Result q3 2015_web

Financial Results for Q3 2015

CEO Karl-Henrik Sundström and CFO Seppo Parvi 23 October 2015

1

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 Q3 2015 Results 2 23 October 2015

Solid performance supported by currencies Q3 2015 year-on-year

As previously announced on 12 October: • Sales remained at 2 500 MEUR

• Excluding paper and divested businesses +4.9% mainly due to MdP pulp mill volumes and favorable FX

• Operational EBIT increased by 17.1% to MEUR 246

(MEUR 210) • Margin increased to 9.8% • Maintenance impact was 13 MEUR more than estimated

in July

• Strong cash flow from operations 484 MEUR • Net debt to last 12 months’ operational EBITDA reduced to

2.5

23 October 2015 Stora Enso Q3 2015 Results 3

4

Operational EBIT improvement driven by Biomaterials 15Q2 vs 15Q3

23 October 2015 Stora Enso Q3 2015 Results

Operational ROCE continues to improve towards 13%


*Excluding Montes del Plata until end of 2014 and excluding Guangxi project

ROCE target of 13%

2014 Q1

2015 Q2 2015

Q3 2015

Montes del Plata pulp mill - Performed at the nominal capacity level in June - Annual capacity of 1.3 Mt of which Stora Enso’s share 50%

Murow sawmill - Started in Q2 2015 as planned. - Capacity increase to 140 000 m³/shift/year

Sunila Biorefinery - Investment completed in Q1 2015 - First volumes of lignin are expected to be commercialised in early 2016

Virdia acquisition - Acquired in June 2014 - Extraction and separation technologies for conversion of cellulosic biomass into

highly refined sugars and lignin

Imatra de-bottlenecking - The investment at the Imatra mill in Finland in quality, cost-competitiveness and an

increase in capacity was completed according to plan.

Varkaus conversion - The conversion of the fine paper machine to kraftliner is proceeding and the

production started in October

Transformation steps completed


First rolls of Varkaus kraftliner production


Consumer Board

Guangxi consumer board mill

800 MEUR

Mid-2016

Wood Products

Varkaus wooden building elements

43 MEUR

Q2 2016

Biomaterials Xylose demonstration and market development plant

32 MEUR

Early 2017

Transformation in progress


Guangxi consumer board machinery construction proceeding according to plan


Board mill

62 %

6 %

35 %

-3 %

70 %12 %

21 %-3 %

Transformation journey continues Growth businesses with 64% of sales and 97% of operational EBIT

2006 Sales


Q3/2015 Sales

64%

97%

30%

38%

In 2006, all pulp used internally Q3/2015 Operational EBIT 2006 Operational EBIT

Summary financials Q3 2015

MEUR

Q3/15

Q3/14

Change% Change % Q3/15 - Q3/14 Q2/15

Q3/15 - Q2/15

Sales 2 500 2 514 -0.6% 2 562 -2.4% Operational EBITDA 353 333 6.0% 318 11.0% Operational EBITDA margin 14.1% 13.2% 12.4% Operational EBIT 246 210 17.1% 207 18.8% Operational EBIT margin 9.8% 8.4% 8.1% Net profit for the period 124 123 0.8% 123 0.8% EPS (basic), EUR 0.16 0.15 0.17 Operational ROCE 11.6% 9.7% 9.4% Operational ROCE, excl. Guangxi project 13.1% 13.0%* 10.9% Cash Flow from Operations 484 257 88.3% 489 -1.0% Net debt/last 12 months’ operational EBITDA 2.5 2.8 2.7

11 Stora Enso Q3 2015 Results 23 October 2015

*Excluding Guangxi and Montes del Plata investments

Biggest foreign exchange impact in Biomaterials Net FX in Q3 y-o-y by divisions


Net FX impact on Operational EBIT was 59 MEUR in Q2 and 57 MEUR in Q3 y-o-y

Sensitivity analysis including Brazilian real 10% change, impact on operational EBIT


10% increase in Impact*

Market pulp price, total Positive 125 MEUR

*Impact on operational EBIT for the next twelve months. ** Before FX hedges An increase of energy, wood or chemical and filler prices or decrease of pulp prices, as well as weakening of the currencies would have the opposite impact.

10% decrease in Impact*

Energy prices Positive 5 MEUR

Wood prices Positive 167 MEUR

Chemical and filler prices Positive 58 MEUR

10% strengthening against Euro in the value of** Impact*

US dollar Positive 107 MEUR

Swedish krona Negative 82 MEUR

British pound Positive 45 MEUR

Brazilian Real Negative 10 MEUR

MEUR

Other loans / liabilities Bonds Commercial paper

Debt maturity profile Q3 2015 Revolving Credit Facility 700 MEUR matures in January 2018 and is fully undrawn


Q3 q-o-q: • The average interest rate decreased from 4.7% to 4.4% • The average maturity was prolonged from 3.9 to 4.3 years

150 MEUR private placement issued in August

Consumer Board operational Sales increased by over 4% Q3 2015 year-on-year

15 Stora Enso Q3 2015 Results

• Sales increased by over 4% due to increased volumes in food service boards and general packaging

• Operational EBIT decreased by 15 MEUR mainly due to higher pulp and chemical costs 5 MEUR and Guangxi project 10 MEUR

– Operational EBIT excluding Guangxi project 88 MEUR • Operational ROOC 16.4% (22.4%)

– Operational ROOC excluding Guangxi 30%

• Maintenance in Q4 scheduled at Fors and Skoghall Mills.

23 October 2015

-15.8% 78 91

+4.3%

Packaging Solutions operational EBIT impacted negatively by transformation Q3 2015 year-on-year


• Sales in Q3 decreased by 18% y-o-y • Sales excluding Corenso remained unchanged in

Q3 y-o-y

• Operational EBIT was 17 MEUR lower – Operational EBIT excluding Corenso decreased

by 10 MEUR – The Varkaus project and the divestment of the

Komárom mill in Hungary had a negative impact of 8 MEUR and 4 MEUR respectively on operational EBIT

• Operational ROOC 8.7% (16.0%)

• Maintenance in Q4 scheduled at Heinola Mill

.

23 October 2015

0%

-35.7%

Biomaterials Q3 sales increased by 38% and operational EBIT by 76 MEUR Q3 2015 year-on-year

• Sales increased by 38% due to MdP volumes and FX movements

• Operational EBIT increased by 76 MEUR due to – Montes del Plata ramp-up, – Favourable FX, – Good performance of the Nordic pulp mills – Higher hardwood pulp prices

• Operational ROOC was improved to 15.5%

from 4.2%

• Maintenance in Q4 continued at Skutskär Mill and Sunila annual maintenance stoppage


316.7%

38.0%

Wood Products profitability improved Q3 2015 year-on-year

• Sales declined by 12% mainly as a result of lower volumes to North African and Middle Eastern markets.

• Operational EBIT stable at 22 MEUR – Lower sales prices were compensated by

reduced personnel and wood costs

• Operational ROOC 17.5%


-12.5%

0%

Paper continued to generate good cash flow Q3 2015 year-on-year

• Sales declined by 5% due to lower sales prices

• Operational EBITDA decreased by 40 MEUR due to lower sales prices and higher pulp costs

• Cash flow after investing activities to sales

improved from 4.5% to 9.2% due to improved working capital

• Maintenance in Q4 at Nymölla Mill

• Maintenance impact expected to be 20 MEUR

lower in Q4 Q-o-Q


-5%

-48%

52

Forecast for capex in 2015

MEUR Forecast 2015

Capital expenditure 940-970

Depreciation 520–540

The capital expenditure forecast has been increased from 820–880 MEUR communicated earlier to 940–970 MEUR. The capitalisation of the investment projects in Varkaus and Guangxi has been faster than previously planned. The total capital expenditure for the projects remains unchanged. The capital expenditure forecast includes 90 MEUR for biological assets and approximately 450 MEUR for the Guangxi project.


Forest company Bergvik Skog increases fair value of its forests

• The increase is approximately 435 MEUR for Stora Enso

• Fair value criteria: – Long-term cutting projections – Price assumption – The decrease of WACC from 6.25% to 5.2%.

• Recorded in the IFRS operating profit in the

Q4 of 2015, no effect on Operational EBIT.


Challenging, but reachable strategic targets Q3/15 follow-up

Group targets Q2 2015 Q3 2015 Status Dividend To distribute 50% of net income over

the cycle

Growth excl. Paper To grow faster than the relevant market

4.8% (YoY) 4.9% (YoY)

Net debt to operational EBITDA <3.0x 2.7 2.5

Fixed costs to sales <20% 25.5% 25.0%

Debt to equity <80% 70% 66%

Operational ROCE >13% 9.4% 11.6%

Operational ROCE excl. Guangxi

10.9% 13.1%

Divisional targets Q2 2015 Q3 2015 Status

Consumer Board Operational ROOC > 20% 16.1% 16.4%

Consumer Board excl. Guangxi 30.8% 30.0%

Packaging Solutions Operational ROOC > 20% 11.7% 8.7%

Biomaterials Operational ROOC > 15% 8.9% 15.5%

Wood Products Operational ROOC > 18% 17.9% 17.5%

Paper Cash flow after investing activities to sales > 7%

5.1% 9.2%


Guidance for Q4 2015 reconfirmed Compared to Q3 2015

• The Q4 2015 sales are estimated to be

similar to the amount of the 2 500 MEUR

• Operational EBIT is expected to be in line with the 246 MEUR recorded in the third quarter 2015

• The maintenance impact is expected to be 40 MEUR lower in the fourth quarter compared to the third quarter,

– out of which approximately 20 MEUR comes from the Paper division.


Summary - Transformation continues

• Sales excluding divested businesses grew nearly 5%

• Operational EBIT increased by over 17% • Balance sheet continued to strengthen

– Net debt to EBITDA 2.5

• Transformation continues: – Kraftliner production has started in Varkaus – Varkaus wood products investment Q2 2016 – Guangxi project mid-2016



Net Financial Items increased, but average interest rates decreased due to own actions


EUR million Q3/ 2015

Q3/ 2014

Change % Q3/15- Q3/14

Q2/ 2015

Change % Q3/15- Q2/15

Net interest expense -39 -48 19 -47 17 Average interest rate* 4.4% 4.8% 4.7%

Foreign exchange gains and losses -43 -16 n/m - n/m

Other financial items. of which -11 -7 -57 -19 42

Fair valuation of interest rate derivatives** 22 - 4

Fair valuation of long-term debt - - 1

Pension costs (IAS 19R) -3 -2 -2

Other items -30 -5 -22

Total net financial items -93 -71 -31 -66 -41

* Quarterly gross interest expense divided by average gross debt ** Not hedge accounted interest rate derivatives.

Balance sheet continued to strengthen Q3 2013 – Q3 2015


*Last twelve months’ operational EBITDA

Operational EBIT by segments

EUR million Q3/15 Q3/14 Change % Q2/15 Change %

Q3/15- Q3/14

Q3/15- Q2/15

Consumer Board 80 95 -15.8% 78 2.6% % of sales 13.2% 16.3% 12.9%

Packaging Solutions 18 35 -48.6% 24 -25.0% % of sales 8.0% 12.7% 10.6%

Biomaterials 100 24 n/m 59 69.5% % of sales 25.5% 8.5% 16.2%

Wood Products 22 22 - 23 -4.3%

% of sales 5.9% 5.1% 5.2%

Paper 6 33 -81.8% 12 -50.0% % of sales 0.7% 3.4% 1.3%

Other 20 1 n/m 11 81.8% % of sales 3.6% 0.2% 1.7%


Permanent pulp, paper and board capacity reductions since 2006

Stora Enso Q3 2015 Results 29

Mill Date Grade Capacity reduction, t

Corbehem PM 3 and PM 4 Jun 2006 LWC 250 000

Varkaus PM 1 End 2006 WFC 95 000

Berghuizer Mill Oct 2007 WFU 235 000

Reisholz Mill End 2007 SC 215 000

Summa Mill Jan 2008 Newsprint, uncoated mag, book paper 415 000

Anjala Mill PM1 Feb 2008 Coated magazine paper 155 000

Baienfurt Mill End 2008 FBB 190 000

Kabel Mill PM 3 End 2008 Coated magazine 140 000

Kemijärvi Pulp Mill April 2008 Long-fibre (SW) pulp 250 000

Norrsundet Pulp Mill Dec 2008 Long-fibre (SW), pulp 300 000

Varkaus Mill coreboard machine Dec 2008 Coreboard 100 000

Imatra PM 8 Mar 2010 WFU 210 000

Varkaus PM 2 and PM 4 Sep 2010 Newsprint, directory paper 290 000

Maxau PM 7 Nov 2010 Newsprint 195 000

Hylte PM1 Dec 2012 Newsprint 180 000

Ostroleka PM2 Jan 2013 Containerboard 85 000

Hylte PM2 May 2013 Newsprint 205 000

Kvarnsveden PM11 May 2013 Newsprint 270 000

Veitsiluoto PM1 Apr 2014 Coated magazine 190 000

Corbehem Mill July 2014 LWC 330 000

Varkaus Aug 2015 WFU 280 000

Total 4 580 000 23 October 2015

Permanent sawn wood capacity reductions since 2006

Mill Date Capacity reduction, m3

Veitsiluoto Sawmill 2006 100 000

Honkalahti Sawmill 2006 90 000

Sauga Sawmill Jun 2007 130 000

Sollenau Sawmill 2007 110 000

Näpi Sawmill 2007-2008 100 000

Kotka Sawmill 2007-2008 70 000

Paikuse Sawmill End 2008 220 000

Zdirec Sawmill 2008 120 000

Ybbs Sawmill 2008 & Jun 2009 200 000

Kitee Sawmill 2008 & Jun 2009 130 000

Varkaus Sawmill Jun 2009 60 000

Tolkkinen Sawmill End 2009 260 000

Kopparfors Sawmill End 2011 310 000

Sollenau Sawmill Jul 2014 400 000

Total 2 300 000


Net cash flows and foreign exchange hedges As at 30 September 2015


MEUR USD SEK GBP

Estimated annual net operating cash flow exposure 1 070 -820 450

Transaction hedges as at 30 June 2015 -500 420 -210

Hedging percentage for the next 12 months 47% 51% 47%

Net foreign exchange impact on Operational EBIT of 57 MEUR year-on-year

23 October 2015 Stora Enso Q3 2015 Results 32 32

Includes RCP -

Saw logs 1 Pulp wood 4

Pulp -2 WS EBIT -1

+246+15+38

+54+210+3

0

50

100

150

200

250

MEUR

Q3 2015 Other FX on costs Fixed costs

-11

Variable costs FX on sales Local sales prices and mix

-34

Volumes

-28

Q3 2014

In Paper FX gains partially compensated the price decline In Biomaterials both price changes and FX contributed positively In Packaging Solutions FX loss was compensated by sales price and mix.

Cash flow by divisions in Q3


Curtailments of capacity


% of the capacity

23 October 2015

Pulp price development


Source: FOEX

23 October 2015

Pulp sensitivity analysis 10% change in prices, impact on operational EBIT


10% increase in Impact*

Hardwood pulp** prices Positive EUR 45 million Softwood pulp prices Positive EUR 50 million Fluff pulp prices Positive EUR 20 million Dissolving pulp prices Positive EUR 10 million

Market pulp price, total Positive EUR 125 million

* Impact on operational EBIT for the next twelve months. A decrease of pulp prices would have the opposite impact. ** Includes 550 000 tonnes from Montes del Plata

Pulp wood and saw log prices Wood prices in Finland

Source: METLA


Paper for recycling prices


German RCP price development. free delivered Source: Verband Deutscher Papierfabriken/Stora Enso

23 October 2015

Energy balance* Q3 2015

**) Remaining impact on non-hedged volume


*) Pulp. paper and board mills. Europe and overseas

Impact** on operating profit from 10% change in: EUR million p.a.

Electricity market price ~1,2

Fossil fuel price ~4,1

39

Stora Enso Electricity procurement* Q3 2015


*) Pulp. paper and board mills. Europe and overseas 40 40

Global Responsibility update KPI results Q3 2015 – (1/2)


Focus Area Key Performance Indicator Q3 2015 Target to be reached by end

of 2015 2014

Peop

le &

Eth

ics

Health &Safety

TRI rate (Incidents per 1m working hours) 10.4 8.8 12,5

LTA rate (lost time accidents per 1m working hours) 4.0 3.6 5,2

Human Rights Extent of implementation of the

Group's approach to human rights issues

By the end of the Q3 55% of the preventive and remediation actions were completed. The actions are

based on the UN Guiding Principles on Business and Human Rights and

criteria created in collaboration with DIHR.

Action plans in place by the end of Q2 2015 to address prioritized

assessment findings of the Human Rights

Assessments, and for all assessment findings to be addressed by the end of

2015.

100 %

Ethics & Compliance

Employees' perception of adherence to Code of Conduct

(YourVoice)

Positive trend in annual employee survey. 69 %

Sustainable Leadership

Leadership Index (YourVoice) Positive trend in annual employee survey 76,0

Responsible Sourcing

% of supplier spend covered by supplier Code of Conduct (CoC) 87%

90% of supplier spend covered by the Supplier Code of Conduct by end of

2016 78%

Global Responsibility update KPI results Q3 2015 – (2/2)

Focus Area Key Performance Indicator Q3 2015** Target 2014

Envi

ronm

ent &

Effi

cien

cy Climate & Energy Reduction of CO₂ emissions per saleable

tonne of pulp, paper and board (kg/t)*** -34% -35%

by end of 2025 -27%

Process Water Discharges

Reduction of volume per saleable tonne of pulp, paper and board (m³/t) 1%

-6% by end of 2015

-4%

Process Water Discharges

Reduction of Chemical Oxygen Demand (COD) per saleable tonne of pulp, paper

and board (kg/t) -2%

-7% by end of 2015

-5%

42

* From baseline levels: year 2006 in CO₂ emissions, year 2005 in the volume (m³) of process water discharges, and year 2007 in the Chemical Oxygen Demand (COD) levels of process water discharges. Historical figures recalculated due to changes in baseline or data completion. ** Q3 performance includes July and August. The Q3 performance will be completed with September performance in Full Year Results for 2015. *** Covering direct fossil CO₂ emissions from production and indirect fossil CO₂ emissions related to purchased electricity and heat (Scope 1 and 2).

ENVIRONMENTAL PERFORMANCE COMPARED TO BASELINE LEVELS*


Economy & Finance

Result q3 2015_web