Paper-making giant Stora Enso on August 19 announced plans to further reduce its manufacturing capacity due to ongoing weak demand and 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, delayering of the organization, 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 prioritize 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,” Karvinen says.
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 centers 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:
Unit the group is provisionally planning to permanently close down by the end of 2010:
Units the group divests in early 2010:
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.