Business News

Stora Enso Fourth Quarter and Full Year Results 20

Wednesday 13. February 2008 - Operating profit burdened by high wood costs; corrective actions underway; proposed dividend per share unchanged at EUR 0.45

Message from CEO Jouko Karvinen:
“The year 2007, especially its fourth quarter, was one of the most challenging in the recent history of Stora Enso. Although we made progress in improving operational performance in many areas, the operating profit for the fourth quarter excluding non-recurring items and upward revaluations of forest assets of associated companies was clearly less than for the fourth quarter of 2006. The fourth quarter’s profit deterioration, which was mainly due to Wood Products and certain one-time functional costs, meant we could not stay on our path of year-on-year improvement. Whilst Fine Paper and Industrial Packaging did improve their profit compared with the previous year, we cannot be satisfied with the results for the last quarter. Newsprint and Book Paper, Magazine Paper and Consumer Board enjoyed stronger demand in the fourth quarter than a year ago, but raw material cost increases and adverse exchange rate changes reduced their profitability.

“We made clear progress during 2007 in several areas. The divestment of our operations in North America at fair market value not only released significant capital, but also allows us to focus and further invest in Stora Enso’s future. The deal with New Page also created a strong entity with good prospects in the North American market.

“Another area where we were able to respond to both short-term and long-term threats was the issue of wood imported from Russia. In 2007 we managed to reduce the amount of wood imported by nearly three million cubic metres by changing some of our pulping lines from birch to pine and by increasing consumption of domestically sourced Finnish wood. That not only kept our integrated paper and board mills running and several thousand employees working; crucially, it also enabled us to maintain supplies to our paper and board customers throughout the year.

“Despite tremendous efforts we still had to import more than four million cubic metres of wood at prices already dramatically higher due to the mild winter in 2007, and under the threat of increasing Russian duties. Our plans to close down the pulp mills at Kemijärvi and Norrsundet are based on the clear objective of reducing the need to buy excessively expensive imported wood, thereby safeguarding the future of the larger entities and Stora Enso as a whole. The closures of Summa Mill and part of Anjala Mill in Finland are due to long-term profitability issues that we were unable to solve despite the tremendous efforts of our employees and earlier investments. We remain convinced that our responsibility to all our stakeholders is to secure the profitability of Stora Enso operations and to do our utmost to support new business creation and re-employment of the people affected by our restructuring programmes.

“A real threat to the future of the whole forest products industry in Finland is the impending increases in duties on wood exported from Russia. We are preparing for a number of scenarios that include capacity reductions and some investments in order to minimise the effects of the duties, especially on our financial performance and thereby employment too. The fact is we will have to launch some of these actions in the next few months to be able to cope with the steep increases in duties. As we have said before, the time to act is now, not at the end of 2008.

“The economic outlook is uncertain in Europe and globally. We expect to face average unit cost inflation of 2.5 to 3.0% this year. However, our business units have concrete plans to reduce costs and improve margins and productivity that should largely offset cost inflation for the year as a whole. We still see big opportunities to improve our productivity and efficiency, and in balancing and prioritising our investments in existing businesses and selected new projects. We remain committed to our goal of improving long-term returns even with these realities and external challenges.”

Near-term Market Outlook
In Europe demand for newsprint should remain steady; contract negotiations are still ongoing in Europe. Overseas prices for newsprint have increased in the first quarter. The magazine paper market has strengthened and prices for coated and SC magazine paper are rising. Fine paper demand is expected to strengthen for seasonal reasons in the next few months, but no price changes are foreseen.

Normal seasonal strengthening in demand for consumer board is anticipated, although slightly less than a year ago. Markets outside Europe are very competitive due to unfavourable exchange rates, but a slight rise in prices in local currencies is predicted. Demand for industrial packaging products is forecast to remain firm, leading to some price increases.

Despite the on-going recovery in demand in Japan, the general outlook for wood products demand remains depressed, and prices are likely to decline further. Judging by the current outlook, the already announced production curtailments will continue at least into the second quarter of 2008.

In Latin America demand for coated magazine paper is expected to remain firm with prices rising further. In China the outlook for fine paper demand and prices remains positive.