Stora Enso CEO Comments on 4th Quarter Results, Capacity Reductions

Stora Enso's CEO Jouko Karvinen said that the company finished with fourth quarter earnings slightly up, but declining demand in European paper markets means capacity reductions must take place.

Feb. 5, 2013 - Stora Enso's CEO Jouko Karvinen said that the company finished with fourth quarter earnings slightly up and that cash flow continued to be strong. However, declining demand in European paper markets means capacity reductions must take place.

Following, are Mr. Karvinen's comments on Stora Enso's fourth quarter and full year 2012 results:

"Stora Enso finished the fourth quarter with continued strong cash flow and operating earnings slightly up year-on-year, but slightly down on the previous quarter. This is the result of our ever-continuing focus on improving costs and working capital, and it demonstrates that we can and will continue on this path into the future as well. I want to give full credit for this to the Stora Enso people throughout the world.

"I also want to highlight that the first two of our growth investments — the investments at Skoghall and the new board machine at Ostroleka — have been completed on time. In fact Ostroleka's new light-weight containerboard machine started up six weeks ahead of schedule and the focus is now on successful ramp up, which is expected to take couple of months. In Uruguay everybody from Stora Enso and our partners is fully focused on hitting our mid 2013 start-up target and, even more important, a successful ramp-up after that.

"The darker side of our news today is that the decline in consumer demand in paper-based media in Europe has continued in the fourth quarter. Whereas the structural trend in total paper demand has been about -5% per year since 2007, we now read the demand in the two largest media-driven segments, newsprint and coated magazine paper, decreased in 2012 by about 9%. As before, the unfavorable supply and demand balance has led to further pressure on margins.

"That means we must accelerate capacity reduction plans to avoid running cash zero or even negative businesses. We plan to close one newsprint machine at Kvarnsveden and another one at Hylte, which just had to adjust to closure of a paper machine at the end of 2012.

Separately, in the Building and Living Business Area we do not expect any significant improvement to the depressed European construction activity or high raw material costs.

To combat the continued inadequate profitability in the very weak market environment, we are launching a cost improvement plan to adjust our cost structure and improve our competitiveness. These difficult actions are essential not only to safeguard the stronger parts of Printing and Reading and Building and Living, but also to be able to invest in our high-return growth-market businesses.

"After many years of restructuring, I do realize that the announced plans, which are all subject to local co-determination negotiations, will be very difficult for the employees to accept. I can only ask that we all try to understand that a reduction in consumer demand for printing paper and the impact of continued poor market conditions in Building and Living must be addressed. We will do our utmost to support the employees affected by these plans.

"The past six years have been persistently challenging in some of our markets, with both structural deterioration and cyclical economic weakness. We are determined to stay on our path, a continuing path of strong cash generation financing transformation into a global renewable materials company."

SOURCE: Stora Enso