Forestry giants in Northern Europe, Stora Enso, UPM and SCA, have felt the impact of the coronavirus crisis on their financial results for 2020, with a significant drop reflected in sales.
SCA’s net sales fell 6%
The Swedish forestry company SCA reports declined sales during 2020. Net sales declined 6% to SEK 18,410m (19,591).The fall in sales was mainly related to lower selling prices, which was partly offset by higher delivery volumes.
EBITDA amounted to SEK 3,393m (21,361). The difference was mainly related to two material one-off items, a negative earnings impact from the discontinuation of publication paper operations in 2020 of SEK -1,047m and a positive earnings impact of approximately SEK 16bn from the changed accounting method for valuation of forest assets in 2019.
Following a period with a weaker market, falling prices and rising inventory levels during the first half of 2020, the market has gradually improved for all product categories except publication paper, which continued to weaken. SCA’s focus has been to decrease working capital in an uncertain environment. This has resulted in a strong operating cash flow in the third and fourth quarters of 2020 which has contributed to a reduced net debt at the end of the year.
Based on the forest survey conducted in 2019, a new harvesting plan has been made during the year which shows that SCA can gradually increase planned annual harvesting from the previous level of 4.3 million m3fo to 5.4 million m3fo in 2025, an increase of 25%. During the year, SCA continued to acquire forest in the Baltic states.
For SCA, the year and the fourth quarter were impacted by material one-off items related to the discontinuation of publication paper operations. Adjusted earnings in the fourth quarter improved compared with the preceding quarter and the year-earlier quarter. A higher share of harvesting from SCA-owned forest and higher earnings from the revaluation of biological assets due to the new forest survey and harvesting plan had a positive impact on earnings.
The supply of wood to SCA’s industries was stable during the quarter. The price of sawlogs remained stable while the price of pulpwood fell slightly.
The market for solid-wood products remained strong during the quarter, driven by high demand in the building materials trade in the US, Scandinavia, UK and the rest of Northern Europe. Market prices increased compared with the preceding period.
Delivery volumes in SCA’s Pulp segment increased compared with the preceding quarter. A planned maintenance stop took place during the quarter. Following the restart, production has been stable and at planned level.
Stora Enso’s result fell sharply
In 2020, Stora Enso’s Group sales decreased by 11%, or EUR 257 million from the previous year to EUR 2 154 (2 411) million. Group sales excluding the Paper division decreased by 2%. Sales were negatively affected by mix and lower prices especially in the Paper and Forest divisions. Lower by-product sales decreased the top line further. Deliveries were clearly lower in Paper, as the global overcapacity and Covid-19 pandemic reduced demand. The divestment and closures of paper production at Oulu Mill in Finland, the Kitee and Pfarrkirchen sawmills in Finland and Germany, as well as a small packaging paper machine closure at Imatra Mills in Finland reduced sales.
Stora Enso’s operational EBIT decreased by 5%, or EUR 6 million, from the previous year to EUR 118 (124) million. The operational EBIT margin increased to 5.5% (5.1%).
Lower sales prices and mix decreased operational EBIT by EUR 104 million, especially due to lower paper and wood prices.
Total volume impact decreased operational EBIT by EUR 66 million, mainly due to the accelerated structural decline in paper demand. The company’s production was curtailed due to the Covid-19 pandemic.
Results for Stora Enso’s Forest division were strong, and Wood Products delivered the second best Q4 results ever.
UPM’s result was hit hard
UPM’s net sales fell by 16 percent to EUR 8.6 billion last year, mainly due to lower paper and pulp prices and lower paper deliveries.
Operating profit fell to EUR 761 million, which is less than half of the previous year’s result. The return on investment of 6.7 per cent fell far short of the target.
According to UPM, the measures taken to limit the interest rate pandemic clearly reduced the demand for printing papers. Instead, label and specialty papers benefited from changes in consumption and e-commerce and made a record profit.
Although the year as a whole was difficult, the last quarter of the year went in a relatively better mood.
CEO Jussi Pesonen states in the earnings release that this year the global economy is expected to start recovering, but the recovery varies from region to region and is driven by China.
“General economic activity affects the demand for most of UPM’s products, which therefore depends on the form and pace of the economic recovery.”
UPM expects pulp prices to rise at the beginning of this year, but paper prices to fall.
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