SOURCE: Stora Enso Oyj

October 27, 2005 07:16 ET

Stora Enso Creates Platform for Stronger Financial Performance

HELSINKI, FINLAND -- (MARKET WIRE) -- October 27, 2005 -- Stora Enso (NYSE: SEO) today announced that the pulp and paper industry is generally suffering from poor profitability. Stora Enso is facing several challenges in Europe, such as rising input costs, structural overcapacity and increased competition from low-cost regions. Despite its significant global presence and investment focus on new growth markets, the Group's main market remains Europe, where it is vital to secure better financial performance and long-term competitiveness.

"The two improvement programmes, Profit 2007 and Asset Performance Review (APR), will improve the competitiveness of our European platform through continued development of core assets. At the same time we are increasingly focusing investments on new growth markets," CEO Jukka Härmälä explains.

Two main initiatives are:

--  Profit 2007 - improvement in annual pre-tax profit of EUR 300
    million
--  Asset Performance Review (APR) - short-term reduction of about
    400 000 tonnes in annual capacity
    
Profit 2007 - target EUR 300 million improvement in annual pre-tax profit from mid 2007 onwards

To be achieved by:

--  Reducing production costs (EUR 160 million)
--  Reducing support and administration costs (EUR 120 million)
--  Improving sales and production mix (EUR 20 million)
--  Reducing personnel by about 2 000
    
The profit improvement target of the Profit 2007 programme is based on 2005 price and cost levels and is net of implementation costs.

Production costs

The main production cost saving measures will be reductions in raw material and maintenance costs, and a review of mill organisations. Costs will be reduced through energy-saving programmes at various mills, reduced use of chemical pulp and recipe changes, more efficient and globally co-ordinated purchasing, and further optimisation of logistics.

Support and administration costs

The main changes in administration and support functions will be a review of headquarter operations, reorganisation of the sales network and further development of shared services. IT platforms will be consolidated and standardised.

Planned changes include:

--  Establishing Human Resources and Accounting shared services
--  Integrating administration of:
    --  Skutskär and Norrsundet mills in Sweden
    --  Summa, Kotka and Anjala mills in Finland
    --  Veitsiluoto and Kemijärvi mills in Finland
    --  Kabel and Reisholz mills and Düsseldorf office in Germany
--  Reorganising Financial Services (Treasury) by moving a major part
of the operations from London to Helsinki
Sales and production mix

The main aim as regards sales and production mix is to improve overall efficiency by optimising the customer and product portfolio. The product portfolio will be reviewed with the focus on profitability.

Personnel reductions

Personnel reductions totalling about 2 000 have been identified, half of them white-collar and half blue-collar staff. Slightly more than half of them would be in the Nordic countries and the rest elsewhere in Europe. No specific unit is especially affected. The final personnel reduction number will be determined after the local negotiations are completed. Possible outsourcing might reduce the workforce by a further 600-700 people. Provisions for the personnel-related restructuring costs as part of Profit 2007 will be made as the programme evolves.

Asset Performance Review (APR) to secure a competitive European production base

--  Planned closures of four units with approximately 400 000 tonnes
    annual capacity
--  Divestment of six production units
--  About 2 300 personnel potentially affected
    
The units that are planned to be closed under the APR have not been achieving the Group's financial performance targets and are unlikely to do so in the future. These closures are intended to improve the viability of the remaining units. They will be individually scheduled and all will be completed during 2006.

Estimated effects of the restructuring and closures when they have all been completed (excluding the possible divestments):

--  Net sales decreased by about EUR 220 million
--  EBIT increased by about EUR 10 million
--  Working capital released about EUR 30 million
--  The Group anticipates provisions and write-downs in the fourth
    quarter of 2005 of approximately EUR 300 million, of which about EUR 50
    million would have a cash impact
--  Currently identified personnel reductions due to closures about
    730
    
Summary of closures and divestments, which are subject to local rules and regulations:

Stora Enso Publication Paper

--  Planned closure of PM3 and PM4 at Corbehem Mill, France (LWC,
    250 000 tonnes/year)
--  Divestment of Wolfsheck Mill, Germany, which is changing from SC
    to other paper grades (155 000 tonnes/year)
    
Stora Enso Fine Paper
--  Planned closure of PM1 at Varkaus Mill, Finland (WFC, 95 000
    tonnes/year)
--  Divestment of Grycksbo Mill, Sweden (WFC, 280 000 tonnes/year)
--  Possible divestment of Celbi Mill, Portugal (short-fibre pulp,
    305 000 tonnes/year)
    
Stora Enso Packaging Boards
--  Planned closure of Hammarby Mill, Sweden (plastic coating, 35 000
    tonnes/year)
--  Planned closure of PM31 at Stevens Point Mill, USA (coated
    specialities, 25 000 tonnes/year)
--  Divestment of Pankakoski Mill, Finland (FBB, WPB, SBS, 95 000
    tonnes/year)
    
Stora Enso Forest Products
--  Divestment of Veitsiluoto Sawmill, Finland (300 000 m³/year)
--  Divestment of Linghed Sawmill, Sweden (40 000 m³/year)
    
The divestment of these units would decrease net sales by EUR 490 million. The financial effects will be determined when the divestments are finally agreed. The decision to divest these units is based on an assessment of their profit potential, strategic fit or realisable value.

Further actions

In addition to the actions listed above, the following mills are under scrutiny and final decisions about possible actions will be taken within one year. The performance of the mills will be evaluated using a range of financial and operational measures, with long-term profitability the key criterion. All options for the future of these mills are currently open.

--  Summa Mill, Finland (MF, newsprint, improved newsprint, 405 000
    tonnes/year)
--  Reisholz Mill, Germany (SC, 215 000 tonnes/year)
--  Berghuizer Mill, Netherlands (WFU, 235 000 tonnes/year)
--  Uetersen Mill, Germany (WFC, coated specialities 270 000
    tonnes/year)
    
In addition, further analysis of the alignment of the Group's strategy with its product and production asset portfolio is underway.

On Thursday 27 October 2005 Stora Enso will announce its third quarter results at 10.00 a.m. Finnish time (9.00 CET).

Helsinki

You are most welcome to participate in the PRESS CONFERENCE in HELSINKI hosted by Jukka Härmälä, CEO, Hannu Ryöppönen, CFO, and Kari Vainio, Executive Vice President, Corporate Communications, at the Diana Auditorium, Erottajankatu 5, at 11.00 a.m. Finnish time (10.00 a.m. CET). The conference will be held in English.

Those unable to attend the press conference in Helsinki are invited to attend the press conference in STOCKHOLM or DÜSSELDORF, where the audio feed from the Helsinki conference can be heard and the presentation slides followed. Questions can be put live to Jukka Härmälä and Hannu Ryöppönen from any of these press conferences after the presentation.

Stockholm

The PRESS CONFERENCE in STOCKHOLM at 10.00 a.m. local time will be hosted by Yngve Stade, Senior Executive Vice President, Corporate Support and Country Manager of Sweden, and Keith B Russell, Senior Vice President, Investor Relations, and will take place at the City Conference, Drottninggatan 71 B, Norra Latin, conference room 357 (3rd floor).

Düsseldorf

The PRESS CONFERENCE in DÜSSELDORF at 10.00 a.m. local time will be hosted by Bernd Rettig, Senior Executive Vice President, Publication Paper, and Eberhard Potempa, Country Manager of Germany, and will take place at the Stora Enso office, Moskauer Straße 27.

Webcast of press conference

A LIVE WEBCAST (audio with synchronised slide presentation) of the press conference may be accessed on www.storaenso.com. The presentation material will be available on www.storaenso.com/investors at 10.00 CET (11.00 a.m. Finnish time).

www.storaenso.com
www.storaenso.com/investors
Previous press releases concerning Stora Enso's profit improvement programme available at www.storaenso.com/press:
-23 August 2005: Stora Enso is exploring the possibility of selling its
Grycksbo Mill
-20 June 2005: Stora Enso Timber completes negotiations with its personnel
at Veitsiluoto Sawmill
-3 May 2005: Stora Enso Timber to start negotiations with its personnel at
Veitsiluoto Sawmill
Abbreviations used in the press release:
PM    paper machine
LWC   light-weight coated paper
SC    super-calendered paper
WFC   woodfree coated
FBB   folding boxboard
WPB   wood pulp board
SBS   solid bleached sulphate board
MF    machine-finished paper
WFU   woodfree uncoated

Contact Information

  • For further information, please contact:
    Tim Laatsch
    Senior Vice President, Communications
    Stora Enso North America
    tel. 715 422 4023