Business News
Stora Enso continues the change
Wednesday 19. August 2009 - The Group plans to further reduce its high-cost manufacturing base
Permanent closure of Sunila Pulp Mill during the second quarter of 2010 planned
Permanent closure of Tolkkinen Sawmill by end of 2009 planned; curtailments at
other sawmills to continue
Divestment of Kotka Mills to be restarted
Uncoated fine paper orders to be prioritised to Veitsiluoto Mill and Nymölla
Mill to minimise total costs; more curtailments of uncoated fine paper machines
at Varkaus and Imatra mills planned
Permanent shutdown of uncoated fine paper machine PM 8 at Imatra Mills during
the first quarter of 2010 planned
Permanent closure of Varkaus Mills by the end of 2010 planned unless uncoated
fine paper demand supply balance and pricing clearly recover
Approximately 450-1 100 employees in Finland would be affected by the plans,
depending on the outcome of the plans for Varkaus Mills and excluding Kotka
divestment process
Stora Enso plans further reductions in its manufacturing capacity due to on-going weak demand and the resulting heavy losses.
“In the past two years we have transformed the Group to improve our long-term financial returns, which are the basis for the future of any company. We have tried to move as fast as possible, but it has not been fast enough. Divestments, de-layering of the organisation, and significant reduction of production assets and fixed costs have all been and remain part of our efforts – and they are a key reason why we have been able to defend our cash flow and have a strong balance sheet today. The operating environment has deteriorated faster than ever before: long-term structural cost inflation in fibre and energy costs has recently been followed by dramatic weakening in demand. As we cannot change this operating environment, we will instead continue to change Stora Enso so we can operate in the new environment and ensure a brighter future for the Group,” says Stora Enso CEO Jouko Karvinen.
The planned capacity adjustments would affect approximately 450 people by mid 2010 through the permanent closure of Sunila Pulp Mill, permanent closure of the now temporarily shut down Tolkkinen Sawmill and a permanent closure of PM 8 at Imatra Mills.
Stora Enso will renew its efforts to sell all Stora Enso’s integrated mills at Kotka and laminating paper operations in Malaysia by early 2010. In uncoated fine paper, the Group plans to prioritise profitable orders to the flexible full-range mills at Veitsiluoto in Finland and Nymölla in Sweden. That will lead to severe production curtailments for PM 8 at Imatra Mills and PM 3 at Varkaus Mills. It is planned to shut down PM 8 at Imatra Mills permanently during the first quarter of 2010. Unless there is a robust recovery in demand supply balance for office paper that allows clearly profitable operation, it is also planned to close down the Varkaus Mills permanently by the end of 2010 as the closure of the uncoated fine paper machine 3 would make it impossible to manufacture newsprint, directory paper and wood products there profitably. Limited demand and raw material availability in the coming months are expected to lead to further curtailments at Varkaus Sawmill, with product transfers to other mills.
The biofuel joint venture with Neste Oil, NSE Biofuels Oy, and its demonstration phase will not be affected by these capacity closure plans. Stora Enso will start an analysis together with relevant stakeholders to find a future solution for recycling used beverage cartons in Finland and for the supply of district heating to the city of Varkaus if Varkaus Mills are closed.
“Finland is the country with by far the greatest relative dependence on the forest products industry per capita: half a million people have some kind of dependence on the sector either directly or indirectly. This spring we said that there were only weeks or months to find real, permanent solutions to Finland’s cost issues compared with other European manufacturing locations. Whereas the Group’s immediate plans are based on the dramatic drop in demand and the resulting losses, the longer term future of the Finnish manufacturing base depends critically on the structural changes needed to wood costs, including harvesting and transportation costs, present and threatened additional energy taxation and the cost disadvantage of the distance to major European customers,” Jouko Karvinen concludes.
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 and new business for mills planned to be closed. Stora Enso also continues to pay financial support to those who would like to start their own business.
The plans are subject to co-determination negotiations with the employee representatives. Any decision on closures and other restructuring measures will be taken later when the co-determination negotiations concerning the units have been undertaken and concluded as required.
Units the Group plans to permanently close down Sunila Pulp Mill: annual production capacity 375 000 tonnes of softwood pulp; approximately 250 employees; planned closure during the second quarter of 2010 Imatra Mills PM 8: annual production capacity 210 000 tonnes of uncoated fine paper; approximately 140 employees including integrate services; planned closure during the first quarter of 2010 Tolkkinen Sawmill: annual production capacity 260 000 m3 of sawn wood; approximately 55 employees; planned closure by the end of 2009
Unit the Group is provisionally planning to permanently close down by the end of 2010
Varkaus mills: annual production capacity 290 000 tonnes of newsprint and directory papers, 310 000 tonnes of uncoated fine paper, 270 000 m3 of sawn wood; approximately 630 employees
Units the Group divests in early 2010
Kotka mills: annual production capacity 185 000 tonnes of machine-finished coated paper (MFC) paper, 175 000 tonnes of laminating paper and Imprex core stock, 250 000 m3 of sawn wood; approximately 530 employees
BM1 to continue and PE2 to restart production at Imatra Mills
Stora Enso plans to continue production on board machine 1 at Imatra Mills in Finland, contrary to the plans announced on 10 September 2008. The reason for the change is the increased demand for its products and improved profitability. Stora Enso also plans to restart polymer coating line PE 2 at Imatra. The overall streamlining of operations at Imatra Mills will continue as earlier announced. Due to this decision, the Group will reverse EUR 8 million of previous impairments and release EUR 3 million of previous provisions in its Q3/2009 results.
Estimated financial impact
Stora Enso anticipates approximately EUR 245 million of non-cash fixed asset and working capital write-downs as non-recurring items in its financial results for the third quarter of 2009. Stora Enso will record a non-recurring restructuring provision of EUR 25 million for closure of Sunila Pulp Mill, PM 8 at Imatra Mills and Tolkkinen Sawmill in its third quarter 2009 financial results.
——————————————————————————–
| Segment | Non-cash fixed asset | Cash provisions | Total costs |
| | and working capital | Q3/2009 | Q3/2009 |
| | write-downs for | | |
| | Q3/2009 | | |
——————————————————————————–
| Newsprint | EUR 48 million | – | EUR 48 million |
——————————————————————————–
| Magazine Paper | EUR 10 million | EUR 14 million | EUR 24 million |
——————————————————————————–
| Fine Paper | EUR 153 million | EUR 9 million | EUR 162 million |
——————————————————————————–
| Industrial | EUR 3 million | – | EUR 3 million |
| Packaging | | | |
——————————————————————————–
| Wood Products | – | EUR 2 million | EUR 2 million |
——————————————————————————–
| Other | EUR 31 million | – | EUR 31 million |
——————————————————————————–
| Group total | EUR 245 million | EUR 25 million | EUR 270 million |
——————————————————————————–
The targeted annual operating profit improvement of planned closure is estimated to be in range of EUR 140 million to EUR 160 million depending of the outcome of the provisional planned closure of Varkaus Mills and the divestment of Kotka Mills from the beginning of 2011 onwards.
Impacts of the planned closures of Sunila Pulp Mill, PM 8 at Imatra Mills and Tolkkinen Sawmill
——————————————————————————–
| External sales reduction | EUR 150 million |
——————————————————————————–
| Capital employed reduction | EUR 50 million |
——————————————————————————–
| Personnel | Approximately 450 |
——————————————————————————–
Effects on wood consumption
The planned closures of Sunila Pulp Mill and Tolkkinen Sawmill would reduce Stora Enso’s annual wood consumption by 2.5 million m3.