Stora Enso Interim Report January–June 2016 Accelerated

Accelerated transformation – High activity during the quarter STORA ENSO OYJ, Helsinki, Finland HALF YEAR FINANCIAL REPORT 21 July at 13.00 EEST Q2/2016 (compared with Q2/2015) ·  Sales EUR 2 526 (EUR 2 562) million decreased 1.4%. Sales excluding the structurally declining paper business and divested Barcelona Mill increased 3.6%, primarily due to the ramp-up of Varkaus kraftliner mill and additional volumes from Ostrołęka containerboard mill. ·  Operational EBIT increased 9.2% to EUR 226 (EUR 207) million, including a bad debt provision of EUR 6 million in the Paper division, lower variable costs, and a positive net currency impact. The EBIT margin was 8.9% (8.1%). ·  EPS EUR 0.16 (EUR 0.17) ·  Cash flow from operations record high at EUR 493 (EUR 489) million, due to increased operational EBITDA and release of working capital; cash flow after investing activities was EUR 321 (EUR 261) million. ·  Continued strengthening of the balance sheet; net debt to operational EBITDA 2.3 (2.7) despite dividend payment; liquidity reduced to EUR 511 (EUR 986) million, as planned. ·  Operational ROCE 10.3% (9.4%), operational ROCE excluding the Beihai Mill investment 12.5% (10.9%). Q2/2016 (compared with Q1/2016) ·  Sales improved 3.3%. Sales excluding the structurally declining paper business increased 5.8%, mainly due to higher consumer board sales. · Operational EBIT decreased 8.9%, mainly due to the higher maintenance impact of EUR 28 million. Q1–Q2/2016 (compared with Q1–Q2/2015) ·  Sales at EUR 4 971 million declined 1.6%. Sales excluding the structurally declining paper business and divested Barcelona Mill increased 3.0%. · Operational EBIT at EUR 474 million increased 11.0%, mainly due to lower variable costs, and net currency impact. Transformation ·  Beihai consumer board mill in China started up in May and is ramping up ahead of plan. The machine is expected to reach full production within 18‒24 months. ·  Varkaus kraftliner mill ramp-up is proceeding and customer qualifications have progressed well. Full production is expected during the first half of 2017. ·  The new production line for wooden building components at Varkaus Mill (LVL) started up in June 2016. Full production is expected in mid-2018. ·  Plans to divest Kabel magazine paper mill in Germany announced in June. ·  Divestment of the Suzhou mill site in China announced and paper production ceased in June. · Stora Enso divested its 33.33% ownership in the Swedish recycled materials company IL Recycling AB in June. Outlook for Q3/2016 Q3/2016 sales are estimated to be similar to or slightly lower than the amount of EUR 2 526 million, and operational EBIT is expected to be in line with or somewhat lower than the EUR 226 million recorded in Q2/2016. These estimates include the negative impacts of the scheduled annual maintenance shutdowns and Beihai Mill start-up, which are estimated to be approximately EUR 30 million and EUR 16 million higher than in Q2/2016 respectively. Stora Enso's CEO Karl-Henrik Sundström comments on the second quarter 2016 results: “In the second quarter of 2016, sales excluding the structurally declining paper business and the divested Consumer Board Barcelona Mill increased 3.6% compared to the same quarter last year. This was primarily due to the ramp-up of Varkaus kraftliner mill and additional volumes from the Ostrołęka containerboard mill. Cash flow year-on-year was record high, due to higher profitability and release of working capital. This quarter we have stepped up a gear in our transformation to a renewable materials growth company. We have taken a major leap forward and many parts of the puzzle are falling into place. We are now ready for the next chapter in our transformation journey. The consumer board machine at Beihai Mill in China successfully started production, ahead of plan, which is an historical milestone for us. Our aim is to benefit from the growing demand in China and Asia Pacific for high-quality consumer board. One of the key end products from Beihai Mill will be Liquid Packaging Board, of which more than 80 per cent today is imported to China. In June, production started at our new production line in Varkaus Mill in Finland, which makes wooden building components. The new laminated veneer lumber (LVL) line will meet the growing need for sustainable, high quality engineered wooden elements. We are also assessing the feasibility of building a cross -laminated timber (CLT) production unit in connection to Gruvön Mill in Sweden. This would support our ambition to capture market share from non-renewable materials in the construction sector. Also in accordance with our transformation into a renewable materials growth company, we will divest our Kabel magazine paper mill in Germany. Furthermore, we have announced closure of our Suzhou paper mill and divestment of the site in China. In Sweden, we have divested our 33.33% ownership in the Swedish recycled materials company IL Recycling, as our need for paper for recycling in Sweden has decreased during the past years. We continue to invest for growth and strengthened competitiveness. To further enhance our position as a leading global supplier of premium paperboards, we are investing EUR 70 million in Imatra Mills in Finland. This is to increase coating capacity and allow further product development of the new generation bio -barriers. Customer demand for food service board and liquid packaging board is estimated to grow above industry average. Furthermore, to meet the growing demand in the hygiene market, we will invest EUR 26.5 million in Skutskär pulp mill to increase the mill’s fluff capacity. To strengthen our bio-based chemicals development, we have signed a joint technology development agreement with specialty chemicals company Rennovia Inc. This is a logical next step for us as we are targeting new markets and developing new products in this area. The commercialisation of lignin from Sunila Mill in Finland is going forward and the first customer agreement has been signed. During the quarter, we have also successfully completed a Eurobond refinancing. I am very pleased that we have entered into a strategic partnership with Aalto University, Chalmers University of Technology and the Royal Institute of Technology. This collaboration with leading engineering universities will allow us to further advance our positions in the field of innovation. The priority competence areas for research collaboration are bio-based chemistry, design, digitalisation, material science and process solutions. When it comes to outlook for the third quarter of 2016, sales are estimated to be similar to or slightly lower than the amount of EUR 2 526 million, and operational EBIT is expected to be in line with or somewhat lower than the EUR 226 million recorded in second quarter of 2016. These estimates include the negative impacts of the scheduled annual maintenance shutdowns and Beihai Mill start-up, which are estimated to be approximately EUR 30 million and EUR 16 million higher than in Q2/2016 respectively. As always, I would like to thank our customers for their business, our employees for their dedication and our investors for their trust.” Karl-Henrik Sundström, CEO KEY FIGURES EUR million Q2/16 Q2/15 Change Q1/16 Change Q1–Q2/ Q1–Q2/ Change 2015 % % % Q1   Q2/16   Q2/16 -Q2/16– 16 15   Q1 – – -Q2/15   Q2/15   Q1/16 Sales 2 526 2 562 -1.4% 2 445 3.3% 4 971 5 053 -1.6% 10 04 0 Operational 333 318 4.7% 356 -6.5% 689 658 4.7% 1 352 EBITDA Operational 226 207 9.2% 248 -8.9% 474 427 11.0% 915 EBIT Operational 8.9% 8.1% 10.1% 9.5% 8.5% 9.1% EBIT margin Operating 248 214 15.9% 194 27.8% 442 429 3.0% 1 059 profit (IFRS) Profit before 112 156 -28.2% 183 -38.8% 295 310 -4.8% 1 048 tax   excl. items affecting comparability (IAC) Profit before 149 148 0.7% 155 -3.9% 304 310 -1.9% 814 tax Net profit 118 123 -4.1% 114 3.5% 232 252 -7.9% 783 for the period Net interest 3 178 3 479 -8.7% 3 185 -0.2% 3 178 3 479 -8.7% 3 240 -bearing liabilities Operational 10.3% 9.4% 11.3% 10.8% 9.9% 10.6% ROCE Earnings per 0.12 0.18 0.19 0.31 0.33 1.24 share (EPS), excl. IAC, EUR EPS (basic), 0.16 0.17 0.15 0.31 0.33 1.02 EUR Debt/equity 0.58 0.70 0.58 0.58 0.70 0.60 ratio Fixed costs 25.4% 25.5% 24.4% 24.9% 24.7% 25.0% to sales Average 26 27 -4.0% 25 2.2% 25 26 -4.0% 26 number of 088 173 521 911 999 783 employees TRI rate 13.3 10.4 27.9% 12.0* 10.8% 12.7 10.3 23.3% 11.0 LTA rate 5.0 4.2 19.0% 3.9* 28.2% 4.4 4.4 0.0% 4.7 TRI (Total recordable incidents) rate = number of incidents per one million hours worked. LTA (Lost-time accident) rate = number of lost-time accidents per one million hours worked. * Recalculated due to additional data after the Q1 interim report. EVENTS TODAY 1) Webcast for media at 13.30 EEST (12.30 CEST) The webcast for media will be held in English and it will be hosted by CEO Karl -Henrik Sundström and CFO Seppo Parvi. The webcast may be accessed at https://storaenso.videosync.fi/2016-07-21-q2  2) Webcast and conference call for analysts and investors at 15.00 EEST (14.00 CEST, 13.00 BST, 08.00 EDT) The webcast and conference call for analysts and investors will be hosted by CEO Karl-Henrik Sundström, CFO Seppo Parvi, and SVP Head of Investor Relations Ulla Paajanen-Sainio, and may be accessed at http://edge.media -server.com/m/p/yqmjfqrw. Those analysts and investors who wish to ask questions should join the conference call (details below). All participants can follow the presentation over the webcast. Analyst and investor conference call dial-in details at 15.00 EEST UK                 +44(0)20 3427 1912 Finland           +358 (0)9 6937 9543 Sweden          +46 (0)8 5033 6538 USA               +1 646 254 3388 Confirmation Code:               9814120 The links to the webcasts are also available on the Stora Enso website: storaenso.com/investors (http://www.storaenso.com/investors) For further information, please contact: Seppo Parvi, CFO, tel. +358 2046 21205 Ulla Paajanen-Sainio, SVP, Investor Relations, tel. +358 40 763 8767 Ulrika Lilja, EVP, Communications, tel. +46 72 221 9228 Stora Enso’s third quarter 2016 results will be published on 25 October 2016. Stora Enso is a leading provider of renewable solutions in packaging, biomaterials, wooden constructions and paper on global markets. Our aim is to replace fossil based materials by innovating and developing new products and services based on wood and other renewable materials. We employ some 26 000 people in more than 35 countries, and our sales in 2015 were EUR 10.0 billion. Stora Enso shares are listed on Nasdaq Helsinki (STEAV, STERV) and Nasdaq Stockholm (STE A, STE R). In addition, the shares are traded in the USA as ADRs (SEOAY) on the International OTCQX over-the-counter market. storaenso.com (http://www.storaenso.com)/investors It should be noted that certain statements herein which are not historical facts, including, without limitation those regarding expectations for market growth and developments; expectations for growth and profitability; and statements preceded by “believes”, “expects”, “anticipates”, “foresees”, or similar expressions, are forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995. Since these statements are based on current plans, estimates and projections, they involve risks and uncertainties, which may cause actual results to materially differ from those expressed in such forward-looking statements. Such factors include, but are not limited to: (1) operating factors such as continued success of manufacturing activities and the achievement of efficiencies therein, continued success of product development, acceptance of new products or services by the Group’s targeted customers, success of the existing and future collaboration arrangements, changes in business strategy or development plans or targets, changes in the degree of protection created by the Group’s patents and other intellectual property rights, the availability of capital on acceptable terms; (2) industry conditions, such as strength of product demand, intensity of competition, prevailing and future global market prices for the Group’s products and the pricing pressures thereto, price fluctuations in raw materials, financial condition of the customers and the competitors of the Group, the potential introduction of competing products and technologies by competitors; and (3) general economic conditions, such as rates of economic growth in the Group’s principal geographic markets or fluctuations in exchange and interest rates. STORA ENSO OYJ For further information, please contact: Seppo Parvi CFO tel. +358 2046 21205 Ulla Paajanen-Sainio SVP, Investor Relations tel. +358 40 763 8767 Ulrika Lilja EVP, Communications tel. +46 72 221 9228