European paper and forest products companies, particularly some of those based in the Nordics, are continuing to benefit in terms of earnings growth from their diversification in recent years away from the fundamentally declining segments of the European paper market, according to a new report by Moody's Investors Service.
The ratings agency anticipates higher dividend payments in 2016 on the back of long-term profit improvements and the expectation of further solid financial results this year, despite continuing macroeconomic uncertainties and anaemic demand growth in Europe.
"Nordic companies are at the forefront of a transformation in the European paper sector," says Matthias Volkmer, a Vice President -- Senior Credit Officer at Moody's. "They have successfully diversified their operations towards more profitable segments such as specialty papers and labels, paper packaging, liquid packaging and dissolving wood pulp, and away from less profitable ones like graphic paper."
European paper and forest products companies reported an average 6.5% increase in EBITDA in 2015, with some like Finland-based Metsa Board Corporation (Ba2 stable) even showing record double-digit earnings growth. Stora Enso Oyj (Ba2 stable) and UPM-Kymmene (Ba1 positive) also continue to reap the profits of their efforts to reposition or broaden their business profiles through sizeable investments, as well as profit improvement programmes across their operations.
Through improved operating rates and pricing across newsprint, magazine, coated and uncoated paper in 2016, Norske Skogindustrier ASA (Caa3 negative), UPM and Stora Enso, will recover profitability in their respective paper operations, following substantial capacity closures in 2015 and a lower decrease in demand than in previous years, says Moody's.
Moody's expects paper price increases to start coming into effect from Q2 2016, following the lengthy negotiations at the start of the year. The success of these negotiations is likely to be underpinned by announcements of additional capacity closures.