wood sourcing situation in the Nordics, especially in Finland and Sweden, also negative effect of the foreign exchange rates.
Sales was up 7% and operational EBIT 93%, reaching all-time high EUR 102 million. Operational return on capital also above the targeted 15% level at 17.6%. Also during the quarter, we finalized, completed the Skutskär EUR 16 million environmental performance investment. Also, we're very proud that we received an award during the quarter for the Lineo by Stora Enso, our lignin product that is a renewable replacement for oil-based phenolic materials. Moving to Wood Products, where we had record high first quarter also. Sales increased 4%, excluding divested Puumerkki and the bulk wood supply operations that we transferred last year to segment Other. Operational EBIT up 32% to record high Q1 at EUR 29 million and highest since 2007. Ramp-up of the LVL production at Varkaus mill continues, we have reached the EBITDA break-even and ramp-up is expected to be completed by mid-2018.
Also, our CLT investment project in Sweden, Gruvön, is proceeding as planned, there we expect to begin production in Q1 next year. Also in Sweden at the Hylte mill, where we have started production of DuraSense granulates, the project's moving ahead, we are now working on commercialization with several customers. Paper, also there, highest Q1 EBIT margin in 10 years. Sales up 3% to EUR 772 million, operational EBIT up 64%. Also, cash flow of the investing activities was at 6.2% level, which is only slightly below the targeted 7% ratio compared to net sales. To finalize by looking at the strategic targets, where we stand with those. As you see, a lot of green and yellow spots.
The one on red is still our fixed cost to sales ratio, where the targeted level is 20%, the positive thing is that there we are moving now the right direction. It came down to 22.6% level compared to 24.1% a year ago. Our debt ratio's clearly below the maximum ratios defined, like I said earlier, operational return on capital employed at 17.7% compared to 13% targeted level. Looking at the divisions. First of all, Consumer Board, like I said, still slightly below the 20% targeted level at 18.5%, Packaging Solutions, the good performance continues, and the return on capital now at 27.7%. Great improvement compared to 11% level a year ago. Also, Biomaterials now clearly above 15% targeted level at 17.6%. There also clear improvement compared to 7.9% a year ago.
Wood Products continues solid performance and return on capital at 20.4%, also above the targeted 20% level. Paper, like I commented earlier, cash flow of the investing activities to sales ratio at 6.2%, slightly below the 7% targeted level. With that, I hand back to you, Kalle.
Thank you, Seppo. Now I will go through the guidance and some concluding remarks, and then we'll go into the Q&A session. The guidance for the second quarter of 2018 is that sales are estimated to be similar to or slightly higher than the amount of EUR 2,579 million recorded in the first quarter of 2018. Operational EBIT is expected to be in line with or somewhat lower than the EUR 369 million recorded in the first quarter of 2018. The impact of the annual maintenance shutdown is expected to be approximately EUR 40 million higher than in Q1 2018. Nordic wood supply situation expected to continue to be tight. Impacts are expected to be at the same level or lower than in Q1 2018, approximately EUR 10 million. Here you also have a schedule of what mills will have the annual maintenance shutdown. Yes, accelerated profitable growth continues.
We have sales growth for five consecutive quarters. We are having an operating margin of 14.3%. It's the highest since 2001. Favorable prices and mix optimization, combined with continuous successful ramp-ups of other strategic investment we have done over the past years, supported by a strong operational performance, is the reason why we have had this level of profitability. As I mentioned earlier on, it's a record high return on capital employed, highest since the year 2000, and we have continued to improve our debt metrics with a net debt to EBITDA now at 1.3 from 1.9 a year ago. We have actually repaid almost EUR 500 million in debt over a one-year cycle. Yes, we are moving from asset transformation to innovation and sales transformation, and the business model is proving to be very robust and stable.
Before going into the Q&A session, I would like to remind everybody that we have a Capital Markets Day here in Helsinki, the 7th of November this year. With that, I open up for the Q&A session. Please, Ulrika and Seppo.
I said, if you are joining us via the web, please post your questions online. I can start with the first one for you, Kalle.
Yes.
Can you tell us something about the status in the Bergvik restructuring?
We are moving according to plan, and everything is basically running in the original timeline. This is a complicated deal because it's splitting it up between basically three components. It's splitting it up between BillerudKorsnäs in Bergvik Ost, and splitting up Bergvik Väst between us and what we call the Consortia, which are the minority owners, and a third party called FAM, which is one of our owners. It's going according to plan, and I expect this to be concluded during this year.
Do we have any questions from the audience here in Helsinki?
I do have one.
Yeah. We have one question from Kauppalehti Veera.
The wood supply situation was a bit worse in the last quarter than you thought in December.
When we guided, actually early February, we were talking about single millions. It became a little bit worse. The way we solved it was actually to partly run the pulp mills a little bit on lower capacity. In those days, it was still a bit early for what happened in the middle of Sweden. We only were focusing on Finland, but we got Sweden as well during the first quarter. Sweden is basically sold, and we continue with some challenges in Finland.
I can actually build on that. We have a question from the webcast coming from Torbjörn Esping at Land Skogsbruk. If you can take this one, maybe, Seppo.
Sure.
What is the extra cost of wood in Sweden and Finland? How much is due to weather, and how much is due to market prices? What is the expectation of wood cost, pulp wood, and timber this year?" If we started with what is the extra cost of wood in Sweden and Finland, and how much is due to weather?
Well, it's of course difficult to separate between the two.
Like Kalle said, and it was mentioned in the presentation, we estimate about EUR 10 million effect coming from the wood situation in Nordic countries, Finland, and Sweden. Of course, at the same time, we have to remember that when we have been slowing down production due to the challenging wood sourcing situation, also our competitors have been doing the same. That has, of course, affected the availability of pulp on the market.
which has maybe also helped the pricing environment.
It's not black and white. There are many different parameters, and I think this EUR 10 million gives pretty good picture about where we stand with the situation.
I think it's important here also to remember that you can also compensate with your customers if timber prices are going up or pulp prices are going up. It's a dynamic situation. You cannot only look at one part of the equation.
Yeah.
When it comes to prices going forward, of course, we don't guide wood prices separately.
No.
Like Kalle mentioned for the Q2, in the guidance, we expect the same EUR 10 million max effect coming from the wood situation.
The next question comes from Barry Dixon. He's asking, "Corrugated shipments were down 1.5% in Q1. Why was this? What do you think is your underlying growth rate of corrugated demand, and how much have corrugated prices increased by over the past 12 months in % terms?
First of all, our focus is not volume, it's profitable growth. We are focusing on value creation. We have chosen deliberately in the core units to go for value, not for volume. You want to add on?
Pricing element has been favorable.
Yes.
Also driven in general because of the increasing pulp prices pushing up board prices, and that is then affecting the whole supply chains.
Yes.
Any additional questions from the auditorium? As there are no more questions from the auditorium or the webcast, we thank you for your attention and conclude this webcast. Thank you.
Thank you.
Thank you.