The power of trees
Stora Enso’s raw material is renewable, recyclable and fossil-free. This provides us with a great advantage in addressing the global megatrends and in leading business and industry towards the bioeconomy. Across markets and in businesses, there are calls for change because consumers are increasingly turning to ecofriendly products and solutions. Stora Enso’s promise for a renewable future is based on sustainability, innovation and having the technological capabilities to meet the demands for a greener world. We believe that everything that is made from fossil-based materials today can be made from a tree tomorrow.
Accelerated pace of innovation
By building on a strong portfolio that is based on wood fibres, we aim to leverage our raw material, market-leading expertise and market insight to ever greater extents. We are investing more in innovation and R&D and increasing sales in new applications, products and services. The share of sales of new products and services has risen from 1.5% in 2015 to 9%. Our target is 15%, which would mean that we effectively renew our product portfolio every ten years.
In 2018, we introduced: Lineo™ by Stora Enso, biocomposites DuraSense™ by Stora Enso and the sustainable ECO™ RFID tag for intelligent packaging. We initiated partnerships with the startups Sulapac and Trä Group, and launched our second Accelerator programme to intensify our work with new startups. We also joined TreeToTextile, a textile fibre joint venture with H&M group and Inter IKEA group, and took full ownership of the cellulose technology company Cellutech.
We will continue to invest selectively in mergers and acquisitions to strengthen our market share in our core business areas. Alongside innovation, we will continue to capitalise on developments in digitalisation, particularly in the areas of customer engagement, industrial digitalisation in operations and supply chain and the smart back office.
Profit improvement of 32%
The strength of our strategy and progress shows in our figures for 2018, as we continued on our path of sustainable growth. We have had already eight consecutive quarters of sales growth, and our sales are again well above 10 billion euros with an increase of 4.4% from 2017. This was achieved mainly due to higher sales prices and active mix management in all our divisions. We reached a substantially improved profitability with an operational EBIT that was 32% higher than last year. Our operational ROCE was close to 16%, well above the strategic target of 13%. I am also very pleased with the quite significant increase in full year EPS of 62.5%. We continue to strengthen our balance sheet and net debt/EBITDA amounted to 1.1.
Three of our five divisions reached their strategic profitability targets in 2018. Our fixed costs to sales ratio is still above our strategic target of 25%, and we forecast that our costs increase in 2019. We will therefore implement measures to mitigate these increases and the increased uncertainties in the markets and the economy. Therefore, we launched a new profit protection programme aiming at reduction of costs.
Supported by investments
During 2018, the ramp-up of strategic investments in Beihai, Varkaus and Murów continued. The production of wooden building components (LVL) is well underway at Varkaus and the new fluff pulp line at Skutskär Mill is up and running. We began production of biocomposite granules at our Hylte Mill and are moving closer to the completion of the cross-laminated timber unit at Gruvön. In another potential step in our transformation journey, we also initiated a feasibility study to evaluate the potential conversion of Oulu paper mill into packaging board production.
Among our investments, we signed an agreement to acquire forest assets in Bergvik Skog. This is a natural step for Stora Enso as we aim to secure competitive raw material supply and further develop long-term sustainable forest management.
Sustainability at the heart
With rising consumption and global warming, it is increasingly clear that an economy based on fossil-based fuels and other non-renewable materials is not viable. Stora Enso is contributing to the transition to a circular bioeconomy by providing bio-based solutions that are renewable, recyclable and low-carbon.
The United Nations have defined a set of 17 Sustainable Development Goals (SDGs) that address social and economic development issues on a global scale, each with their own set of related targets. Stora Enso supports all 17 SDGs, and we have identified three strategic goals that our business has the most impact on. These are SDG 12 on Responsible Consumption and Production, SDG 13 concerning Climate Action and SDG 15 regarding Life on Land.
We have set tough science-based targets regarding the reduction of carbon emissions and will continue our drive to improve energy efficiency and lower our use of fossil fuels. We have a raw material that is renewable because trees grow back. Furthermore, living trees also absorb CO2 and together with wood-based products act as carbon sinks. We promote sustainable forest management and work to ensure that forests are renewed after harvesting. Our business – and society – depend on this.
People lead the way
Sustainability, our purpose and values, safety and business ethics form the base for everything we do. We are committed to the UN Global Compact’s ten principles and the UN’s Guiding Principles on Business and Human Rights. We recognise the importance of diversity and equality as prerequisites for building a culture characterised by innovation and sustainability.
To ensure we have the capabilities and motivation to deliver on our strategy, create new products and services faster than our competitors and best support our customers, we promote systematic leadership development, employee engagement, and open communication. I am very pleased that Your Voice, our annual global survey of all employees, continues to show a positive development regarding strong leadership and engaged employees as well as a high level of team efficiency.
Rising from our roots
For us, profitable growth needs to be sustainable on all dimensions – for our stakeholders, the planet, and society as a whole. This is the power of trees – they allow us to meet rising demand for eco-friendly products, support sustainable forestry, promote efficiency in the value chain, serve our markets responsibly, and develop new and better sustainable solutions together with our customers.
As always, I thank all our partners, suppliers, and employees for their contributions throughout 2018, and our customers and investors for their valued trust.
Stora Enso’s CEO