Business News

Stora Enso CEO Jouko Karvinen comments on first quarter results and asset restructuring measures announced today

Thursday 22. April 2010 - "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.”