Holmen Net Misses Estimates as Europe Paper Demand Declines

Holmen AB, the supplier of pink paper for the Financial Times, reported fourth-quarter profit that missed analyst expectations as European demand for newsprint decreased and the strong krona sapped earnings.

Net income decreased to 902 million kronor ($142 million) from 2.94 billion kronor a year earlier, the Stockholm-based company said in a statement today. Analysts on average expected profit of 1.13 billion kronor, according to data compiled by Bloomberg. Fourth-quarter profit was boosted by about 911 million kronor from lower corporate taxes, while the company had a gain of 3.59 billion kronor a year earlier, after revaluing forest holdings.

European paper companies are suffering from declining demand and overcapacity, which has led Holmen to refocus the business and refine newsprint products to compete with magazine papers while maintaining its original cost base, Chief Financial Officer Anders Jernhall said today in an interview. The company also seeks export potential outside debt-ridden Europe, which currently consumes about 90 percent of Holmen’s output.

“We will continue to change Holmen’s business into more value-added products,” Chief Executive Officer Magnus Hall said today in Stockholm. “We’re now also seeing the full effect of the strong Swedish krona in this quarter.”

The stock fell as much as 2.6 percent in Stockholm and was down 0.4 percent to 193.60 kronor as of 4:27 p.m. in the Swedish capital.

Krona Strength

Lower deliveries and the krona’s strength led to an operating loss of 257 million kronor for Holmen Paper, accelerating from last year’s 3 million-krona loss. Deliveries of newsprint declined by 10 percent and magazine paper shippings dropped 7 percent, the company said. Holmen’s total sales declined 7.6 percent to 4.28 billion kronor, falling short of the 4.42-billion kronor average estimate.

Paper demand has been shrinking about 5 percent a year since 2007 in Europe, Stora Enso Oyj said Jan. 5. Last year, demand for newsprint and coated magazine paper declined 9 percent, which prompted the Helsinki-based company to accelerate capacity cuts. Holmen will continue to cut production if needed, Hall said today.

Holmen said in October it would shut down the oldest paper machine at a mill in Hallstavik, Sweden, in the second half of this year, reducing production of semi-coated paper by 140,000 tons per year. The grade is mainly used for consumer magazines, catalogs and advertising material. The company said today it will invest 200 million kronor in restructuring the energy supply at the Hallsta Mill.

Cash Flow

Future focus will be on maintaining cash flow and operating earnings by investing as little as possible, Hall said.

Demand for paperboard, the company’s second-biggest business, was stable in the quarter with unchanged deliveries to Europe from a year earlier. Operating profit fell 62 percent to 70 million kronor due to a lower contribution from currency hedges. The unit makes products at mills in Iggesund, Sweden, and Workington, U.K. for consumer packaging and graphics printing. Holmen said in September it would cut about 100 jobs at Iggesund over a two-year period.

Holmen is one of the few paper and pulp makers that have held on to energy assets and the company has sole or partial ownership in 21 hydro-power stations, according to its website. Sales in the energy business rose 4.5 percent in the period to 460 million kronor as electricity prices rose and the company boosted production. The company produces about 35 percent of its own electricity.

Holmen has hedged about 90 percent of the estimated net electricity consumption in Sweden for 2013-2015, it said today.