Stora Enso continues pulp, fine paper and sawnwood production at Varkaus, newsprint production planned to be permanently closed down
STORA ENSO OYJ STOCK EXCHANGE RELEASE 22 April 2010 at 05.59 GMT
Stora Enso announced on 19 August 2009 that it planned to close down the Varkaus mill site in Finland permanently by the end of 2010 unless there were a robust recovery in the supply and demand balance for office paper that would allow clearly profitable operation. Since then, the supply and demand balance and pricing of office paper have improved. Stora Enso is therefore able to keep the pulp mill and fine paper mill in production as long as financially viable and there is competitive fibre available for the Group in the long term. The operations of the sawmill and, as announced earlier, the biofuel joint venture with Neste Oil, NSE Biofuels Oy, and its demonstration plant will also continue. At the same time, the situation in newsprint has dramatically deteriorated. Because of the overcapacity in newsprint and directory paper, and resulting weak earnings, Stora Enso plans permanently to close down newsprint production at Varkaus with combined annual capacity of 290 000 tonnes, by the end of the third quarter of 2010. The proposed closure would affect about 200 people out of 512 people employed at Stora Enso's Varkaus Mill. The plan will not substantially affect the amount of renewable energy production at Varkaus. The European newsprint market is structurally oversupplied, with 18% excess capacity expected in 2010. Consequently, newsprint sales prices have fallen significantly. In the longer term, newsprint demand in Europe is expected to continue to decline, as has already been happening in North America for some time. In addition, newsprint production at Varkaus relies on less-competitive fresh fibre, and Varkaus is far away from most of its customers. The restructuring actions in Wood Products, including the recent closure of Tolkkinen sawmill and the divestment of Kotka sawmill announced today, are improving the customer and business portfolio for the remaining Wood Products units, including Varkaus sawmill, which will continue to operate. As before, Stora Enso will support redeployment of those affected by the plans through efficiently offering jobs internally and eligibility for outplacement services. The Group works closely with local employment and economic development centres to find new job opportunities for people affected. Stora Enso will also support financially those who would like to start their own business. The early efforts taken with other stakeholders in Varkaus and at national level have been of great importance and will help in finding positive solutions. Any decision on closures or restructuring actions will be taken later when the co-determination negotiations concerning the plans have been undertaken and concluded as required. Weak market conditions have already caused the temporarily shutdown of Varkaus newsprint machine PM 2. As a result of the co-determination negotiations that were announced on 19 February 2010, PM 2 production is temporarily curtailed until further notice. Estimated financial impact Stora Enso anticipates that the planned permanent shutdown of newsprint production at Varkaus would have the following financial impacts on the Newsprint segment: -------------------------------------------------------------------------------- | | EUR million | -------------------------------------------------------------------------------- | One-time non-cash fixed asset and working capital | 0 | | write-downs in Q2/2010 | | -------------------------------------------------------------------------------- | One-time cash provisions Q2/2010 as non-recurring | 23 | | items | | -------------------------------------------------------------------------------- | Annual sales reduction | 148 | -------------------------------------------------------------------------------- | Annual working capital reduction | 9 | -------------------------------------------------------------------------------- | Annual operating profit improvement | 9 | -------------------------------------------------------------------------------- In August 2009 Stora Enso estimated that the proposed closures, divestments and product swaps would improve annual operating profit by EUR 140 million to EUR 160 million from the beginning of 2011 onwards, conditional on the provisional planned closure of Imatra PM 8 and Varkaus Mill and the divestment of Kotka Mill. Imatra PM 8 was permanently closed down in March 2010 and the product swaps between the uncoated fine paper mills at Imatra, Varkaus and Veitsiluoto were concluded by the end of the first quarter of 2010. The short-term outlook for uncoated fine paper allows Stora Enso to keep Varkaus PM 3 in production for the time being. A favourable supply and demand balance will be decisive for the future of fine paper production, and the availability of cost-competitive wood for the Group remains a critical precondition for the future of the fine paper mill and sawmill. For further information, please contact: Jouko Karvinen, CEO, tel. +358 2046 21410 Markus Rauramo, CFO, tel. +358 2046 21121 Juha Vanhainen, Country Manager Finland, tel. +358 2046 21343 Päivi Kauhanen, Director, Communications in Finland, tel. +358 2046 21380 Ulla Paajanen-Sainio, Head of Investor Relations, tel. +358 2046 21242 www.storaenso.com www.storaenso.com/investors Stora Enso is a global paper, packaging and wood products company producing newsprint and book paper, magazine paper, fine paper, consumer board, industrial packaging and wood products. The Group is the world leader in forest industry sustainability. We offer our customers solutions based on renewable raw materials. Our products provide a climate-friendly alternative to many non-renewable materials, and have a smaller carbon footprint. Stora Enso is listed in the Dow Jones Sustainability Index and the FTSE4Good Index. Stora Enso employs some 27 000 people worldwide, and our sales in 2009 amounted to EUR 8.9 billion. Stora Enso shares are listed on NASDAQ OMX Helsinki (STEAV, STERV) and Stockholm (STE A, STE R). In addition, the shares are traded in the USA as ADRs (SEOAY) in the International OTCQX over-the-counter market. STORA ENSO OYJ Jari Suvanto Ulla Paajanen-Sainio