Moody’s forecasts expansion plans will drive expenditure for paper firms

A number of companies in this sector are forecast to increase revenue and maintain or increase their capital expenditure (capex) in 2015 to meet their expansion plans, said the ratings agency.

The report named various companies including Metsa Board, Mondi, Sappi, Smurfit Kappa, Stora Enso and UPMKymmene.
“We expect the aggregate operating income of Moody’s rated European paper and forest product companies to increase by 1% to 3% over the next 12-18 months,” said Matthias Volkmer, a Moody’s vice president – senior analyst and author of the report.

“This reflects our expectation that increased operating earnings from rated packaging companies will outweigh those from paper producers, which continue to face secular declines, which is why our outlook for the sector is stable.”

Moody’s found that more diversified firms in the sector posted solid growth last year, reflecting their efforts to reposition or broaden their business profiles away from the mature European paper market through sizeable, and ongoing, investments in related segments and through cost cutting.

The report warned however, that due to a 3% decline in graphic paper demand in 2014, European paper and forest product companies with narrow product offerings would need to make significant efforts to improve their business prospects in 2015.

Volkmer said players with narrower product focuses still face substantial challenges and execution risks as they seek to improve their business prospects in 2015 and beyond.

While most corporate strategies remain unchanged, a high number of new senior management appointments could indicate that a corporate strategy refocus is about to take place.

“Expansion plans continue to drive capital expenditure (capex) in 2015,” said Volkmer. “We expect Metsa Board, Mondi, Sappi, Smurfit Kappa, Stora Enso and UPM to maintain or even increase spending on their – in some cases- already sizable capex programmes this year.

“With the exception of Sappi, which has not paid a dividend since 2009, and Stora, which is likely to keep dividends stable, these companies have also confirmed their progressive dividend policies.”

He added that the Euro’s depreciation is driving up input costs for non- or partly pulp integrated producers.

“The substantial new pulp capacity ramping up in Latin America during 2014, mostly in hardwood pulp, was favourable for non- or partly integrated players, such as Norske Skog and Lecta because it temporarily pushed down prices. However, as the companies’ sales are mainly in euros, while their main input material, pulp, is traded in US dollars, we expect them to face increased cost pressure in 2015 as a result of the Euro’s weakness against the US dollar.”

Se prevé una serie de empresas de este sector para aumentar los ingresos y mantener o incrementar su gasto de capital (capex) en el año 2015 para cumplir con sus planes de expansión, dijo que la agencia de calificación.
El informe nombra varias empresas, entre ellas Junta Metsa, Mondi, Sappi, Smurfit Kappa, Stora Enso y UPMKymmene.

Packaging news  -  UK  -  03 abril 2015