Stora Enso pays out for US ops
help turn its loss-making North American unit to profit as the
world's top paper and board maker grapples with tough economic
conditions.
Stora Enso has said that it will take a €1.15 billion charge to help turn its loss-making North American unit to profit as the world's top paper and board maker grapples with tough economic conditions.
The move was expected after the firm's announcement last month, following its weak second-quarter results, that it would restructure its North American operations in response to continuing poor market conditions there.
Stora Enso shares were largely unfazed by the announcement.
"The plan aims to significantly improve Stora Enso's competitiveness in North America and position its operations for profitable growth in this important market," the Finnish-Swedish firm said in a statement.
"Group management has decided not to wait and rely on a (market) recovery, but to take action now," it said.
Stora Enso said it would take the non-cash charge in the third quarter to reflect the fall in the value of the assets of US-based Consolidated Papers, which Stora Enso bought in 2000 for $3.6 billion (€36.7bn) when company valuations were peaking.
The management has subsequently called the Consolidated acquisition "an expensive move" that created a platform for further growth in North America.
Analysts welcomed the announcement, noting that the planned changes would have no impact on production capacity and saying the impairment charge cleared the air of uncertainty about when Stora Enso would take the write-down.
"(The charge) will not have a major impact on the (company's) valuation, and it does not change the view of the company in a major way," said Alfred Berg analyst Erik von Ehrenheim in Stockholm.
"The impairment charge will improve key figures going forward," he said.
Papermakers have been hit by weak demand and soft prices in the weak overall economic environment, and analysts have pushed back their expectations of a recovery in the industry by up to a year following disappointing second-quarter sector earnings.
Stora Enso said it would invest €266 million over the next three years in certain North American mills and paper machines, while closing other businesses. It said it expected around 500 job losses from the moves.
The company said it expected earnings before interest, tax, depreciation and amortisation (EBITDA) at its North American unit to improve by €85 million from 2005 onward as a result of the restructuring.
Last month Stora Enso reported a €117 million second-quarter operating loss at its North American operations against losses of four million euros in the year-ago quarter.
The loss contributed to a 38 per cent fall in Stora Enso's pre-tax profits to €154.6 million, below analysts' expectations.
