Stora Enso Readies to Expand Cost Cuts 

(Bloomberg) -- Finnish forestry firm Stora Enso Oyj is working to shield profits from chillier trade winds blowing in the global economy, according to Chief Executive Officer Karl-Henrik Sundstrom.

Down by a half from a 2018 peak, the shares are pricing in weaker demand for packaging as the U.S.-China trade war heightens economic tensions worldwide. Stora Enso has now started to see some impact of recent steps taken to mitigate the effect of global politics on its business.

Next month, Sundstrom says he will know whether Stora’s 120 million-euro ($137 million) savings program announced in February was enough. He stands ready to expand the program should the need arise.

“When we launched the program we had actually trained everyone -- we know what to do,” Sundstrom said in an interview earlier in June. “And if needed, we’ll take further measures.”

Stora shares rose as much as 4.3%, the most in two months, in Helsinki trading on Tuesday, along with other stocks in the industry boosted by the sale of forest land by BillerudKorsnas AB.

Forestry is a notably cyclical industry. Analysts are projecting stagnant revenue and profit below 2018 levels over the next few years for Stora, with headwinds including declines in pulp and corrugated cardboard prices, as well as rising material costs.

The forestry company has experience in living with uncertainty, having reinvented itself over the past decade. Born in a merger of two paper makers in 1998, Stora now gets less than 30% of its revenue from that market, compared with about 70% in 2006 as people ditched printed newspapers, directories and catalogs in favor of the Internet.

The shift online has also brought opportunities. Packaging consumption has grown with shopping moving online from the High Street, and while the middle class increasingly demands takeaway food, it’s also getting vocal on the usage of plastics in that same industry. Replacing disposable plastics requires containers made of virgin fibers to guarantee food safety -- enter forest industry firms.

“The takeaway food industry is going to be affected” as single-use plastics fall out of favor with consumers or are banned, Sundstrom said. “Styrofoam will probably disappear” and be “replaced by renewable fiber-based packaging.”

Consumer board and packaging now account for almost 40% of Stora’s sales of 10.5 billion euros a year and 35% of its profit. It’s also developing bio-based composite materials to take the place of plastics and studying how to make textile fibers out of wood. Growing climate consciousness adds to the appeal of renewable and recyclable materials.

“I’m extremely excited about the possibilities of replacing fossil based materials” in the longer run, Sundstrom said. “We are absolutely in the right spot. Actually, the sky is the limit.”

To contact the reporter on this story: Leo Laikola in Helsinki at llaikola@bloomberg.net

To contact the editors responsible for this story: Kati Pohjanpalo at kpohjanpalo@bloomberg.net, Hanna Hoikkala

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