Stora Enso’s results harmed by declining demand

The structural decline in paper consumption marred Stora Enso’s otherwise comparativly strong results in 2012. New capacity reductions are to counter the challenging market developments.

In 2012, demand for publication papers and printing and writing papers in Europe deteriorated more than the industry had anticipated. Price pressure and unfavourable currency effects further contributed to lower operating earnings for Stora Enso. Significantly lower sales prices in local currencies for paper, pulp and to some extent some packaging grades decreased the operational EBIT by €262m (9.3%) to €618m.

Sales were at roughly €10.8bn and only 1.4% lower than last year’s results. Compared to 2011, Stora Enso’s net result increased by 43.3% to €490.4m. However, the company’s net result for 2012 excluding non-recurring items only amounts to €263.9m compared to €498.2m in 2011.

To counter the challenging market developments, Stora Enso plans to restructure its operations through the permanent shutdown of two newspaper machines in Sweden. Moreover, the company plans efficiency improvements in the Printing and Reading customer service and the Building and Living business area. The profitability improvement actions are planned to reduce annual costs by €54m and reduce the number of employees by approximately 600 altogether.

“[...] 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,” CEO Jouko Karvinen said in a statement.

Altogether, the newly planned capacity reductions in the newsprint segment add up to 3.4% of European newsprint capacity, according to Stora Enso. “In our books it's not only going to move the needle, it's going to really change the position,” Jouko Karvinen said when speaking to analysts.