Stora Enso Shuts Paper Machines in Race Against Declining Demand

Stora Enso Oyj, Europe’s biggest papermaker, plans to cut 3.4 percent of European newsprint capacity and reduce 600 jobs in its latest effort to remain profitable amid waning demand.

Stora Enso will shut two newsprint machines in Sweden, reducing annual capacity by 475,000 metric tons to save 54 million euros ($73.2 million) a year, it said in a statement. The shares slid as much as 3.7 percent in Helsinki.

“We must accelerate capacity reduction plans to avoid running cash zero or even negative businesses,” Chief Executive Officer Jouko Karvinen said in a statement today. The actions are “essential” to safeguard the stronger parts of the company as well as to secure the ability to invest in growth-market businesses, he said.

European paper producers have suffered from declining demand since at least 2005 as consumers shift to online media and the euro area debt crisis crimps demand. The 17-nation single currency bloc will contract for a second year in 2013, the International Monetary Fund forecasts.

UPM-Kymmene Oyj, another Finnish papermaker, fell 5.5 percent on Jan. 31 after warning investors of a bleak outlook for European paper profitability. UPM is reducing 860 jobs as it closes and sells facilities in Finland, Germany and France, the company said last month.

Shares Retreat

Stora Enso shares fell as much as 3.7 percent to 4.902 euros, and declined 2.3 percent at 2:36 p.m. in Helsinki. Volume on the stock was almost double the three-month daily average. UPM shares added 0.4 percent to 8.78 euros.

Papermakers need to seek long-term growth from emerging markets and other operations besides paper, Moody’s Investors Service said on Jan. 24. Such projects for Stora Enso include a Polish container-board operation in Ostroleka, the Uruguayan joint pulp venture Montes del Plata and a Chinese packaging investment in Guangxi.

Fourth-quarter net income almost tripled to 262 million euros, it said today. Stora proposed keeping dividend at 30 cents a share, in line with Bloomberg projection and matching the payout for 2011.

Sales this quarter will remain on level with the final three months of last year, Stora said. Its earnings before interest and taxes, excluding one-time items, will fall by about a third due to eroding demand for European paper and its wood-based construction products.

“We are determined to stay on our path, a continuing path of strong cash generation financing transformation into a global renewable materials company,” Karvinen said.

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