Stora Enso CEO Says 1Q Results Not Acceptable Despite Improvements

April 22, 2010 - Stora Enso CEO Jouko Karvinen today said that although his company's first quarter earnings have improved a great deal, the results are compared to weak 2009 figures and operating profit "is still not acceptable."

Jouko Karvinen, CEO, Stora Enso

"Our first quarter results announced today are further proof of the effectiveness of our early focus on things we can control. At EUR 119 million, the operating profit excluding fair valuations and non-recurring items is still not acceptable, but it is a remarkable improvement from almost zero a year ago, especially as it includes a loss of approximately EUR 12 million due to the Finnish stevedores' strike. Despite volume recovery, the cash flow from operations was a relatively decent EUR 119 million and our cash position remained strong.

"The results also show that we are already not just a European forest industry company, but a global packaging and paper company, with our wood products experiencing recovery. This year's market pulp net capacity of about 900 000 tonnes is also a concrete sign of our ability to seize opportunities when they arise. This is a path we will stay on with selective investments in growth - but only in markets and areas where we can through sustainable competitive differentiation build a stable, long-term return for our shareholders.

"In our portfolio, the Packaging Business Area continues to perform strongly, whereas in the paper business the situation is mixed. Common to paper demand in Europe is that even with the slow recovery of demand from the very weak levels of the first quarter of 2009, we are still a long way from the pre-crisis situation of 2008. That means we will stay on our path of prioritising pricing quality over volume, and managing capacity, costs and cash flow. Anything else, let alone waiting for better markets or other external factors to save our earnings, would be damaging - and in fact would risk losing the gains achieved through our efforts of the past three years.

"Today also brings mixed news for our employees. On the one hand we are glad to see that the pulp, uncoated fine paper and saw mill operations at Varkaus can now continue to operate profitably following improvement in pricing, and also to some extent in demand. The recovery in sales prices for some paper grades is at least partially driven by the short-term surge in market pulp pricing and the shortage of pulp.

"At the same time, as described in a separate stock exchange release issued today, the news is a lot worse for fresh-fibre-based newsprint and directory paper production at Varkaus, and for the two hundred people who work in these operations. Large-scale overcapacity - only four out of every five newsprint reels manufactured have a customer willing to pay for them - has led to a steep price erosion. That and a structural reduction of newsprint demand in Europe have led us to announce today that we plan to permanently close down newsprint and directory paper production at Varkaus by the end of the third quarter of 2010. I can only repeat our assurance that we will do our utmost to support the employees affected if this plan is implemented following co-determination negotiations.

"Although in our plans the majority of the operations at our Varkaus Mills will remain in production, I ask all stakeholders to intensify our joint efforts to find alternative future businesses and employment at Varkaus. As I have said before, the future of the entire Finnish forest industry manufacturing base depends on structural changes needed in order to ensure competitive wood pricing, including harvesting and transportation costs. We also need changes in energy taxation and cost-competitive energy supplies in the long term to compensate for the cost disadvantage of having longer distance to major European customers. This means that it is now more urgent than ever before to strive to create a competitive operating environment for the Finnish forest industry.

"I am happy that we have now found a new owner for our Kotka Mills with a strong interest in developing the business operations further. The new owner plans to invest in Kotka Mills. As Kotka does not compete with our other operations, the choice of selling the unit is not only possible but the best for all stakeholders.

"Our path forward may not be easy, but we are well on our way, focusing on long-term sustainable returns. Not waiting for better times to come, but continuing to build our own better times."

SOURCE: Stora Enso

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