Not even any dismissals followed the revelation of the cartel. The purchasing manager also said that it’s a small world. Those cartel conviction documents, with the managers’ diary entries and given statements, are public documents. The equality of the rule of law did not function; criminality was rewarded with ridiculous fines, and the crime was financially worthwhile. The aggrieved party received nothing.
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Hopefully, this doesn’t stray too far from the topic… In Finland, cartels were only banned in 1992; here, it was considered (by Western standards) for an exceptionally long time that there was nothing wrong with cartels.
Previously, even investments that increased the demand for raw timber required permits.
So, instead of a free market economy, the system was based on strict regulation concerning both the volume of wood demand and the price level.
It’s no wonder that forest companies continued cartel activities in wood procurement after the new law, as the entire industry was built upon that foundation.
Indeed, these companies still need to be watched closely. For example, I have noticed that one of my forest plots in a somewhat remote area always receives one offer for timber sales. The offering company might be different, but there is always only one offer.
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Kauppalehti is once again painting doomsday scenarios:
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Indeed, for example, the Lappeenranta pulp mill and perhaps in the same turmoil, the paper mill are at risk if profitability is tight and the pulp mill will in any case reach the end of its lifespan in the early 2030s. So if there is no longer-term outlook, the machines will shut down.
UPM has invested more heavily in Kymi production and somewhat in Pietarsaari, while Lappeenranta has not received larger investments, so that in itself already tells something.
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Generally, several large new pulp mills are under construction, and overcapacity threatens. In the market, there is a shift from northern softwood pulp to southern hardwood pulp.
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So, the quality of “end products” is being further weakened and “softened” as a result..?
- This trend means a shift from using softwood to using hardwood in products that traditionally use softwood or a mixture of both fibers in their composition.
With this approach and development, even of those notoriously famous long-distance package wrappers, soon there will be nothing left but a mere tattered shadow of the original at its destination, meaning the protective effect of the packaging during transit will be lost at the same time…
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Stora Enso makes significant write-downs. Market conditions in China and Europe are deteriorating. Other companies to follow?
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Same in Finnish…
In addition, Stora also has a portion of its forests in Sweden for sale, reportedly worth a billion euros.
At this stage, however, it has not been deemed necessary to make write-downs on them.
Does this indicate that the book value of the forests is accurate, or that ‘testing’ is still in progress?
An interesting byproduct is that the reduction of depreciation, which lightens the balance sheet, will decrease by approximately EUR 37 million annually in the future.
Stora Enso will record non-cash impairment charges of approximately EUR 724 million in its IFRS operating profit for the fourth quarter of 2024. The impairment will be reported as an item affecting comparability. The net result impact will be approximately EUR 668 million negative, including an estimated positive tax impact of EUR 56 million.
In the Packaging Materials division, the impairments primarily relate to the Beihai operations in China and the division’s containerboard business, in the Packaging Solutions division to operations in Western Europe, and in the Wood Products division to operations in Northern Europe.
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Is the write-down in Europe mainly related to the overpriced acquisition of De Jong Packaging Group in 2022? The new CEO is clearing the table, as often happens after starting. Even though they were probably on the board deciding on that acquisition.
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From OP’s morning review, this same matter was speculated.
OP is of the understanding that the goodwill portion of DeJong’s acquisition price was €349 M, and the write-downs of the Packaging Solutions division (€369 M) would largely stem from that.
Stora had goodwill of €504 M at the end of Q3/24, and two-thirds of this is now being written down.
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And what’s the point of paying a 0.1 euro Christmas gift, if risks are high and the economic situation is bad, or is it really that bad after all..
Suspending dividend payments would be a truly bad signal for the company’s future prospects. A large company that cannot pay a dividend is in a weak state. A bit like Nokia for the last 5 years, and even it couldn’t pay dividends sometimes.
And on the other hand, just like employees, shareholders also have to make a living somehow; not everyone necessarily has a paid job.
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“Does this indicate that the book value of forests is accurate, or that the ‘testing’ is still ongoing…”
I would believe (read: hope) that at least the book value of forests does not need to be written down. That will probably become clear before the turn of the year. I own Stora, and these write-downs are certainly not pleasant, although if one wants to see something positive, fortunately they have no cash flow impact. That Beihai is indeed a disappointment; the factory was supposed to be a money spinner – it turned out otherwise. De Jong was bought again at the peak of the cycle, and, looking back, a clear overprice was paid.
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If debt is taken for a dividend, it increases the company’s financing costs, weakens its future dividend-paying ability, and lowers the share price. It’s better if a shareholder who needs money sells a small portion of their ownership so that not all owners have to suffer.
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Inderes on Stora Enso’s write-downs:
We had prepared for the possibility of write-downs when setting our target price. Therefore, the write-downs do not cause immediate pressure to change our view on Stora Enso.
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I strongly doubt that forests will need to be written down, considering the valuation logic (3-year average of comparable transactions), the high price of wood, and declining interest rates (i.e., the alternative cost for a real asset investor). Furthermore, the actual valuation will be done between buyers and Stora Enso when negotiating the price of the piece being sold. I don’t believe Stora Enso will sell forests significantly below book value, as that would be a very negative signal about the quality of the entire balance sheet (i.e., forest value and debt-carrying capacity).
The majority of this year’s write-down, which is a continuation from last year, is directed at assets invested in the 2010s. In a business with long investment cycles, this certainly cannot be the case, and the company’s (i.e., not individual managers’ or board members’) track record is very poor (forests were, of course, a good purchase), as has been mentioned in reports before.
DJP’s goodwill indeed seems to have been (almost) entirely removed from the balance sheet in this year’s testing. There are probably not enough surprised people to form a queue at this point. In any case, I personally expected write-downs, and it was probably not a surprise to the market either (i.e., P/B well below 1x). However, the underlying reasons for the write-downs are a negative warning regarding long-term cash flow prospects, although this has, of course, also been baked into the stock and our view.
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This kind of ‘awareness’ should be brought out more clearly in analyses so as not to create an impression of hindsight.
The above paragraph can be found in the latest report. Also, the target price is below the equity per share book value, because before building the balance sheet case, it is essential to assess the quality/content of the balance sheet.
Several times this year it has also been noted in the comments that news X came as a (complete) surprise.
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In Kauppalehti (at least not currently behind a paywall), an overview of UPM’s history:
Björn Wahlroos and Jussi Pesonen made a turnaround – How UPM rose to become Finland’s most powerful forest giant | Kauppalehti
The Wahlroos-Pesonen duo turned UPM, and perhaps alongside it, the entire Finnish forest industry from a sunset industry into bio-based growth companies.
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