Finland's Stora Enso sees paper business returning to profit

By Essi Lehto

HELSINKI (Reuters) -Finnish forestry firm Stora Enso posted a bigger-than-expected jump in first quarter operating profit on Friday but said its paper division fell to a loss as sales dropped 28% from last year.

Chief Financial Officer Seppo Parvi told Reuters the closure of two paper mills, which was announced this week, would return the paper business to "satisfactory profitability".

Citing falling paper demand in Europe, Stora Enso had said it would close the mills in Finland and Sweden that employ a total of 1,110 people. But analysts said this might not be enough to improve stem losses from the paper business.

"It is by no means clear these measures will be sufficient if the market does not improve and the prices do not start rising," Inderes analyst Antti Viljakainen told Reuters.

The pulp, paper and cardboard maker said first quarter operating profit rose to 328 million euros ($394 million) from 180 million a year earlier, beating the 251.4 million mean estimate of nine analysts polled by Refinitiv.

Shares in Stora Enso were 2.1% up in afternoon trading.

In March, Stora Enso said it was exiting the dissolving pulp business, which supplies a major customer in China's Xinjiang region. Parvi said the decision was not linked to media reports about human rights violations in Xinjiang.

"We have no knowledge or observations about questions of human rights in our customer's factory," Parvi said.

Investors around the world ramped up pressure on Western companies in March over alleged human rights abuses in Xinjiang, creating a challenge for companies to address concerns while maintaining business ties with Chinese partners.

Stora Enso said on Friday it would convert its Enocell mill in eastern Finland to produce other pulp grades instead of dissolving pulp.

($1 = 0.8315 euros)

(Reporting by Essi Lehto, Additional reporting by Tarmo Virki; Editing by Subhranshu Sahu and Edmund Blair)