Stora Enso North America Profit Enhancement Plan Announced
Wednesday, August 28, 2002
HELSINKI, Finland, Aug. 27 -- Stora Enso today announced details of its previously advised profit enhancement plan as a further important step in an existing programme to improve the operational and financial performance of its North American division, and in response to continuing poor market conditions for its main products in North America. 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 weaker market conditions have also had an impact on the recoverable value of the assets acquired by Stora Enso in the USA in 2000, prompting the management decision to take a one-time impairment charge of EUR 1 150 million (USD 1 081 million) in the third quarter of 2002 assuming that an average EUR/USD exchange rate is 0.9400. The full financial impact of the plan and the impairment charge is an estimated improvement on the Group's EPS of EUR 0.13. "Shortly after our acquisition of Consolidated Papers in September 2000, the North American paper markets began a prolonged downturn, particularly in publication grades, due to dramatically decreased advertising spending. This poor market environment persists today. Group management has decided not to wait and rely on a recovery, but to take action now. We are confident that this profit enhancement plan, together with the earlier initiatives, will improve profitability in the near term, while positioning us for long-term competitiveness," says CEO Jukka Harmala. Profit enhancement plan The profit enhancement plan comprises a comprehensive range of measures that will together significantly improve Stora Enso North America's competitive position and profitability. The main elements of the plan include: Restructuring selected manufacturing assets -- Wisconsin Rapids Pulp Mill to be converted to fully bleached fine paper pulp Targeted capital investments -- Rebuilding of paper machines at Wisconsin Rapids (PM16), Kimberly (PMs 96 and 97) and Biron (PM26) -- Modifications to paper machines at Niagara (PMs 43 and 44) and Whiting (PM64) -- Expansion of the thermomechanical pulp line at Port Hawkesbury, subject to cost objectives being met Permanent shutdowns of production units -- PM12 at Wisconsin Rapids to be shut down by the end of 2002 -- Shutdown of PM24 at Biron by the end of 2003, dependent on market conditions -- Shutdown of groundwood and high-yield pulp operation at Port Hawkesbury -- Closure of the groundwood pulp mill at Kimberly by the end of 2002 Workforce reduction -- Approximately 500 jobs will be eliminated as a consequence of the plan and other cost cutting initiatives. The workforce reductions will take place primarily at Wisconsin Rapids, Biron, Kimberly and Port Hawkesbury. Impact on Stora Enso North America The total expenditure associated with the plan is estimated at EUR 266 million (USD 250 million), to be spread over the forthcoming 36 months. Once completed, the plan will have no material effect on the division's total annual production capacity. Write-offs and charges resulting from these measures total some EUR 80 million (USD 75 million), of which EUR 53 million (USD 50 million) is non-cash. The improvement to the North American division's profit (EBITDA) as a result of cost savings, increased productivity and higher-value-added production is expected to be approximately EUR 85 million (USD 80 million) per year from 2005 onwards. Impairment of assets Stora Enso will record a one-time impairment charge of EUR 1 150 million (USD 1 081 million) in its income statement in the third quarter of 2002, reflecting the recoverable value of assets acquired with Consolidated Papers, Inc. in 2000. This charge is a non-cash item. The calculation of asset impairment is based upon International Accounting Standards (IAS 36, impairment of assets), using a discounted cash flow model for each "cash generating unit." In this case, the impairment mainly relates to Stora Enso's North American Magazine business unit. Financial impact on the Group The financial impact of asset closures and impairment charge on the Group will be a reduction of annual depreciation and amortisation of EUR 75 million, equal to an increase of EPS by EUR 0.08. The Group's capital employed will be reduced by EUR 1 203 million and the debt/equity ratio will be deteriorated by 0.07. The charges will be classified as non-recurring items. The profit enhancement plan is estimated to have an additional positive impact of EUR 0.05 on the Group's EPS, once the full effect of the plan is realised (2005 onwards).