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Forestry group Stora Enso sees challenging year ahead

FILE PHOTO: Stora Enso company logo is seen near a packaging mill in Riga

By Anne Kauranen

HELSINKI (Reuters) -Stora Enso on Tuesday said higher costs would be likely to squeeze its margins in 2023 after the Finnish forestry group produced its strongest annual results in more than 20 years, although profit declined in the fourth quarter.

"Stora Enso enters the new year with market softness and variable cost pressures which are expected to be more challenging in 2023 than in 2022 weighing on our results this year," the company said in a statement.

The company booked some 185 million euros in losses last year from the sale of its Russian operations, which it announced in April and in May. The Russian the exit also reduced its fourth-quarter profitability by 20 million euros compared with a year ago.

Sales at the group's packaging solutions division fell 16% year-on-year due to the Russian exit, but the company said it expects to expand its packaging operations this year, following the acquisition of Netherlands-based De Jong Packaging Group.

"Regarding our exit from Russian market, the minor outstanding transactions that we expected to finalise in 2022 have taken longer to conclude than originally anticipated", a company spokesperson told Reuters

The company expects to conclude them in 2023, without further significant financial impact, the spokesperson said.

Sales in the fourth quarter rose 5%, but operational earnings before interest and tax (EBIT) decreased 17% to 355 million euros ($385 million) from a year earlier. This was lower than the 403 million euros expected by analysts in a company-provided poll.

Credit Suisse said that guidance of lower y/y operational EBIT was no surprise but near-term pressure added incremental negative colour.

Stora expects demand for its containerboard to be hit by weak consumer confidence and lower private consumption, while a construction slowdown will negatively affect demand for sawn wood.

"Compared to 2022, group margins are expected to be squeezed by increasing costs, particularly in relation to energy, wood, chemicals and logistics," the company said.

It is negotiating with employees in Finland on potential furloughs at its wood products and packaging materials divisions among other measures to adjust capacity, the company added.

Stora's board of directors proposed a record high dividend of 0.60 euros per share, following the company's highest annual operational EBIT since 2000, at 1.89 billion euros for 2022.

Shares in the company were down 3.6% in afternoon trade.

($1 = 0.9227 euros)

(Reporting by Anne Kauranen, editing by Terje Solsvik, Kirsten Donovan and Jane Merriman)