Interim Review Q2. Stora Enso in brief

Transcription

1 SE Stockholm, Sweden Stora Enso International Office FI Helsinki, Finland Visiting address: World Trade Center, 9 South Street Visiting address: Kanavaranta 1 Klarabergsviadukten 70 London W1K 2XA, UK Tel Tel Tel Fax Fax Fax corporate.communications@storaenso.com Text stock: TerraPrint Silk 100 g/m2 P.O. Box P.O. BOX 309 Cover stock: Chromocard 220 g/m2 Stora Enso AB Stora Enso Oyj Interim Review Q2 J A N U A R Y J U N E Stora Enso in brief Stora Enso is an integrated paper, packaging and forest products company, producing publication and fine paper, packaging board and wood products all areas in which the Group is a global market leader. Stora Enso s sales totalled EUR 13.2 billion in The Group has some employees in more than 40 countries on five continents. Stora Enso has an annual production capacity of 16.9 million tonnes of paper and board and 7.7 million cubic metres of sawn wood products, including 3.3 million cubic metres of valueadded products. Stora Enso s shares are listed in Helsinki, Stockholm and New York.

2 Key figures EUR million Q1 Q2/05 5) Q1 Q2/06 Q2/05 5) Q1/06 Q2/06 Sales EBITDA 1)2) Operating profit 2)4) Non-recurring items (operational) Operating margin 2)4), % Operating profit 4) Net financial items 6) Profit before tax and minority interests 2)4) Profit before tax and minority interests 4) Net profit for the period 4) EPS 2), Basic, EUR EPS, Basic, EUR CEPS 2)3), EUR ROCE 2), % ) EBITDA = Earnings before Interest, Taxes, Depreciation and Amortisation 2) Excluding net non-recurring items. Exceptional transactions that are not related to normal business operations are accounted for as non-recurring items. The most common non-recurring items are capital gains, additional write-downs, restructuring provisions and penalties. Non-recurring items are normally specified individually if they exceed one cent per share. 3) CEPS = (Net profit for the period + depreciation and amortisation)/average number of shares 4) The comparative figures exclude goodwill amortisation of EUR 90.3 million for ) The impact of the 7-week labour dispute in Finland in 2005 distorts comparison of the year-on-year figures 6) See separate table Net Financial Items on page 3 Operating profit by quarter EUR million II/04 III/04 IV/04 I/05 II/05 III/05 IV/05 I/06 II/06 Comparatives excluding amortisation excluding non-recurring items Earnings per Share (EPS) by Quarter EUR ,0 II/04 III/04 IV/04 I/05 II/05 III/05 IV/05 I/06 II/06 excluding non-recurring items Debt/Equity II/04 III/04 IV/04 I/05 II/05 III/05 IV/05 I/06 II/06 Target 0.8

3 INTERIM REVIEW SECOND QUARTER RESULTS 2006 Stora Enso Interim Review January June 2006 Sales and operating profit broadly unchanged from first to second quarter Sales and operating profit in the second quarter were broadly unchanged from the first quarter, and cash flow after investing activities improved considerably. The Group s profit improvement programme, Profit 2007, is proceeding ahead of schedule. Demand for most of the Group s products was somewhat softer than in the previous quarter. Summary of Second Quarter Results (compared with Q1/2006) Sales were EUR (EUR ) million. Operating profit was EUR (EUR 194.1) million excluding non-recurring items. Profit before tax was EUR 53.2 (EUR 210.9) million excluding non-recurring items; the difference is due mainly to unrealised fair valuation items (non-cash) in net financial items (negative EUR 71.9 million in the second quarter vs. positive EUR 32.8 million in the first quarter). Earnings per share were EUR 0.05 (EUR 0.20) excluding non-recurring items. Cash earnings per share were EUR 0.39 (EUR 0.54) excluding non-recurring items. Cash flow after investing activities increased to EUR (EUR 120.9) million.

4 INTERIM REVIEW SECOND QUARTER RESULTS 2006 Markets In Europe market demand in most of the Group s products was stronger than a year ago, driven by economic growth and rising advertising and direct marketing expenditure, although somewhat weaker than in the previous quarter. Market demand for newsprint was healthy in Europe and stronger than a year ago and in the previous quarter. Demand for uncoated magazine paper was considerably stronger than last year, but coated magazine paper demand stagnated, partly due to substitution by uncoated magazine paper grades. Market demand was weaker than in the previous quarter in all magazine paper grades. Publication paper prices were similar to the previous quarter and higher than a year ago, especially in newsprint. Demand in the European fine paper market was stronger than a year ago but weaker than in the previous quarter. Uncoated fine paper prices firmed up slightly during the quarter, whereas coated fine paper prices remained stable. Market demand for packaging boards remained unchanged from the previous quarter and was higher than a year ago. Some price increases were implemented, primarily in industrial packaging boards. Market demand for wood products was satisfactory. Constrained supply due to tight raw material availability firmed up the market and enabled some price increases in sawn goods. In North America market demand for all publication paper grades was weaker than a year earlier but virtually unchanged on the previous quarter. Newsprint prices were higher than a year ago and marginally higher than in the first quarter. Magazine paper prices were similar to a year ago and also the previous quarter. Market demand for coated fine paper in the second quarter was higher than a year ago and similar to the previous quarter. Prices rose slightly during the period. In Asia demand for coated fine paper was stronger than in the first quarter and prices were stable. Stora Enso Deliveries and Inventories Paper and board deliveries totalled tonnes, which is tonnes less than the previous quarter s tonnes. Production decreased by tonnes from the previous quarter s tonnes to tonnes due to divestment of Grycksbo Mill, maintenance stoppages, a slowing in orders, especially in coated magazine paper, and the illegal strike at the Finnish Mills. Paper and board inventories decreased by tonnes in the second quarter. Deliveries of wood products totalled m 3, which was m 3 more than the previous quarter s m 3. Wood product inventories decreased by m 3 in the second quarter. January June 2006 Results (compared with the same period in 2005) The impact of the 7-week labour dispute in Finland in 2005 distorts comparison of the year-on-year figures. Sales at EUR million were 14.1% higher than in the first half of 2005, mainly due to the impact of the Schneidersöhne acquisition, increased prices, especially in newsprint, and increased deliveries in Fine Paper and Packaging Boards. Operating profit excluding non-recurring items increased by EUR million to EUR million and was higher in all segments, although the impact of the labour dispute in Finland in 2005 distorts the comparison. The standstill at Port Hawkesbury Mill in Canada burdened operating profit by approximately EUR 30 million of potential lost profit. The mill remains at a standstill until a new energy agreement has been reached, despite the approval of the new labour contract. In general, the price increases achieved since the start of the year have broadly offset cost increases, so the improvement in profit for the first six months in 2006 is largely due to the impact of the Profit 2007 programme (adjusted by approximately EUR 150 million for the impact of the 2005 labour dispute). Profit before taxes and minority interests excluding nonrecurring items increased by EUR million to EUR million, and earnings per share excluding non-recurring items increased by EUR 0.18 to EUR Earnings per share including non-recurring items were EUR 0.33 (EUR 0.06). Second Quarter Results (compared with Q1/2006) Sales at EUR million were similar to the previous quarter s EUR million. Deliveries decreased in Fine Paper due to the sale of Grycksbo Mill, and were unchanged in Publication Paper and Packaging Boards. Operating profit excluding non-recurring items decreased by 6.1% to EUR (EUR 194.1) million, which is 5.0% of sales. The main reasons for the decrease in profitability were a slight reduction in deliveries, especially in coated magazine paper, the illegal strike at the Finnish mills in May (EUR -9 million impact) and slightly higher maintenance-related stoppages. Operating profit decreased in all product segments except in Wood Products. The standstill at Port Hawkesbury Mill in Canada continued and approximately EUR 15 million of potential profit was lost in the quarter. The mill remains at a standstill until a new energy agreement has been reached, despite the approval of the new labour contract. Weakening of the US dollar did not have any material impact on Group operating profit. 2 STORA ENSO INTERIM REVIEW Q2/2006

5 INTERIM REVIEW SECOND QUARTER RESULTS 2006 Operating profit includes a positive non-cash effect of EUR 17.6 million from the fair valuation of share-based compensation. It is reported under other operations. There were two unrelated non-recurring items with a net impact of EUR 6.7 million on operating profit: EUR million related to the signing of the agreement to divest Pankakoski Mill in Finland as part of the previously announced Asset Performance Review and EUR 17.7 million due to changes in Stora Enso s Finnish unemployment insurance provisions. The divestment of Celbi Mill is expected to be completed during the third quarter. The share of associated company results amounted to EUR 20.2 (EUR 31.6) million; the main contribution was from the forest-holding associates in Sweden and Finland. Net Financial Items EUR million Q2/2005 Q1/2006 Q2/2006 Interest income, deposits Interest expenses, borrowings Interest rate swaps (incl. TRS interest) Capitalised interest Net Interest Expense Foreign Exchange Gains and Losses Other Financial Items, of which Capital gains, listed shares Unrealised fair valuation of option hedges (TRS) Unrealised fair valuation of other financial items Other items Net Financial Items Total Stora Enso utilises Total Return Swaps (TRS) to partially hedge the exposure to changes in the share price of synthetic options granted under the option programmes for Management, which are settled with cash payments. While these TRS instruments allow the Group to partially stabilise the future cash flows related to the settlement of outstanding synthetic options, they expose the Group to certain market risks. The TRS instruments do not qualify for hedge accounting; therefore periodic changes to their fair value are recorded in the income statement. Net financial items were EUR (positive EUR including a non-recurring capital gain of EUR million) million. Net interest increased to EUR (EUR -44.2) million. The increase was mainly due to the higher interest rates in the net debt portfolio (EUR 4.0 million impact) and the interest rate swap income of EUR 8.6 million in the previous quarter related to the hedges for the employee option programmes (Total Return Swaps, TRS ). Net foreign exchange losses on borrowings, currency derivatives and bank accounts were EUR 11.1 (EUR 7.0) million. Other financial items decreased to EUR million (positive EUR million including a non-recurring capital gain of EUR million), mainly due to EUR (positive EUR 32.8) million of unrealised changes in fair values of financial instruments, including TRS. The change in TRS fair value is closely related to the price of Stora Enso R shares. This and other unrealised fair value changes are non-cash items. Profit before tax amounted to EUR 53.2 (EUR 210.9) million excluding non-recurring items; the difference is due mainly to unrealised fair valuation items (non-cash) in net financial items (negative EUR 71.9 million in the second quarter vs. positive EUR 32.8 million in first quarter). Net taxes totalled EUR (EUR -91.3) million, leaving a net profit for the quarter of EUR 40.9 (EUR 226.4) million. The cumulative tax-rate for the first six months was 29.2%. The profit attributable to minority shareholders was EUR 2.3 (EUR 1.4) million, leaving a profit of EUR 38.6 million attributable to Company shareholders. Earnings per share were EUR 0.05 (EUR 0.20) excluding nonrecurring items. Earnings per share including non-recurring items were EUR 0.05 (EUR 0.29). Cash earnings per share were EUR 0.39 (EUR 0.54) excluding non-recurring items. Earnings per share were impacted by EUR due to the non-cash fair valuations, of which EUR 0.02 came from the fair valuation of share-based compensation and EUR from unrealised changes in fair values of financial instruments. The return on capital employed was 6.1% (6.5%) excluding non-recurring items. Capital employed was EUR million on 30 June 2006, a net decrease of EUR million. Capital employed decreased mainly due to low capital expenditure, translation differences and the sale of Grycksbo Mill. Operating working capital was unchanged. STORA ENSO INTERIM REVIEW Q2/2006 3

6 INTERIM REVIEW SECOND QUARTER RESULTS 2006 Capital Structure EUR million 31 Dec Jun Mar Jun 06 Fixed assets Operative working capital Long-term interest-free items, net Operating Capital Total Net tax liabilities Capital Employed Associated companies Total Shareholders equity Minority interests Net interest-bearing liabilities Financing Total Financing Cash flow from operations was EUR (EUR 288.6) million and cash flow after investing activities EUR (EUR 120.9) million. At the end of the period, interest-bearing net liabilities were EUR million, a decrease of EUR million due to strong cash flow and translation differences. Unutilised credit facilities and cash and cash-equivalent reserves totalled EUR 2.0 billion. Shareholders equity amounted to EUR million or EUR 9.55 (EUR 9.51) per share, compared with the market capitalisation on the Helsinki Stock Exchange on 30 June 2006 of EUR 8.6 billion. The debt/equity ratio at 30 June 2006 was 0.65 (0.68). The currency effect on equity was EUR -3.1 million net of the hedging of equity translation risks. Cash Flow EUR million 2005 Q2/05 Q1/06 Q2/06 Operating profit Adjustments Change in working capital Cash Flow from Operations Capital Expenditure Cash Flow after Investing Activities Capital Expenditure for the first half of 2006 Capital expenditure for the first half of 2006 totalled EUR million. The Group maintains its capital expenditure target for 2006 of EUR 800 million, which would be less than depreciation for the year that is estimated at approximately EUR 1.1 billion. The main projects during the first six months were the new boiler at Hylte Mill (EUR 19.8 million), the Skoghall Energy 2005 project (EUR 17.2 million), the completion of the new paper machine 12 at Kvarnsveden Mill (EUR 16.0 million), the plantation project at Guangxi, China (EUR 13.0 million) and rebuilding paper machine 64 at Whiting Mill (EUR 10.8 million). Second Quarter Events April Stora Enso s subsidiary Corenso United Oy Ltd signed an agreement with Foshan Huaxin Packaging Co., Ltd. to purchase the assets of its core manufacturing plant in Nanhai, Foshan in Guangdong Province. Corenso will relocate the production to a new core manufacturing plant with an annual capacity of tonnes in Sanshui, Foshan, which will start production in The transaction was completed during the second quarter of STORA ENSO INTERIM REVIEW Q2/2006

7 INTERIM REVIEW SECOND QUARTER RESULTS 2006 Stora Enso signed an agreement with Shandong Huatai Paper to form an equity joint-venture company in publication paper. The total investment is estimated to be approximately USD 100 million (EUR 83 million) of which Stora Enso s share is 60%. The joint venture s paper machine at Dongying in Shandong Province, with a planned annual capacity of up to tonnes, is expected to start up in late 2007, subject to the issuing of permits. Its output will be suitable for the growing SC paper market in China. Inspections by Competition Authorities In May 2004 Stora Enso was the subject of inspections carried out by the European Commission and the Finnish Competition Authority at locations in Europe and received subpoenas issued by the US Department of Justice as part of preliminary anti-trust investigations into the paper industry in Europe and the USA. Coincident with these investigations, Stora Enso has been named in a number of class action lawsuits filed in the USA. Stora Enso offered to sell for cash additional notes due 2016 that are fully fungible with the new notes offered in the Exchange Offer launched in March The maturity of the USD additional 10-year notes, which pay a coupon of 6.404%, is 15 April The additional notes and the new notes have an aggregate principal amount of USD The Group also offered to sell for cash 30-year notes in a separate tranche. This 30-year issue was upsized from USD to USD due to strong demand. The maturity of these notes, which pay a coupon of 7.250%, is 15 April May There was a two-day illegal strike by the Finnish Paper Workers Union throughout the Finnish paper industry in protest against personnel reductions. All Stora Enso s Finnish pulp, paper and board mills except Pankakoski Mill were shut down due to the strike, which cost Stora Enso about EUR 9 million in lost operating profit, including shutting down and starting up, and some tonnes of lost production. Stora Enso decided to build its third corrugated packaging plant in Russia, at Lukhovitsy, some 130 km southeast of Moscow. The annual production capacity of the plant, which will employ some 175 people, will be 150 million m 2 of corrugated board. The capital expenditure is estimated at EUR 54 million. Construction of the plant will begin in September 2006, with production starting up in the first quarter of June Stora Enso signed an agreement to sell Celulose Beira Industrial (Celbi) SA, its main asset being Celbi Pulp Mill in Portugal, to Altri, a Portuguese company with steel, pulp and paper operations. The sales price of Celbi s equity is EUR 428 million and the company has no debt. The Group will record a capital gain of approximately EUR 170 million on completion of the sale. The transaction is expected to be completed in the third quarter of Stora Enso signed a new loan agreement with International Finance Corporation (IFC) increasing its loan facility to USD 300 million. The loan will be used to finance Stora Enso s current operations and future investments in China. Following the 2004 inspections, on 5 April 2006 Stora Enso received from the Finnish Competition Authority a request for a response concerning alleged price collaboration and exchange of information between forest companies in connection with the purchasing of timber in Finland from 1997 to Stora Enso has investigated the matter and gave its response by 22 June 2006 as requested. No provision has been made in Stora Enso s accounting for the above-mentioned investigations and lawsuits. Share Capital The Annual General Meeting (AGM) of Stora Enso Oyj on 21 March 2006 authorised the Board to repurchase and dispose of not more than A shares and R shares in the Company. There were no repurchases during the second quarter. During the quarter a total of 401 A shares were converted into R shares. The latest conversion was recorded in the Finnish Trade Register on 15 June During the quarter the Company allocated repurchased R shares under the terms of the Stora Enso North America Option Plan. On 30 June 2006 Stora Enso had A shares and R shares in issue, of which the Company held no A shares and R shares with a nominal value of EUR 1.6 million. The holding represents 0.12% of the Company s share capital and 0.04% of the voting rights. Events after the Period On 21 July Stora Enso signed an agreement to sell its Pankakoski Mill in Finland to an international group of investors led by Dr Dermot Smurfit and including Lansdowne Capital Limited. The debt-free sales price is EUR 20 million, subject to closing date adjustments, and the Group s interest-bearing net liabilities will decrease by the same amount. The Group has recorded a capital loss of EUR 11.0 million as a provision in its second quarter 2006 results. STORA ENSO INTERIM REVIEW Q2/2006 5

8 INTERIM REVIEW SECOND QUARTER RESULTS 2006 Profit 2007 and Asset Performance Review (APR) Programmes Stora Enso s Profit 2007 profit improvement programme is proceeding ahead of schedule and the target of an improvement of EUR 300 million in annual pre-tax profit from mid 2007 onwards is expected to be exceeded. The APR process is proceeding according to plan and the mills placed under scrutiny are being evaluated with reference to their financial performance and strategic fit within the Group. Decisions about the future of the mills under scrutiny will be announced no later than in conjunction with the third quarter results. Near-term Outlook In Europe the gradually improving economic conditions and advertising expenditure are expected to support the publication paper market in a positive way. Good market demand for fine paper is anticipated in the third quarter. The market for packaging boards is expected to remain stable. In wood products the outlook for the construction and joinery industries, the main market segments, remains stable in all major markets except the USA, where a slowdown in housing starts is predicted. The general price outlook is stable. Price increases have been announced in Europe for uncoated fine paper and in North America for coated fine paper reels. Some further price increases for sawn goods are forecast. Whilst the outlook for the Group s products is generally positive, the trend towards higher energy prices and interest rates, and concerns over recent geopolitical events may create a more unpredictable operating environment for the Group going forward. Port Hawkesbury Mill in Canada is expected to remain at a standstill until the Group reaches a new agreement with the local energy company. This report is unaudited. Helsinki, 26 July 2006 Stora Enso Oyj Board of Directors In North America modest market demand is anticipated in newsprint and coated magazine paper. The market for uncoated magazine paper is forecast to improve somewhat in the third quarter. The coated fine paper market is expected to remain good. 6 STORA ENSO INTERIM REVIEW Q2/2006

9 INTERIM REVIEW SEGMENTS Publication Paper EUR million 2005 Q1/05 Q2/05 Q3/05 Q4/05 Q1/06 Q2/06 Change % Q2/Q1 Sales Operating profit* % of sales ROOC, %** Deliveries, t Production, t * Excluding non-recurring items and goodwill amortisation ** ROOC = 100% x Operating profit/operating capital Publication paper sales were EUR million, down 2% on the previous quarter due to the weaker US dollar and lower coated magazine paper sales. Operating profit was EUR 55.3 million, down 21% on the previous quarter mainly due to unfavourable currency trends, the illegal strike in Finland and somewhat greater maintenance during the quarter. Profits continued to be burdened by the ongoing standstill at Port Hawkesbury Mill in Canada. The mill remains at a standstill until a new energy agreement has been reached, despite the approval of the new labour contract. In Europe demand for uncoated magazine paper was considerably stronger than a year ago, whereas demand for newsprint was slightly stronger and demand for coated magazine paper more or less unchanged. Market demand was stronger than in the previous quarter in newsprint but weaker in all magazine paper grades. Producer inventories increased; customer inventories were low. Prices were higher than a year ago, especially in newsprint, but similar to the previous quarter in all grades. In North America market demand for all publication paper grades was weaker than a year earlier but virtually unchanged on the previous quarter. Uncoated magazine paper suffered from supply shortages. Inventories were stable. Prices were higher than a year ago in newsprint, but unchanged in uncoated and coated magazine paper. Prices for all publication paper grades were similar to the previous quarter. Fine Paper EUR million 2005 Q1/05 Q2/05 Q3/05 Q4/05 Q1/06 Q2/06 Change % Q2/Q1 Sales Operating profit* % of sales ROOC, %** Deliveries, t Production, t * Excluding non-recurring items and goodwill amortisation ** ROOC = 100% x Operating profit/operating capital Fine paper sales were EUR million, down 5% on the previous quarter due to the sale of Grycksbo Mill in Sweden. Operating profit was EUR 46.3 million, down 12% on the previous quarter due to maintenance standstills and the illegal strike in Finland. Inventories were normal. Coated fine paper prices increased slightly. In Asia demand for coated fine paper was stronger than in the first quarter and prices were stable. Demand in the European fine paper market was stronger than a year ago but weaker than in the previous quarter. Stora Enso s shipments were lower than in the first quarter following the Grycksbo Mill divestment. Uncoated fine paper prices increased slightly, whereas coated fine paper prices were stable. Inventories were normal at the end of the quarter. In North America demand for coated fine paper was good. The Group s deliveries outpaced the market growth in North America. Market demand during the second quarter was similar to the previous quarter and stronger than a year earlier. Merchants Sales were EUR million, down 9% on the previous quarter mainly due to seasonally lower volumes. Operating profit was EUR 2.9 million, down 70% on the previous quarter due to lower volumes and margins, start-up costs in new countries and some further restructuring costs from the ongoing programme. Integration of the recent acquisitions is on track and the expected synergies are being achieved. STORA ENSO INTERIM REVIEW Q2/2006 7

10 INTERIM REVIEW SEGMENTS Packaging Boards EUR million 2005 Q1/05 Q2/05 Q3/05 Q4/05 Q1/06 Q2/06 Change % Q2/Q1 Sales Operating profit* % of sales ROOC, %** Deliveries, t Production, t * Excluding non-recurring items and goodwill amortisation ** ROOC = 100% x Operating profit/operating capital Packaging board sales were EUR million, up slightly on the previous quarter due to higher sales volumes. Operating profit was EUR 70.8 million, down 29% on the previous quarter mainly due to lower production volumes, higher fixed costs and the illegal strike in Finland. Market demand was unchanged on the previous quarter and higher than a year ago. Some price increases were implemented, mainly in industrial packaging boards and US dollar markets. Wood Products EUR million 2005 Q1/05 Q2/05 Q3/05 Q4/05 Q1/06 Q2/06 Change % Q2/Q1 Sales Operating profit* n/m % of sales ROOC, %** Deliveries, m * Excluding non-recurring items and goodwill amortisation **ROOC = 100% x Operating profit/operating capital Wood product sales were EUR million, up 16% on the previous quarter due to the seasonal variation in production and invoicing volumes. Operating profit was EUR 14.9 million, up EUR 11.1 million on the previous quarter mainly due to cost savings and higher sales prices that compensated for higher raw material costs. Demand was satisfactory in Europe, Asia, North Africa and the Middle East due to seasonal strength in building activity. Reduced raw material supplies allowed producers to increase prices. In Japan the seasonal surge in construction kept demand and prices stable or rising, but continuing currency weakness offset some of the price increases. In the USA prices decreased as housing starts declined. Wood Supply Deliveries to the Group s mills in Finland, Sweden, the Baltic States, Russia and Continental Europe totalled 10.4 million m 3, down 3% on the previous quarter mainly due the illegal strike at the Finnish mills in May and seasonal factors at Nordic mills. Short-fibre stocks remained stable. Coniferous pulpwood stocks decreased, but improvements in market supplies in Finland and Sweden are encouraging. Wood supply improved slightly in Continental Europe, but remained tight in Estonia. 8 STORA ENSO INTERIM REVIEW Q2/2006

11 INTERIM REVIEW FINANCIALS Key Ratios Q1/05 Q2/05 Q3/05 Q4/ Q1/06 Q2/06 Earnings per share (basic), EUR Earnings per share excl. non-recurring items, EUR Cash earnings per share (CEPS), EUR CEPS excl. non-recurring items, EUR Return on capital employed (ROCE), % ROCE excl. non-recurring items, % Return on equity (ROE), % Debt/equity ratio Equity per share, EUR Equity ratio, % Operating profit, % of sales Operating profit excl. non-recurring items, % of sales Capital expenditure, EUR million Capital expenditure, % of sales Capital employed, EUR million Interest-bearing net liabilities, EUR million Average number of employees Average number of shares (million) periodic cumulative cumulative, diluted Key Exchange Rates for the Euro One Euro is Closing Rate Average Rate 31 Dec Jun Dec Jun 06 SEK USD GBP CAD Condensed Consolidated Income Statement EUR million 2005 Q1 Q2/2005 Q1 Q2/2006 Sales Other operating income Materials and services Freight and sales commissions Personnel expenses Other operating expenses Depreciation and impairment Operating Profit Share of results of associated companies Net financial items Profit before Tax Income tax Net Profit for the Period Attributable to: Company shareholders Minority interests Key Ratios Basic earnings per share. EUR Diluted earnings per share. EUR STORA ENSO INTERIM REVIEW Q2/2006 9

12 INTERIM REVIEW FINANCIALS Condensed Consolidated Cash Flow Statement EUR million 2005 Q1 Q2/2005 Q1 Q2/2006 Cash Flow from Operating Activities Operating profit Adjustments Change in net working capital Change in short-term interest-bearing receivables Cash Flow Generated by Operations Net financial items Income taxes paid Net Cash Provided by Operating Activities Cash Flow from Investing Activities Acquisitions of Group companies Acquisitions of associated companies Proceeds from sale of fixed assets and shares Capital expenditure Proceeds from the long-term receivables. net Net Cash Used in Investing Activities Cash Flow from Financing Activities Change in long-term liabilities Change in short-term borrowings Dividends paid Minority dividends Option exercised Purchase of own shares Net Cash Used in Financing Activities Net Increase in Cash and Cash Equivalents Cash and bank in acquired companies Cash and bank in sold companies Translation differences on cash holdings Cash and bank at the beginning of period Cash and Cash Equivalents at Period End STORA ENSO INTERIM REVIEW Q2/2006

13 INTERIM REVIEW FINANCIALS Condensed Consolidated Balance Sheet EUR million 31 Dec Jun Jun 06 Assets Fixed and Other Long-term Assets Fixed assets O Biological assets O Emission rights O Investment in associated companies Listed securities I Unlisted shares O Non-current loan receivables I Deferred tax assets T Other non-current assets O Current Assets Inventories O Tax receivables T Operative receivables O Interest-bearing receivables I Cash and cash equivalents I Total Assets Shareholders Equity and Liabilities Shareholders equity Minority interests Total Equity Long-term Liabilities Pension provisions O Other provisions O Deferred tax liabilities T Long-term debt I Long-term operative liabilities O Current Liabilities Current portion of long-term debt I Interest-bearing liabilities I Operative liabilities O Tax liabilities T Total Liabilities Total Shareholders Equity and Liabilities Items designated with O are included in operating capital. Items designated with I are included in interest-bearing net liabilities. Items designated with T are included in the tax liability. STORA ENSO INTERIM REVIEW Q2/

14 INTERIM REVIEW FINANCIALS Statement of Changes in Shareholders Equity EUR million Share Capital Share Premium Treasury Shares OCI CTA Retained Earnings Total Balance at 1 January 2004 (restated) Repurchase of Stora Enso Oyj shares Cancellation of Stora Enso Oyj shares Dividend (EUR 0.45 per share) Options exercised Net profit for the period OCI entries Translation adjustment Balance at 31 December Restatement of opening balance Effect of adopting IFRS Balance at 1 January 2005 (restated) Repurchase of Stora Enso Oyj shares Cancellation of Stora Enso Oyj shares Dividend (EUR 0.45 per share) Buy-out of minority interests Net profit for the period OCI entries Translation adjustment Balance at 31 December Cancellation of Stora Enso Oyj shares Dividend (EUR 0.45 per share) Options exercised Net profit for the period OCI entries Translation adjustment Balance at 30 June CTA = Cumulative Translation Adjustment OCI = Other Comprehensive Income 12 STORA ENSO INTERIM REVIEW Q2/2006

15 INTERIM REVIEW FINANCIALS Property, Plant and Equipment, Intangible Assets and Goodwill EUR million 2005 Q1 Q2/2005 Q1 Q2/2006 Carrying value at 1 January Acquisition of subsidiary companies Additions Additions in biological assets, IAS Change in emission rights Disposals Depreciation, amortisation and impairment Translation difference and other Balance Sheet Total Acquisitions of Subsidiary Companies Cash and cash equivalents Working capital Operating fixed assets Interest-bearing assets Tax liabilities Interest-bearing liabilities Non-cash share exchange Minority interests Fair value of net assets Goodwill Total Purchase Consideration Borrowings EUR million 2005 Q1 Q2/2005 Q1 Q2/2006 Non-current borrowings Current borrowings Carrying value at 1 January Debt acquired with new subsidiaries Debt disposed with sold subsidiaries Proceeds from / payments of borrowings (net) Translation difference and other Total Borrowings STORA ENSO INTERIM REVIEW Q2/

16 INTERIM REVIEW FINANCIALS Commitments and Contingencies EUR million 31 Dec Jun Jun 06 On Own Behalf Pledges given Mortgages On Behalf of Associated Companies Mortgages Guarantees On Behalf of Others Guarantees Other Commitments, Own Leasing commitments, in next 12 months Leasing commitments, after next 12 months Pension liabilities Other commitments Total Pledges given Mortgages Guarantees Leasing commitments Pension liabilities Other commitments Total Net Fair Values of Derivative Financial Instruments EUR million 31 Dec Jun Jun 06 Net Fair Values Net Fair Values Positive Fair Values Negative Fair Values Net Fair Values Interest rate swaps Interest rate options Cross-currency swaps Forward contracts FX options Commodity contracts Equity swaps Total STORA ENSO INTERIM REVIEW Q2/2006

17 INTERIM REVIEW FINANCIALS Nominal Values of Derivative Financial Instruments EUR million 31 Dec Jun Jun 06 Interest Rate Derivatives Interest rate swaps Maturity under 1 year Maturity 2 5 years Maturity 6 10 years Interest rate options Total Foreign Exchange Derivatives Cross-currency swap agreements Forward contracts FX Options Total Commodity Derivatives Commodity contracts Total Equity swaps Equity swaps Total Sales by Segment EUR million Q1/05 Q2/05 Q3/05 Q4/ Q1/06 Q2/06 Publication Paper Fine Paper Merchants Packaging Boards Wood Products Wood Supply Other Total Sales Operating Profit by Segment excluding Non-recurring Items EUR million Q1/05 Q2/05 Q3/05 Q4/ Q1/06 Q2/06 Publication Paper Fine Paper Merchants Packaging Boards Wood Products Wood Supply Other Operating Profit excl. Non-recurring Items Non-recurring items Operating Profit (IFRS) Net financial items Associated companies Profit before Tax and Minority Interests Income tax expense Net Profit STORA ENSO INTERIM REVIEW Q2/

18 INTERIM REVIEW FINANCIALS Non-recurring Items by Segment EUR million Q1/05 Q2/05 Q3/05 Q4/ Q1/06 Q2/06 Publication Paper Fine Paper Merchants Packaging Boards Wood Products Wood Supply Other Total Non-recurring Items Operating Profit by Segment EUR million Q1/05 Q2/05 Q3/05 Q4/ Q1/06 Q2/06 Publication Paper Fine Paper Merchants Packaging Boards Wood Products Wood Supply Other Operating Profit Net financial items Associated companies Profit before Tax and Minority Interests Income tax expense Net Profit Stora Enso Shares Closing Price Helsinki, EUR Stockholm, SEK New York, USD A share R share A share R share ADRs April May June Trading Volume Helsinki Stockholm New York A share R share A share R share ADRs April May June Total STORA ENSO INTERIM REVIEW Q2/2006

19 CONTACTS Kari Vainio Executive Vice President, Corporate Communications Tel Fax Stora Enso International Office, 9 South Street, London W1K 2XA, UK kari.vainio@storaenso.com Keith B Russell Senior Vice President, Investor Relations Tel Fax Stora Enso International Office, 9 South Street, London W1K 2XA, UK keith.russell@storaenso.com Ulla Paajanen-Sainio Vice President, Investor Relations and Financial Communications Tel Fax Stora Enso Oyj, P.O. Box 309, FI Helsinki, Finland ulla.paajanen-sainio@storaenso.com PUBLICATION DATES FOR FINANCIAL INFORMATION Interim Review for January September October 2006 Results for February 2007 Interim Review for January March April 2007 Interim Review for January June July 2007 Interim Review for January September October 2007 ANNUAL GENERAL MEETING 29 March 2007 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 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.

20 SE Stockholm, Sweden Stora Enso International Office FI Helsinki, Finland Visiting address: World Trade Center, 9 South Street Visiting address: Kanavaranta 1 Klarabergsviadukten 70 London W1K 2XA, UK Tel Tel Tel Fax Fax Fax corporate.communications@storaenso.com Text stock: TerraPrint Silk 100 g/m2 P.O. Box P.O. BOX 309 Cover stock: Chromocard 220 g/m2 Stora Enso AB Stora Enso Oyj Interim Review Q2 J A N U A R Y J U N E Stora Enso in brief Stora Enso is an integrated paper, packaging and forest products company, producing publication and fine paper, packaging board and wood products all areas in which the Group is a global market leader. Stora Enso s sales totalled EUR 13.2 billion in The Group has some employees in more than 40 countries on five continents. Stora Enso has an annual production capacity of 16.9 million tonnes of paper and board and 7.7 million cubic metres of sawn wood products, including 3.3 million cubic metres of valueadded products. Stora Enso s shares are listed in Helsinki, Stockholm and New York.