Stora Says Cost Cuts Not Enough, Market ‘Critical’
Stora Enso Oyj (STEAV), Europe’s biggest papermaker, hasn’t reduced its costs enough yet as the paper industry faces a “critical situation,” Chief Executive Officer Jouko Karvinen said.
“Our variable costs have escalated even faster than we have been able to cut our fixed costs through the aggressive programs,” Karvinen said at an annual shareholders meeting today in Helsinki, where the company has its headquarters.
Stora earlier this month said it plans to cut capital spending by 100 million euros ($132 million), or 20 percent, as the company idles about one fifth of its paper and board capacity in the first quarter. Karvinen, who put on hold the company’s plans to expand the Veracel pulp complex in Brazil with partner Aracruz Celulose SA, said layoffs will continue as pricing and cash preservation are his top priorities.
“We are not yet seeing the end of the downturn,” Chairman Claes Dahlbaeck told shareholders. “As of today, we have no reason to believe that the start of the year will be any better than the end of last year.”
Stora’s shares have fallen 60 percent in the last six months, cutting the company’s market value to 2.23 billion euros. Finnish rival UPM Kymmene Oyj (STERV), Europe’s second-biggest papermaker, has lost 59 percent.
Industry stakeholders such as forest owners, transport companies and labor unions should work to together and try to solve the problems rather than argue against each other, Karvinen said in an interview after the meeting. “We need to sit down and talk,” Karvinen said.
Stora faced high cost inflation, especially in wood and energy, through 2008. The company moved to curtail production at its higher-cost mills in Finland and Germany while keeping lower-cost mills running in Sweden, Belgium, the Czech Republic and Russia.
“With the dramatic downturn of the markets, the issue is so big we believe that nobody can solve it alone,” the CEO said. “We either argue forever how we split a shrinking cake, or we work together to start making it bigger again and sharing it.”
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