Business News

Stora Enso CEO Jouko Karvinen comments on second quarter results announced today

Thursday 22. July 2010 - "Robust second quarter performance"

“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. 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. 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.

“The outlook for the third quarter is mixed and still uncertain. 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. 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.

“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.”