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Stora Enso CEO Says 2Q Earnings Much Improved, Focus Remains On Cost, Capacity Management

July, 22, 2010 - Stora Enso CEO Jouko Karvinen said his company's second quarter earnings showed a "huge improvement" over 2Q 09 due mainly to improved volume, cost reduction measures and currency valuations.
Jouko Karvinen, CEO, Stora Enso

"Our second quarter results are strong by all measures. Operating profit excluding NRI and fair valuations at EUR 213 million, cash flow from operations at EUR 305 million, ROCE at 10.5% and net cash position at EUR 856 million are all not only huge improvements from a year ago, but also testimony to the early and often difficult actions we have taken in the past three years," Karvinen said.

"Our robust performance this quarter was facilitated by external factors, especially the significant volume recovery from the very low levels in the second quarter of 2009, our clearly lower cost base and the weaker euro. We also benefited from pulp price increases and actions we took on prices and customer mix in almost all segments," Karvinen said. "The fact that all six segments, except Newsprint, show a strong year-on-year improvement in earnings is another positive proof point for continuing on our path of managing those factors we can affect.

"Although the second quarter performance was generally strong, the losses that have accrued in Newsprint clearly show that the structural overcapacity issues have not disappeared. This unfortunately means that the recent decision to shut down permanently two newsprint machines at Varkaus was not only necessary, but not even enough to solve the issue. We will therefore continue to actively manage pricing and customer mix to maximise our earnings, but also review the earnings performance of all of our assets, and when necessary will not hesitate to take actions.

OUTLOOK

"The outlook for the third quarter is mixed and still uncertain," Karvinen said. "Although volumes have recovered from the very low levels of 2009, clearly market demand in all paper segments has still been and will for a long time remain clearly below the pre-crisis levels of 2008. To operate profitably in that environment requires continued focus on costs and capacity management — as before, waiting for the good times to return will help nobody.

"In addition to the price rises implemented in the second quarter, we have announced further price increases that will already have an impact in the latter part of the third quarter — and we expect sequential pricing improvements of varying degrees in practically all segments, even in Newsprint. This is absolutely essential to keep our earnings at an acceptable level as increases in wood and other costs now clearly start coming through in our operations," Karvinen explained.

"Specifically, we foresee Wood Products facing an issue later in the year due to rapidly rising sawlog costs, which is why we have signalled that we are planning to take temporary curtailments as required at our sawmills. At the same time, however, I am glad to see the wood trade in domestic wood in Finland has returned closer to normal levels. Now we must ensure there is no repeat of the excessive wood costs and high inventory levels of late 2007.

Karvinen concluded, "Stora Enso has demonstrated that it is willing and able to do difficult things to safeguard and improve the Group's performance. We will continue on our path of never-ending improvement of what we have, and in parallel building our future in new markets and new products. And we are already well on our way."

SOURCE: Stora Enso




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