VOLUME 3 PEOPLE AND Rethink PURPOSE Stora Enso 2012

Insert Stora Enso Facts & Figures 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d

VOLUME 3 PEOPLE AND Rethink PURPOSE

Editorial Another year forward, another lesson learned 5 Phenomenon Packaging white gold 8 Phenomenon Yum – worms! 10 Certified Column Having a heart and Purpose helps 11 News 12 Strategy On a journey into the future 17

A land of opportunity 20 Rethink your growth 36 excellence. TERENDY PAULINA Phenomenon Wind of change 37 Rubbish revolution 38 This annual report has been printed on LumiArt and LumiSilk art printing papers. The Lumi product family is developed Rubbish revolution Shared home life 44 for applications that require exceptionally high quality in text printing and image reproduction. In the art print Poland’s recycling rate is one of the lowest in EU, as it has no effective waste-processing chain. This business, Lumi translates into excellence in all languages. A dream job close to home 48 will change in 2013. 38 The Asian ambassador 53 The Lumi products have been awarded with the EU Ecolabel – the most prominent environmental accolade in Europe. Corrugated board folds into design 56 (FSC®) Charming vintage catalogues 59 Scheme’s (PEFC™) environmental accolades, which have already been awarded to Lumi. The Lumi products are Live on paper 62 rethinking the business in terms of sustainability and quality. Under the Arab sun 64 Transforming Stora Enso 68

Rewind Safety first 71 Phenomenon A delicious symbiosis 72 Rewind Awake 74 Insert Stora Enso Facts & Figures 2012 KAAPO KAMU KAAPO A dream job close to home Uruguay’s shortage of engineers has made the

VOLUME 3 On the cover: Mrs Mengzhilan, a farmer from pulp and paper industry an appealing work choice PEOPLE AND Rethink PURPOSE Stora Enso 2012 Tong Hua village, Nanning District, Guangxi, China also for women. 48

Mrs. Mengzhilan’s everyday life is about family and farming. She grows rice, vegetables, corn and chicken in Tong Hua village, located next to eucalyptus

VESA LAITINEN VESA tree plantations where Stora Enso sources wood. The Company has established a project in the village that provides microloans for pig farming and helps chicken farmers with logistics. “I give my chicken rice and grains, and they walk around the village to find insects and other food from nature. When they are ready, I call Stora Enso and they take my chickens to the town to be sold.”

Image from the SILVIO BUTALJA STORA ENSO RETHINK 2012 Stora Enso Oyj P.O. Box 309, FI-00101 Helsinki, Finland Editor-in-chief Lauri Peltola Visiting address Kanavaranta 1, tel. +358 2046 131 LUMI PHOTOGRAPHIC Sub-editor Jenita Sillanpää Stora Enso AB Box 70395, SE-107 24 Stockholm, Sweden Under the Arab sun ART AWARDS Editorial staff Hanne Karrinaho, Sanna Lahti, Edit Lyyra, Laura Visiting address World Trade Center, Mattila, Jonas Nordlund, Eerika Olkinuora, Heli Pessala, Niina Klarabergsviadukten 70, tel. +46 1046 46000 How is business done in the Middle East and North by honorary award winner Streng, Eeva Taimisto, Mari-Anne Tamminen Africa, a unique market with urgent reconstruction Wawi Navarroza Concept & design Miltton Oy storaenso.com, Printing Erweko Oy [email protected] needs? 64 From the series “Dominion” Insert Stora Enso Facts & Figures 2012 Stora Enso—3 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Editorial Another year forward, another lesson learned

Dear reader, investments, now essentially finished and very well executed, were Skoghall woodyard (Sweden) his is now the third year of our Rethink and Ostrołęka’s (Poland) new containerboard T magazine and my editorial again addresses machine. With these two, it is now about getting a similar theme. Years go by quickly but it seems them running flawlessly and securing the returns that the challenges in doing business haven’t we defined in the investment plans. changed a lot during the last few years. The world certainly did not become an easier place or the Biomaterials Business Area, with its This is not waste. to do business in 2012, not for us nor for our F pulp mill construction in Montes del Plata, customers. Unlike the 2008 financial crisis the Uruguay the total return was approximately 6%,

JENNI-JUSTIINA NIEMI JENNI-JUSTIINA challenge was not a rapid or dramatic change and for the existing asset base approximately to the environment, but a reality where visibility 10%. The mill is in its final months of construction, Jouko Karvinen forward was, and still is, limited. In Europe, where and is on target to get to start-up in mid 2013. We This is new packaging. CEO a significant majority of our business lies, this are convinced that Montes del Plata will join the may be even more true than elsewhere. same value creating world-class asset portfolio When an ordinary juice carton enters our Barcelona Mill, it starts a new life as valuable packaging material. Even the aluminium as our existing joint venture Veracel in Brazil. inside the juice cartons is recycled and reused. Pyrolysis, the process used to separate aluminium from cartons, creates so t is against this reality, which can be expected much energy that the mill is able to run on its own. I to continue for a considerable period, that we t is clear that there is definitely a good reason European households create over 60 million tonnes of packaging waste every year. What if all packaging was renewable? as Stora Enso need to complete our transforma- I to invest in and develop the two Business Stora Enso wants to redesign the future with renewable packaging. Find out more at rethinkstoraenso.com tion into a value-creating global renewable Areas of Biomaterials and Renewable Packaging, materials company. You can read about our especially when our goal is that this investment strategic journey in this magazine. For Stora will further enhance the returns once fully up and Enso, this transformation is not just verbiage running. or a pretty vision, but true action moving us towards being the company we want to be. he Printing and Reading Business Area This transformation is based on a few large T continued to be a solid cash engine in 2012. individual investments in growth markets, and This was no easy task in a market that structur- financed through solid cash generation in existing ally shrank 4 to 6%, before cyclical impacts, businesses. for the sixth year in a row. On the positive side, we are sure that this is a team that spends no ne living proof point for our strategy is the time speculating about the tough environment: O lead story in this magazine, which tells they are used to it and excel at operating in it. about the major investments we have been There have been multiple new capacity, cost and working on. We announced in March 2012 that productivity programmes announced in 2012 we are building a pulp mill and a consumer board with relatively short payback times, which are not mill next to our eucalyptus plantations in Guangxi, only very necessary but also prove that we can Southern China. This 1.6 billion euro industrial keep this cash engine in strong health for years investment by the Renewable Packaging to come. Business Area, is probably the largest that a Scandinavian company has ever made abroad. he Building and Living Business Area is a So far it has not been an easy journey to China T story of its own. After previous significant but we will overcome these challenges and have capacity and cost programmes in the period By being a principle sponsor of the FIS Nordic the mills running effectively in the coming years. from 2007 through 2009, it faced a rapidly World Ski Championships 2015, we will play our weakening performance in the second half of part in making it a successful and responsible event. uilding on this investment, and even within 2012. The positive excitement around the growing B the relatively tough operating environment, value-added Building Solutions and Components Renewable Packaging had a clear value-creating businesses, were overshadowed by a weak basic operational return on operating capital in 2012 saw milling business in both the Nordic region of approximately 12%. Two other significant and in continental Europe. We will not say that Beyond Skiing 2015 is a network of companies and organisations 4—Rethinksupporting the World Ski Championships in Falun, Sweden. FOUNDATION Stora Enso—5 More information at beyondskiing2015.com WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d waiting for the cycle will fix this, but rather look evolution of our company values. If our strategy to find further ways to reduce costs, improve is the path to our long-term goal, then our values productivity and the supply chain. As in paper, we must be the lights that guide us on that path. need to solve our problems, not wait for others These values must be the same for all of us in to do it for us. This is critical even beyond the Stora Enso, irrespective of where we operate, present cash generation phase, as we will need and should also mean that we set our objectives very competitive saw milling in order to grow the higher than the local rules and traditions may selected higher value-add areas. require. We have to be prepared to stand by these values, even when it means giving up a an we still continue on the path of never business opportunity when it conflicts with them. C ending cost and productivity improvements? That is the only way we can bring communities Yes we can, as the multiple announcements forward – and that is what it really takes – to do during 2012 showed. The task we have now is to good for the people and the planet. accelerate these improvements in an environment where the basics have already been done. Not tora Enso’s values must be something our easy, but possible and highly necessary. S people can remember, relate to, and test their actions against. In short, the new values are

n our never ending task of improving Stora “Lead” and “Do what’s right”. The underlying

N

O T

Enso, with very little tail wind, one does begin thought on “Lead” is not only better leadership T

I L

I to wonder “why do we do all this?” Why do we but a desire to be a part of making the world a M all work so hard, then have to make plans and better place, not only for our generation, but for decisions that lead to mill closures and job those of the future. A thought which we in the losses? Why do we enter new countries and privileged Western world may have forgotten, regions where our traditions and experiences are something we should relearn from the great ”Do good for put to tough tests every day? Is it only to make people we meet in growth markets is that we the people and money and create value for our owners? Clearly should change the world, not wait for the world to creating value for our shareholders is what we change us. the planet.” do, but as individuals we must have a deeper purpose, a purpose that touches all our stake- o what’s right” is a different thought. It is holders, including those who own shares. This “D something we want to think about every may be the most important lesson of the year. day, testing every decision we make against it. From the CEO to your closest colleagues. It is efining our Purpose was a fundamental something we are proud to discuss within the D dialogue for Stora Enso in 2012. Through company but also with any and every stakeholder. Defining our Purpose was a fundamental this dialogue we agreed that our purpose is to “Do good for the people and the planet”. Simple, e believe our Purpose will drive us to do dialogue for Stora Enso in 2012. down to earth, based on our actions and totally W the most difficult things in a better, more inclusive. When all of our colleagues begin to inclusive way. Over time we have to change the think and feel that this is also their Purpose, it will way we provide support and new opportunities become a true daily benchmark for everything we to our people in areas where shrinking consumer et me finish with yet another lesson from true dialogue on why we need to transform do. We fully understand this will be challenged demand will continue to lead to less jobs. We L 2012. We asked, in a new way, all of our when it may mean that one part of the as the company continues to streamline and cut strongly believe our purpose will help us in new employees to share their feelings on working organisation needs to grow rapidly and others will costs, but that is fine. That must be what drives investment areas to become a more inclusive for Stora Enso. We even used the same tough continue to become smaller? This is especially us to be a better, more inclusive company. You partner, a partner that not only brings value to the metric, called Net Promoter Score, that we use important for the generation of our colleagues can read later in this magazine about how our community but can even share that value with in our customer loyalty programme, to measure who have already worked for the company for Purpose was formed. Several stories show the others, and most importantly, share new value how our people see us as a company, as an some time at all levels – from offices to mill new Purpose in practice including care housing creation. employer and as managers and leaders. As you floors. And we also learned that we need to listen for the disabled built from our cross-laminated would guess, the response was mixed. Overall it and talk more, and maybe email less, as our timber modules, making sure that sandworms he progress we have made, for example seems our people are very clear on the expecta- community also told us we need a significant remain a local delicacy in the Beihai area, and T in Veracel, to base a significant extent of tions for their work, the vast majority say they improvement in the dialogue between managers encouraging Poland to recycle paper and our wood supply on tree farming, instead of see their manager behaving the same way they and their people. That is how we must continue cardboard. Our Purpose is visible here and it only wood from land owned by us, is a good ask their teams to act. Accountability, focus and to build Stora Enso into a more inclusive should show in everything we do. early example of this direction. In China, with determination were all positive signals. However, community. the first ever fully FSC and locally certified we have a lot to improve too. We are too much s a part of this dialogue on our Purpose we plantation base, and a set of social and relocation managers, too little people leaders. We get so hank you for being a part of our journey in A also decided to renew our values to create programmes, we are absolutely determined to focussed on making good on our short-term T 2012 – and most importantly welcome to our something very simple, yet concrete. In our make this project a true demonstration of “Do commitments that we forget to have a real continued journey in 2013, another year of new journey of renewal we saw a great need for the good for the people and the planet”. dialogue about our strategy. How can we have a learning.

6—Rethink Stora Enso—7 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Phenomenon

Packaging white gold

ver 63 million cows and buffaloes graze almost a fifth of the workforce, but there is the valleys of Pakistan, making them one still huge growth potential. Currently, Pakistan O of the planet’s largest herds. The country cannot export milk because the yield only covers is among the five largest milk producing countries domestic needs. globally. The animals are not just a way of making Estimates suggest that if Pakistan were to a living, but are also a status symbol for farmers improve its milk yield by 15%, it would displace due to their value. They are seen as four-legged New Zealand as the world’s largest exporter of insurance policies for hard times. milk. Stora Enso is helping Pakistan’s farmers Pakistan’s dairy industry is fragmented, make the most of their white gold. In September with most farmers owning three or four cows or 2012 the company announced an agreement to buffaloes which usually live alongside their mud establish a joint venture with Pakistani Packages and brick homes. The livestock sector makes Ltd. that will provide clean and safe liquid carton up over 10% of Pakistan’s GDP and employs packaging for this fast-growing dairy market.

GETTY IMAGES

8—Rethink Stora Enso—9 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Phenomenon Column restructure, and potentially end up laying people Having a heart off? What should one do, when somewhere down the supply chain you sense that human rights are Yum – worms! and Purpose helps not being respected? How do you react when people claim that eucalyptus plantations threaten Sipunculus nudus, a marine worm also known then cooked, steamed, fried or dried. Steamed or many of us it’s difficult to answer questions natural diversity? There is no automatically right as peanut worm, is commonly found on subtidal worms are usually served with garlic and noodles. F like “What’s your dream?” or “What’s the answer to any of those questions. Laying people zones of sandy shores in temperate or tropical Fried worms are seasoned with sugar. purpose of going to work every day?” There off may save the jobs of others. Turning your waters. The worm typically hides in sand Collecting these sandworms is an important are so many inadequate answers to questions back on violation of human rights down in the burrows that it makes itself. Its diet consists of source of income in the villages located in like this that it’s easier to simply avoid dealing supply chain by discontinuing the business in plant or animal tissue fragments it finds in the the coastal area of Beihai where Stora Enso’s with these issues altogether: it makes life a lot question may be worse for people than staying surrounding sand. forthcoming consumer board and pulp mill will easier. For many of us, listening to our company and monitoring the supply chain in an attempt The worm is a common delicacy in Beihai, be located. The worm is sensitive to toxic and Pathfinders team and their experiences from to improve their lives. Eucalyptus plantations act Guangxi, in Southern China, where it is called sea pollution, so it is essential that the industries other global companies – for instance, looking at as a great carbon sink, enabling the planet to Běihǎi shāchóng (北海沙虫, literally “Beihai close to the Southern China Sea take care of their Indian conglomerate Mahindra & Mahindra and breathe.

sandworm”). The worm is collected, gutted and emissions. KANKAANPÄÄ SUVI-TUULI their purpose “enable people to rise” – made us rethink. Instead of having a company vision and istening to stakeholders’ views on controver- Lauri Peltola mission that one can barely remember, wouldn’t it L sial questions is the privilege and obligation of Executive Vice be great if our company had a common purpose all global companies. “Doing good for the people President, Global uniting all employees together: something that and the planet” is not a simple task, and listening Identity everybody could be proud of and relate to? to different opinions and angles enables us to do what’s right. Often you truly need to lead in order hese kinds of thoughts were circulating to live up to this purpose: you need to be the first T among colleagues in February 2012. one on a path never walked before. Stopping along During the spring we started discussing Stora the way to listen to your stakeholders – even those Enso’s mission, vision, values and purpose. The with the most critical outlook – puts things into discussion really got going and pretty soon, with perspective and helps to find the best solution. It is support from the Pathfinders, we had the first rarely perfect, but when you feel you have worked Purpose suggestions for the Group Executive hard, listened to different parties and reached the Team to look at. It took a lot of discussion, best possible result, you are there. involving different people from several parts of the organisation, deep engagement and modifi- t’s funny that in a modern corporate world you cations; all in all half a year had passed before we I need your heart as much as your head. For were ready to launch the new company Purpose: decades, companies have increasingly been “Do good for the people and the planet”. Having looking at short-term quarterly performance. This also boiled down our values into two new ones – is definitely important in order to have a financial “Do what’s right” and “Lead” – and maintaining platform on which to do good for the people and “rethink” as our engine for change, I think we now the planet, but it has also led us to put distance have a short, sharp and clear articulation of what between the company and the communities Stora Enso is all about. The mission and vision surrounding it. To be successful in the longer are now gone, the Purpose is here to stay. term, you need to have a license to operate; you need to be accepted and welcomed by the he biggest sin many companies are guilty of surrounding communities and other stakeholders. T with their mission, vision and values, is that That also strengthens and secures the company’s often they are too beautiful. In fact, they can be ability to maximise financial performance. Some so long and carefully worded that nobody can people say that’s the next phase of capitalism: remember them and they end up being a mere bringing societies and business back together. sugar coating without any real connection to strategy or daily operations. Our goal is to secure t is only with the heart one can see rightly; a tight relationship between our Purpose, values, “I what is essential is invisible to the eye.” company strategy and our daily work. Making This quote, from French author Antoine de this possible requires strong commitment from Saint-Exupéry’s novella The Little Prince, is one everyone, at all levels of the organisation. of my favourite maxims. To live our Purpose, we need to be at the forefront, bringing societies aving a bold Purpose also means facing and business together. Doing so may be a bit H difficult choices. How can you claim to easier if we keep Saint-Exupéry’s lesson in mind. be doing good for the people when you have Sometimes opening your heart is also, in the end, to safeguard company financial performance, the smartest thing to do financially. VESA LAITINEN

10—Rethink Stora Enso—11 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d News News

Montes del Plata nears start-up

One of the world’s most modern and largest pulp mills, Montes del Plata, will start its yearly production amounting to 1.3 million tonnes mid-year 2013. The busiest times at the construc- SKANSKA tion site were experienced in late 2012, with a An ode to affordable peak of over 6 000 workers at the site. The project is behind its original schedule housing with start-up initially planned for the end of first Is it possible to find owner-occupied housing in quarter 2013. This is mainly due to delays in some Greater Helsinki at a reasonable cost? It is now, parts of the civil works and the large number of thanks to the arrival in 2013 of 36 moderately labour disputes that are connected to the very priced BoKlok flats in the Kivistö area of strong construction union in Uruguay. Vantaa. The flats will be built with prefabricated, The whole project team is working efficiently wood-based housing modules supplied by Stora to catch up to ensure that the mill will start Enso. supplying sustainable, high quality eucalyptus “The idea behind the BoKlok concept pulp to our customers in the second half of 2013. is to create a better living environment that The main markets for this pulp will be in Europe combines high quality and appealing design with and Asia. reasonable living costs. The modular technology Montes del Plata is a joint-venture pulp mill developed in co-operation with Stora Enso that Stora Enso is building together with its

STORA ENSO considerably shortens construction time at the Chilean partner, Arauco. work site. This, together with the manufacturing 97% concept, is reflected in the construction costs of waste was reused across Prize-winning seedling took and in the final prices of the flats,” says Riku Stora Enso KAAPO KAMU Patokoski, Project Development Manager with Viktor from Sweden to Brazil the construction company Skanska. in 2012. Modular housing construction reduces A valuable brand In 2012, Stora Enso in Sweden launched a seedling competition for Swedish construction time by up to 50–70% compared Pharmaceuticals are Tambrite takes university students. The student to grow the tallest spruce in three months with traditional element construction. The among the products would win a trip to Brazil. modules, made with cross-laminated timber packaged in Tambrite the top ranking 23-year old Viktor Solid managed to grow his seedling up to 57 cm and (CLT) and other Stora Enso wood products, cartonboard. became the winner of the competition. His prize trip included visits to Stora are built from start to finish indoors, and so are Tambrite packaging board, produced in Stora Enso’s operations, Rio de Janeiro and even a humpback-whale-watching trip. not exposed to moisture or variable weather Enso Ingerois Mill in Finland, has been named “It has been a unique experience. I have seen things one doesn’t normally conditions at any stage of construction. the most acknowledged virgin fibre cartonboard come across as a tourist. I’ve met a lot of Stora Enso people in Brazil and BoKlok is a low-rise apartment building product brand among converters in Central learnt more about the company and its strategic direction, like biomaterials. concept for affordable living that was pioneered European markets. Tambrite’s ranking was Finishing off the trip in Rio de Janeiro was fantastic. This city has everything: by Skanska and Ikea. The concept includes a revealed by the Cartonboard Brand Tracking the beaches, atmosphere and wonderful views,” says computer science semi-enclosed courtyard, an area for horticulture, Survey 2012 made by the research agency student Viktor Solid. and a shared sauna for the occupants in the yard. Opticom International Research AB. The survey The first BoKlok homes were built in Sweden in ranks the most valuable brands based on “Brand 1997, and so far roughly 5 000 BoKlok homes have Equity Index” (BEI). … and Brazilian students get to travel to Sweden been sold across the country. Construction work Opticom also surveyed the views of European The Sweden–Brazil Scholarship Challenge 2013 was launched in autumn on seven BoKlok low-rise buildings will start up in brand owners. In the brand owner survey 2012 for Brazilian engineering students and young professionals. The two Vantaa in April 2013, and the first occupants will Tambrite got the highest BEI score and was first prize winners will be awarded a scholarship for two prestigious Swedish be able to move in before the end of the year. perceived as the most valuable virgin fibre carton universities (Chalmers and Linköping) including a paid innovation internship board brand in pharmaceutical, healthcare, and with Stora Enso and Saab (summer 2014). skanska.fi/boklok frozen and chilled food segments. STORA ENSO

12—Rethink Stora Enso—13 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d News News News

Recreating cosmetics Stora Enso supports packaging work with children A carton for liquid packaging that doesn’t wrinkle Stora Enso supports local authorities, teachers when squeezed? Not a utopian dream, but a real and others in the municipalities of Porto Seguro, proposition: one of the winners of the Recreate Eunapolis and Santa Cruz Cabralia in Brazil to Packaging competition. The “One Eighty” package, recognise and handle possible child abuse. The designed by Juho Johannes Kruskopf, Arttu World Childhood Foundation will start a training Kuisma and Nikolo Kerimov, students at Finland’s programme in the major cities near Stora Enso’s Lahti Institute of Design, could be used for joint-venture pulp mill Veracel in 2013. shampoos, oils and other products. The World Childhood Foundation focuses The material of the pre-creased “One Eighty” on the most urgent problems of each country

is based on a triangular pattern that controls the it works within. In Brazil, the organisation aims STORA ENSO carton’s behaviour, making it possible to alter its at combating child abuse and exploitation. The A bio-based coating innovation shape without causing unpleasant wrinkles. The problems affecting Porto Seguro and Santa Cruz structure is flexible but rigid, and its triangular shape Cabralia are related to tourism, while problems in Stora Enso Renewable Packaging has launched the CKB® packaging board allows the package to be emptied easily. Eunapolis have their cause mainly in poverty. with a polyethylene coating made from renewable raw materials. Polyethylene The Recreate Packaging competition was organised The World Childhood Foundation funds local is the most widely-used coating type used extensively as a humidity or in 2012 by Stora Enso and Aalto University, Finland. projects and works globally for children’s right grease barrier on packaging board. The Green PE used for coating the CKB® This international design contest was intended to to a safe and happy childhood. Founded by Her board is manufactured using sugar cane as a raw material. challenge conventions about renewable materials in Majesty Queen Silvia of Sweden in 1999, the The CKB® packaging board is produced in Stora Enso Skoghall Mill in the packaging of cosmetics and increase their usage. organisation supports around 100 projects in 16 Sweden, and the first user of the new material is the Norwegian fish and countries, focusing on prevention, intervention seafood company Domstein ASA. See all the winners: storaenso.com/recreate and education efforts. The main focus areas are “It is important for us at Domstein to find opportunities where we can help STORA ENSO to prevent mistreatment of children and help the consumer to make a choice which is good for the environment. We see child victims of abuse, families at risk, children in the product and the package as one unit and try to find new developments for Something new in Nuuksio alternative care and street children. both,” says Ulrica Wahlund, Sales Manager at Domstein. Metsähallitus’ modern Haltia nature centre, which showcases Finland’s unique natural features under one roof, is due to open in May 2013 at Nuuksio 32% National Park, just a 20-minute drive from Helsinki’s is how much Stora Enso city centre. Metsähallitus is a state enterprise that has reduced its CO

administers state-owned land and water areas in intensity from 2006 LumiForte 2 Finland. levels. The building, designed by architect Rainer – for maps and Mahlamäki and inspired by the Finnish national epic The Kalevala, is the first in Finland to be catalogues constructed entirely of cross-laminated timber (CLT) elements. Stora Enso’s CLT was used for When printing large volumes, as in the case of the centre’s supporting structures, and its exterior brochures, catalogues and marketing materials, is clad in eco-friendly and wear-resistant Q-Treat reliability and efficiency are especially important. wood products. Stora Enso’s patented, innovative The newest addition to the Lumi product family, Q-Treat is an environmentally friendly treatment LumiForte, serves the needs of large printing based on quartz sand and is the ideal choice for volumes well. exterior construction carried out on nature’s terms – LumiForte is a single-coated matt paper, even the National Park’s guidepost signs have been and its high bulk and stiffness give it a pleasant upgraded with natural Q-Treat materials. A great feel. This paper for daily use also has excellent complement to Nuuksio’s outdoor trails, the Haltia runnability and folding properties. LumiForte’s centre’s temporary exhibitions make it the perfect raw material comes from certified forests. venue for gaining insight into Finland’s wildlife and natural landscape.

haltia.com, storaenso.com/q-treat STORA ENSO STORA ENSO

14—Rethink Stora Enso—15 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Strategy

Pulp ships set sail My home is Ships carry plantation- based pulp from the Veracel Mill in South America even all the Growth where my heart is – way to Finland. engines in a CLT building. Cross-laminated timber (CLT) is a perfect construction material for both detached houses and high-rises – environmentally friendly and smart living with reasonable costs Cash but superior quality. engines storaenso.com/clt facebook.com/storaensolivingroom

On a journey into the future

Stora Enso is on a journey, trans- Present status. Stora Enso’s operations can be divided into cash engines and growth engines. In 2012, Stora Enso’s paper forming itself from a European pulp and mills, northern pulp mills and traditional sawmilling operations paper company into a value creating have been the cash engines, pushing business operations forward. renewable materials company focussing Investments are made in the most viable production units; on growth markets. Consumer needs the mills with the lowest logistical costs, the best operating environments and the lowest fixed and variable costs are are changing and Stora Enso wants to also the most likely to continue operating successfully in the meet this demand better than ever. future. Stora Enso acts responsibly in terms of mill closures and other structural changes taking place in the industry. The cash engines’ sustainability work highlights material efficiency, Text Sanna Lahti, Jenita Sillanpää innovative and responsible forestry practices, and the desire to Illustration Anton Yarkin be a pioneer in occupational safety.

16—Rethink Stora Enso—17 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d hen talking about Stora Enso in a few years’ time, no-one will use the words “forest industry company”. Biomaterials Stora Enso is undertaking a The volume of pulp journeyW of change, during which it will outgrow shipped from South its categorisation as a European forest company America to the rest of and be seen more as a company focussed on Brave new world the world will increase renewable materials. Stora Enso wants once the Montes del Consumer needs will be given in stricter to cut dependency Plata Mill commences focus in all operations. The consumption of on fossil-fuel-based production in paper will continue to decline in Europe, which raw materials and is mid-2013. is why Stora Enso will look for new opportunities working with other outside the old continent. The global population companies to achieve is estimated to exceed 7.5 billion by 2020. This this vital environ- huge growth will increase basic needs, bringing Future mental goal. about heightened demand for board for food packaging. Stora Enso already manufactures the packaging board for a third of all beverage cartons in the world, and has no intention of giving up this podium position in future. The Renewable Packaging Business Area, particularly its investments in China and acquisi- Building and Living tions in Pakistan, will fuel the company’s growth. Wood construction In both of these countries, Stora Enso will begin Growth will gain momentum producing consumer board for the growth and the investments markets. The growth of the Biomaterials Business engines made in Cross Area, in turn, has focussed on plantation-based Laminated Timber (CLT) pulp in Latin America. Once Montes del Plata’s production will start to pulp mill in Uruguay is up and running, larger and pay back. larger volumes of pulp will be shipped all over the world from South America. The Building and Living Business Area will Business ethics elevate wood construction to new heights. and human rights Building houses out of Cross Laminated Timber Stora Enso pays (CLT) is, for example, a practical answer where special attention to care facilities are lacking. CLT houses can be business ethics and completed in a matter of weeks, in contrast to the implementation to the usual multi-year construction of human rights. projects. Behind all business lies a Shared reality responsibility for the environment Continuous dialogue and people’s well-being. Stora and joint projects Enso listens to its stakeholders carried out together and works with them in tight-knit with its stakeholders Renewable co-operation. make Stora Enso a Packaging Cash valued co-operation Shifting consumer partner. engines needs will have the most significant Responsible use effect on the strategic of land and natural investment projects of resources the packaging business. Together with local Renewable Packaging people, Stora Enso will invest in countries promotes the diverse like China, Pakistan and and sustainable use Poland, to name a few. of land and natural resources.

18—Rethink Stora Enso—19 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d A land of opportunity

By the shores of the South China Sea, in China’s Guangxi province, what just may be the largest industrial investment in Nordic corporate history will soon take shape. Some 120 000 hectares of tree plantations will be grown here to provide pulp that will be used to produce 450 000 tonnes of liquid packaging board annually, to meet increasing demand from Chinese consumers. Stora Enso’s colossal undertaking has not been without its teething problems.

Guangxi Text Jenita Sillanpää, Eeva Taimisto China Photos Vesa Laitinen, Kaapo Kamu, Corbis, Shutterstock

20—Rethink Stora Enso—21 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d “I think I trust them more than Chinese brands,” Wu Haijun says, tugging the sleeve of his blue Lacoste jumper. The Chinese revere Western goods and lifestyles, according to Pia Polsa, the Finnish- born Dean of Shanghai’s Hult International Business School. “Admiration for the Western way of life is typical in all developing markets, but China’s domestic products are of such a high standard that the Chinese have no reason to look up to Western brands. Some pirated goods are so Shanghai well-made that even industry experts struggle to tell them apart from the real thing,” says Dr. Polsa, who has studied retailing in China. The Chinese themselves are well aware that many Western products are manufactured u Xinyi, 3, runs past a goldfish in Chinese factories.“The change has been bowl. She slips between a tremendous over the last few years, and it’s rare leather sofa and bookshelf, even for luxury products to be made anywhere before dashing past a else but in China today,” Polsa says. Samsung flat-screen TV and a Winnie-the-PoohW rocking chair onto the balcony. Then she turns, smiles, and takes off again. Shopping and sensibility Wu Haijun, 34, smiles at his daughter and A sudden bleeping noise disturbs us... and then gets back to showing us round the family’s home. again. Wu Xinyi is pressing the buttons on her This is the living room: flowery wallpaper, a plastic toy, and talking with her grandmother Xia maroon air-conditioning unit, a bunny sticker on Jinmei. the window. The bedroom is over here: a large, In the 1980s, when Wu Haijun and Cheng arched window, a double bed, and Wu Xinyi’s Weifei were children, Shanghai was quite small bed, complete with an Ikea duvet cover different: there were no shopping centres, people patterned with hearts. Wu Haijun also shows made their own clothing, and money was not the us his wife’s parents’ bedroom, the closet, the only thing you needed to buy goods. kitchen and the bathroom. If you wanted to buy a television, you had to “Four rooms and a kitchen,” he says before have a coupon. A new jacket? Coupon. A new sitting down on the sofa next to his wife, Cheng sofa? Coupon. Weifei, 31. “Our parents saved money because they were It’s Sunday afternoon in Shanghai. On never sure what the future might hold,” Wu Haijun Sundays the family often goes to the park and to says, making room for his daughter to climb onto Wu Haijun’s parents for dinner, and then maybe the sofa. for a stroll. “Nowadays we can also spend money on Or they might go shopping. things that are not absolute necessities. It largely Wu Haijun and Cheng Weifei are basically depends how much you want to buy,” he says. typical, well-to-do Shanghai residents. They Most of what they buy is for their daughter. studied at reputable universities, work hard in the Wu Xinyi loves books and drawing, but there is a banking sector, and try to spend as much family pile of other toys on the living room floor, too: a time together as they can. magnetic board, a plastic train, a plastic doctor’s If they want to go shopping, they have to go kit, a plastic toolset and jigsaw puzzles. during the weekend. But what would the family buy if money were Shopping is no problem. Not far from the no object? family’s home are several shopping centres Wu Haijun glances at his wife and says with a with clothing stores, restaurants, play areas for Wu Haijun’s family is interested wry smile: children, and food markets. It’s easy to spend in environmentally friendly “My wife’s top ten items would definitely hours in these malls. include a new handbag.” Cheng Weifei and Wu Haijun see quality as the products, as long as they are They both laugh. In reality, the family’s list is most important factor when making purchases. much more sensible: a larger flat, as they are Only then do they look at the price tag. Western not overpriced. expecting another child in the spring, and they brands often end up in their shopping cart. also need a car. “I’m not talking about a Ferrari.

22—Rethink Stora Enso—23 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d It’ll have to be big, so that there’s room for the whole family,” says Wu Haijun. And then they have to save for their children’s education. Competition for school places is tough in China, and finding a good school is “Changes in essential. Most children start piano and language lessons as young as three. “It’s very stressful for consumer behaviour both the children and the parents,” Wu Haijun says. illustrate what the “Parents have a strong say in the choices of Chinese nowadays Chinese children and young people,” explains Polsa. “It’s not unusual for parents to decide consider safe.” where their children will study – even when they are well into their twenties. Renowned Western universities are always the top school choices.” Wu Haijun smiles. “We also have to put something aside for health care. So we still have a lot of things to consider and save up for.” Consumer safety concerns Wu Xinyi has jumped off the sofa again, and is now peering out at her father from under her yellow umbrella and laughing. Wearing a white straw hat she prances from one end of the living room to the other, tilting the umbrella and revelling in the attention. She looks happy. Her mum and dad want her to be happy in future, too. That’s why they also place great importance on product safety when shopping, particularly at the grocery store. In 2008 China was rocked by a food scandal when toxic melamine was found in milk powder and other dairy products. Nearly 300 000 children fell ill and several died. This scandal radically changed consumer behaviour across the country. “I’m sure that the melamine tragedy has not been the only major food scandal in China in recent years. The Western media are simply not given access to such information. But changes in consumer behaviour illustrate what the Chinese today consider safe,” Polsa says. But how can Wu Haijun be confident that products on the store shelves are really safe? He simply can’t. “But this is why we trust well-known brands,” he says. Sometimes the family buys imported milk powder. Western food products also sell well “It’s rare even for in grocery stores. “I understand that people luxury products to are buying carefully screened Western food for safety reasons,” says Polsa. “But it’s a shame in be made anywhere terms of the Chinese economy that appreciation of home-grown food is suffering. You can get besides in China wonderful fresh eggs, vegetables and all kinds of things from local food markets. You just have to today.” use common sense when shopping.” Pia Polsa

24—Rethink Stora Enso—25 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d the chance to calculate, examine and consider the viability of the entire project, which has only strengthened our belief in it,” says Mannström.

Years of preparations Stora Enso’s early struggles in China can be at least partly attributed to lack of experience, as the company has never built anything on such a grand scale before. Stora Enso does already have paper mills in China: a fine paper mill in Suzhou, and a publication paper mill in Dawang. Beihai Suzhou was an existing Stora mill, and Dawang Mill uses a paper machine that was transferred from Maxau Mill in Germany. Stora Enso also has production and distributing units in China through the packaging company Inpac International as he grassy field is thick with mud. It well as two core factories. But this is the first time rained in the morning, and one false the company has started a mill project from an move on the uneven path will guarantee empty field in the land of the dragon. This time, T you muddy shoes. Here in Beihai, more they had the will to drive matters forward. than 2 000 kilometres southwest of Shanghai in “We’ve had to be stubborn and determined,” Guangxi Province, possibly the largest industrial Mannström admits. investment abroad by a Nordic company will Stora Enso did not set out for Guangxi on a soon take shape: an ultra-modern pulp and whim. The project dates back to the early 2000s, consumer packaging board mill whose machine when the company first explored opportunities lines will weigh thousands of tonnes. for setting up tree plantations in China. “At first Stora Enso’s road to Guangxi has not we just went there to look and learn – on a very been entirely smooth. It took a lot longer than small scale. Only later did we realise how much expected to obtain the necessary approvals potential China offered,” Mannström recalls. from the authorities. The company is currently “Our industry is highly dependent on raw awaiting final investment approval from the materials, and we knew that securing their supply central government of China for this super- would be of the utmost importance. The easiest complex, which will consist of a board machine way to do this is to control the raw material base with an annual capacity of 450 000 tonnes and ourselves,” he continues. a pulp mill producing 900 000 tonnes a year, It took several years, however, before as well as a power plant and other support scenarios were extended to involve growing tree functions. plantations. The idea of establishing a complete In Guangxi, Stora Enso is collaborating with production chain in Guangxi, from raw material the Guangxi Forestry Group, a state-owned to end product, was dreamed up in 2006. “First company operating under the Guangxi provincial you have wood, then a sawmill, then you make government. The project would be impossible pulp, and finally you make paper or board from without a local partner. “Due to Chinese the pulp,” summarises Mannström. “That is the regulation you must have a local business basic logic behind this industry, as has applied in partner for this type of project,” explains Markus Finland and Sweden for centuries.” Mannström, who heads the Guangxi mill project. In 2007, Stora Enso decided that the “Also, the legislation is constantly changing, company’s presence in Guangxi should go making it more complicated for foreign Stora Enso did not set out for beyond raw material sourcing. There were companies to establish a foothold in China,” two reasons behind this decision: firstly, adds Mannström. Guangxi on a whim. The project consumerism and customer behaviour Over the past two decades the industry dates back to the early 2000s, had changed; and secondly, demand for playing field has changed, and some local board-based food packaging was increasing. On people have begun to question the whole idea when the company first explored the other hand, Stora Enso’s major customers, of handing land and wood fibre over to foreign particularly those producing liquid packaging, companies. opportunities for setting up tree were already operating in China, so if Stora Enso The delays in the approval process have given did not want to lose its customers, the company Stora Enso time to learn more about investing in plantations in China. couldn’t just wait around for the competition to China. “It has not been simple, but we have had make a move.

26—Rethink Stora Enso—27 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d “Stora Enso today supplies a third of all the to the technically advanced product,” explains raw materials for the world’s liquid packaging Mats Nordlander, Executive Vice President for board. If we want to keep our position or get even Renewable Packaging at Stora Enso. This does not look like an industrial zone. bigger, we have to hit the growth markets – and “This is exactly why we have chosen to diffe- hard,” Mannström emphasises. rentiate ourselves through a range of specialised All is quiet, except for the sound of the sea breeze. The plans are for the Guangxi mill to world-class board products and end-to-end manufacture fibre-based liquid packaging board integration – providing the most cost-efficient for products such as milk cartons and fast-food solution for the Chinese market and at a globally drink cups. Demand for these products is competitive total cost,” Nordlander adds. expected to grow at an annual rate of ten per cent The total value of Stora Enso’s investment in in China over the next decade. Guangxi is roughly EUR 1.6 billion. This ambitious “Generating sustainable returns from any project earns its stripes by realising the strategy business requires a unique offering to the Markus Mannström of transforming Stora Enso into a renewable customers, be it product or process benefits, “We’ve had to materials company. in a cost-efficient way – or something that be stubborn and It takes more than two years to build a modern is very difficult for competitors to copy, like determined.” pulp mill. According to Stora Enso’s plans, a pulp integrating the operation from the plantations mill will be constructed in Guangxi first, followed by a board mill, which will be commissioned approximately three months after the pulp mill goes on stream. “This is a logical starting order, The project will have an employ- since you need pulp to make board. The smartest solution is to produce slightly more pulp than ment effect of some 30 000 new we’ll need for our board production, and then dry the surplus pulp and sell it on the market. Pulp jobs in Guangxi Province. mills function best when they’re run at maximum capacity,” Markus Mannström says. “Although global demand for paper is shrinking, there will always be a need for pulp. It will always be used as a raw material in various fibre-based products, whether it’s paper, board, or something else,” Mannström adds. New housing and an air of expectation We are back at the site where the foundations for the mills are waiting to be laid, in the “Many people remember in particular how Bringing in know-how Tieshangang Industrial Park in Beihai, near the villages were moved to make room for the Beijing shore of the South China Sea. This does not Olympics and the World Expo.” has its risks look like an industrial zone. The site’s asphalt “In a country with a population of 1.3 billion, Once the mill goes on stream, the wide, empty roads are empty, and the only buildings visible it’s hard to realise construction projects without asphalt roads in the industrial park will be busy are two apartment blocks in the distance. All is moving residential buildings,” Luo Yang points with lorries. There will be jobs in wood transporta- quiet, except for the sound of the sea breeze. out. The Chinese authorities ensure that relocated tion as well as at the mill. The mill itself will employ “Expectation is in the air,” says Luo Yang with a villagers receive financial compensation. some 700 people. But even more new jobs will be grin. He handles sustainability issues for Stora “Chinese people don’t necessarily see village created in wood harvesting. The United Nations Enso’s Guangxi mill project and is very familiar relocation as forced resettlement, which is how Development Programme (UNDP) estimates that with the venture. “Things will certainly change it often appears to Westerners. Most are pleased Stora Enso’s project will have a direct and indirect here once the construction of the mill begins,” he with the compensation they receive for moving,” employment effect of some 30 000 new jobs in says, gazing towards the horizon. Luo Yang says Polsa. Guangxi Province, an area the size of France. A lot has changed already. Following the “Stora Enso has “From the outset however, Stora Enso has “The project is important for Guangxi because authorities’ decision to turn the area into an insisted that more insisted that more must be done for the villagers,” it is one of the less developed regions in China, industrial zone for several major companies, the must be done for the Luo Yang says. “We have a comprehensive and primarily relies on agriculture and forestry,” villagers in the area had to be relocated. A total of villagers.” support programme for relocated villagers. We Markus Mannström says. 467 farming families used to live on what is now support training, small business development, “But China is today developing so rapidly that Stora Enso’s mill site. These families have moved and employment for the villagers by offering countless projects on this scale, or even larger, to Nanle village, about a kilometre from the site. financial support and information. Many of the are currently underway around the country.” “In China, it’s not unusual for villages to be villagers hope to have steady jobs when the mill The Chinese don’t believe that creating relocated,” Polsa says. construction starts up.” employment for tens of thousands of people is

28—Rethink Stora Enso—29 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d enough justification alone for starting up a mill land leased from the villagers, and located just project. outside of the village. “The Chinese place a lot of value on foreign “I talk with local people almost every day when “Revenue from land leasing is an important companies bringing their expertise into the I go and check on the plantations,” Chen says. country. One thing they particularly appreciate is “If we didn’t visit the villagers regularly, we source of income for the village.” the chance to learn about the latest technologies wouldn’t know what’s happening in the village, and leadership skills from Western companies,” and they wouldn’t know what Stora Enso is doing stresses Polsa, who has herself lived in Guangxi in the plantations. That could lead to misunder- Province. standings and conflicts. We have to tell local But bringing new technology or know-how residents in advance if, for example, we plan to into China is not without its risks for Western direct large lorries through the village.” companies. Over the years, there have been some “It’s not always prudent to ‘sacrifice’ special Chen Haiping conflicts. “Stora Enso first leased land in the expertise by bringing it to China,” Polsa says. “Back then we village of Nanshan in 2003,” Sun remembers, “The Chinese are fast learners, and will very likely weren’t engaging with steering his station wagon onto a dirt road take advantage of the situation. And then, before the villagers enough.” leading to the village. you know it, they are better at it than the original “Before 2009 we had some issues with the professionals.” villagers. They prohibited us from passing through “We are well aware that the Chinese have here. On a couple of occasions they blocked learnt how to cook pulp and make packaging roads to stop us driving to the plantations.” board,” says Mannström. “But Stora Enso Chen nods in agreement. “Back then, we wouldn’t dare enter the Chinese market if local weren’t engaging with the villagers enough. They companies had the same starting point. We know didn’t understand what we were doing here and that we are better at making the more demanding we didn’t understand their objections. But we board grades, but we have to make sure that were able to improve the situation gradually over we maintain our leading position in future, too. a few years just by talking with them.” The ability to produce board of consistently Sometimes it can be difficult to talk to villagers high quality is still a distant dream for many in practice. Guangxi is still home to minority newcomers to the field.” groups who speak several local dialects that even Chinese people cannot understand. Genuine dialogue on “You naturally create connections by trying to talk directly to people, but it’s very difficult if village issues you don’t know the local dialect,” Polsa explains. Wood for the mill complex will be harvested from “It can be next to impossible for a Western eucalyptus plantations around Guangxi Province: company to find someone who can manage in the Beihai area near the mill, and further north both the company’s business as well as the local in Yulin, Dongmen and Nanning. The mill will use language. In this context, Chinese companies wood grown in a total plantation area of approxi- have the upper hand in their own country.” mately 120 000 hectares. The majority of these lands are state-owned Land leasing as a source forest lands, which Stora Enso has leased. Less than one third of the total area consists of land Sun Daliang of income Moving forward “Half of the lands they leased directly from land contracts could be improved. The best collectively managed by local villagers; Stora “On a couple of Nanshan village is nestled in a valley, surrounded “One third of the the village, and the other half had already been thing would be if we could in future make all land Enso has leased those lands either directly occasions the by eucalyptus-clad hills. The land in the valley is villagers of Nanshan leased out by the village to local entrepreneurs, leasing agreements directly with Stora Enso. At from the villagers or from local businesses who villagers blocked used to grow rice, vegetables and peanuts. Oxen village have left to who then sub-leased it to Stora Enso.” Fan the moment intermediaries take too large share had already leased the land temporarily from roads to stop can be seen ploughing the fields. Chen and Sun find work elsewhere.” Huigang and Fan Shaolong nod in agreement. of Stora Enso’s lease payments, and the villagers the villagers before Stora Enso arrived on the us driving to the wave to greet the head of the village, Fan Xianlu, Fan Huigang and Fan “Revenue from land leasing is an important don’t get enough.” scene. The plantations in Beihai are mainly grown plantations.” who comes over for a chat. Chen and Fan light Shaolong still hope source of income for the village,” Fan Xianlu on village communities’ lands, located in the up cigarettes, and talk about the nice weather that the village will continues. “One third of the villagers have left immediate vicinity of the villages that have leased they’ve been having. In a nearby yard a woman is never be abandoned. to find work elsewhere; those who remain make Something concrete to show out the land. drying rice. She introduces herself as Zhu Anfang their living by farming.” Stora Enso’s relations with villagers have not One such plantation is in Gongguan, near the and asks if she can join us to sit in the shade. Zhu Anfang hopes that the village will never be improved everywhere as quickly as they have in village of Nanshan, where Stora Enso’s Social Also sitting in the yard are Fan Huigang and Fan abandoned. “I’ve lived here all my life, as we all Nanshan. The company still holds lands leased Engagement officers Chen Haiping and Sun Shaolong, the headmaster of the local village have. It’s a nice place to live – the air is better here from villages that are the subject of unresolved Daliang, who are responsible for contacts with school. Zhu offers everyone green tea. than in the city. It’s easier to breathe,” she says. disputes between the villagers and entrepreneurs villages, are headed. This plantation is typical “Stora Enso has been leasing land in this The head of the village Fan Xianlu sips his who had earlier leased the land from them, and of the areas rented by Stora Enso in Beihai: it village for many years now,” says Fan Xianlu, the tea. “Things are pretty straightforward with the then, in turn, leased it on to the company. In some consists of approximately 500 hectares of forest head of the village. people from Stora Enso,” he states. “But our cases, villagers believe lease agreements have

30—Rethink Stora Enso—31 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d been falsified, and they oppose Stora Enso’s disputed by villagers. Correcting contracts is, and 2009. The higher income from leased forest The association has co-operated with Stora Enso presence on their lands. however, a slow process, since all parties must lands has increased prosperity in Guangxi overall, by supporting poor children and students with The fairness of Stora Enso’s lease agreements approve of the new agreements. Where conflicts but also amplified differences between the limited means, and by teaching English in the has also been scrutinised in the European have arisen one party is usually a local interme- revenues that different villages can obtain from villages. The association’s activists know many of media. The leasing of land through intermediary diary entrepreneur. Over the years Stora Enso has their land leases. the villages in the Beihai area well, and they also entrepreneurs has been criticised for the reason also improved its land leasing process to ensure “It’s been hard to get people to believe that know what the villagers think of Stora Enso. that the company has no way of knowing whether that the company no longer leases any lands that we really do have an industrial project underway Xu Haiou, the association’s chairman, is the villagers are being treated fairly by the are predisposed to conflict. here, even though there’s still no sign of it,” also aware of the challenges the company is intermediaries. The 2011 documentary film Red Stora Enso’s land leasing practices in Guangxi Markus Mannström says. facing in Guangxi. “The villagers often have no Forest Hotel accused Stora Enso of entering into have also been examined in an environmental and “Many local residents think, ‘you’re here just idea what Stora Enso is,” she says. “Some think an alliance with local authorities who had taken social impact report on the company carried out for these forests – and you want to take our it’s a charity organisation, because it doesn’t villagers’ land by force. by the United Nations Development Programme trees’. The whole project will be easier to accept produce anything here yet, while others are Stora Enso has responded to these Fan Xianlu (UNDP). This report, published in 2012, looks Lv Lingli once we have something concrete to show very suspicious about the company. Stora Enso accusations by announcing that the company “The best thing would at the challenges related to leasing land in “Ordinary people them – when they see excavators digging the should clearly tell the local people what the is analysing the legality of all of its land lease be if we could in future South China, and issues recommendations for need to be included in foundations for the mill.” company does and what its values are. It is a new agreements and by admitting that mistakes were make all land-lease Stora Enso. It also highlights the importance of decision-making that company here, even though it has an 800-year made in the land leasing process. The company agreements directly engaging and co-operating with local villagers. affects them. And that An 800-year-old history in Europe. People need to hear about this. has also vowed to correct all land lease contracts with Stora Enso.” The report points out that the market rental rates means women, too.” Not many companies have been around since the that are legally unclear, as well as any that are for forest land in Guangxi doubled between 2004 newcomer time of the Yuan Dynasty.” Guangxi University has been studying the impacts of Stora Enso’s plantations on local villagers’ lives since 2011 in a study that will last over seven years. Professor Lv Lingli and her research team have compiled the relevant The leasing of land through intermediary entrepreneurs has socio-economic data from Beihai and other areas, especially focusing on villages where been criticised for the reason that the company has no way land lease conflicts have arisen. Lingli’s team of knowing whether the villagers are being treated fairly. has interviewed hundreds of villagers over the years, and analysed how their well-being can be promoted while Stora Enso carries out its business operations and leases land in the area. The professor sees both positives and negatives in relation to Stora Enso’s activities. “In general, the local residents have nothing against Xu Haiou Stora Enso. On the contrary, in fact: many people Nanning “The villagers often know that their villages have received a lot of think that Stora financial support from the company, to build Enso is a charity roads for example.” organisation, because In the professor’s opinion, however, the total ohnny Zhou, Stora Enso’s Sustainability it doesn’t produce amount of money pumped into the village is not in Manager for the Nanning region, knows it anything here yet.” itself the most important issue; such funds must will take hard work to make Stora Enso a also be distributed fairly. “The company should J household name in Guangxi. “Stora Enso change the way it approaches the villages. Stora means nothing in Chinese, so the company’s Enso needs to engage in more dialogues with name is hard for people to remember,” Zhou ordinary villagers, and not just with the heads explains. of villages. Ordinary people also need to be He suggests a visit to the village of Tong Hua included in decision-making that affects them. in central Guangxi – smack in the middle of an And that means women, too.” area of state-owned forests that Stora Enso has Professor Lingli sees participation as the key leased. “In Tong Hua, they are beginning to learn to resolving conflicts. “The villagers get nervous who we are,” Zhou says. “This is vital. Good if they don’t know the reasons why or how a relations with the villagers are important – not matter has been agreed on with Stora Enso, or least for business reasons, when you consider why some people get money for their projects how much raw material there is in the area and while others don’t. The voices of villagers must be how we must be capable of harvesting and heard as widely as possible.” transporting it in good co-operation with the local The Beihai Civil Volunteer Association, a population.” local non-governmental organisation, is also It takes one and half hours to get to Tong Hua familiar with Stora Enso’s work in the villages. from the centre of the nearest city, Nanning,

32—Rethink Stora Enso—33 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d along winding roads with countless pot-holes and a profit. “The issuing and repayment of loans muddy stretches. Johnny Zhou explains that this is carefully overseen, and every aspect of the Stora Enso has been testing two new projects in the village has become an important testing ground association’s work is made public,” he says. for Stora Enso’s corporate social responsibility So how much do such projects impact the village of Tong Hua: a microloan scheme for pig farmers work. “We have been testing two new projects lives of the villagers? “These projects are still and logistical support for chicken farmers. here: a microloan scheme for pig farmers and small-scale,” says Zhou. “So far, it’s early days for logistical support for chicken farmers.” the chicken and pig projects, and fewer than 20 Sustainability Manager Zhou explains that families have benefited, but we intend to double these projects are about Stora Enso and the this number soon. If these pilot projects succeed, villagers of Tong Hua carrying out mutually we can start thinking about how more such beneficial co-operation that is not based on projects could be introduced – in other villages donating money. “We started by thinking together as well.” Johnny Zhou about what’s important to the villagers, and what Zhou scratches his head reflectively, and “The most important Stora Enso could do,” he explains. then smiles. “I have an MBA degree, so naturally thing to keep in mind The first thing that came into Zhou’s mind was my first instincts are to consider what kinds of is what the villagers chickens. “There’s a lot of demand for free-range projects would offer the villagers the easiest and want to accomplish chickens in the city, because their meat is much largest profits. But really, the most important with Stora Enso – or better than that of caged chickens. In Tong Hua thing to keep in mind is what the villagers want whether they want they raise chickens that roam around freely. This to accomplish with Stora Enso – or whether they anything at all.” kind of farming is truly organic; the chickens eat want anything at all. It all depends what kinds of insects they find in their natural surroundings, and projects interest them. So that’s what we start Village life they are only fed pure grain. I thought to myself: talking about and thinking about, to see what we “It’s a lot of trouble what if we could take chickens with us in trucks can come up with together.” for farmers to leave when we go off to the plantations, and deliver There is a celebration today at Mrs for a whole day to them to markets in Nanning? This wouldn’t mean Mengzhilan’s home: a new pigsty built with the sell chickens to the any extra expense for us, but the villagers would help of a microloan has just been completed, and markets, which are be able to get better prices for their chickens the village pig farmers are coming for lunch. “We far away. While Stora in the city.” Zhou recalls that the villagers were have some excellent chicken soup here, made Enso transports my instantly keen on this simple idea. from chickens raised freely out in the fresh air. chickens, I can use The sun is shining in Tong Hua. Zhou parks his Please, have some!” she says. that time to do other car by the roadside, sending a flock of startled A few metres away a brown hen eyes her things,” says farmer chickens scuttling off into nearby bushes. The suspiciously, grabs a dragonfly in its beak, and Mrs Mengzhilan. fearful fowl belong to Mrs Mengzhilan, who disappears into the bushes. comes to greet Zhou. “Soon there will be more chickens ready to be picked up,” she says happily. Mrs Mengzhilan is pleased with the chicken delivery arrangement. “It’s a lot of trouble for farmers to leave for a whole day to sell chickens to the markets, which are far away. Now I can use that time to do other things, and also get a better price for my chickens,” she says. “I just call the people at Stora Enso when the chickens are ready to be taken, and they pick them up when they pass by.” The second project in Tong Hua, providing microloans for pig farming, was devised together with the villagers. “It’s very difficult for local people to get bank loans for their businesses,” explains Zhou. “So the villagers set up an association that would grant microloans, and Stora Enso provided the start-up capital. The association gives loans to villagers who need money to purchase and raise pigs.” According to Zhou, the interest on these microloans is only half as expensive as the rate on bank loans, and repayments are made by agreement once the pigs begin bringing in

34—Rethink Stora Enso—35 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Rethink your Phenomenon growth

Text Hanne Karrinaho Photo Zou Yiping

tora Enso gave me an opportunity – now we are offering one to you,” “S proclaimed Pentti Ilmasti, Director, Industrial Operations, when opening a student recruitment event at a university in Guangxi. During 2012, Stora Enso’s visually ambitious “Rethink your Growth” campaign toured universi- ties in China, attracting full houses at most venues. The aim of the campaign was to recruit 300 students and recent graduates to work in areas like engineering, forestry, production and Wind of change logistics at Beihai during the new mill’s construc- tion and once it’s up and running. The students Involving students The campaign was available on the Internet, How about receiving renewable energy from a were especially interested in employees’ stories Students can share where students could play a game online and renewable power plant? about working for Stora Enso, and about how their photos and join share it in Weibo (the Chinese equivalent of The world’s first modern wind turbine to the company is going to face the challenge of a game on Weibo, the Twitter). With almost 2 000 applications received have a wooden tower has been humming since decreasing paper consumption as people move Chinese version of and 450 candidates interviewed, the campaign December 2012 in Hannover, Germany. The towards reading the news on mobile devices. Twitter. was certainly a successful one. 100-metre-high TimberTower is constructed of The recruitment team learned that work-life nearly 500 cubic metres of cross-laminated timber balance, location, and benefits like health care Stand out of (CLT), half of which was provided by Stora Enso. and education are important for local students the crowd Global opportunities The power plant, with its 1.5 megawatt, when choosing their future employer. The Stora Enso’s own In addition to these students, Stora Enso will 100-tonne turbine, will provide renewable energy possibilities of training and working outside of employees posed for employ 1 200 people for the integrated plantation, for the use of some 1 000 households. China were also seen as attractive. the ads. pulp and board mill when the mill is up and “For many years, wood was the prevalent running. material in the construction of wind energy plants. “Many local people are interested in our project It wasn’t until the first half of the 20th century and would like to join us. Here we need to balance that steel began to replace wood,” says Director our commitment to social responsibility and the Holger Giebel from the German company competences we need for the mill,” says Yasmine TimberTower, which has been developing this Ding, Human Resources Director at Beihai. revolutionary tower concept since 2006. “When it comes to positions requiring “Wood offers several attractive advantages expertise in, for example, liquid packaging board, for wind power – dynamic loads, protection we may run into the difficulty of finding enough against corrosion, and sustainability. CLT is also suitable people from China. In cases like this we a cost-efficient material that is logistically easy to will need to look for people globally.” transport to the site. Whereas large tubular tower Lars Häggström, Head of Stora Enso’s Global segments require special arrangements bringing People and Organisation, finds the mill project additional costs, CLT elements can be delivered in Beihai a perfect opportunity for Stora Enso’s to the site on standard trucks.” personnel to do some job rotation, and gain And this is just the beginning – the next cross-cultural and project experience: “We must wooden tower, with a hub height of 140 metres, is tap into the expertise and talent we have among already in the pipeline. That’s what we call tackling our current employees, giving everyone the climate change! opportunity to apply for a new challenge. This is essential for everyone’s own development, and timbertower.de simultaneously it contributes to company value, especially now when we must find completely new ways of operating.”

growatstoraenso.cn TIMBERTOWER

36—Rethink Stora Enso—37 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d photo of a coniferous forest is projected onto the conference room wall. Rubbish revolution The ground is littered with rubbish: plastic wrappers, tin cans and food scraps. In Poland, nearly two million tonnes of valuable Waterlogged milk cartons recyclable raw material goes to waste every year. andA empty plastic bags lie amid the moss. “Some people who live around here throw their The country’s recycling rate is among the lowest rubbish in the forest,” says Stanisław Giżycki, an in Europe, as it has no effective waste-processing activist with the Polish environmental organisa- tion Ekomena. We are at the organisation’s office chain in place. This will all change in 2013. in the town of Ostrołęka, roughly 120 kilometres north of Warsaw. Ekomena activists campaign on Text Eeva Taimisto behalf of environmental protection in Poland and Photos Paulina Terendy, Ekomena collect rubbish from forests and other outdoor areas. “Some people pollute the environment with Ostrołęka their trash to avoid paying the waste-collection Poland fees,” Giżycki explains. “Others just don’t care.” Waste management in Poland is undergoing a major transformation during 2013, as the country will reform its entire waste-handling system by setting up a common waste tax, with which all municipalities will organise their waste management. The collection, processing, recycling and disposal of waste have, until now, been the responsibility of consumers and the private waste management companies they pay directly. “Now, Poland will use public funds to establish a waste management system,” says Giżycki. “Once we switch over to the municipal system, everyone will have to pay the waste tax.” The motivation behind the reform is Poland’s ambition to institute an effective recycling system in the country – one that meets European standards. In 2010, around 73% of all waste in Poland remained unsorted and unrecycled. The European Union has stepped in on numerous occasions to impose fines on the country and finally by setting the condition that in 2013 no more than half of biodegradable municipal waste can end up at the landfill. By 2020 at least 50% of paper, plastic, glass and metals contained in municipal waste must be sorted out and prepared for reuse or recycling. If Poland doesn’t come through on this condition, there will be further fines.

Random rubbish inspections The Mayor of Ostrołęka, Janusz Kotowski, is one of the officials responsible for setting up the new recycling system. “For the first time in Poland, this responsibility now lies entirely in the hands of the local authorities,” Kotowski says. “We need to use the revenue from waste tax to address this country’s waste-sorting issues.”

38—Rethink Stora Enso—39 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Municipalities and cities, Ostrołęka among lower tax rate haven’t been getting lazy about is important,” says Bartłoszewska. “Eco-friendly them, are building huge regional sorting centres sorting,” Kotowski says. lifestyles, such as biking, have become quite trendy.” where all materials and bio-waste will be sorted. According to the teachers, the roadblock This, of course, costs money. Overhauling Poland’s youth face when it comes to recycling “People have a hard time accepting new is the lack of infrastructure. “It is difficult to taxes and fees,” Kotowski tells us. But if the attitudes recycle when there are no collection bins in the municipalities don’t take action, the taxpayers will Ekomena expects that, with the introduction of yards for people to sort their rubbish into,” says be the ones footing the bill for the fines imposed the new tax, there will be no reason for people to Niewiarowska. “Having a green attitude won’t on Poland by the European Union. “We have discard their rubbish in the forest. Stanisław Giżycki make a difference if it’s not possible to recycle our work cut out for us trying to convince the hopes that Poles will also accelerate their recycling. most materials. There is simply no bin for the taxpayers why recycling is so important,” says “The generation gap is clearly evident in people’s waste.” Kotowski, referring to the job that lies ahead for attitudes. More than twenty years ago in Poland The rubbish-bin situation should improve during the authorities. Stanisław Giżycki Janusz Kotowski Ewa Niewiarowska Halina Bartłoszewska recycling was hardly discussed, and old habits the course of this year, as municipalities assume But money is actually one of the greatest “Some people pollute “People have a hard “Having a green “Eco-friendly lifestyles, are hard to change. But for many young people greater responsibility for recycling. The teachers arguments in support of recycling. “We will push the environment with time accepting new attitude won’t make such as biking, have recycling is a given. The same is probably true of wonder how long it will take the older generation to those who are not interested in environmental their trash to avoid taxes and fees.” a difference if it’s not become quite trendy.” other European countries,” Giżycki reckons. adapt to the new habits. matters to recycle by offering financial benefits,” paying the waste- possible to recycle The nearby European Union High School “The word recycling, recykling in Polish, is itself says Kotowski with a grin. collection fees.” most materials. There Number 3 in Ostrołęka offers environmental relatively new in our language,” says Niewiarowska. “Households that commit to sorting their is simply no bin for the education and organises recycling events. Biology “I’m sure that’s the case for other languages, rubbish will pay less waste tax.” waste.” teacher Ewa Niewiarowska and English teacher too. It’s understandable that not everyone has In Ostrołęka, recycling will also be controlled. Halina Bartłoszewska agree with Giżycki’s claim assimilated the concept yet.” “The city will provide households with different- concerning the environmental attitude of Poland’s “Globalisation influences attitudes,” explains coloured recycling bags to help them sort their youth. Bartłoszewska. “Poles who have spent time abroad waste, and we will carry out random inspections “Many young people are aware that the Earth’s and learned about European recycling habits are of the bags to make sure that those paying the natural resources are limited and that recycling more open to changing their own.”

Board and fibre Stora Enso’s collection In Poland, only 39% of board and paper station in Pruszków scrapes together is recycled: the lowest rate in the EU area. some 1 100 tonnes of recovered fibre a month.

40—Rethink Stora Enso—41 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Money going to waste centres, industrial areas and companies, which rubbish to some, but this raw material keeps huge have to think of the benefits – the benefits of a provide us with a lot of material in one go.” board machines in motion.” clean environment and the benefits that stem In Poland, only 39% of board and paper is Stora Enso has established its own collection The crown jewel of the Ostrołęka Mill, a new, from products made of recovered materials.” recycled: the lowest rate in the EU area. The system in Poland based on collection and sorting lightweight containerboard paper machine that Stora Enso has strived to raise environmental average recycling rate for board in the EU is 71%, stations the company set up around the country. went on stream in early 2013, runs exclusively on awareness by, among other things, participating and in those countries with the highest recycling The packaging material the company collects is recovered fibre. in Poland’s Woodstock Festival, which boasted efficiency, such as Germany, the figure can be as transported to those collection stations, where it is an audience of half a million people in 2012. Stora high as 77%. separated from waste material and baled. The final Functional products Enso produced a recycling bag for each attendee, Sorting benefits the national economy. raw material is then transported to Stora Enso’s and real benefits into which they collected paper and board Recyclable materials have resale value, especially mill in Ostrołęka and made into new products: rubbish from the festival venue and brought it if they can be reused in industrial processes. cardboard boxes and board packaging. Poland as a nation annually consumes 4 million to recycling points. The sorted waste from the There is strong demand for recycled paper “We have altogether 20 collection and sorting tonnes of paper and board, and only some 1.6 festival was then transported to the Ostrołęka Mill and board in global markets – even Chinese Michal Gawrych stations around the country,” says Jerzy Janowicz, Jerzy Janowicz million tonnes of that amount is recycled. The for board production. companies purchase recycled fibre from Europe. “We hope that Poland’s Mill Director of the Ostrołęka mill. “Our system is “True recycling means future potential of securing recovered fibre for “We hope that both consumers and decision- Though Poland has lacked an efficient new recycling system one of a kind in Poland.” more than just sorting.” industrial use is therefore tremendous. makers keep sight of what happens to board and board-recycling system for years, companies will also allow us to Gawrych and Janowicz are standing in the mill’s “We hope that Poland’s new recycling system paper after it is sorted for recycling,” Gawrych have become aware of the valuable truckloads incorporate household raw material yard, looking at the multi-coloured will also allow us to incorporate household board says. “We need to take the focus off just recycling of board being taken to landfill sites. “We have board waste into our bales of board waste. waste into our production,” Gawrych says. and start thinking about the entire life cycle of not just stood by and watched as money is being production.” “Stora Enso is not a waste-collection company,” Mill Director Jerzy Janowicz would like to see materials.” taken to the dumping ground,” says Michal says Janowicz, “but we can show the authorities a change in the public debate on recycling in the Janowicz nods in agreement. “True recycling Gawrych, Sales and Logistics Director at Stora and consumers how to turn recovered materials near future. “The debate centres on the high cost means more than just sorting. It means that Enso’s Ostrołęka mill. “Stora Enso collects board into a successful business, as well as the quality of recycling, or then the focus is on environmental perfectly functional new products are made from in Poland on its own. Our sources are shopping requirements that should be established for those education. In my opinion, that’s not enough. We the recycled materials,” he concludes. materials.” Quality requirements means not mixing up dry and wet waste. “When board is first separated in households or recycling facilities, it should not be mixed, for example, with bio-waste or mixed waste, as it weakens the usability of the fibres,” Janowicz Ostrołęka Mill explains. “It is important that the authorities, who ●● Ostrołęka mill is located next to the City of are in charge of the recycling, understand that – Ostrołęka, located 120 km from Warsaw, alongside and consumers, too. The different types of waste road no. 61. should not contaminate each other if the goal is to ●● The history of the mill dates back to 1959, the make high-quality products.” year of inception of the state-owned company Ostrołęka Pulp and Paper Mill. ●● Ostrołęka mill is the biggest mill in Stora Enso A waste-eating board machine Poland by the size of the mill area. One of Stora Enso’s collection stations is located ●● The mill comprises a pulp and paper mill, a in Pruszków, on the outskirts of Warsaw. Jakub corrugated board and boxes mill and a sack mill. Wronowski, the manager of the collection station, ●● The corrugated board and boxes mill manufac- is just heading out to pick up a load of board from tures single and double wall corrugated board

the yard of a nearby department store. ADAM WOLOSZ of all types of flutes, which are then used for the “We have our own waste containers in the production of different kinds of American-type yards of certain companies, which gives them a boxes and die-cut boxes. place to dump their used packaging materials and ●● The sack mill is one of the most modern sack other containerboard, paper and carton board,” he producers in Central-Eastern Europe, equipped “This may just look like says. Wronowski oversees not just the collection with three state-of-the-art sack lines. The product of the raw material, but also its separation and range comprises: open-mouth pasted sacks, valve rubbish to some, but purity. “We transport board waste to the collection pasted sacks and paper sacks on reels. station, separate plastic and other impurities from ●● Ostrołęka Mill’s new lightweight containerboard this raw material keeps the fibre material and then bale it for transport to paper machine 5 started up in early 2013. The the Ostrołęka mill.” machine is currently in the ramp-up phase, which huge board machines The collection station run by Wronowski is expected to take a couple of months. scrapes together some 1 100 tonnes of recovered The investment cost for the machine is 285 million in motion.” fibre a month. “And that’s just one of Stora Enso’s euros, and the capacity of the machine is Jakub Wronowski 20 collection stations,” he points out. “We do 455 thousand tonnes of product annually. our best to continuously bring in more and more ●● Ostrołęka Mill is certified to ISO 9001, recovered board. This may just look like colourful ISO 14001 and OHSAS 18001. ADAM WOLOSZ

42—Rethink Stora Enso—43 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d hose are Kalle, Ville and Jukka,” and ‘roommate’ in the previous home, Janika says Jussi Koppanen, peering over Pusa, 33, also made the move to the new building. his shoulder at the soft toys that lie “At first I didn’t want to move here,” Pusa Shared home life “T on the motorised bed. admits. The toy trio and their owner have recently Adjusting to their new location has been easier moved to this brand new assisted-living building in than expected. Jussi Koppanen and Janika Pusa are flatmates in an assisted-living building Rauma. 21-year-old Koppanen has lived in group “This is a nice place to live and the staff is in Rauma. Everyone feels at home, even though the rooms in this recently homes for as long as he can remember. The move kind,” she says, having spent her first two weeks at here to Jalmarintupa was inevitable: he had to Jalmarintupa. completed wooden building are divided between 15 residents. leave his previous group home because the owners Both Pusa and Koppanen, who have Down were retiring. syndrome, require support for daily living. Jalmarin- Text Niina Streng Fortunately, soft toys are not the only familiar tupa is also home to 13 other residents, each with Photos Vesa Laitinen element in the new home. Koppanen’s good friend varying degrees of developmental disabilities.

44—Rethink Stora Enso—45 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d “We are part of their day-to-day life and are addition to wardrobes, an armchair and a small they are not permitted to enter the other residents’ here to ensure that it runs smoothly,” says the table set, there is a small storage trolley with a private rooms nor touch their belongings without group home’s head nurse Kaisa Uusi-Marttila high stack of magazines on it. Pusa explains that permission. of Mikeva, a provider of social care services. she reads a lot, particularly about celebrities. Her “The residents’ rooms are their homes,” Uusi- “We help the residents, for example, to bathe, favourites are Finnish actor Peter Franzén and TV Marttila points out. “It’s a place where they can dry off and get dressed.” show host and comedian Janne Kataja, who is retreat to if they are tired, in a bad mood or if they also a judge on the show Talent, which Pusa went just want to be alone.” to see live with her family. Pusa, who has lived in a group home since Celebrity gossips “I had my picture taken with Janne,” boasts 2007, says she sometimes daydreams about Jalmarintupa is divided into three wings, each the young lady. moving out to live completely alone in the neigh- containing five rooms – one for each resident. The most important item in Pusa’s room, bouring city of Pori. “I could definitely make it on There is also a dining room, sauna, kitchen and however, is a framed photo of Juuso, a golden my own,” she asserts. a spacious lounge area. On a wall in the lounge retriever. Although the dog passed away long Kaisa Uusi-Marttila area you can see the natural grain of the wood. ago, she plans to hang the photo on the wall “We ensure residents’ Another wall is light beige, having been painted when she finds the perfect spot for it. day-to-day life runs Time for work and play at Stora Enso’s unit in Hartola, where wood smoothly.” Pusa finds the home’s general 7 a.m. start to the elements, manufactured in Austria, are finished day much too early – she would prefer to sleep according to the customer’s specifications. Place of one’s own longer. After breakfast, Jalmarintupa’s residents Although the building is constructed almost Even though the residents of Jalmarintupa gather for ‘morning circle’ to discuss the hot topics entirely from wood, the material’s natural scent is get on well together and are accustomed to of the day. These can include establishing who surprisingly faint. life in a group home, at times they still feel a is celebrating their annual name day that day, or Pusa’s tidy room, decorated in bright-red strong need for their own personal space. The even confirming general facts like the identity of tones, is in a different wing to Koppanen’s. In regulations on the wall serve as a reminder that Finland’s current President. Three times a week, Pusa and Koppanen are On the threshold of a employed at a work centre, where they primarily do subcontracted work for various companies. breakthrough in wood Koppanen has carried out mailing tasks, for example, and Pusa has applied sealant to faucets. construction The centre also allows them to do handicrafts as a leisure-time activity. One example of the almarintupa in Rauma is the first assisted-living building results hangs next to Jussi’s bed: a wreath made J constructed as a collaborative effort by Stora Enso and Lakea Oy of large branches. “I made it myself,” he says using modular technology. Stora Enso and Lakea, a developer owned proudly. by 15 Ostrobothnian municipalities, will join forces to build several On an ordinary day at Jalmarintupa, lunchtime such modular wooden group homes in Finland in the near future. is just before noon and dinner is at 5 p.m. In Jalmarintupa consists of 21 modules comprising a total floor area between meals, residents can spend time outside of 770 square metres. The frames of the modules were made with or play board games. cross-laminated timber (CLT). After assembly in Finland at Stora On their day off, every two or three days, they Enso’s unit in Hartola, the modules were installation-ready and clean the house and watch TV. Watching television included all surface materials from window frames to mouldings. is a favourite pastime of many of the group home Construction on Jalmarintupa started in August 2012 and it was residents: their programmes of choice include ready for occupation by early December. Modular construction can, music programmes and the Finnish soap opera in fact, be up to three times faster than traditional element construc- Salatut Elämät (Secret Lives). tion. The method also enhances the quality of the construction, as the “I’m excited!” says Both Pusa and Koppanen have DVD collections, modules are assembled exclusively indoors and thus never exposed but they have trouble naming their favourite movie. to moisture at any stage of the construction process. Jussi Koppanen, “Kaisa, you say it,” Koppanen implores the nurse. “Demand for assisted-living facilities is growing, especially with “Jussi, they’re your videos,” Pusa promptly the aging of the population in Finland. Communities need, above as they begin interjects. all, flexible and convenient solutions for a range of housing needs. Finally, after much pondering, Koppanen names Wood-based element and modular construction is unrivalled in that the iconic Finnish Police Academy as his favourite movie. He can’t area. Wood construction has finally taken a crucial step towards read the Finnish subtitles in the movie, but that industrial construction and its final breakthrough,” saysHannu board game doesn’t affect his sense of humour and love of Kasurinen, EVP of Stora Enso’s Building and Living Business Area. situation comedy. The residents also get a break Jalmarintupa is home to 15 disabled people, each with their own African Star. from routine every second week, when the group 24-square-metre room equipped with a private toilet and shower. The home holds a disco night. building is owned by Lakea, and the care services for the residents “They play rock, and traditional Finnish dance are provided by the social care service provider Mikeva. music, and rap music!” says Koppanen. “And we drink coke,” he adds with a satisfied grin.

46—Rethink Stora Enso—47 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Montes del Plata Uruguay

A dream close job to home

Inés Maisonneuve n Punta Pereira, south-western Uruguay, a billowing green landscape unfolds, taking in prolonged her studies by grassy plains, trees and bushes, and more taking a teaching job and I than a few corn and wheat fields. A herd of milk-coloured cows grazes calmly. Paola Pedemonte took But within a mile or two, feverish activity is the work in neighbouring Brazil order of the day. Trucks and buses swarm into the construction area of Montes del Plata. Hammer- before they both found blows mingle with the sounds of welders at work. their dream jobs in the pulp Two female engineers in their thirties, wearing the grey uniforms of Montes del Plata, wait for industry close to home. us when we arrive at the site. Their uniforms may be plain, but the welcome to the temporary office building from Inés Maisonneuve and Paola Text Jonas Nordlund Pedemonte is sunny: both greet with a big smile. Photos Kaapo Kamu

48—Rethink Stora Enso—49 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d “I decided to become an engineer at a young the middle of an economic crisis and it was tough Inés Maisonneuve says she’s often had to Both also enjoy the fact that their friends and age,” Maisonneuve explains. finding work here. I worked in the metals industry repeatedly prove her worth as an engineer – family live nearby, enabling Maisonneuve and “I always liked maths, science and chemistry for three years in Brazil and got on very well, but I purely because she’s a woman. Pedemonte to see them far more frequently. and enjoyed finding solutions to problems – also missed my home country,” Pedemonte says. “We still have many areas to conquer, but if constantly wondering what makes things tick.” “It was hard to find interesting work here you consider the way things were twenty years Inés Maisonneuve was born and raised in matching my education and fulfilling my expecta- ago, the situation has changed a great deal. New horizons Uruguay’s capital Montevideo, and is the eldest tions; I remember hunting for a job for almost a More women work in the industry now but I think Export of meat, wool and hides makes up a of four siblings. She studied chemical engineering year.” we still need to deal with certain prejudices, for significant part of the Uruguayan economy, for six years at Uruguay’s public university, instance that women are supposedly incapable but new elements, such as the pulp and paper supporting herself by teaching. Her current Positive boost for of tasks like maintenance. I can honestly say that industry, are also starting to make an impact. job in Montes del Plata involves working with Inés Maisonneuve Paola Pedemonte this industry needs more women.” According to estimates, Montes del Plata will sustainability issues, for instance producing the ”Uruguay is a small the community “It was hard to find But life is not all work: Maisonneuve says she increase Uruguay’s GDP by USD 770 million upon information required for environmental permits. country and I never Outside the office, construction crews are hard interesting work in my has no problems deciding what to do in her spare completion, almost two per cent of the nation’s “This job gives me the chance to put my realised that this project at work. A team of workers in orange overalls are country; I remember time – she is studying for a master’s degree in GDP in 2010. knowledge to good use. I think the best way would affect labour making their way home after completing a shift. hunting for a job for environmental technology. As vital contributors to a new and efficient arn is to work independently and find solutions, and supplier demand When Montes del Plata, a Stora Enso and almost a year.” Pedemonte, on the other hand is a passionate pulp mill with cutting edge technology, designed instead of waiting for others to do it for you,” and contribute to the Arauco joint venture, is completed, it will be a tango dancer and even gives her Montes del with an emphasis on environmental aspects and Maisonneuve says. nation’s develop­ment state-of-the-art pulp mill with an annual capacity Plata colleagues dance lessons once a week at a sustainability, the future holds a lot of work for as much as it has.” of 1.3 million tonnes. The boiler will start cooking studio in the nearby town of Colonia. Inés Maisonneuve and Paola Pedemonte. Taking the job hunt across pulp in mid-2013. The steel structure for the recovery boiler the border stands at an impressive 87 metres. Although the Paola Pedemonte is an engineer specialising in construction project does change the landscape, environmental and hydraulic engineering. She a decision has been made to conserve some of is currently working in the area of fresh water the original vegetation and establish a nature and waste water treatment as well as chemicals reserve in the area. If you’re lucky, you can even management. spot a “Tero” (Southern Lapwing), a common bird There is a desperate need for educated pulp in Uruguay. and paper engineers in Uruguay at the moment, USD 770 million “Before I came here, I didn’t know that modern especially those specialising in chemistry, Once Montes del pulp mills were so efficient that we could sell mechanics and electricity. However, this wasn’t Plata is completed, off surplus power to the national grid,” Inés always the case. it will increase Maisonneuve says. “When I was 25 I decided to move to Belo Uruguay’s GDP by “I also hadn’t considered the positive effect Horizonte in Brazil. At that point Uruguay was in almost two per cent. that our project has on the local community in terms of employment and economic development. Uruguay is a small country and I never realised that this project would affect labour and supplier demand and contribute to the nation’s development as much as it has.”

Challenging the status quo The canteen is serving a hearty lunch today: carne de cerdo con pure – pork with mashed potatoes. That ought to satisfy the hungry construction workers. As women in a predominantly male industry, Maisonneuve and Pedemonte represent exceptions to the rule. “It’s a challenge,” they both laugh. “But in many respects it’s one we are happy to take on. Women aren’t very common in the industry, but we feel comfortable working in this Pulp and paper are gaining ground in Uruguayan team,” Paola Pedemonte says and continues: “We don’t sit around waiting for things to happen export, which has traditionally been dominated by – this isn’t a bureaucratic job. That’s not what the culture is like here; it’s all about taking the meat, wool and hides. initiative and suggesting solutions. If you can’t manage that, then you won’t fit in here.”

50—Rethink Stora Enso—51 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d situation is different,” Professor Patricia Gerla Zero describes the engineers’ job market in Uruguay. Professor Gerla, the head of the Forest unemployed Processes Group of the Chemical Engineering Institute at Universidad de la República in engineers Montevideo, points out that Brazil’s economic development has had a positive impact on the Text Jonas Nordlund Uruguayan economy, which, in combination with efforts to stimulate foreign investment, has ruguay has moved from a situation in improved its outlook. U the early 2000s in which many highly “Currently there is practically zero unemploy- educated people were forced to look for work ment among engineers in Uruguay and we abroad, to having a shortage of engineers. As a Patricia Gerla need more engineers than our universities are result, engineering has become an increasingly “We need more producing,” Gerla says. appealing choice for female students. engineers in Uruguay Examples of foreign investments that have “Not only did Uruguay face a shortage of than our universities enhanced the engineers’ employment market graduate-level jobs, but it also offered much lower are producing.” have been Fray Bentos Pulp Mill, commissioned salaries compared to other countries. Things in 2007, and Montes del Plata in Punta Pereira started to change around 2004 and today the which will require up to 600 engineers. This is a very significant number considering approxi- mately 160 engineers graduate annually within the fields required by the pulp and paper industry.

Towards gender balance The growing need for engineers in Uruguay has encouraged female students to attend engineering programmes. The number of female engineers at the University of the Republic in Uruguay has been on the increase since 1999 and has remained stable at around 30% since 2002. “However, the transition towards more women in engineering programmes has been slow and the trend is stagnating. It took 18 years to achieve a seven per cent increase in the proportion of women, so we will have to see how things progress,” Patricia Gerla clarifies. According to Gerla, one explanation lies in the grip of tradition and the fact that women tend to study social sciences, medicine and nursing, ock Goh’s education about Stora agriculture or arts and humanities. Enso’s national heritage began The most popular subject among female The Asian with his first ever crayfish party, engineers is food engineering, where they thrown by his new colleagues in comprise 70% of the student body. In chemistry, the company’s Board of Directors half of the students are women. Of computer ambassador and Group Executive Team. science students, under a third (30%) are women HHe enjoyed it a great deal. All the other Board and even fewer women major in civil engineering New to the Board of Directors, Hock Goh members are, like the company’s origins, Finnish or (20%). Women represent only a tenth of electrical Swedish, so they were happy to introduce the Asian and mechanical engineering students. is used to fields of business that depend newcomer to this Swedish tradition. As the pulping industry became more important upon scarcity of natural resources. Still, “We ate good food and sang a lot but I have for Uruguay, the country began to need more no idea what the songs were about,” Goh says highly educated professionals in this non-tradi- the paper industry is something totally new laughing. tional area of the Uruguayan economy. For this for the Singaporean, who truly believes that Hock Goh was appointed to the Board at the reason the governments of Uruguay and Finland, Annual General Meeting in April 2012. He has no with added support from companies like Stora Stora Enso will succeed through innovation prior experience in forestry, but his background Enso, began to finance the international Master’s and brand marketing. does revolve around natural resources. He comes programme for pulp and paper engineers, which from a long career in the oil and gas sector, dating Professor Gerla coordinates in Uruguay. Text Jenita Sillanpää Photos Kaapo Kamu back almost 30 years. UNIVERSIDAD DE LA REPÚBLICA IN MONTEVIDEO

52—Rethink Stora Enso—53 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d “I studied mechanical engineering at university Goh stresses that doing business in Asia is he moved around the world with Schlumberger, fund with two other partners, investing in growth in Australia. Before I graduated, I was recruited by a lot more complex than in Western countries. occupying increasingly important positions. companies.” a big French-American oilfield services company, Having a good product with an appealing price First to Indonesia, then the Middle East: Oman, Actually it was not a retirement at all. Goh Schlumberger, straight from campus.” is not enough in Asia, where businesses are Egypt, Pakistan, Syria, Sudan and Turkey. Then still holds board positions in other companies in His first assignment for Schlumberger was predominantly based on close relationships with to France, China and the United Kingdom before addition to Stora Enso, as well as the partnership as an engineer on the oil rigs in the middle of the customers. returning to China where he is currently based position. His advice for managing many positions jungle in Kalimantan, an Indonesian island. “Person-to-person relationships are extremely with his wife. is simple: “There I got to know about trees and forests,” important. When you know your customers “I must have worked in more than 20 countries,” “Don’t sleep too much,” he smiles. “No, Goh says. and understand their needs, they will buy your he counts. seriously, you have to learn how to multitask.” “To some extent the oil business is very product no matter how expensive it is. “My wife made a huge sacrifice giving up her Even though Goh is not planning on slowing similar to forestry, because you find both of these “One big advantage Stora Enso has in Asia career to follow me around the world but I hope down, he gives one promise. resources from nature.” is its brand name and European heritage. Asian she enjoyed our adventure,” Goh laughs. “When the fun stops, I will stop working so But that was almost everything Goh knew about customers respect good quality products: There was no other way to combine family life much. The fun part is to meet people.” Stora Enso’s industry before hopping on board. many good products come from the West and and work life. Goh’s family life involves multi-tasking too. All “I don’t think you need to know the industry Europeans have an enviable track record in their “Schlumberger wanted their employees’ three of his children are spread around the world: like the back of your hand to be a useful production,” Goh states. families to move with them; they wanted us to get one 29-year old daughter, is a doctor and lives in member of the Board. Significant experience in Asian customers love quality, but high-quality to know the local communities and forge strong Australia; another daughter, 27, works as a lawyer doing business worldwide is essential but not items often carry valuable brand names. relationship with our customers, and that would in England; and his 25-year old son, who also necessarily about the company’s exact industry.” “For example, look at what Mercedes or BMW not have been possible if I was flying home every studied law in England, recently started his own are doing in China. Asians are queuing just to weekend,” Goh explains. business in China. get into the showrooms and see the cars. Brand In 2005, Hock Goh was approaching the age of “We live in Beijing, but we also have homes Brands matter names are something Asian customers are 50 and decided that he needed new challenges. in London and Sydney because our daughters The newcomer to the Board was found through much more conscious of than Europeans. This “I thought it was time to retire, so I took early live there, and our family home is in Singapore, recruiters. Stora Enso was looking for knowledge is what I have been encouraging Stora Enso’s retirement and moved back to China. I started a so four homes in total. It is not easy, I can assure of Asia to complete the picture. Group Executive Team to do. We need to build you. We are all together in the same place only “A recruitment company contacted me to ask a stronger brand to increase Asian customers’ two or three times a year.” whether I was interested in becoming a member awareness of who we are,” Hock Goh explains, of the Board of Directors of Stora Enso. I did comparing his role to that of an interpreter a quick check about Stora Enso and found it between the Eastern and Western worlds of doing The route to survival interesting that the company was in the paper business. Hock Goh names traits that When talking about the future of the paper products and forestry business. I was excited But how do you build a brand well known to industry, the generally good-humoured Hock Goh about entering this industry, and at the same time consumers if you are not in the consumer product describe Stora Enso: progressive becomes serious. was aware that it was going to be challenging industry? and forward-looking, very socially ”No industry ever stands still. That brings given the dominance of digital space in the “Consumers do care about the quality of the me back to the question: ‘How do you survive current economy,” Hock Goh recalls. paper; there is a selection process. There are responsible, and filled with and how do you grow in this very challenging “But I also knew that there is a lot of potential many things we can do for paper, for example: diverse and talented people. industry?’ To me, the answer is quite simple: it is in this business, especially in packaging and design it differently, make it glossy, easyprint, etc. all about the talented people that we have and biomaterials. I see enormous opportunities for We need to be different from our competitors and innovation.” Stora Enso.” brand ourselves so that satisfied customers will Still, Goh reminds us that innovation is not The reason Stora Enso needed an Asian continue to look out for us,” Goh stresses. some miracle that happens overnight. member for the company’s most important body “Packaging presents even more opportuni- “The reason I believe in investing in R&D is is clear. The company is investing in growth ties to build our brand. Consumer product simply because no matter how good we are markets, particularly in Asia, where the future of companies, be it cell phones, electronics, today, if we do not put effort into getting better, the packaging market lies. pharmaceutical or food are using intelligent and we will be left behind by our competitors.” “I would like to be the Asian ambassador for appealing packaging to increase the value of their “We need to have innovation in our culture. Stora Enso. I truly believe that what this company products. Being innovative and working closely And we also need strong marketing, to push is doing is good for the Asian community. I with our customers will enable us to build a brand An unpleasant these innovations through to the market,” the respect Stora Enso’s focus on being a leader in as a ’trusted packaging partner’,” Goh believes. surprise Asian ambassador emphasises. social responsibility wherever it operates. This “One thing that Hock Goh believes that Stora Enso’s core sense of duty as a good corporate citizen is in its Citizen of the world amazed me is the business will continue. But change is also DNA. I love that!” Goh says. overcapacity in needed. “I do not believe we should change However, Goh is not promising an easy route and multitasker the paper industry. drastically from a paper product company to a into the Asian market for Stora Enso. A golden horseshoe belt buckle twinkles on Hock Not just in Stora totally different company, because I think domain “It is a challenge for any European company. Goh’s waist. Lucky amulet or not, he has certainly Enso, but if you look knowledge is hard to acquire. Rather, I believe However, I am confident that Stora Enso will do had a lot of good fortune in his life. His wife and worldwide, there we should keep doing what we are good at and well in Asia; we just have to find the right people three children have followed him around the globe seems to be a lot be innovative at the same time, by looking for who can adapt to local culture and who can build as he undertook a series of enjoyable, rewarding excess capacity,” new applications, new markets and new areas of relationships with local business partners.” jobs. After studying and working in Australia, Hock Goh says. growth.”

54—Rethink Stora Enso—55 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Corrugated board folds into design In 2012 Stora Enso started five Designstudios near packaging mills around the world. The studios allow packaging designers to craft the packaging together with customers, almost in real time. The journey from idea to ready-made product has become a lot shorter.

Text Jenita Sillanpää Photos Vesa Laitinen

packaged. On the table of the Lahti Designstudio, there is already quite a selection of different types of box prototypes made for Suunto, a Finnish manufacturer of sports watches, dive computers and other sport instruments. “Within a week of our first meeting, Suunto got their first prototype for review. After that we have prototyped almost all of the boxes needed,” Autio tells. “It has been fairly easy to design packages The feel of the firm for Suunto as Christian has a very clear vision of Suunto wants their what he wants from packaging and Suunto has packaging to feel the arjo Autio pulls black and white very clear brand, which guides the packaging same as the company cardboard sheets out of her design, too.” itself: matt black, carton suitcase. After a while However, the number of Suunto products sturdy and robust. she has folded the sheets into and the packaging needed for each of them was Also the texts have boxes of different sizes. a bit of a surprise for the packaging designer. been minimised. The M“Looking good,” Christian Nordström “You should have seen Marjo’s face when I drove Suunto logo has been comments and picks one of the boxes up for a over with a huge box full of products we needed hot-foil stamped on closer look. packaging for,” Nordström laughs. the boxes. It has only been a few weeks since the “Actually, when I got the products in my own packaging designer Nordström told Autio how hands, the designing process eased up a lot, he would want to see Suunto’s new products because before that I was a bit confused with all

SUUNTO OY

56—Rethink Stora Enso—57 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d the different product names, like Ambit, Core or materials are used especially in gift packaging n Södermalm, just a short walk from Elementum,” Autio admits. manufactured in China. Stockholm’s city centre, lies a beautiful “The sky’s the limit. We’re not going to say Charming vintage and thoughtfully decorated apartment: Simple idea, great straight away that something doesn’t work: we flea-market finds and an old, inherited, advantages promise to try everything,” Harju guarantees. mustard coloured armchair give an edge “How about corn? Wouldn’t that be a nice, catalogues to the bright one-bedroom flat. The focal Suunto was one of the first of Stora Enso’s robust surface for a box?,” Christian Nordström Ipoint of 28-year-old Cecilia Elmqvist’s living room customers whose packaging design for new asks. Swedish Cecilia Elmqvist has a collection of 33 is a white ‘Billy’ shelf from Ikea, which holds a packages was started in workshops in the “Ok, I’ll take my words back a bit. Corn doesn’t stack of Ikea catalogues. Designstudio. The first studio was opened in really work. I am telling you, it will soon be ‘out’ At the bottom of the pile is a 32-year-old issue. Ikea catalogues on her bookshelf. For her, they Lahti in 2012. The idea behind the studio is to as a material, because we really can’t afford to This one was saved by Elmqvist’s mother, who Design for offer a glimpse into the past; for Ikea, it’s how let the customer closer to the packaging design make packaging of food in this world,” Harju began collecting the catalogues in 1980 when manufacturing process and so speed up the design process as suggests. the company built its brand. Cecilia’s brother was born. a whole. In Suunto’s case, the design process that would normally have taken half a year was snipped down to one month. Looking for a wow effect “In 2012 we opened five Designstudios by ●● In 2012 Design­ Suunto changed their packaging production to the Renewable Packaging corrugated board studios were opened Stora Enso before summer 2012. factories around the world. In 2013 we will open in Lahti (Finland), “I heard about Stora Enso’s reputation in four more,” says Ilkka Harju, the man behind the Beijing (China), Łódź packaging through my contacts and I decided to Designstudio idea. (Poland), Komárom find out about the possibilities for co-operation. The concept is simple: the brand owner comes (Hungary) and When I saw ready-made packaging, I immediately to the studio and tells the Stora Enso team what Jönköping (Sweden). knew that this is our new companion,” Christian should be packaged. The team listens to their ●● In 2013 Design- Nordström says. wishes, gives ideas, and at the same time the studios will open in “My work pace has got faster and our earlier designer can already start to form the packages. Riga (Latvia), Skene packaging supplier had problems with keeping It is quite common for the brand owner to know (Sweden), Balabanovo up the pace. Now with Stora Enso it’s a totally very little about packaging, but it is not necessary (Russia) and Ostrołęka different story,” he continues. for them to. (Poland). Nordström and Autio are turning black “Besides making packaging design easier, ●● 80 packaging prototypes around in their hands. “Could we during the Designstudio workshop we can tell the designers work take it in a bit here to make it a bit smaller?” customer what kinds of materials we can use and around the world in Nordström asks, pointing to the side of the box. how packaging in general can be produced. We Stora Enso packaging “I don’t think it is possible as the machine is also know where and how quickly we can start studios. not able to fold it so thin,” Marjo Autio doubts. the production,” Harju describes. ●● Each Designstudio “Also the printing restricts how narrow we can As the Designstudio network has broadened, organises approxi- make it and we really can’t glue so thinly either,” the variety of materials used in packaging has mately 40 design she continues. widened too. The packaging material added workshops per year. The most important thing is not just that as a spice to corrugated board can be almost the package works but that it also looks good. anything the customer requests. Fabric lining, “The buyer needs to feel a wow effect, but the painted birch veneer, plastic bits or even silk band package can’t be super flamboyant,” Nordström around the box… you name it. These special concludes.

“The boxes need to be so appealing that you get curious to open and Text Niina Streng experience what’s inside.” Photos Lasse Arvidson Christian Nordström

58—Rethink Stora Enso—59 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Over the past ten years, Cecilia has continued “Even then, Stora Kopparberg supplied paper phones and tablets, but the readership for these to build up the collection that her mother passed for the catalogue,” Stefan Svensson recalls. is, at least for now, much smaller than that of on to her. 500x “The name of the company has changed over the printed version. The increasing popularity of the decades, but the co-operation has continued.” reading devices may, however, change the set-up The paper supplied by Stora Enso has varied in future. A significant marketing tool Heavy stuff from year to year between 20 000 and 50 000 What would happen to Elmqvist’s collection The printed catalogue has been a cornerstone The most recent tonnes. The company supplied some 29% of all if one day Ikea decided to stop printing their of the Ikea concept for decades. The Swedish edition, the 2013 the paper used for the 2013 catalogue. The cover catalogues? furniture giant published its first catalogue in product catalogue, paper is from the company’s Fors mill and inner “That would be the end of it,” she says. “I 1951. reached a total print run paper from Kabel, Corbehem and Kvarnsveden want to have the actual catalogue in my hands; I “It brought a lot of customers, and since then of 212 million copies. If mills. wouldn’t save a PDF.” the catalogue has been a significant marketing these catalogues were Elmqvist has no reason to worry, as the Ikea tool for us,” says Stefan Svensson, who is in stacked in one big pile, catalogue is, at least for the time being, the most- charge of paper procurement for Ikea’s printed they would weigh about A touch of luxury printed product in the world. Its annual printed products. the same as 500 jumbo A number of changes were made to Ikea’s 2013 volume is double that of the Bible. According to “The main objectives of the catalogue are jets given that one jet catalogue: uncoated paper was upgraded to Svensson, the printed catalogue currently holds a to build the Ikea brand, to steer people to Ikea weighs 216 000 kilos. coated paper, the thickness of the paper was strong position. stores and the Ikea online store, and to offer increased, and the page size was widened. “We estimate that in 2012 we reached one fifth inspiration for home furnishing,” Svensson says. “We believe all these minor changes together of the global population through our catalogue The company has certainly succeeded in will contribute to a more luxurious reading and other printed products,” he says. those goals. There are more than 300 Ikea stores experience,” Stefan Svensson says. in nearly 40 countries and they are visited by The catalogue is also published for smart Follow Cecilia on Twitter: @ceciliaelmqvist approximately 750 million people every year. Cecilia Elmqvist is one of them; she shops at Ikea several times a year. “I could never cut pages Respectful handling out of a magazine. I would and floral patterns rather throw it away than Cecilia Elmqvist places the catalogues on the table and asks us to handle them with care. There start cutting it up.” is something special in this collection – and in Cecilia Elmqvist high-quality magazines in general – that inspires respect in her. “I could never cut pages out of a magazine. I would rather throw it away than start cutting it up,” she says. catalogue, which depicts people of various Not for sale Although the collection of 33 catalogues is ethnicities spending an evening together. Cecilia Elmqvist important to Elmqvist, she doesn’t consider “For me, this is a piece of history. It shows that has never given herself a collector. multiculturalism was an important topic as the any thoughts to the “We estimate “I haven’t thought of this as collecting; I just new millennium arrived,” Elmqvist analyses. monetary value of want to save the catalogues. It has required her Ikea catalogue that in 2012 we hardly any effort to get them,” she says, adding collection. There that in the autumn she puts a sign on her 50 times around the Earth is demand for old reached one front door indicating that the Ikea catalogue With the furniture chain’s global expansion, the catalogues on the is welcome, while other unrequested postal number of printed Ikea catalogues has grown Internet, but Elmqvist fifth of the global advertising is not. tremendously. The most recent edition, the 2013 has no intention of Elmqvist’s collection is in a good condition. product catalogue, reached a total print run of selling hers. population through She says the old catalogues are an excellent 212 million copies. Placed one after the other, the conversation piece when she has guests over. pages of these catalogues would circle the Earth our catalogue “Check these out,” she says with a laugh, more than 50 times. pointing to bulky sofas covered in a floral print in This printing volume makes the Ikea catalogue and other printed the 1990s catalogues. a mega-project that involves around ten paper She finds it particularly interesting to read suppliers, twenty printing houses and dozens of products.” old catalogues and see how design and prices binderies. Stefan Svensson have developed, as well as how people are One of the paper suppliers is Stora Enso, represented. Elmqvist, who works with diversity which has been producing catalogue paper for issues, points out the cover of the year 2000 Ikea for many years, since the 1980s at least.

60—Rethink Stora Enso—61 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Do you remember The Daily Prophet, the newspaper from the Harry Potter newspaper with moving some online catalogue companies have switched LIVE SURVEY® novels, in which charmed pictures move by themselves and news features pictures is no utopia. back to printed catalogues,” Pfitzner points out. “Of course, the cost A printed catalogue is also easy to come back change as soon as new developments crop up? Thanks to smart paper, of smart paper and its to: it is easy to leaf through it occasionally in the Will Rethink publications like The Daily Prophet might soon be within your reach. benefits for customers will living room, even long after it was published. play a role, but technically, be printed on Text Eerika Olkinuora Illustration Miltton it is feasible and could be Reaching consumers smart paper aA reality in the near future, if all goes well,” says through packaging in 2030? Thomas Pfitzner, R&D Director of Stora Enso’s Printing and Reading business area. The development work on smart paper, which What puts pictures into motion on paper is has been carried out for about ten years now, printed intelligence. Smart papers incorporate seeks a technology leap for the paper industry. A transistors and microchips, powered by, for breakthrough in the market might be just around example, a solar cell integrated on the same the corner, but the shift is likely to occur in the paper. The properties required for smart papers packaging business first. VOLUME 20 include, among other things, utter smoothness Smart product markings on packages, Yes and a very thin, layered structure. automatically readable at a distance of up to ten INTERACTIONIN PRINT metres, are boosting the logistics supply chain Interactive and are expected to provide the first break- school books through in smart packaging. k This will probably be followed by smart in Pfitzner sees smart paper as a bridge between packages targeted at consumers: pharmaceutical eth traditional printed publications and the digital packages that send a message to the doctor No R 30 world. Aluminum dots could be printed on the when the drug has been taken from the package Stora Enso 20 newspaper or magazine, which, when identified or food packages that tell consumers if their by a mobile device, would direct the reader to a contents are still safe to eat. website for additional material on the subject, “Once a breakthrough has been achieved in You and such as videos, for example. smart packaging, we will also be able to convince Paper trade shows have already showcased publishers of the capabilities and possible 59 674 others loudspeakers and microphones printed on paper. applications of smart paper,” Pfitzner says. answered Live One excellent smart paper application is in In Harry Potter’s world, owls carry The Daily education: smart school books identify true and Prophet to its subscribers. In the future, daily ‘Yes’ to this false answers or give language students instruc- newspapers, printed on smart paper, might land question. on tions on the correct pronunciation of words. on our doorsteps through a logistics chain using “Media publishers are currently very interested transport packages that are even smarter. in digital media, but it is still possible for the paper sector to develop new applications based paper on paper, thus providing the media arena with new applications bridging the worlds of print and digital communication,” Pfitzner envisions. Thomas Pfitzner “Smart paper is feasible and could be a reality in the near future.” Why paper? Many see our future as digital. Why then continue developing the properties of smart paper? One of the reasons is simple, yet complicated: the human being and human behavior. Digital screens with paper-like tactile properties are already being developed. A smart paper based on publication paper has the composition and feel of genuine paper. It is also more ecological than a digital screen: no electrical socket is Watch video needed to charge the batteries, because there are solar cells integrated on intelligent paper. “Many also rely much more on the colour reproduction properties of paper than on those provided by a digital screen, which offers the possibility for shade adjustment. That’s why

62—Rethink Stora Enso—63 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d he Middle East and North Africa (MENA) represent developing markets with a young and growing population facing rapid urbanisation. The area is currently home to more Tthan 340 million people of whom 30–50% are under 35 years old. The growth of the Arab world is also supported by large housing projects and other governmental investments to build up local infrastructure. The United Nations expects MENA’s population to Middle East and grow up to more than 470 million by 2030. North Africa “Every 15 seconds a baby is born in Egypt. The area is in constant need of new housing,” says Satu Härkönen, Vice President in Marketing & Sales in Stora Enso Building and Living.

The value in artisanal life Unique artisanal and design traditions have been the foundation of Arab economies and cultures for centuries, as the artisan’s life is considered a heritage passed down across generations. Local construction is not indus- trialised but often done by hand in small father and son companies – from window frames to doors, furniture and support structures. This artisanal culture is still today valued and protected by commanding high import duties on further processed sawn timber. This prevents Stora Enso from developing business in MENA towards more value-added products. “We compensate that by having the most efficient and unique sales channels and service Under – steady monthly shipments to customers with the Arab sun

Growing populations, mega cities, urgent reconstruction needs. Strong artisanal culture, lack of wood as a raw material, large oil and gas reserves. The Middle East and North Africa is a unique

market area. But how does one do business there? Urban traditional Customer visit At the old port of in Yemen Text Heli Pessala Photos Silvio Butalja Dubai modern and The wood products traditional ways of business is based living are shaking on long, tight relation- hands. ships.

64—Rethink Stora Enso—65 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d big volumes, enabling reasonable freight costs, Moving south Person to person good product quality, large product mix from Koper port in Slovenia How is business done in the Arab world? several suppliers and efficient document flow. is one of the main Everything is based on long relationships; first, Our business in this market has been developing ports to serve Stora you need to create trust with locals. steadily,” Satu Härkönen says. Enso’s customers “In practice this means several cups of coffee Even if there is a long tradition of building on the MENA market or tea, eating together and long conversations, with wood in MENA, the region lacks local raw through its subsidiary both business and non-business. You need to wood material and a wood products industry, so Mena Wood. take your time when talking with customers – rush imported sawn timber goods are essential for does not exist in this culture,” Satu Härkönen has building sustainable infrastructure. Tallying pieces learned. “We are talking about the subtropics!” Quantity control at an Stora Enso’s customers in the MENA area Härkönen reminds us. importer’s yard. Green are private entrepreneurs and therefore very is the usual marking business-minded. Usually business is done for wood product ends verbally, face to face. Shopping at the port in Yemen. “Phone calls are also important, e-mail is Stora Enso Building and Living ship pine and lorries and delivered to importers’ and wholesale seldom used.” spruce sawn timber goods from the company’s customers’ yards. At the timber yard In Europe business is done quarterly but in the North and Central European units to the sunny “Overweight regulations are not an issue! You The unique artisan Arab world business is usually done on monthly ports of Casablanca, Alexandria, Sousse and can transport as much as you can take aboard. culture creates strong basis – every month the discussions start again. Jeddah amongst others. At the destination port, Retailers and artisans come shopping, sometimes demand for sawn “It’s not common to use written contracts packages labelled with company logos change buying one plank and taking it home by donkey,” timber goods in the and no signatures are needed. Arrival of a letter hands and the sawn goods are loaded onto Satu Härkönen explains. Arab world. of credit is the final guarantee of the deal. It is also important to have local agents on the spot making sure that we meet our customers often, but also to get the latest, most reliable information about their situation,” Härkönen says. Trust and long-term relationships with local people are extremely important, so rotating salespeople is not always the best idea. “We have to make sure that there is a good mixture of longer and shorter experience in the sales team. Interestingly, our company’s business in the area has been going on for centuries – the first shipments were made to Egypt at the end of the 1870s,” explains Härkönen, who herself has been working closely with the Arab countries and Stora Enso’s customers there for the last 15 years.

The artisan’s life Stora Enso in the Middle is considered a East and North Africa ●● Stora Enso operates in the MENA market through its trading companies, making it the heritage passed largest wood products company in the area. ●● Algeria, Egypt, Morocco, Tunisia, Libya and down across Saudi Arabia are the countries where most trading activity takes place. ●● Stora Enso’s market share is between 15% and generations. 40% depending on the country. ●● The delivery time from the Nordic countries to the MENA area varies from 10 to 20 days but from Austria it is only 5 days or less after the customer order arrives.

66—Rethink Stora Enso—67 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d The Pathfinders leadership Transforming programme researched global trends, best practices Stora Enso in innovation and global responsibility, as well as Stora Enso’s strengths and weaknesses. Based on the programme’s findings, seven concrete steps were suggested on how to support Stora Enso on its transfor- mation journey.

n what sort of world and in what kinds of competitive environments will Stora Enso be operating in the future? The Pathfinders grappled with these questions when they started their work a year and a half ago. They concluded that four global megatrends will have a major Iimpact on all the company’s business activities: population growth, natural resource scarcity, connectivity or the power of social networks, and blurring industry boundaries. The next question was: to what degree is Stora Enso working on addressing these megatrends and more specifically, what is the company’s approach to innovation and global responsibility? The Pathfinders presented seven proposals to Stora Enso’s Group Executive Team and Board of Directors on how Stora Enso should rethink its operations to become an innovation leader with global responsibility in its DNA. The most urgent task was to develop a common purpose for Stora Enso, as a foundation for all further proposals. Stora Enso’s Group Executive Team took this very seriously, and the new Purpose, “Do good for the people and the planet”, was launched in October 2012.

Looking for new business Three of the Pathfinders’ recommendations were on the topic of innovation: setting up innovation hubs, doing a feasibility study for affordable housing, and some immediate leadership-related issues, including hiring a Head of Innovation. “We proposed creating small market-centric Text Hanne Karrinaho hubs, focussed on finding new opportunities in Photos Peter Knutson different geographical locations. We also created Illustration Miltton a toolbox to help embed an innovative culture

68—Rethink Stora Enso—69 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d across our whole organisation – this included a global responsibility. These included creating Rewind What has happened since Rethink 2011? set of clear and concrete proposals to improve value together with local communities, leadership focus, employee engagement, empowering people, and involving everyone in knowledge sharing and our collaboration responsibility work by defining shared ambitions with external parties,” PathfinderJames Barr and clear targets. explains. “Traditional social responsibility or sustain- One of these innovation hubs, focussed on ability is not enough anymore. As with innovation, affordable housing in China, has been inves- this cannot be a separate function in the Safety first tigated further. Rather than driving innovation James Barr corporate office,” Pathfinder Juliano Pereira Stora Enso has a goal of zero accidents, and aims from a technical perspective, the idea is that the says. to reach it through training, adopting new habits, residents will be part of the planning process – When shared-value thinking is integrated in and most importantly, an active, caring attitude. offering their insights and wishes. its business, a company can partner with the In Rethink 2011, Lucinei Damalio, mill manager “We wanted to test how our proposals work in whole surrounding community. Stora Enso, with of the Arapoti Mill in Brazil, talked about his work practice,” says Pathfinder Elina Gerdt. its global operations, could easily reach hundreds as Stora Enso’s Safety Ambassador, sharing his “We started with global trends. Urbanisation of thousands of people. In Beihai in China, for knowledge and experience with other Stora Enso is massive and so is the growth of the middle instance, an ongoing mill and plantations project mills. class. This puts enormous pressure on housing is certainly bringing about many new jobs and “I want to create a culture of caring,” explains solutions.” infrastructural improvements. Damalio, who has already visited more than 80 The project team wants to look into building Elina Gerdt “We need to do more rethinking on the way we Stora Enso units since October 2011, motivating affordable housing solutions that create a involve the locals in infrastructure investments people to work safely. comfortable living environment, where the and supplier networks, supporting entrepre- “This is not a project. Safety is part of our daily inhabitants can influence the commercial and neurial initiatives that provide services to Stora work and responsibilities,” he stresses. social services on offer, and create employment Enso and create employment and welfare for the Even more importantly, it is also an integral possibilities themselves. local society,” the Pathfinders note. part of leadership. “In this project we are looking for new kinds of Companies with a long history are typically “Safety is a consequence of how we manage partners and a new business approach for Stora good at running operations, but struggle to our people, how we provide training and Enso,” Gerdt says. understand stakeholder responsibility at the discipline to create a culture of safety,” he says. end of the life cycle. Starting operations in new For this purpose Stora Enso has prepared a Juliano Pereira business environments is also difficult. common Toolbox for Safety, with 10 concrete Creating shared value “We need a responsible approach to procedures to create safe habits. Three of the proposals suggested ways for Stora employment at all stages of our operations’ life The results speak for themselves: Stora Enso’s Enso to truly establish itself as a forerunner in cycles,” Pereira points out. Lost Time Accident (LTA) rate has dropped by 3.3 points during the year, and is now 7.7. But there is still a lot of work to do for Lucinei Damalio, Stora Enso’s leaders, and every single employee. The LTA rate milestone for the end of 2013 is less than five. There is a good chance that this Who are the Pathfinders? Building the path will be achieved, as the atmosphere at the mills is enthusiastic. People are happy to learn from 12 Pathfinders were chosen in October 2011 The Pathfinders have completed their initial Damalio’s experience in how to manage safety to operate as Stora Enso’s “shadow cabinet”, assignment, and some of them continue to work on and how to manage safely. making exciting, innovative and thought- the proposed projects. Now it is up to Stora Enso’s “We have improved tremendously in our provoking recommendations to the Group Group Executive Team to decide whether to put their safety work, but we should never stop. We are Executive Team. proposals into action. not perfect, we make mistakes. We must protect The focus was on two specific challenges: There is also a new group of 14 motivated, our people and take care of each other,” Damalio innovation and global responsibility. ambitious and talented people who are continuing the concludes. In order to find real benchmarks and best Pathfinders’ work. Called the Pathbuilders, they are practices in tackling these trends and make working on embedding these ideas while at the same them an integral part of the business, the time addressing others. The Pathbuilders will focus Pathfinders delved into more than forty on five main themes: strategy, innovation, global A matter of leadership successful companies and organisations in responsibility, leadership and project work. The aim is “A failure in safety different business areas around the globe, without to further develop Stora Enso by addressing selected demonstrates a failure limiting themselves to Stora Enso’s current business challenges, while simultaneously acceler- in leadership,” Lucinei business environment. ating the implementation of the Rethink philosophy. Damalio says.

LUKAS PEARSALL

70—Rethink Stora Enso—71 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Phenomenon

A delicious symbiosis

The temperatures outside may be well below zero, but for these Siberian sturgeons, it doesn’t get much better than this. The fish are splashing about indoors, in near-tropical, 20-degrees- centrigrade water at Caviar Empirik’s Imatra fish farm, which functions in symbiosis with Stora Enso’s Tainionkoski Board Mill. The fish pools are heated using excess heat from the pulp mill’s process water. The water for the pools is taken untreated directly from the river Vuoksi, which flows next to the mill and carries the largest volumes of water of any river in Finland. The water used at the fish farm is eventually purified at Imatra Mills’ biological water treatment plant, where the nitrogen and phosphorus generated during the fish-farming process are used to treat the water used in the production of pulp fibre. The co-operation thus benefits both the fish and one of Europe’s largest paper and board mills. Each year, the fish farm produces roughly 20 000 Siberian sturgeon yearlings, which are then transported to another facility for further cultivation. After three years, the fish are then transferred to cold winter pools, which activate their natural instinct to produce their roe, more commonly known as caviar. After reaching maturity at seven years of age, the sturgeons begin to produce this valuable delicacy, widely coveted by lovers of luxury the world over.

ARI NAKARI

72—Rethink Stora Enso—73 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Rewind When the recession hit, the employees at The biggest markets for PrimaPress in What has happened Kvarnsveden Paper Mill in Sweden didn’t rest Europe are the UK and Germany. Magazines are since Rethink 2011? on their laurels. They rethought the production also printed on PrimaPress in Mexico, Brazil, of printing paper and turned one of the world’s South Africa and Russia. The product also still biggest paper machines, PM12, into producing has a strong presence in Australia, where it was Awake a new kind of magazine paper. Rethink 2011 told initially launched. the story of the mill’s unique recipe, known as It has been very important psychologically PrimaPress. for the people at Kvarnsveden that new success The sales volume of PrimaPress, a lightweight stories could still be created in the tough uncoated magazine paper, has increased month competition of printing papers. by month since its launch in July 2011. “The success of PrimaPress has strength- “Now PrimaPress covers more than half ened our sense that fantastic things can of PM12’s production. It is no longer a novel be achieved in a working culture where it product, produced in small quantities and is possible to present new, brave ideas, requiring special attention. It is now a well continuous improvements and even innovations. established part of everyday production,” says PrimaPress plays a vital part in the mill’s future mill manager Mikko Jokio. success,” Jokio points out.

The miracle that actually happened Last year’s Rethink told the success story about the innovation called PrimaPress, a magazine paper in which uncoated material meets high quality. PrimaPress has become the first true uncoated alternative to coated magazine papers.

Cover stock: LumiArt 170 g/m2, Stora Enso, Oulu Mill (ISO 14001 certified) Text stock: LumiArt 115 g/m2 and LumiSilk 100 g/m2, Stora Enso, Oulu Mill (ISO 14001 certified)

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. LASSE ARVIDSON

74—Rethink WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Rethink. Everything.

Sometimes you just have to stop and rethink. Think about We are, indeed, rethinking everything. Our mindset. Our where you are. And think about where you are heading. processes. Our products. We know that all big changes are made by groups of people. But it’s equally true We have done just that. And we found that we needed to that changes are inspired and kept alive by individuals. go from being one of the biggest companies within the People who master the art of turning challenges into biomaterials, paper, packaging, and wood products opportunities. industry to being the most successful and innovative company in the world of renewable materials. Why? So, what about you? Perhaps you should rethink where Because our planet is calling for a dramatic new you are heading. Perhaps you should rethink your idea of approach to how we use its resources, and because it work. Perhaps you are the person we are looking for? In is forcing us to nd new solutions that bene t the which case we’d like to say that you are the opportunity. modern customer. For instance, just think what it would And we’ll promise to treat you like one. be like if tomorrow’s skyscrapers were built of renewable wood elements instead of concrete.*

Find out more at storaenso.com/careers *Now possible using our CLT (cross-laminated timber) technology.

Scan and go directly to our career site WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d

Financial Report

Stora Enso 2012

Stora Enso Financial Report 2012 1 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d

2 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d

Stora Enso in Brief Contents

Stora Enso is the global rethinker of the paper, biomaterials, wood Stora Enso in Capital Markets 2 products and packaging industry. We always rethink the old and Debt Investors 9 expand to the new to offer our customers innovative solutions Corporate Governance in Stora Enso 10 based on renewable materials. Board of Directors 18 Group Executive Team (GET) 20 The Group has some 28 000 employees in more than 35 countries Report of the Board of Directors 22 worldwide, and is a publicly traded company listed in Helsinki and Consolidated Financial Statements 36 Stockholm. Our customers include publishers, printing houses Notes to the Consolidated Financial Statements 41 and paper merchants, as well as the packaging, joinery and Note 1 Accounting Principles 41 construction industries. Note 2 Critical Accounting Estimates and Judgements 50 Note 3 Segment Information 52 Our annual production capacity is 5.2 million tonnes of chemical Note 4 Acquisitions and Disposals 58 pulp, 12.1 million tonnes of paper and board, 1.3 billion square Note 5 Other Operating Income and Expense 60 metres of corrugated packaging and 6.0 million cubic metres of Note 6 Staff Costs 61 sawn wood products, including 3.0 million cubic metres of value- Note 7 Board and Executive Remuneration 62 added products. Our sales in 2012 were EUR 10.8 billion, with an Note 8 Net Financial Items 66 operational EBIT of EUR 618.3 million. Note 9 Income Taxes 68 Note 10 Valuation Allowances 70 Stora Enso uses and develops its expertise in renewable materials Note 11 Depreciation and Fixed Asset Impairment Charges 71 to meet the needs of its customers and many of today’s global Note 12 Fixed Assets 74 raw material challenges. Our products provide a climate-friendly Note 13 Biological Assets 77 alternative to many products made from competing non-renewable Note 14 Equity Accounted Investments 78 materials, and have a smaller carbon footprint. Our solutions Note 15 Available-for-Sale Investments 82 based on wood therefore have wide-reaching benefits for us as a Note 16 Other Non-Current Assets 84 business, for people and for the planet. Being responsible – doing Note 17 Inventories 84 good for the people and the planet – underpins our thinking and Note 18 Receivables 85 our approach to every aspect of doing business. Note 19 Shareholders’ Equity 87 Note 20 Non-Controlling Interests 88 Stora Enso is transforming to a value-creating, growth markets Note 21 Post-Employment Benefits 89 renewable materials company. We will focus more on growth Note 22 Employee Variable Compensation and markets in China and Latin America, and fibre-based packaging, Equity Incentive Schemes 96 plantation-based pulp and competitive paper grades. Fibre-based Note 23 Other Provisions 98 packaging offers steady long-term growth in most segments and Note 24 Operative Liabilities 100 has vast innovation potential, offering sustainable new solutions Note 25 Financial Risk Management 101 for our customers. Plantation-based pulp allows us to secure Note 26 Fair Values 107 low-cost fibre for production. Note 27 Debt 110 Note 28 Derivatives 113 Note 29 Cumulative Translation Adjustment and Equity Hedging 117 Note 30 Commitments and Contingencies 120 Note 31 Principal Subsidiaries in 2012 123 Note 32 Related Party Transactions 125 Note 33 Earnings per Share and Equity per Share 127 Extract from the Parent Company Financial Statements 128 The Board of Directors’ Proposal for the Distribution of Dividend 130 Auditor’s Report 131 Capacities by Mill in 2013 132 Calculation of Key Figures 135 Information for Shareholders 136

The Official Financial Statements (in Finnish), an English translation of the Parent Company Financial Statements and the list of principal subsidiaries can be found at www.storaenso.com

Stora Enso Financial Report 2012 1 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Stora Enso in Capital Markets Stora Enso in Capital Markets

Shares and shareholders Shares and voting rights American Depositary Receipts (ADRs)

Stora Enso Oyj’s (hereafter “Company” or “Stora Enso”) shares are Stora Enso has a sponsored Level I American Depositary Receipts divided into A and R shares. The A and R shares entitle holders to the (ADR) facility, and following the delisting from NYSE on 28 December same dividend but different voting rights. Each A share and each ten 2007, Stora Enso’s ADRs are traded on the International OTCQX. The R shares carry one vote at a shareholders’ meeting. However, each ratio between Stora Enso ADRs and R shares is 1:1, i.e. one ADR shareholder has at least one vote. represents one Stora Enso R share. Deutsche Bank Trust Company Americas acts as depositary bank for the Stora Enso ADR programme. On 31 December 2012 Stora Enso had 177 147 772 A shares and The trading symbol is SEOAY and the CUSIP is 86210M106. 612 390 727 R shares in issue, of which the Company held no A shares and 918 512 R shares with an accountable par of EUR 1.6 million. The Share registers holding represents 0.12% of the Company’s share capital and 0.04% The Company’s shares are entered in the Book-Entry Securities of the voting rights. The total number of Stora Enso shares in issue was System maintained by Euroclear Finland Oy, which also maintains the 789 538 499 and the total number of votes 238 386 844. official share register of Stora Enso Oyj.

Share listings On 31 December 2012, 237 810 538 of the Company’s shares were Stora Enso shares are listed on NASDAQ OMX Helsinki and NASDAQ registered in Euroclear Sweden AB and 28 900 312 of the Company’s­ R OMX Stockholm. Stora Enso shares are quoted in Helsinki in euros shares were registered in ADR form in Deutsche Bank Trust ­Company (EUR) and in Stockholm in Swedish krona (SEK). Americas.

Distribution by Book-Entry System, 31 December 2012

Number of shares Total A shares R shares Euroclear Finland Oy 522 827 649 103 185 463 419 642 186 Euroclear Sweden AB1) 237 810 538 73 962 309 163 848 229 Deutsche Bank administered ADRs1) 28 900 312 0 28 900 312 Total 789 538 499 177 147 772 612 390 727

1) Share registered in Euroclear Sweden and ADRs are both nominee registered in Euroclear Finland.

Ownership Distribution, 31 December 2012

% of shares % of votes % of shareholders % of shares held Foundation Asset Management 10.1% 27.2% 0.0% Finnish institutions 15.8% 21.9% 2.6% Solidium Oy1) 12.3% 25.1% 0.0% Finnish private shareholders 4.5% 2.7% 42.5% Swedish institutions 13.5% 6.9% 2.6% Swedish private shareholders 4.6% 3.1% 48.7% ADR holders 3.7% 1.2% 2.1% Under nominee names (non-Finnish/non-Swedish shareholders) 35.5% 11.9% 1.5%

1) Entirely owned by the Finnish State.

2 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Stora Enso in Capital Markets

Share capital Conversion

On 31 December 2012 the Company’s fully paid-up share capital According to the Articles of Association, holders of Stora Enso A entered in the Finnish Trade Register was EUR 1 342.2 million. The shares may convert these shares into R shares at any time. Conversion current accountable par of each issued share is EUR 1.70. of shares is voluntary. During the year 1 000 A shares were converted into R shares. The conversions were recorded in the Finnish Trade Register on 16 January 2012.

Changes in Share Capital 2006–2012

No. of A shares No. of R shares Total no. Share capital issued issued of shares (EUR million) Stora Enso Oyj, 1 Jan 2006 178 159 778 634 817 321 812 977 099 1 382.1 Cancellation of repurchased shares, 31 Mar 2006 -38 600 -23 400 000 -23 438 600 -39.9 Conversion of A shares into R shares, Dec 2005–Nov 2006 -18 061 18 061 - - Stora Enso Oyj, 31 Dec 2006 178 103 117 611 435 382 789 538 499 1 342.2 Conversion of A shares into R shares, Dec 2006–Nov 2007 -624 084 624 084 - - Stora Enso Oyj, 31 Dec 2007 177 479 033 612 059 466 789 538 499 1 342.2 Conversion of A shares into R shares, Dec 2007–Nov 2008 -326 602 326 602 - - Stora Enso Oyj, 31 Dec 2008 177 152 481 612 386 018 789 538 499 1 342.2 Conversion of A shares into R shares, Dec 2008–Nov 2009 -2 397 2 397 - - Stora Enso Oyj, 31 Dec 2009 177 150 084 612 388 415 789 538 499 1 342.2 Conversion of A shares into R shares, Dec 2009–Nov 2010 -300 300 - - Stora Enso Oyj, 31 Dec 2010 177 149 784 612 388 715 789 538 499 1 342.2 Conversion of A shares into R shares, Dec 2010–Nov 2011 -1 012 1 012 - - Stora Enso Oyj, 31 Dec 2011 177 148 772 612 389 727 789 538 499 1 342.2 Conversion of A shares into R shares, Dec 2011–Nov 2012 -1 000 1 000 - - Stora Enso Oyj, 31 Dec 2012 177 147 772 612 390 727 789 538 499 1 342.2

For more historical data about the share capital, please visit www.storaenso.com/investors.

Stora Enso Financial Report 2012 3 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Stora Enso in Capital Markets

Stora Enso’s activities in capital markets during 2012

Stora Enso’s Investor Relations activities cover equity and fixed-income brokerage firms. There were also meetings with fixed-income analysts markets to ensure full and fair valuation of the Company’s shares, and investors. In addition, site visits were arranged for members of the continual access to funding sources and stable bond pricing. Investors investment community. During the year, senior management and IR and analysts are met on a regular basis in Europe, North America, Asia personnel also gave presentations at equity and fixed-income investor and parts of Latin America. In 2012 the IR team conducted a number of conferences in Scandinavia, Continental Europe, the United Kingdom individual and group meetings with equity investors, whilst maintaining and North America. Capital markets day was arranged on 22 March regular contact with equity research analysts at investment banks and 2012 in Langerbrugge, Belgium.

Shareholdings of other Group-related bodies The free float of shares excluding shareholders with holdings of more at 31 December 2012 than 5% of shares or votes is approximately 570 million shares, E.J. Ljungberg’s Education Foundation owned 1 780 540 A shares which is 72% of the total number of shares issued. The largest single and 2 336 224 R shares, E.J. Ljungberg’s Foundation owned shareholder in the Company is Foundation Asset Management based 39 543 A shares and 101 579 R shares, Mr. and Mrs. Ljungberg’s in Sweden. Testamentary Foundation owned 5 093 A shares and 13 085 R shares and Bergslaget’s Healthcare Foundation owned 626 269 A shares and 1 609 483 R shares. Shareholders

At the end of 2012 the Company had approximately 84 521 registered shareholders, including about 44 313 Swedish shareholders and about 1 749 ADR holders. Each nominee register is entered in the share register as one shareholder. Approximately 525 million (67%) of the Company’s shares were registered in the name of a nominee.

Major Shareholders as of 31 December 2012

By voting power A shares R shares % of shares % of votes 1 Foundation Asset Management 63 123 386 17 000 0001) 10.1% 27.2% 2 Solidium Oy2) 55 595 937 41 483 501 12.3% 25.1% 3 Social Insurance Institution of Finland 23 825 086 2 775 965 3.4% 10.1% 4 Varma Mutual Pension Insurance Company 15 572 117 140 874 2.0% 6.5% 5 Ilmarinen Mutual Pension Insurance Company 3 492 740 10 019 750 1.7% 1.9% 6 MP-Bolagen i Vetlanda AB (Werner von Seydlitz) 3 828 000 2 937 000 0.9% 1.7% 7 Nordea Investment Funds 0 29 513 552 3.7% 1.2% 8 Erik Johan Ljungberg's Education Foundation 1 780 540 2 336 224 0.5% 0.8% 9 Swedbank Robur Funds 0 9 789 260 1.2% 0.4% 10 Bergslaget's Healthcare Foundation 626 269 1 609 483 0.3% 0.3% 11 AMF - Insurance and Funds 0 7 710 700 1.0% 0.3% 12 The State Pension Fund 0 7 380 000 0.9% 0.3% 13 Kaleva Mutual Insurance Company 603 718 378 545 0.1% 0.3% 14 Unionen (Swedish trade union) 0 5 997 200 0.8% 0.3% 15 Catella Funds 0 5 186 447 0.7% 0.2% Total 168 447 793 144 258 501 39.6%3) 76.6%3) Nominee-registered shares 74 218 799 450 474 300 66.5%3) 50.0%3)

1) As confirmed to Stora Enso. 2) Entirely owned by the Finnish State. 3) As some of the shareholdings on the list are nominee registered, the percentage figures do not add up to 100%.

The list has been compiled by the Company on the basis of shareholder information obtained from Euroclear Finland, Euroclear Sweden and a database managed by Deutsche Bank Trust Company Americas. This information includes only directly registered holdings, thus certain holdings (which may be substantial) of shares held in nominee or brokerage accounts cannot be included. The list is therefore incomplete.

4 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Stora Enso in Capital Markets

Equity per Share Distributed Dividend / Capital Repayment EUR EUR million

10 250

8 200

6 150

4 100

2 50 0 0 08 09 10 11 12 09 10 11 12 131)

1) Board of Director's proposal to the AGM for the distribution of dividend. Share price performance and volumes Helsinki The Stora Enso R (STERV) share price increased during 2012 by 13% (40% decrease in 2011). During the same period the OMX Helsinki Index increased by 8%, the OMX Helsinki Benchmark Index by 12% and the OMX Helsinki Basic Materials Index by 1%.

Helsinki, Stora Enso A Helsinki, Stora Enso R Number of shares, million Share price (EUR) Number of shares, million Share price (EUR)

5 10 250 10

4 8 200 8

3 6 150 6

2 4 100 4

1 2 50 2

0 0 0 0 08 09 10 11 12 08 09 10 11 12 Volume Volume Monthly average share price Monthly average share price

Stockholm OTCQX The Stora Enso R (STE R) share price increased during 2012 by 9% On the International OTCQX, the Stora Enso ADR (SEOAY) share (40% decrease in 2011). During the same period the OMX Stockholm price increased during 2012 by 17% (40% decrease in 2011). During 30 Index increased by 12% and the OMX Stockholm Basic Materials the same period the Standard & Poor’s 500 Paper Products Index Index by 11%. increased by 30%.

Stockholm, Stora Enso R New York, Stora Enso ADR Number of shares, million Share price (SEK) Number of shares, million Share price (USD)

50 100 25 15

40 80 20 12

30 60 15 9

20 40 10 6

10 20 5 3

0 0 0 0 08 09 10 11 12 08 09 10 11 12 Volume Volume Monthly average share price Monthly average share price

Stora Enso Financial Report 2012 5 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Stora Enso in Capital Markets

Share Prices and Volumes 2012

Helsinki, EUR Stockholm, SEK OTCQX, USD A share 7.15 67.50 - High R share 5.95 52.40 7.49 A share 5.10 44.63 - Low R share 4.14 36.22 5.39 A share 5.70 49.50 - Closing, 31 Dec 2012 R share 5.25 44.90 6.95 A share 13% 8% - Change from previous year R share 13% 9% 17% A share 830 992 1 278 729 - Cumulative trading volume, no. of shares R share 977 746 138 290 123 066 24 750 457

The volume-weighted average price of R shares over the year was Monthly R Shares Trading Volumes EUR 5.08 in Helsinki (EUR 6.28 in 2011), SEK 44.06 in Stockholm Number of shares, million (SEK 55.98 in 2011) and USD 6.48 on the International OTCQX (USD 9.02 in 2011). The total number of R shares traded was 977 746 138 30 25 shares (42% of total) in Helsinki, 290 123 066 shares (12% of total) in 20 Stockholm, 24 750 457shares (1% of total) on the International OTCQX 15 and 1 037 143 096 shares in alternative trading venues (45% of total). 10 Total market capitalisation on the OMX Helsinki at the year-end was 5 EUR 4.2 billion. 0 08 09 10 11 12 Stora Enso R Share vs NASDAQ OMX Helsinki Indices 1.1.2008 = 100 Helsinki Stockholm OTCQX Alternative trading venues

125 100 Alternative trading venues 75 Stora Enso shares can be traded outside NASDAQ OMX Helsinki and 50 NASDAQ OMX Stockholm, where the shares are listed. During 2012 25 alternative trading venues such as Boat xoff, BATS Chi-X CXE, BATS 0 Chi-X BXE, Turquoise and Burgundy further increased their market 08 09 10 11 12 share of monthly turnover in Stora Enso shares. Their proportion of the Stora Enso (EUR) monthly share trading varied between 34% and 60%. Of the alternative OMX Helsinki Basic Materials (EUR) trading venues, Boat xoff had the biggest share of the volume with OMX Helsinki (EUR) 39 % on an annual basis (Chi-X 15% in 2011).

Market Capitalisation on OMX Helsinki EUR million

8 000 7 000 6 000 5 000 4 000 3 000 2 000 1 000 0 08 09 10 11 12

6 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Stora Enso in Capital Markets

Stora Enso Is Included in at Least the Following Indices

OMX INDICES STOXX INDICES MSCI INDICES FTSE INDICES SUSTAINABILITY INDICES • OMX Helsinki • STOXX Global 1800 • MSCI Finland • FTSE RAFI All-World 3000 • Carbon Disclosure Project • OMX Helsinki 25 • STOXX Europe 600 • MSCI Europe • FTSE RAFI Developed 1000 • FTSE4GOOD Index • OMX Helsinki Cap • STOXX Europe Mid 200 • MSCI World • FTSE Finland 25 Index • World's Most Ethical • OMX Helsinki Benchmark • STOXX Nordic • FTSE4Good Companies 2012 • OMX Helsinki Benchmark Cap • EURO STOXX • FTSE4Good Global • Forest footprint Disclosure • OMX Helsinki Basic Materials • EURO STOXX Basic Materials • ECPI Ethical Indices • OMX Helsinki Forestry & Paper • EURO STOXX Basic Resources • OMX GES Sustainability • OMX Stockholm • EURO STOXX Sustainability Finland index • OMX Stockholm Basic Materials • OMX Stockholm Forestry & Paper • OMX Nordic • OMX Nordic Large Cap

Read more about sustainability indices in Global Responsibility Report 2012.

Trading Codes and Currencies

Helsinki Stockholm International OTCQX A share STEAV STE A - R share STERV STE R - ADRs - - SEOAY Segment Large Cap Large Cap - Sector Materials Materials - Currency EUR SEK USD ISIN, A share FI0009005953 FI0009007603 - ISIN, R share FI0009005961 FI0009007611 - CUSIP - - 86210M106 Reuters STERV.HE Bloomberg STERV FH EQUITY

Stora Enso Financial Report 2012 7 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Stora Enso in Capital Markets

Key Share Data 2003–2012, Total Operations (for Calculations See Page 135)

According to NASDAQ OMX Helsinki 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 Earnings/share, EUR 0.61 0.43 0.97 -1.12 -0.85 -0.27 0.74 -0.14 0.91 0.16 – diluted, EUR 0.61 0.43 0.97 -1.12 -0.85 -0.27 0.74 -0.14 0.91 0.17 – excl. NRI, EUR 0.33 0.63 0.79 0.19 0.19 0.88 0.55 0.28 0.25 0.24 Cash earnings/share, EUR 1.28 1.16 1.33 0.35 1.01 2.11 2.34 1.65 2.04 1.57 – diluted, EUR 1.28 1.16 1.33 0.35 1.01 2.11 2.34 1.65 2.04 1.57 – excl. NRI, EUR 1.07 1.33 1.46 0.92 1.05 2.35 1.97 1.70 1.67 1.63 Equity/share, EUR 7.33 7.45 7.87 6.50 7.09 9.63 10.04 9.31 9.29 9.49 Dividend and distribution/share, EUR 0.301) 0.30 0.25 0.20 0.20 0.45 0.45 0.45 0.45 0.45 Payout ratio, excl. NRI, % 91 48 32 105 105 51 82 161 180 188 Dividend and distribution yield, % A share 5.3 6.0 3.2 3.4 3.6 4.4 3.7 3.9 3.9 4.1 R share 5.7 6.5 3.3 4.1 3.6 4.4 3.8 3.9 4.0 4.2 Price/earnings ratio (P/E), excl. NRI A share 17.3 8.0 10.0 30.8 29.6 11.6 22.4 40.9 46.2 44.0 R share 15.9 7.3 9.7 25.7 29.1 11.6 21.8 40.9 45.1 42.7

Share prices for the period, EUR A share – closing price 5.70 5.03 7.90 5.85 5.63 10.19 12.30 11.46 11.55 11.00 – average price 6.15 7.73 6.47 5.03 7.48 12.71 12.10 11.05 11.11 10.63 – high 7.15 9.80 7.94 7.55 11.20 14.65 13.80 12.19 12.15 12.48 – low 5.10 4.70 5.30 2.82 5.16 9.80 10.16 9.51 10.00 8.25 R share – closing price 5.25 4.63 7.69 4.88 5.52 10.24 12.00 11.44 11.27 10.68 – average price 5.08 6.28 6.03 4.27 7.32 12.67 11.89 10.98 10.89 10.23 – high 5.95 8.99 7.79 6.16 10.44 14.56 13.58 12.17 12.11 12.42 – low 4.14 3.73 4.15 2.65 5.10 9.99 10.01 10.05 9.60 8.30 Market capitalisation at year-end, EUR million A share 1 010 891 1 400 1 036 997 1 809 2 191 2 042 2 068 1 993 R share 3 212 2 835 4 709 2 989 3 381 6 267 7 337 7 262 7 418 7 295 Total 4 222 3 726 6 109 4 025 4 378 8 076 9 528 9 304 9 486 9 288 Number of shares at the end of period, (thousands) A share 177 148 177 149 177 150 177 150 177 152 177 479 178 103 178 160 179 049 181 211 R share 612 391 612 389 612 389 612 388 612 386 612 059 611 435 634 817 658 195 683 051 Total 789 538 789 538 789 538 789 538 789 538 789 538 789 538 812 977 837 244 864 262

Trading volume, (thousands) A share 831 1 402 1 887 2 536 1 712 5 409 1 403 6 290 1 203 2 937 % of total number of A shares 0.5 0.8 1.1 1.4 1.0 3.1 0.8 3.5 0.7 1.6 R share 977 746 1 237 898 1 194 245 1 297 668 1 231 605 1 263 658 1 165 656 888 511 880 002 780 890 % of total number of R shares 159.7 202.1 195.0 211.9 201.1 206.5 190.6 104.0 133.7 114.3 Average number of shares (thousands) basic 788 620 788 620 788 619 788 620 788 620 788 599 788 578 798 687 829 935 851 128 diluted 788 620 788 620 788 619 788 620 788 620 788 751 788 863 799 218 830 546 851 326

1) Board of Directors’ proposal to the AGM for distribution of dividend. NRI = non-recurring items

Read more about: Incentive programmes in Note 22 Management interests in Note 7

8 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Debt Investors Debt Investors

Funding strategy Rating strategy

Stora Enso’s funding strategy is based on the Group’s financial The present rating and outlook from Moody’s, Standard & Poor’s (S&P) targets. Stora Enso should have access to sufficient competitively and Fitch are shown below. priced funding at any time to be able to pursue its strategy and achieve its financial targets. In order to achieve this, the emphasis Ratings as at 31 December 2012 is on capital markets funding. Stora Enso strives to build confidence Rating Agency Long/Short-Term Rating Valid from and a track record with fixed-income investors by being informative Standard & Poor’s BB (negative)/B 25 October 2012 and transparent. Moody’s Ba2 (negative)/NP 24 October 2012 Fitch BB- (stable)/B 26 July 2012 (unsolicited) The debt structure of Stora Enso is focused on capital markets, whereas banks are utilised primarily to provide back-up facilities. Stora Enso’s goal is to ensure that rating agencies continue to be To balance exposures, funding is obtained in the currencies of the comfortable with Stora Enso’s strategy and performance. The Company’s Group’s investments and assets (primarily USD, EUR and SEK). strategy is to achieve liquidity well in line with the comfort level of the Commercial paper markets are used for short-term funding and agencies. Review meetings are arranged with the Stora Enso management liquidity management. annually, and regular contact is kept with the rating analysts.

Debt Structure as at 31 December 2012

EUR USD SEK

Public issues EUR 395 million 2014 USD 508 million 2016 SEK 500 million 2015 EUR 390 million 2016 USD 300 million 2036 SEK 1 400 million 2015 EUR 500 million 2018 SEK 2 400 million 2015 EUR 500 million 2019 SEK 500 million 2017 SEK 2 200 million 2017 Private placements EUR 125 million USD 50 million Financial institutions EUR 505 million USD 368 million Pension commitment loans EUR 174 million Commercial paper issues EUR 190 million

Debt Programmes and Credit Facilities Finnish Commercial Paper Programme Swedish Commercial Paper Programme Commercial Paper Programmes EUR 750 million SEK 10 000 million EMTN (Euro Medium Term Note Programme) EUR 4 000 million EUR 700 million Syndicated Multi- Back-up facility Currency Revolving Credit Facility 20151)

1) Undrawn committed credit facility EUR 700 million.

Read more about: Debt and loans in Note 27 www.storaenso.com/debt

Stora Enso Financial Report 2012 9 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Corporate Governance in Stora Enso Corporate Governance in Stora Enso

The duties of the various bodies within Stora Enso Oyj (“Stora Enso” Governance Bodies

or the “Company”) are determined by the laws of Finland and by the Shareholders’ meeting Company’s corporate governance policy, which complies with the Nomination Board Finnish Companies Act and the Finnish Securities Market Act. The rules and recommendations of the NASDAQ OMX Helsinki and Stockholm Board of Directors stock exchanges are also followed, where applicable. This corporate Financial and Audit Committee Remuneration Committee

governance policy is approved by the Board of Directors (“Board”). CEO Compliance Board Stora Enso’s Corporate Governance complies with the Finnish Group Executive Team (GET) Corporate Governance Code (the “Code”) issued by the Securities Market Association that entered into force on 1 October 2010. The Auditing Code is available at the internet website www.cgfinland.fi. Stora Enso’s Internal Audit External Auditor

Corporate Governance also complies with the Swedish Corporate Insider guidelines Governance Code (“Swedish Code”) which entered into force on 1 February 2010 (and applicable to Stora Enso as foreign company from 1 January 2011) with the exception of the deviations listed in Stora Objectives and composition of Enso’s full Corporate Governance Report. The deviations are due to governance bodies differences between the Swedish and Finnish legislation, governance The shareholders exercise their ownership rights through the code rules and practices, and in these cases Stora Enso follows the shareholders’ meetings. The decision-making bodies with responsibility practice in its domicile. The Swedish Code is issued by the Swedish for managing the Company are the Board and the CEO. The Group Corporate Governance Board and is available at the internet website Executive Team (GET) supports the CEO in managing the Company. www.corporategovernanceboard.se. Day-to-day operational responsibility rests with the GET members and The Corporate Governance Report is available as a PDF document at their operation teams supported by various staff and service functions. www.storaenso.com/investors/governance. Shareholders’ meetings

General governance issues The Annual General Meeting of shareholders (AGM) is held annually to The Board and the Chief Executive Officer (CEO) are responsible for present detailed information about the Company’s performance and the management of the Company. Other governance bodies have an to deal with matters such as adopting the annual accounts, setting assisting and supporting role. the dividend (or distribution of funds) and its payment, and appointing members of the Board of Directors and the Auditor. Stora Enso prepares Consolidated Financial Statements and Interim Reviews conforming to International Financial Reporting Standards Shareholders may exercise their voting rights and take part in the (IFRS), and Annual Reports, which are published in Finnish and decision-making process of Stora Enso by attending shareholders’ English. The financial section of the Annual Report is also translated meetings. Shareholders also have the right to ask questions of the into German, and the Interim Reviews into Swedish, in addition to Company’s management and Board of Directors at shareholders’ these languages. meetings. Major decisions are taken by the shareholders at Annual or Extraordinary General Meetings. At a shareholders’ meeting, each A The Company’s head office is in Helsinki, Finland. It also has head share and each ten R shares carry one vote. office functions in Stockholm, Sweden. The Board of Directors convenes a shareholders’ meeting by publishing Stora Enso has one statutory auditor elected by the shareholders at a notice to the meeting in at least two Finnish and two Swedish the Annual General Meeting (AGM). newspapers, not more than three (3) months before the last day for advance notice of attendance mentioned in the notice to the meeting and To the maximum extent possible, corporate actions and corporate not less than twenty-one (21) days before the date of the meeting. Other records are taken and recorded in English. regulatory notices to the shareholders are delivered in the same way.

10 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Corporate Governance in Stora Enso

The Annual General Meeting is held by the end of June in Helsinki, Finland. The Nomination Board comprises four members: The Finnish Companies Act and Stora Enso’s Articles of Association • the Chairman of the Board; specify in detail that the following matters have to be dealt with at the AGM: • the Vice Chairman of the Board; • presentation and adoption of the annual accounts • two members appointed annually by the two largest shareholders • presentation of the report on operations and the Auditor’s report (one each) as of 30 September. • use of the profit and distribution of funds to the shareholders • resolution concerning discharge of the members of the Board and The Chairman of the Board convenes the Nomination Board. A the Chief Executive Officer from liability Nomination Board member who is also a member of the Board may • decision on the number and the remuneration of the members of not be Chairman of the Nomination Board. The Nomination Board the Board and the Auditor presents its proposals for the Annual General Meeting to the Board • election of the members of the Board and the Auditor before 31 January. • any other matters notified separately in the notice to the meeting. The Nomination Board has a charter that defines its tasks and In addition, the AGM shall take decisions on matters proposed by responsibilities in more detail. The Nomination Board approves the the Board of Directors. A shareholder may also propose items for charter in its first meeting. inclusion in the agenda provided that they are within the authority of the shareholders’ meeting and the Board of Directors was asked to include In 2012 the items in the agenda at least four weeks before the publication of The Nomination Board appointed by the AGM in 2012 comprised the notice to the meeting. four members: the Chairman of the Board (Gunnar Brock), the Vice Chairman of the Board (Juha Rantanen) and two other members An Extraordinary General Meeting of Shareholders is convened when appointed by the two largest shareholders, namely Pekka Ala-Pietilä1) considered necessary by the Board of Directors or when requested (Solidium) and Claes Dahlbäck1) (Foundation Asset Management). in writing by an Auditor or shareholders together holding a minimum of one tenth of all the shares to discuss a specified matter which they Pekka Ala-Pietilä was elected Chairman of the Nomination Board at its have indicated. first meeting. The main tasks of the Nomination Board were to prepare the proposals for the AGM in 2013 concerning Board members and In 2012 their remuneration. The Nomination Board appointed by the AGM in Stora Enso’s AGM was held on 24 April 2012 in Helsinki, Finland. Of the 2012 convened 5 times (24 October 2012–31 January 2013). issued and outstanding A and R shares, 91.3% and 44.9% (91.3% and 40.1% in 2011), respectively, and of the aggregate shares and votes, 55.3% The Nomination Board proposes in its proposal for the AGM in 2013 and 79.3% (51.6% and 78.1% in 2011), respectively, were represented at that of the current members of the Board of Directors, Gunnar Brock, the meeting. Majority of the Board members and the GET members as Hock Goh, Birgitta Kantola, Mikael Mäkinen, Juha Rantanen, Hans well as the company’s auditor were present at the meeting. In 2012, no Stråberg, Matti Vuoria and Marcus Wallenberg, shall be re-elected until Extraordinary General Meetings of Shareholders were convened. the end of the following AGM and that Elisabeth Fleuriot and Anne Brunila be elected as new members of the Board of Directors for the same term of office. The Nomination Board also presents a proposal Nomination Board appointed by to keep the Board remuneration on current level and that the AGM the shareholders in 2013 appoint a Nomination Board to present proposals for Board Shareholders at the AGM appoint a Nomination Board to prepare membership and remunerations to the AGM in 2014. proposals concerning: • the number of members of the Board; Remuneration • the members of the Board; Remuneration of EUR 3 000 per annum is paid to members who are • the remuneration for the Chairman, Vice Chairman and members not members of the Board as decided by the AGM. of the Board; 1) Pekka Ala-Pietilä is Chairman of the Board of Solidium and Claes • the remuneration for the Chairman and members of the committees Dahlbäck a Senior Advisor of Foundation Asset Management. of the Board.

Stora Enso Financial Report 2012 11 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Corporate Governance in Stora Enso

Board of Directors (Board) committee’s chairman and members are appointed by the Board Stora Enso is managed by the Board according to International annually. Corporate Governance Principles (based on OECD Principles of Corporate Governance 2004). The Board meets at least five times a year. The Board members meet regularly without management in connection with the Board meetings. According to the Company’s Articles of Association, the Board comprises six to eleven ordinary members appointed by the shareholders at the AGM for a one-year term. It is the policy of the In 2012 Company that the majority of the directors shall be independent of The Board had eight members at the end of 2012, all of them the Company. The independence is evaluated in accordance with independent of the Company. The Board members are also recommendation 15 of the Code. In addition, at least two of the independent of significant shareholders of the Company with the directors comprising this majority shall be independent of significant exception of Marcus Wallenberg (member of the investment committee shareholders of the Company. A significant shareholder is a shareholder of Foundation Asset Management). that holds more than 10% of all the Company’s shares or the votes carried by all the shares or a shareholder that has the right or the The Board members nominated at the AGM in 2012 were Gunnar obligation to purchase 10% of already issued shares. Brock (Chairman), Juha Rantanen (Vice Chairman), Hock Goh, Birgitta Kantola, Mikael Mäkinen, Hans Stråberg, Matti Vuoria and Marcus All directors are required to deal at arm’s length with the Company and Wallenberg. The Board convened 10 times during the year. its subsidiaries and to disclose circumstances that might be perceived For detailed information about the Board members and their share as a conflict of interest. ownerships, see pages 18–19.

The shareholders at the AGM decide the remuneration of the Board members (including the remuneration of the members of the Board Board Remuneration

committees). EUR 20121) 20111) Chairman 170 000 135 000 The Board supervises the operation and management of Stora Enso Vice Chairman 100 000 85 000 and decides on significant matters relating to strategy, investments, Board Member 70 000 60 000 organisation and finance. 1) 40 % of the Board remuneration in 2012 was paid in Stora Enso R shares purchased from the market and distributed as follows: Chairman The Board is responsible for overseeing management and for the 14 044 (6 860) R shares, Vice Chairman 8 262 (4 320) R shares and members 5 783 (3 050) R shares each. proper organisation of the Company’s operations. It is likewise responsible for overseeing the proper supervision of accounting and Board interests as of 31 December 2012 are presented in Note 7. control of financial matters.

The Board has defined a working order, the principles of which are Board committees published in the Annual Report and on the Company’s website. The tasks and responsibilities of the Board committees are defined in their charters, which are approved by the Board. All the committees The Board elects a Chairman and a Vice Chairman from among the evaluate their performance annually, are allowed to use external Board members and appoints the CEO, Chief Financial Officer (CFO) consultants and experts when necessary and shall have access to and other GET members. The Board approves the main organisational all information needed. Each committee’s chairman and members are structure of the Company. appointed by the Board annually.

The Board reviews and determines the remuneration of the CEO, which Financial and Audit Committee is described in the Annual Report and the Company’s website. The The Board has a Financial and Audit Committee to support the Board Board evaluates its performance annually. The Board also reviews the in maintaining the integrity of the Company’s financial reporting corporate governance policy annually and amends it when required. and the Board’s control functions. It regularly reviews the system of internal control, management and reporting of financial risks, the audit The Board’s work is supported through its committees – the Financial process and the annual corporate governance statement. It makes and Audit Committee and the Remuneration Committee. Each recommendations regarding the appointment of external auditor for the parent company and the main subsidiaries.

12 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Corporate Governance in Stora Enso

Working order of the Board

The working order describes the working practices of the Board. A The Committee comprises three to five Board members, who are summary of key contents is presented below. independent and not affiliated with the Company. At least one Committee member must be a financial expert who has significant knowledge Board meetings and experience in accounting and accounting principles applicable to • occur regularly, at least five times a year, according to a schedule the Company. The Financial and Audit Committee meets regularly, at decided in advance; least four times a year. The Committee members meet the external and • special Board meetings shall, if requested by a Board member or internal auditors regularly without the management being present. The the CEO, be held within 14 days of the date of request; Chairman of the Committee presents a report on each Financial and • agenda and material shall be delivered to Board members one week Audit Committee meeting to the Board. The tasks and responsibilities before the meeting. of the Financial and Audit Committee are defined in its charter, which is approved by the Board. Financial and Audit Committee members Information may receive remuneration solely based on their role as directors. The • the Board shall receive information monthly concerning financial remuneration is decided upon by the shareholders at an AGM. performance, the market situation and significant events within the Company’s and the Group’s operations; • Board members shall be informed about all significant events In 2012 immediately. The Financial and Audit Committee comprised three members in 2012: Birgitta Kantola (Chairwoman), Gunnar Brock and Juha Rantanen. The Matters to be handled at Board meetings Committee convened six times. • matters specified by the Finnish Companies Act; • approval of business strategy; In addition to the regular tasks based on the Committee’s charter, • organisational and personnel matters during 2012 the Committee focused on the effectiveness of internal -- decisions concerning the basic top management organisation; controls over financial reporting and overseeing the progress of -- decisions concerning the composition of the Group Executive implementation of enterprise risk management. Team; -- remuneration of the CEO; Remuneration -- appointment and dismissal of the CEO and approval of heads of Chairwoman EUR 20 000 per annum and member EUR 14 000 per Business Areas and other senior officers belonging to the GET; annum as decided by the AGM. -- appointment of Board committees (including chairmen); The summary of Financial and Audit Committee Charter is presented at • economic and financial matters www.storaenso.com/investors/governance -- review of annual budget; -- approval of loans and guarantees, excluding intra-Group loans and guarantees; Remuneration Committee -- report of share repurchases, if any; The Board has a Remuneration Committee which is responsible for -- approval of Group Risk Management Policy according to Financial recommending, evaluating and approving executive nominations and and Audit Committee’s proposal; remunerations (including reviewing and recommending the CEO’s • investment matters remuneration), evaluating the performance of the CEO, and making -- approval of investment policy of the Group; recommendations to the Board relating to management remuneration -- approval of major investments; issues generally, including equity incentive remuneration plans. There -- approval of major divestments; is a Remuneration Committee representative present at the AGM to • other matters answer questions relating to the management remuneration. The Board -- report of the CEO on the Group’s operations; appoints the CEO and approves his/her remuneration. -- reports of the Remuneration Committee and Financial and Audit Committee by the chairmen of the respective committees. The The Committee comprises three to four Board members, who are Nomination Board’s recommendations and proposals shall be independent and not affiliated with the Company. The Remuneration reported to the Board by the Chairman of the Board. Committee meets regularly, at least once a year. The Chairman of the -- approval and regular review of Corporate Governance and the Remuneration Committee presents a report on each Remuneration charters of the Board committees; Committee meeting to the Board. The tasks and responsibilities of the -- annual self-assessment of Board work and performance; Remuneration Committee are defined in its charter, which is approved • other matters submitted by a member of the Board or the CEO. by the Board.

Stora Enso Financial Report 2012 13 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Corporate Governance in Stora Enso

Attendance in Board and Committee meetings in 2012 Financial and Audit Committee Remuneration Committee Board member Board attendance Chairman/Member Attendance Chairman/Member Attendance Gunnar Brock 10/10 x 6/6 x 3/3 Juha Rantanen 10/10 x 6/6 Hock Goh1) 6/6 Birgitta Kantola 10/10 x 6/6 Mikael Mäkinen 10/10 Hans Stråberg 10/10 x 3/3 Matti Vuoria 10/10 x 3/3 Marcus Wallenberg 10/10

1) Hock Goh was appointed at the 2012 Annual General Meeting.

In 2012 The CEO is also responsible for preparatory work with regard to Board The Remuneration Committee comprised three members in 2012. The meetings. In addition, he/she supervises decisions regarding key members were Gunnar Brock (Chairman), Hans Stråberg and Matti Vuoria. personnel and other important operational matters. The Committee convened three times. The CFO acts as deputy to the CEO as defined in the Finnish During 2012, the main tasks were to recommend, evaluate and approve Companies Act. executive nominations and remunerations, and to make recommendations Detailed information about the CEO is presented on page 20 and to the Board relating to management remuneration in general. information about CEO remuneration in Note 7.

Remuneration Group Executive Team (GET) Chairman EUR 10 000 per annum and member EUR 6 000 per annum The GET is chaired by the CEO. The GET members are appointed by as decided by the AGM. the CEO and approved by the Board. Currently, the nine GET members are the CEO, the CFO, and the heads of the four Business Areas, The summary of Remuneration Committee Charter is presented at www.storaenso.com/investors/governance Global People and Organisation, Global Ethics and Compliance (who is also General Counsel) and Global Identity.

Management of the Company The GET’s tasks and responsibilities are: review of key day-to- Chief Executive Officer (CEO) day operations and operational decisions, key leadership issues, The CEO is in charge of the day-to-day management of the Company investment proposals, planning and follow-up, control of mergers, in accordance with instructions and orders issued by the Board. It acquisitions and divestments, preparation of strategic guidelines, is the duty of the CEO to ensure that the Company’s accounting sustainability policies, allocation of resources and preparatory work principles comply with the law and that financial matters are handled with regard to Board meetings. in a reliable manner. The GET meets regularly every month, and as required. The Board approves the main organisation, including the functions reporting to the CEO. In 2012 the CEO was directly in charge of the following functions, which also reported to him: In 2012 • Business Areas (Printing and Reading, Biomaterials, Building and The GET had nine members at the end of 2012. The GET convened Living and Renewable Packaging) 14 times during the year, six times in person and eight times over the • CFO (responsible for IT, Accounting & Controlling, Treasury, Risk telephone. Important items on the agenda in 2012 were implementation Management, Taxes, Internal Audit, Investor Relations, Strategy, of the new Business Area structure, safety issues, diversity and quality Corporate Finance and M&A) of the talent bench, company purpose and values, reviewing the • Global People and Organisation operations of the Group, planning and following up on investment • Global Ethics and Compliance, General Counsel and other strategic projects, and preparatory work for Board meetings. • Global Identity • R&D and Capital Investments

14 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Corporate Governance in Stora Enso

Business Areas and other functions In 2012 In 2012, Stora Enso rethought the organisation structure. New Business Deloitte & Touche Oy (Deloitte) has been acting as Stora Enso’s Areas were implemented and a stronger division between Business auditor since 2008. At the 2012 Annual General Meeting Deloitte was Areas, Group functions and service functions created. Independence re-elected as auditor for a term of office expiring at the end of the of Business Areas was increased, especially in respect of organising Annual General Meeting in 2013. the Business Area resources and manning as well as deciding on usage of services offered by the service functions. Detailed information about auditor’s fees is presented in Note 5.

Group functions are corporate related functions that do not offer Internal Audit services to the Business Areas, whereas service functions offer services Stora Enso has a separate internal auditing organisation. The role of to the Business Areas. Each Business Area shall have independence Internal Audit is to provide independent, objective assurance and in deciding whether and to what extent it utilises the offered services. consulting services that add value and improve the Group’s operations. Internal Audit helps the Group to accomplish its objectives by providing a The investment planning is carried out by the Business Areas and, in case systematic, disciplined approach to evaluate and improve the effectiveness certain monetary thresholds are exceeded, reviewed by the Investment of internal control, risk management and governance processes. Working Group, consisting Group and Business Area representatives. The CEO and GET are responsible for the investment allocations and To ensure the independence of the Internal Audit department, its decisions, as well as proposals to the Board of Directors. personnel report to the head of Internal Audit, who reports functionally to the Financial and Audit Committee and CEO, and administratively to the The GET is responsible for all policy issues relating to sustainability. CFO. The head of Internal Audit is appointed by the CEO. The CEO shall Everyday sustainability issues are handled by Stora Enso’s Global seek approval of the appointment from the Financial and Audit Committee. Responsibility function together with the Global Ethics and Compliance function, Global People and Organisation function and Business Areas, Internal Audit conducts regular audits at mills, subsidiaries and other which are responsible for the operational management of responsibility Company units, implementing an annual audit plan approved by the issues. The role of the Global Responsibility function is to develop, Financial and Audit Committee, including any special tasks or projects support and follow up on Stora Enso’s Global Responsibility strategy, and requested by management and the Financial and Audit Committee. ensure that sustainability policies, guidelines and targets are duly realised. Compliance Board The Company has established user boards for certain cross-functional Stora Enso Compliance Board supervises and monitors legal and service functions (Purchasing, Logistics, Business Information Services, regulatory compliance related policies, implementation and maintenance Accounting Services, Energy and parts of Wood Supply). These user of processes and tools regarding the same, as well as concrete boards consist of representatives of the Business Areas using these compliance issues and cases in the field of business practices. The services. The user boards supervise and steer the operations of the Compliance Board consists of General Counsel (chairperson), CEO, service functions in question. CFO, Head of Global People and Organisation, Head of Internal Audit and the Legal Counsel dedicated to compliance matters. The The Company has also established proper disclosure policies and Compliance Board shall convene at least four times every year. controls, and process for quarterly and other ongoing reporting. Insider guidelines Other supervisory bodies and norms The Company complies with the insider guidelines of NASDAQ OMX Auditors Helsinki. The Company’s internal insider guidelines are published and The AGM annually elects one auditor for Stora Enso. The Financial and distributed throughout the Group. Audit Committee monitors the auditor selection process and gives its recommendation as to who should serve as auditor to the Board and to The Company expects the management and all its employees to act in the shareholders at the AGM. The auditor shall be an authorised public the way required of an insider. All unpublished information relating to accounting firm, which appoints the responsible auditor. the Company’s present and future business operations shall be kept strictly confidential.

Stora Enso Financial Report 2012 15 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Corporate Governance in Stora Enso

Public insiders Internal control and risk management related to According to the Finnish Securities Markets Act, public insiders or financial reporting persons subject to disclosure requirement are persons in the following Internal control over financial reporting positions: members of the Board of Directors, the CEO and the CFO, In the Company, the system of internal control and risk management and person(s) with main responsibility for the audit. The CEO has related to financial reporting is designed to provide reasonable decided that other public insiders are the members of the Group assurance regarding the reliability of financial reporting and the Executive Team (GET), Assistant General Counsel and the head of preparation of financial statements in accordance with applicable laws Investor Relations. and regulations, generally accepted accounting principles and other requirements for listed companies. The list of public insiders is approved by the CEO. The Company’s public insider register is publicly available and is maintained by The system of internal control in the Stora Enso Group is based upon Euroclear Finland Oy. the framework issued by the Committee of Sponsoring Organisations (COSO) and comprises five principal components of internal control: Company-specific insiders the control environment, risk assessment, control activities, information Company-specific insiders are persons who regularly receive inside and communication, and monitoring. information or who could have an opportunity to gain access to insider information through the nature of their work and who are not in the Control environment public insider register. Company-specific insiders are the Business The control environment sets the tone of the organisation, influencing Area Management Teams, the personal assistants/secretaries to the the control consciousness of employees. It is the foundation for all members of the GET and Business Area Management Teams and other components of internal control, providing discipline and structure. the representatives of the employees. The heads and all members of the Investor Relations and Global Communications teams are also The Board has the overall responsibility for setting up an effective regarded as company-specific insiders, as well as the heads and system of internal control and risk management. The roles and certain team members of Treasury, Group Accounting and Controlling responsibilities of governance bodies are defined in the Corporate and Legal Services. Governance policy of the Company.

The company-specific insider register is a non-public permanent Responsibility for maintaining an effective control environment and register. Persons included in a company-specific insider register are operating the system for risk management and internal control of informed either by letter or by e-mail. The list of persons included in the financial reporting is delegated to the CEO. The internal control in the continuously updated company-specific insider register is approved Company is based on the Group’s structure, whereby the Group’s by the General Counsel. operations are organised into four Business Areas and various support and service functions. Group functions prepare and the CEO and Project-specific insider register GET issue corporate guidelines that stipulate responsibilities and When a large project such as a merger or acquisition is under authority, and constitute the control environment for specific areas, preparation, persons who are involved in that project and receive inside such as finance, accounting, investments, purchasing and sales. information are also considered insiders. In these cases a separate The Company has proper processes to ensure the reliability of the project-specific insider register is established. The General Counsel Company’s financial reporting and disclosure processes. or the Assistant General Counsel will decide case-by-case in which projects such a register shall be established. The Company has a formal code of conduct and other policies regarding acceptable business practice, conflicts of interest and A project-specific insider register is a temporary register. Persons expected standards of ethical and moral behavior. These policies are included in a project-specific insider register are informed either by translated into relevant languages. Standard requirements have been letter or by e-mail. defined for internal control over financial reporting and self-assessment is used as a tool to facilitate the evaluation of controls in individual Closed period business units and support functions. During the closed period insiders are not allowed to trade in the Company’s securities. The period starts when the reporting period The management expects all employees to maintain high moral ends and lasts until the results are announced. The dates are published and ethical standards and those expectations are communicated in the financial calendar at www.storaenso.com/investors. to employees through internal communication channels and are

16 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Corporate Governance in Stora Enso

reinforced through training. The management philosophy is based Monitoring on principles whereby performance targets do not test an employee’s The Company’s financial performance is reviewed at each Board ability to adhere to ethical values. meeting. The Financial and Audit Committee handles and the Board reviews all Interim Reviews before they are released by the CEO. The Risk assessment annual financial statements and the Report of the Board of Directors Risk assessment is the identification and analysis of relevant risks are reviewed by the Financial and Audit Committee and approved to the achievement of objectives, forming a basis for determining by the Board. The effectiveness of the process for assessing risks how the risks should be managed. In the Company the major risks and the execution of control activities are monitored continuously at affecting internal control over financial reporting have been identified various levels. Monitoring involves both formal and informal procedures in a baseline risk assessment and at different levels, such as Group, applied by management and processes owners, including reviews of Business Area, unit or function and process. The assessment of risk results in comparison with budgets and plans, analytical procedures, includes risks related to fraud and irregularities, as well as the risk of and key performance indicators. loss or misappropriation of assets. Information on development of essential risk areas and executed and planned activities in these areas The Company has a separate internal auditing organisation. The role, are communicated regularly to the Financial and Audit Committee. responsibilities and organisation of Internal Audit are described under Other Supervisory Bodies and Norms. Control activities Control activities are the policies and procedures that help ensure Compliance management directives are carried out. They help ensure that Stora Enso is committed to take responsibility for its actions, to comply necessary actions are taken to address risks related to the achievement with all applicable laws and regulations wherever it operates and to of the organisation’s objectives, and they are aimed at preventing, create and maintain ethical relationships with its customers, suppliers detecting and correcting errors and irregularities. Control activities, and other stakeholders. Stora Enso Code of Conduct sets forth the which fulfil the control objectives identified in risk assessment, occur company game rules. In 2011, the company established Business throughout the organisation, at all levels and in all functions. Besides Practice Policy, which further sets out Stora Enso’s approach to the general computer controls, they include a range of activities such ethical business practices and describes the processes to report on as approvals, authorisations, verifications, reconciliations, reviews of violations thereof. Each and every employee, no matter who they are operating performance, security of assets and segregation of duties. or where they are, is expected to comply with the Code of Conduct and Business Practice Policy. Continual training is organised in order Information and communication to make sure that the same are part of the everyday decision making The Company’s information and communication channels support and activities at Stora Enso. completeness and correctness of financial reporting, for example, by making internal instructions and policies regarding accounting In order to further enhance the supervision and monitoring of legal and financial reporting widely known and accessible to all employees and regulatory compliance related policies and issues, Stora Enso in concerned, as well as through regular updates and briefing documents 2012 established the Compliance Board, which is described in more regarding changes in accounting policies and reporting and disclosure detail on page 16. requirements. Subsidiaries and operations units make regular financial and management reports to the management, including analysis and comments on financial performance and risks. The Board receives financial reports monthly. The Financial and Audit Committee has established a procedure for anonymous reporting of violations related to accounting, internal controls and auditing matters.

Stora Enso Financial Report 2012 17 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Board of Directors Board of Directors

Juha Rantanen Hans Stråberg Gunnar Brock Matti Vuoria

Gunnar Brock Hock Goh

Chairman of Stora Enso’s Board of Directors since March 2010. Member of Stora Enso’s Board of Directors since April 2012. Member of Stora Enso’s Board of Directors since March 2005. Independent of the Company and the significant shareholders. Independent of the Company and the significant shareholders. Born in 1955. Bachelor’s degree (honours) in Mechanical Engineering. Born 1950. M.Sc. (Econ.). Swedish citizen. Member of Stora Enso’s Singaporean citizen. Chairman of the Board of Advent Energy Limited Financial and Audit Committee and Chairman of the Remuneration since 2007, an Australian oil and gas exploration company. Operating Committee since March 2010. Member of the Nomination Board. Partner of Baird Capital Partners Asia 2005–2012. Has held several Chairman of the Board of Mölnlycke Healthcare AB and Rolling senior management positions in Schlumberger Limited, the leading Optics. Member of the Board of Total SA, Investor AB, SOS-Children’s oilfield services provider, in 1995–2005. Chairman of the Board of MEC Villages, Sweden, Stockholm School of Economics, GreenGold Capital Resources. Member of the Board of Santos Australia, BPH Energy, KS AB, Stena AB and Syngenta International AG. Member of the Royal Distribution Pte Ltd and THISS Technologies Pte Ltd. Swedish Academy of Engineering Sciences (IVA). President and CEO of Owns 5 783 R shares in Stora Enso. Atlas Copco Group 2002–2009, President of Thule International 2001– 2002, President and CEO of Tetra Pak Group 1994–2000, President and CEO of Alfa Laval 1992–1994. Birgitta Kantola Owns 39 362 R shares in Stora Enso. Member of Stora Enso’s Board of Directors since March 2005. Independent of the Company and the significant shareholders. Born 1948. LL.M., Econ.Dr.H.C. Finnish citizen. Member of Stora Juha Rantanen Enso’s Financial and Audit Committee since March 2005 and Chair of Vice Chairman of Stora Enso’s Board of Directors since March the Committee since April 2009. Member of the Board of Skandinaviska 2010. Member of Stora Enso’s Board of Directors since March 2008. Enskilda Banken AB (publ) and Nobina AB. Vice President and CFO Independent of the Company and the significant shareholders. of International Finance Corporation (World Bank Group), Washington Born 1952. M.Sc. (Econ.). Finnish citizen. Member of Stora Enso’s D.C. 1995–2000. Executive Vice President of Nordic Investment Bank Financial and Audit Committee since March 2010. Member of the 1991–1995. Nomination Board. Member of the Board of Crisis Management Owns 21 988 R shares in Stora Enso. Initiative – the Ahtisaari Centre, Suomen Messut – Finnexpo, Onvest Oy, Stalatube Oy and Yara International ASA. President and CEO of Outokumpu Group 2005–2011, President and CEO of Ahlstrom Corporation 1998–2004, CEO of Borealis A/S 1994–1997. Owns 25 338 R shares in Stora Enso.

18 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Board of Directors

First Lastneme

Mikael Mäkinen Marcus Wallenberg Birgitta Kantola Hock Goh

Mikael Mäkinen Matti Vuoria

Member of Stora Enso’s Board of Directors since March 2010. Member of Stora Enso’s Board of Directors since March 2005. Independent of the Company and the significant shareholders. Independent of the Company and the significant shareholders. Born 1956. M.Sc. (Eng.). Finnish citizen. Chairman of the International Born 1951. LL.M., B.Sc. (Arts). Finnish citizen. Member of Stora Enso’s Chamber of Commerce Finland. Member of the Board of Lemminkäinen Remuneration Committee since March 2005. President and CEO of Corporation and East Office of Finnish Industries Oy. Deputy Member Varma Mutual Pension Insurance Company. Vice Chairman of the of the Federation of Finnish Technology Industries. President and Board of Sampo plc and Wärtsila Oyj Abp. Executive Vice President of CEO of Cargotec Oyj from 2006 until 8 October 2012, President of Varma Mutual Pension Insurance Company from January 2004 to May Cargotec Marine from 8 October 2012 onwards. Chairman of the 2004. Executive Chairman of the Board of Fortum Corporation 1998– Board of Moving Cargo. Group Vice President, Ship Power, Wärtsilä 2003. Secretary General of Ministry of Trade and Industry 1992–1997. 1999–2006. Managing Director of Wärtsilä NSD Singapore 1997–1998, Owns 27 488 R shares in Stora Enso. Vice President, Marine, Wärtsilä SACM Diesel 1992–1997. Owns 12 676 R shares in Stora Enso. Marcus Wallenberg

Member of Stora Enso’s Board of Directors since December 1998. Hans Stråberg Independent of the Company.1) Member of Stora Enso’s Board of Directors since April 2009. Born 1956. B.Sc. (Foreign Service). Swedish citizen. Member of Stora’s Independent of the Company and the significant shareholders. Board of Directors from March 1998 until the merger with Enso in 1998. Born 1957. M.Sc. (Eng.). Swedish citizen. Member of Stora Enso’s Chairman of the Board of Skandinaviska Enskilda Banken AB, AB Remuneration Committee since March 2010. Chairman of Roxtec Electrolux, Saab AB and LKAB. Member of the Board of AstraZeneca AB, Orchid First Holding AB and CTEK First Holding AB. Member of PLC, Investor AB, Knut and Alice Wallenberg Foundation and Temasek the Board of Investor AB and N Holding AB. President and CEO of AB Holdings Limited. President and CEO of Investor AB 1999–2005. Vice Electrolux 2002–2010. Several management positions at Electrolux in President of Stora Feldmühle AG, a Stora subsidiary, 1990–1993. Sweden and the USA 1983–2002. Owns 2 541 A and 23 203 R shares in Stora Enso. Owns 15 561 R shares in Stora Enso.

The independence is evaluated in accordance with Recommendation 15 of the Finnish Corporate Governance Code. The full recommendation can be found at www.cgfinland.fi. A significant shareholder according to the Recommendation is a shareholder that holds more than 10% of all company shares or the votes carried by all the shares or a shareholder that has the right or the obligation to purchase 10% of already issued shares.

1) Marcus Wallenberg (member of the investment committee of Foundation Asset Management) is not independent of significant shareholders of the Company. The Board has evaluated that Marcus Wallenberg is independent of the Company despite his 14-year membership of the Board of Directors.

Stora Enso Financial Report 2012 19 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Group Executive Team Group Executive Team (GET)

Lars Häggström Hannu Kasurinen Karl-Henrik Sundström Juan Carlos Bueno Jouko Karvinen

Jouko Karvinen Lars Häggström

Chief Executive Officer (CEO) of Stora Enso Executive Vice President, Global People and Organisation Born 1957. M.Sc. (Eng.). Finnish citizen. Joined Stora Enso in 2007. Born 1968. B.Sc. (HR Development and Labour Relations). Swedish President and CEO, Philips Medical Systems, USA, from 2002 to 2006. citizen. Member of the GET since October 2010. Joined the company in Prior to that employed by ABB Group Limited from 1987 serving in 2010. Head of Group HR at Nordea Bank AB from 2008 to 2010. Prior several international positions. Head of the Automation Technology to that several managerial HR positions in Gambro AB, AstraZeneca Products Division and member of the ABB Executive Committee from and Telia, and various HR positions at Eli Lilly & Co. from 1995 to 2002, 2000 to 2002. Member of the Board of the Finnish Forest Industries including Director of Human Resources in Latin America. Federation, Confederation of European Paper Industries (CEPI), member Owns 1 045 R shares in Stora Enso. of the Business Co-Operation Council and Co-Chairman of the Forest Industry Task Force, EU-Russia Industrialists’ Round Table (IRT). Member of the Board of Nokia Corporation, SKF Group and Montes del Plata. Hannu Kasurinen Owns 237 009 R shares and has 157 646 (2006–2007) options/ Executive Vice President, Building and Living synthetic options in Stora Enso. Born 1963. M.Sc. (Econ.). Finnish citizen. Member of the GET since August 2008. Joined the company in 1993. Has held several managerial positions in Financial Services, Group Treasury, Risk Management, Karl-Henrik Sundström Strategy and Business Development, Profit Improvement, Speciality Chief Financial Officer (CFO) of Stora Enso Papers, Group Strategy and Wood Products. Member of the Board of Born 1960. B.Sc. (Business Studies). Swedish citizen. Member of the Directors of several Stora Enso subsidiaries. Chairman of the Board GET since August 2012. Joined the company in August 2012. CFO of of European Organisation for the Sawmill Industry (EOS) and member NXP Semiconductors from 2008 to 2012. Prior to that CFO and several of the Board of Suominen Corporation. managerial positions in Ericsson. Member of the Board of Swedbank Owns 50 693 R shares and has 18 750 (2006–2007) options/synthetic and Clavister AB. options in Stora Enso. Does not own any Stora Enso shares nor options.

Juan Carlos Bueno

Executive Vice President, Biomaterials, Head of Latin America Born 1968. M.Sc. (Industrial Eng.). Colombian citizen. Member of the GET since April 2011. Joined the company in 2011. EVP, Stora Enso Latin America until 16 January 2012. Vice President of DuPont Agricultural Products in Brazil 2006–2011. Prior to that several finance, sales, marketing and general business management positions in DuPont in other Latin American countries, United States, Europe, Middle East and Africa. Chairman of the Board of Montes del Plata. Member of the Board of Veracel. Does not own any Stora Enso shares nor options.

20 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Group Executive Team

Per Lyrvall Juha Vanhainen Mats Nordlander Lauri Peltola

Per Lyrvall Lauri Peltola

Executive Vice President, Global Ethics and Compliance, General Executive Vice President, Global Identity Counsel Born 1963. CCJ. Finnish citizen. Member of the GET since March 2012. Born 1959. Swedish Master of Laws Degree. Swedish citizen. Member Joined the company in 2009. Prior to that Head of Group Identity and of the GET since March 2012. Joined the company as Legal Counsel Communications of Nordea, Communications Director for Metsäliitto in 1994. General Counsel since 2008. Prior to joining Stora Enso legal Group and Global Media Relations Director for Nokia. positions at Swedish Courts, law firms and Assi Domän. Member of Owns 26 255 R shares in Stora Enso. the Board of Bergvik Skog AB. Owns 19 205 R shares and 5 000 (2006–2007) options/synthetic options in Stora Enso. Juha Vanhainen Executive Vice President, Printing and Reading, Country Manager Finland Mats Nordlander Born 1961. M.Sc. (Eng.). Finnish citizen. Member of the GET since Executive Vice President, Renewable Packaging, Regional Head September 2007. Joined the company in 1990. EVP, Publication of Asia Pacific and Country Manager Sweden Paper until 16 January 2012. Has held several managerial positions Born 1961. Dipl.Eng. Swedish citizen. Member of the GET since in Office Paper, Fine Paper, and Newsprint and Book Paper. Member September 2007. Joined the company in 1994. Has held several of the Board of Directors of several subsidiaries. Chairman of the managerial positions in Papyrus, Fine Paper, Consumer Board and Board of Finnish Forest Industries Federation. Deputy Chairman of Market Services. Member of the supervisory board of Swedish the Board of Pohjolan Voima Oy. Member of the Supervisory Board of Industrial Board of Axcel private equity fund. Vice Chairman of the Ilmarinen Mutual Pension Insurance Company, member of the Body Board of Swedish Forest Industries Federation. Member of the Board of Representatives of the Confederation of Finnish Industries (EK), of Industrikraft. member of the Board of Confederation of European Paper Industries Owns 67 002 R shares and has 15 000 (2006–2007) options/synthetic (CEPI) and Efora Oy. options in Stora Enso. Owns 58 314 R shares and has 18 750 (2006–2007) options/synthetic options in Stora Enso.

Hannu Alalauri, Executive Vice President, Fine Paper and Bernd Rettig, Executive Vice President, R&D, Technology, Energy, Logistics and Investments, were members of the Group Executive Team until the reorganisation of the company on 19 March 2012.

Markus Rauramo, Chief Financial Officer (CFO) was a member of the Group Executive Team until his resignation on 31 July 2012.

Options/synthetic options were issued annually between 1999 and 2007.

Stora Enso Financial Report 2012 21 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Report of the Board of Directors Report of the Board of Directors

Markets and deliveries Pulp prices in US dollars experienced heavy price pressure during Demand for cartonboard was slightly weaker than a year ago in the first half of 2012, followed by a small recovery in the second half, Western Europe and North America, but stronger in Asia and Eastern although the price increases announced have been almost entirely Europe. Economic uncertainty reduced demand, especially in Western offset by weakening of the dollar against the euro, putting a lot of Europe. pressure on high-cost producers in Canada and the Nordic countries.

The uncertain economic environment slowed the growth in demand There were no significant increases in pulp production capacity in for corrugated board slightly in Eastern Europe and Asia but demand 2012, but this should change significantly from 2013 up to 2016. remained strong. Demand for corrugated board in Western Europe was slightly weaker than a year ago. Global demand for sawnwood has been recovering slowly from the cyclical trough of 2009, strengthening by a further 1% in 2012. Structural erosion of paper demand persisted in Europe and North Market conditions have varied considerably from region to region. America in 2012. The deterioration in demand was aggravated by Following the more robust years of 2010 and 2011, construction macroeconomic weakness. Paper demand in 2012 was 6% less than markets generally stagnated in 2012 in most European countries, with in 2011 in Europe and 5% less in North America, but 2% greater than total demand for sawnwood declining by 3% year-on-year. Chinese in 2011 in Asia. Overall, global paper consumption declined by 2% sawnwood consumption also showed sign of weakness in 2012 after in 2012. several years of double-digit growth, as the housing market cooled off. Demand remained clearly more robust in North America, Japan, the The year was marked by oversupply in several pulp grades due to weak Middle East and North Africa. North American sawnwood consumption demand for paper and increasing instability in the European market. continued to recover, increasing by a further 5% in 2012, supported Pulp demand in general was once again supported by China, even by a dynamic market for new housing, but it was still 40% below the though its economy grew more slowly than in recent years. peak in the mid 2000s.

Deliveries by Segment Deliveries Curtailments 1 000 tonnes 2012 2011 Change % 2012 2011 Printing and Reading 7 130 7 219 -1.2 722 762 Renewable Packaging 3 138 3 111 0.9 225 251 Total Paper and Board Deliveries 10 268 10 330 -0.6 947 1 013

Wood Products, 1 000 m³ 4 750 5 072 -6.3 Market pulp, 1 000 t 1 058 1 130 -6.4 Corrugated Board, million m² 1 097 1 018 7.8

22 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Report of the Board of Directors

Estimated Consumption of Paper, Board and Printing and Reading Sawn Softwood in 2012 EUR million 2012 2011 Sales 4 839.3 5 022.0 North Asia and Tonnes, million Europe America Oceania Operational EBITDA1) 488.6 547.6 Consumer board 9.1 12.7 23.5 Operational EBIT2) 218.1 285.3 Corrugated board (billion m2) 49 52 124 % of sales 4.5 5.7 Newsprint 8.3 4.9 13.2 Operating capital 31 December 2 961.8 3 071.4 Uncoated magazine paper 3.5 1.7 0.4 Operational ROOC, %3) 7.2 9.2 Coated magazine paper 6.0 3.6 3.9 Average number of employees 8 783 9 052 Uncoated fine paper 7.8 8.8 19.3 Deliveries, 1 000 t 7 130 7 219 Coated fine paper 6.0 4.2 13.0 Production, 1 000 t 7 210 7 228 Chemical market pulp 17.8 7.3 24.1 Sawn softwood (million m3) 85.1 76.7 n/a 1) Operating profit/loss excluding fixed asset depreciation and impairment, share of results of equity accounted investments, NRI and fair valuations. Source: Stora Enso, CEPIFINE, PPPC, RISI. 2) Operational EBIT comprises the operating profit excluding NRI and fair valuations of the segments and Stora Enso's share of the operating The Group’s paper and board deliveries totalled 10 268 000 tonnes profit excluding NRI and fair valuations of its equity accounted investments (EAI). in 2012, which is 62 000 tonnes less than in the previous year mainly 3) Operational ROOC = 100% x Operational EBIT/Average operating because demand weakened in all paper grades. Market pulp deliveries capital. decreased by 72 000 tonnes to 1 058 000 tonnes. Deliveries of wood Printing and Reading sales were EUR 4 839 million, down 4% on 2011, products decreased by 322 000 m³ to 4 750 000 m³ mainly due to closure mainly due to lower average prices in local currencies for all paper grades. of Kopparfors Sawmill in 2011. Operational EBIT was EUR 67 million lower than in the previous year at Financial results – Segments EUR 218 million as lower variable costs, especially for pulp and paper for Stora Enso decided to renew its Business Area and Reporting Segment recycling, could not compensate for lower sales prices in local currencies structures in early 2012 based on the different markets and customers they and slightly lower volumes. Fixed costs were similar to a year ago. serve. The Group combined the paper reporting segments Newsprint and Book Paper, Magazine Paper and Fine Paper into one Business Area and Biomaterials Reporting Segment called Printing and Reading. The reporting segments EUR million 2012 2011 Consumer Board and Industrial Packaging, together with the plantations Sales 1 012.4 1 092.0 in Guangxi in China, formed the Renewable Packaging Business Area and Operational EBITDA1) 98.9 200.4 Reporting Segment. A new Business Area and Reporting Segment called Operational EBIT2) 82.1 169.2 Biomaterials was established comprising mainly the Company’s joint- % of sales 8.1 15.5 venture pulp mills, stand-alone pulp mills and tree plantations. The Wood Operating capital 31 December 1 412.6 1 454.7 Products Business Area was renamed as Building and Living. Operational ROOC, %3) 5.7 12.0 Average number of employees 839 810 The aim of the renewed Business Area structure is to increase the Group’s Pulp deliveries, 1000 t 1 836 1 851 competitiveness, flexibility, speed and accountability, and to minimise interdependences between the businesses to ensure that Stora Enso has 1) Operating profit/loss excluding fixed asset depreciation and impairment, share of results of equity accounted investments, NRI and fair valuations. the ability and agility to seize opportunities arising from the changes in 2) Operational EBIT comprises the operating profit excluding NRI and fair the global economy. valuations of the segments and Stora Enso's share of the operating profit excluding NRI and fair valuations of its equity accounted investments (EAI). 3) Operational ROOC = 100% x Operational EBIT/Average operating capital.

Stora Enso Financial Report 2012 23 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Report of the Board of Directors

Biomaterials sales were EUR 1 012 million, down 7% on 2011 due to Renewable Packaging significantly lower pulp prices in local currencies for all grades. Sales EUR million 2012 2011 volumes were similar to a year ago. Sales 3 216.0 3 194.6 Operational EBITDA1) 474.6 495.8 Operational EBIT decreased by EUR 87 million to EUR 82 million due Operational EBIT2) 271.9 301.3 to lower sales prices in local currencies and higher variable costs. % of sales 8.5 9.4 Result of the equity accounted investment, Montes del Plata, was Operating capital 31 December 2 350.1 2 152.9 clearly lower than a year ago due to higher pre-operative expenses. Operational ROOC, %3) 12.1 14.2 Fixed costs were clearly lower than a year ago. Average number of employees 12 292 10 888 Paper and board deliveries, 1 000 t 3 138 3 111 Building and Living Paper and board production, 1 000 t 3 147 3 118 Corrugated packaging deliveries, EUR million 2012 2011 million m2 1 097 1 018 Sales 1 684.4 1 671.1 Corrugated packaging production, million m2 1 076 1 006 Operational EBITDA1) 58.8 102.3 Operational EBIT2) 28.8 62.8 1) Operating profit/loss excluding fixed asset depreciation and impairment, % of sales 1.7 3.8 share of results of equity accounted investments, NRI and fair valuations. 2) Operating capital 31 December 565.2 562.1 Operational EBIT comprises the operating profit excluding NRI and fair valuations of the segments and Stora Enso's share of the operating Operational ROOC, %3) 5.1 10.9 profit excluding NRI and fair valuations of its equity accounted Average number of employees 4 385 4 484 investments (EAI). 3) Operational ROOC = 100% x Operational EBIT/Average operating capital. Deliveries, 1 000 m3 4 592 4 920 Renewable Packaging sales were EUR 3 216 million, up 1% on 2011 1) Operating profit/loss excluding fixed asset depreciation and impairment, due to slightly higher board volumes and clearly higher corrugated share of results of equity accounted investments, NRI and fair valuations. 2) Operational EBIT comprises the operating profit excluding NRI and fair board volumes. valuations of the segments and Stora Enso's share of the operating profit excluding NRI and fair valuations of its equity accounted investments (EAI). Operational EBIT at EUR 272 million was EUR 29 million down on the 3) Operational ROOC = 100% x Operational EBIT/Average operating capital. previous year mainly due to a less favourable sales mix and partly lower Building and Living sales were EUR 1 684 million, up 1% on 2011 mainly sales prices. Higher fixed costs due to growth initiatives were partly due to the improved sales mix and structural changes. Volumes were offset by lower fibre and corrugated raw material costs. 7% lower. Other Operational EBIT at EUR 29 million was EUR 34 million lower than in EUR million 2012 2011 the previous year, mainly due to higher raw material costs caused by Sales 2 683.5 2 700.5 challenging sawlog availability. Operational EBITDA1) -38.3 -38.1 Operational EBIT2) 17.4 48.1 % of sales 0.6 1.8 Average number of employees 2 478 2 724

1) Operating profit/loss excluding fixed asset depreciation and impairment, share of results of equity accounted investments, NRI and fair valuations. 2) Operational EBIT comprises the operating profit excluding NRI and fair valuations of the segments and Stora Enso's share of the operating profit excluding NRI and fair valuations of its equity accounted investments (EAI).

Other sales were EUR 2 684 million, down 1% on 2011.

Operational EBIT at EUR 17 million was EUR 31 million down on the previous year mainly due to lower volumes for Bergvik Skog and Tornator, inventory adjustment in Nordic wood sourcing operations and write-down of capitalised project costs and unlisted shares in Group administration.

24 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Report of the Board of Directors

Financial Results – Group The share of the operational results of equity accounted investments Sales at EUR 10 815 million were EUR 150 million or 1% lower than amounted to EUR 119 (EUR 114) million, with the main contributions a year earlier mainly due to lower prices in local currencies in paper, from Bergvik Skog, Veracel and Tornator. pulp and packaging. IFRS operating profit includes a positive net effect of fair valuations Operational EBIT was EUR 248 million lower than in the previous of EUR 12 (negative EUR 32) million from the accounting of share- year at EUR 618 million. The operational EBIT margin decreased from based compensation, Total Return Swaps (TRS) and CO2 emission 7.9% to 5.7%. Significantly lower sales prices in local currencies for rights. IFRS operating profit also includes a negative net effect of EUR paper, pulp and to some extent some packaging grades decreased 71 (positive EUR 4) million from Stora Enso’s share of net financial the operational EBIT by EUR 262 million. Lower sales volumes in items, recurring taxes and IAS 41 forest valuations of equity accounted paper, pulp and sawn goods, partly offset by higher production and investments. A NRI gain on EAI taxes is included in IFRS operating sales volumes for packaging grades decreased operational EBIT by profit. EUR 18 million, but lower variable costs, mainly for corrugated raw material, paper for recycling and pulp, increased operational EBIT by The Group continued to restructure its asset base with permanent EUR 67 million. Fixed costs were similar to the previous year as higher closure of paper machine (PM) 1 at Hylte Mill in Sweden with annual personnel costs were compensated by lower maintenance costs and capacity 180 000 tonnes of newsprint and permanent closure of actions to decrease overall fixed costs. Exchange rates had a negative converting operations at Páty mill in Hungary. Permanent closure of net impact on sales and costs totalling EUR 28 million after hedges. the corrugated packaging plant at Ruovesi in Finland in July 2013 was

Key Figures 2012 2011 Sales, EUR million 10 814.8 10 964.9 Operational EBIT1), EUR million 618.3 866.7 Operational EBIT margin, % 5.7 7.9 Operating profit (IFRS), EUR million 689.0 759.3 Operating margin (IFRS), % 6.4 6.9 Return on equity (ROE), % 8.3 5.6 Operational ROCE, % 7.1 10.0 Debt/equity ratio 0.48 0.47 EPS (basic), EUR 0.61 0.43 EPS excluding NRI2), EUR 0.33 0.63 Dividend per share3), EUR 0.30 0.30 Payout ratio, excluding NRI2), % 90.9 47.6 Payout ratio (IFRS), % 49.2 69.8 Dividend yield, % (R share) 5.7 6.5 Price/earnings (R share), excluding NRI2) 15.9 7.3 Equity per share, EUR 7.33 7.45 Market capitalisation 31 Dec, EUR million 4 222 3 726 Closing price 31 Dec, A/R share, EUR 5.70/5.25 5.03/4.63 Average price, A/R share, EUR 6.15/5.08 7.73/6.28 Number of shares 31 Dec (thousands) 789 538 789 538 Trading volume A shares (thousands) 831 1 402 % of total number of A shares 0.5 0.8 Trading volume R shares (thousands) 977 746 1 237 898 % of total number of R shares 159.7 202.1 Average number of shares, basic (thousands) 788 620 788 620 Average number of shares, diluted (thousands) 788 620 788 620

1) Operational EBIT comprises the operating profit excluding NRI and fair valuations of the segments and Stora Enso's share of the operating profit excluding NRI and fair valuations of its equity accounted investments (EAI). 2) NRI = Non-recurring items. These are exceptional transactions that are not related to normal business operations. The most common non-recurring items are capital gains, additional write-downs or reversals of write-downs, provisions for planned restructuring and penalties. Non-recurring items are normally specified individually if they exceed one cent per share. 3) See Board of Directors' proposal for dividend distribution.

Stora Enso Financial Report 2012 25 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Report of the Board of Directors

also announced in 2012. In addition several efficiency improvement Group capital employed was EUR 8 633 million on 31 December 2012, actions across all the Business Areas were started during the year. All a net decrease of EUR 73 million on a year earlier. these actions resulted in a restructuring provision non-recurring item of EUR 62 (EUR 40) million. Breakdown of Capital Employed Change

Capital Employed Impairments and impairment reversals due to restructuring and annual 31 Dec 2011, EUR million 8 706 impairment testing resulted in a net impairment reversal of EUR 51 Equity accounted investments 110 (negative EUR 20) million. Other non-recurring items had a combined Net tax liabilities 140 net positive impact of EUR 140 (negative EUR 21) million mainly due Available-for-sale: operative (mainly PVO) -190 to the decrease in the corporate income tax rate in Sweden, which Net liabilities in defined benefit plans -130 resulted in a EUR 69 million gain in the Group’s equity accounted Operative working capital and other interest-free items, net -50 investment Bergvik Skog recognised in operating profit, the EUR 41 Translation difference 50 million tax-free dividend income from Pohjolan Voima and EUR 21 Other changes -3 million due to a release of a valuation allowance on value added tax for 31 Dec 2012, EUR million 8 633 Arapoti Mill in Brazil. Other non-recurring items in 2011 related mainly to an increase in the water purification and a water level adjustment provision at the former mine at Falun in Sweden. Financing Cash flow from operations remained strong at EUR 1 253 (EUR 1 034) IFRS operating profit was EUR 689 (EUR 759) million. million and cash flow after investing activities was EUR 578 (EUR 496) million. Working capital decreased by EUR 72 (increase of EUR 217) Net financial expenses were EUR 207 (EUR 338) million. Net interest million mainly due to lower inventories. expenses increased from EUR 122 million to EUR 171 million, due to increased gross debt. Net foreign exchange losses amounted to EUR Cash Flow 12 (EUR 27) million. The net loss from other financial items totalled EUR million 2012 2011 EUR 25 (EUR 189) million including a EUR 34 million gain from the Operating profit 689.0 759.3 reversal of provisions and settlement of the NewPage lease guarantee Depreciation and other non-cash items 491.3 492.0 reported as non-recurring item and EUR 43 million losses related to the Change in working capital 72.4 -217.0 fair valuations of interest rate derivatives. A EUR 128 million provision Cash Flow from Operations 1 252.7 1 034.3 due to the NewPage lease guarantee and a EUR 10 million write-down Cash spent on fixed and biological assets -560.7 -409.6 of loan receivables were both included in other financial items in 2011 Acquisitions of equity accounted investments -114.5 -128.6 as non-recurring items. Cash Flow after Investing Activities 577.5 496.1

Profit before tax excluding non-recurring items decreased by EUR 321 At the end of the period, net interest-bearing liabilities of the Group million to EUR 319 million. Profit before tax including non-recurring were EUR 2 757 million, similar to a year earlier. Cash and cash items was EUR 482 (EUR 421) million. equivalents net of bank overdrafts amounted to EUR 1 845 million, compared with EUR 1 134 million at the end of 2011, an increase of The net tax charge totalled positive EUR 9 (negative EUR 79) million, EUR 711 million due to strong cash flow from operations and proceeds equivalent to a positive effective tax rate of 1.8% (negative 18.7%), as from new long-term debt. described in more detail in Note 9 to the Group Consolidated Financial Statements. Total unutilised committed credit facilities at the year end 2012 were unchanged at EUR 700 million. The EUR 700 million committed credit The profit attributable to non-controlling interests was EUR 10 (EUR facility agreement with a syndicate of 16 banks matures in January 2) million, leaving a profit of EUR 481 (EUR 340) million attributable to 2015 and will be used as a back stop facility for general corporate Company shareholders. purposes. In addition, Stora Enso has access to various long-term sources of funding up to EUR 600 million. Earnings per share excluding non-recurring items were EUR 0.33 (EUR 0.63) and including non-recurring items EUR 0.61 (EUR 0.43). Cash The debt/equity ratio at 31 December 2012 was 0.48 (0.47). The earnings per share were EUR 1.07 (EUR 1.33) excluding non-recurring currency effect on equity was negative EUR 42 million net of the items. Operational return on capital employed was 7.1% (10.0%). hedging of equity translation risks mainly due to weakening of the Brazilian real and partly offset by the strengthening of the Polish

26 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Report of the Board of Directors

zloty and the Swedish krona. The fair valuation of cash flow and Mill in Poland was started up in January 2013 as planned. The new commodity hedges and available-for-sale investments recorded in containerboard capacity will strengthen Stora Enso’s leading position other comprehensive income decreased equity by EUR 155 million in the growth markets of Central and Eastern Europe. At Skoghall Mill primarily because of the approximately EUR 190 million decrease in the in Sweden a major investment project in renewing the woodroom and PVO valuation mainly due to lower anticipated future electricity prices. woodyard was completed according to the plan by end of 2012. The capitalisation of these two major investments at Ostroł˛eka and Skoghall At the end of the year, the ratings for Stora Enso’s rated bonds were mills totalled EUR 228 million. as follows: Another major growth initiative, building a new state-of-the-art 1.3 million Rating agency Long/short-term rating Valid from tonnes per year pulp mill at Punta Pereira in Uruguay, progressed further Standard & Poor’s BB (negative) / B 25 October 2012 during the year. The mill is being built by Montes del Plata, a joint venture Moody’s Ba2 (negative) / NP 24 October 2012 with Arauco. During 2012 Stora Enso contributed directly to the project through equity injections of EUR 115 million into Montes del Plata. Fitch BB- (stable) / B 26 July 2012 (unsolicited)

In the Building and Living Business Area, investments to improve the cost-competitiveness and energy efficiency of key assets progressed Capital expenditure during 2012. The greenfield investment in a new cross-laminated Capital expenditure including interest and internal costs capitalised in timber (CLT) production unit at Ybbs Sawmill in Austria was completed 2012 totalled EUR 556 million, which is EUR 103 million more than in as planned during the third quarter of 2012. The combined heat and 2011. Equity injections for projects in equity accounted investments power (CHP) plant investment at Zdírec Sawmill in the Czech Republic totalled EUR 115 million, which is EUR 14 million less than in 2011. continued and is scheduled to be completed in the third quarter of 2013. The capitalisation in these two strategic growth investments totalled EUR During the year the Group continued to invest in the strategic focus 11.6 million during 2012. areas. The announcement in March 2012 that Stora Enso intends to build plantation-based integrated board and pulp mills at Beihai City in During 2012 the Group continued to develop its assets through further Guangxi, southern China was a significant step in transforming Stora targeted strategic efficiency improvement investments, with the focus Enso. It is planned that the mill site will initially include a 450 000 tonnes on key assets. The total amount invested in such strategic development per year paperboard machine and pulp capacity of 900 000 tonnes per investments in 2012 was EUR 124 million. year, but the aim is to expand the paperboard capacity to 900 000 tonnes at a later stage. The operations will be managed by an equity joint-venture Research and development company established by Stora Enso (85%) and the Guangxi Forestry Stora Enso’s expenditure on research and development (R&D) in 2012 Group (15%), which is a state-owned company under the Guangxi was EUR 81 (EUR 80) million, equivalent to 0.7% (0.7%) of sales. provincial government. The industrial part of the project will be launched at full speed once the specific preconditions have been fulfilled. The total Stora Enso’s priorities in innovation were on renewal of the Group and investment in the project is expected to be approximately EUR 1.6 billion. implementation of its new strategy. The capital expenditure on the forestry and industrial parts of the project during 2012 totalled approximately EUR 25 million. The Group’s R&D platforms include bio-based barriers, micro materials, composites, biochemistry and separation technology, and In September 2012 the Group announced that it had signed an wood-based building solutions. Intellectual property management was agreement to establish a joint venture called Bulleh Shah Packaging a key priority. About fifty patent applications were registered during (Private) Limited with Packages Ltd. of Pakistan. The joint venture 2012, and patents were bought and sold during the year. includes operations at Kasur and Karachi in Pakistan and will focus on providing packaging products to key local and international customers in The biorefinery unit has developed into real business through innovative the fast-growing Pakistani market. The agreed value for 100% of the joint- R&D and commercialisation efforts. It was therefore transferred from venture company is about EUR 83 million and as part of the agreement, the Group Technology function into the Biomaterials Business Area both parties are committed to a substantial EUR 103 million investment with effect from 1 January 2013. programme during 2013 and 2014 to develop the business further. The pre-commercial microfibrillated cellulose (MFC) plant at Imatra was Many previously announced growth investments progressed according started up very successfully. Results in general are very promising, and to plan during 2012. The new containerboard machine at Ostroł˛eka the programme has reached the customer testing phase. Preparation

Stora Enso Financial Report 2012 27 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Report of the Board of Directors

for full-scale investments continued intensively, achieving readiness 41% and 34% of employees respectively were 51 years old or older. In for full-scale plant investment. China and Latin America only 3% and 8% of employees respectively were 51 years old or older. Development work on biomass-based fuels continued. Subsidy schemes and public support for investment were considered critical As regards gender, 23% (24%) of employees were women, and 35% to the profitability of biofuels. This work was undertaken partly in good (43%) of recruits to permanent positions in 2012 were women, the and close co-operation with Neste Oil. highest percentage of women recruited being in Asia.

Efforts to replace fossil-based chemicals and polymers with bio-based Personnel turnover in 2012 was 12.8% (11.0%). Employee-related materials continued widely. information is discussed in more detail in the Group’s 2012 Global Responsibility Report. Preparations for the Uruguayan Montes del Plata and Chinese major capital investment projects were strongly supported by the The Group absenteeism rate due to sickness and accidents was 3.1% R&D experts. Preparation for the joint venture with Packages Ltd. of (3.4%) of total theoretical working hours. Pakistan was supported by the R&D team of Stora Enso. Risks and risk management

Intelligent pharmaceutical packaging was a major new business The Group Executive Team, Business Areas, Group Functions, development topic. This innovation project has developed packaging production units and projects are responsible for managing risks that to address the problem of poor adherence to prescription instructions might have an adverse effect on the achievement of their objectives by patients. The system simplifies communication between patient and and goals. To achieve this Stora Enso has implemented an enterprise doctor by registering when pills are removed from the package. The risk management process for identifying and treating risks as well project has reached the commercialisation stage. as exploiting opportunities, thereby increasing the likelihood of achieving objectives. The Stora Enso Group Risk Policy sets out the Forest biology and biotechnology have been a major area of R&D, overall approach to governance and management of risks. The aim partly together with SweTree Technologies Ltd. Stora Enso’s own is continuous monitoring of identified material risks and prioritising of resourcing was increased. risks based on their likelihood at all levels in the organisation and taking them into account in the strategic and business planning processes. Minimisation of water consumption is a major issue for Stora Enso Stora Enso also identifies and manages related opportunities. The globally. The aim is to reduce the use of natural resources and energy process is systematically treated in a risk assessment tool to secure a as water pumping and evaporation are major energy-consuming structured handling for the management of all risks. The process mainly processes. The water consumption of the pulp mills was the main follows ISO 31000 but COSO is also used as input. focus in 2012. The ongoing efforts in paper and paperboard operations will be further intensified. During the risk identification process, risks and uncertainties are categorised based on the source of risk (risk driver). These risk Personnel sources are then split between external and internal ones. The main On 31 December 2012 there were 28 203 employees in the Group, risk categories for various risk sources are marketplace, financial, 1 302 less than at the end of 2011. The average number of employees infrastructure and reputational. in 2012 was 28 777, which was 819 higher than the average number in 2011. Within each main risk category, risks are divided based on the duration and magnitude of their effect into strategic, tactical and operational. Personnel expenses totalled EUR 1 361 (EUR 1 394) million or 12.6% Risk types are further divided into uncertainty, hazard or opportunity. of sales. Wages and salaries were EUR 1 035 (EUR 1 015) million, Stakeholders affected by the risk are separately identified. pension costs EUR 163 (EUR 173) million and other employer costs EUR 163 (EUR 207) million. Despite the measures taken to manage risks and mitigate the impact of risks, there can be no assurance that such risks, if they occur, will The majority of employees, 52%, were still in Finland, Sweden and not have a materially adverse effect on Stora Enso’s business, financial Germany. condition, operating profit or ability to meet all financial obligations.

The Group has an ageing workforce in the majority of countries where it operates, especially in Finland, Sweden and Germany, where 36%,

28 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Report of the Board of Directors

Risk Management Process Business development risks Business development risks are mainly related to Stora Enso’s strategy and its implementation. The Group aims to transform itself from a European pulp and paper company into a value-creating, growth- Establish the Context markets-oriented, renewable materials Group. This will be achieved through organic growth and selective mergers and acquisitions, mainly in growth markets, and through operational improvements to the Risk Assessment existing production base.

Identify Risks Large single investments in developing economies have a significant impact on a substantial number of local people. Stora Enso’s operations in such countries are affected by local cultural and religious Analyse Risks factors, environmental and social issues, and the ability to cope with local and international stakeholders. The risks related to these issues

Monitor and Review and Monitor are mitigated through accurate and detailed feasibility studies prepared

Evaluate Risks Consult and Communicate before each large single investment. The value of investments in growth markets may be affected by political, economic and legal developments in those countries. Stora Enso is also exposed to risk related to reorganisations and improvements in existing establishments. TreatTreat Risks

Stora Enso manages risks related to potential mergers and acquisitions through its corporate merger and acquisition guidelines and due diligence process as well as structured governance when making Marketplace decisions. These guidelines ensure Stora Enso’s strategic and financial Business environment risks targets, and risks related to environmental and social responsibility are Continued competition and supply and demand imbalances in the paper, taken into account. pulp, packaging and wood products markets may have an impact on profitability. The paper, pulp, packaging and wood products industries are Business development risks also include risks related to the supply mature, capital intensive and highly competitive. Stora Enso’s principal and availability of natural resources, raw materials and energy, and the competitors include a number of large international forest products availability of trained personnel. companies and numerous regional and more specialised competitors. Supplier risks Economic cycles, the sovereign debt crisis in Europe and changes In many areas Stora Enso is dependent on suppliers and their ability in consumer preferences may have an adverse effect on profitability. to deliver a product or a service at the right time and of the right The ability to respond to changes in consumer preferences and to quality. The most important products are fibre, chemicals and energy, develop new products on a competitive and economic basis calls and in capital investment projects machinery and equipment. The for continuous capacity management, production curtailments and most important services are transport and outsourced business and structural development. maintenance services. For some of these inputs, the limited number of suppliers is a risk. The Group therefore uses a wide range of Increased input costs such as, but not limited to, energy, fibre, suppliers and monitors them to avoid situations that might jeopardise other raw materials, transportation and labour may adversely affect continued production, business transactions or development projects. profitability. Securing access to reliable low-cost supplies and Environmental and social responsibility in wood procurement and proactively managing costs and productivity are of key importance. forest management is a prime requirement of stakeholders. Failing to ensure that the origin of wood used by the Group is acceptable could Changes in legislation, especially environmental regulations, may affect have serious consequences in markets. Stora Enso manages this risk Stora Enso’s operations. Stora Enso follows, monitors and actively through its policies for sustainable sourcing of wood and fibre, and participates in the development of environmental legislation to minimise for land management, which set the basic requirements for all Stora any adverse effects on its business. Tighter environmental legislation Enso wood procurement operations. Traceability systems are used such as sulphur regulation of maritime fuels and CO2 regulations may to document that all wood and fibre come from legal and acceptable affect the supply chain or production costs. sources.

Stora Enso Financial Report 2012 29 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Report of the Board of Directors

Unpredicted changes in certification schemes and increased customer Group profit is affected by changes in price and volume, though the requirements could limit the availability of certified raw material. Forest impact on operating profit depends on the segment. The table below management certification and chain-of-custody certification are tools shows the operating profit sensitivity to a +/- 10% change in either for managing risks related to the acceptability of wood. Stora Enso’s price or volume for different segments based on figures for 2012. sustainable supply chain management principles and systems cover Operating Profit: Impact of Changes +/- 10%, EUR million other raw materials such as pulp and chemicals, and also logistics.

Segments Price Volume Market risks Printing and Reading 457 127 The risks related to factors such as demand, price, competition, Biomaterials 96 19 customers, suppliers, raw materials and energy are regularly monitored Building and Living 163 29 by each Business Area and unit as a routine part of its business. These Renewable Packaging 305 114 risks are also monitored and evaluated by the corporate functions Finance and Strategy to get a perspective of the Group’s total asset Commodity and energy price risk portfolio and overall long-term profitability potential. Reliance on outside suppliers for fossil fuels such as natural gas, oil and coal, and for peat and nearly half of the electricity consumed, leaves the Customer demand for products is influenced by general economic Group susceptible to changes in energy market prices and disturbances conditions and inventory levels, and affects product price levels. in the supply chain. Product prices, which tend to be cyclical in this industry, are affected by capacity utilisation, which decreases in times of economic slowdowns. The Group applies consistent long-term energy risk management. The Changes in prices differ between products and geographic regions. price and supply risks are mitigated through increased own generation, shareholding in competitive power assets such as PVO/TVO, physical Customer credit risk is discussed in more detail in Note 25, Financial long-term contracts and financial derivatives. The Group hedges Risk Management. price risks in raw material and end-product markets, and supports development of financial hedging markets. The next table shows Stora Enso’s major cost items. Infrastructure Composition of Costs in 2012 Human resources risks Developing a competent workforce and managing key talent throughout Costs excl. Non-recurring items Stora Enso’s global organisation are crucial to the success of the and fair valuations % of Costs % of Sales Group. Stora Enso manages the risks and loss of key talents through a Logistics and commissions 10 9 combination of different actions. Some of the activities aim at providing Manufacturing Costs a better overview of the whole workforce of the Group, making the Fibre 37 36 Stora Enso employer brand better known both internally and externally, Chemicals and fillers 10 10 globalising some of the remuneration practices and intensifying the efforts Energy 9 9 to identify and develop talents. Last but not least, the Group actively Material 3 3 works on talent and management assessments and succession planning Personnel 14 13 for key positions. Other 11 10 Depreciation 6 5 Total Costs/Sales 100 95 Climate change risks Stora Enso is committed to contributing to mitigating the effects of Total Costs/Sales EUR million 10 316 10 815 climate change by actively seeking opportunities to reduce the Group’s Equity accounted investments (EAI), operational 119 carbon footprint. Risks related to climate change are managed via Operational EBIT 618 activities related to finding clean, affordable and safe energy sources for production and transportation, and reducing energy consumption. Sensitivity analysis Additional measures include energy efficiency initiatives, use of carbon- Prices for paper and board products have historically been cyclical, neutral biomass fuels, maximising utilisation of combined heat and power, reflecting overall economic conditions and changes in capacity within the and sequestration of carbon dioxide in forests and products. The Group’s industry; along with volatility in raw material prices, mainly for wood, pulp wood-based products are a better alternative for minimising climate and energy, and exposure to exchange rates, this affects the profitability change than more carbon-intensive products. of the paper, pulp, packaging board and wood products industries.

30 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Report of the Board of Directors

Labour market disruption risk Planned stoppages for maintenance and other work are important in A significant portion of Stora Enso employees are members of labour keeping machinery in good condition. Formal computerised preventive unions. There is a risk that the Group may face labour market disruptions maintenance programmes and spare part criticality analysis are utilised that could interfere with operations and have material adverse effects on to secure a high availability and efficiency of key machinery. the business, financial conditions and profitability, especially at a time of restructuring and redundancies due to divestments and closures. The Striking a balance between accepting risks and avoiding, treating or majority of employees are represented by labour unions under several sharing risks is a high priority. GRM is responsible for ensuring that the collective agreements in different countries where Stora Enso operates, Group has adequate insurance cover and supports units in their loss so relations with unions are of high priority. prevention and loss control work. The total cost of risks is optimised by the use of the Group’s own captive insurance company. Supply chain risks Managing risks related to suppliers and subcontractors is important to Health and Safety risks Stora Enso. The ability of suppliers and subcontractors to meet quality Stora Enso’s target is that workplaces are free from accidents and stipulations and delivery times is crucial to the efficiency of production and work-related illnesses and that employees are healthy and have good investments. The following risk mitigation instruments are in place: price working ability. Stora Enso measures its performance in health and volatility tracking of raw materials and financial risk monitoring of suppliers. safety through lag indicators on accidents and near-misses, and lead indicators on safety observations. The target in safety is zero accidents, Suppliers and subcontractors must also comply with Stora Enso’s but demanding milestones for the end of 2013 have also been set for sustainability requirements as they are part of Stora Enso’s value chain, accident and incident rates. In 2012 Stora Enso adopted a common and their sustainability performance could harm Stora Enso and its model for safety management, establishing a set of safety tools that all reputation. units must implement in their operations. Implementation of the tools is followed up and reported monthly, and support is offered to units through Stora Enso’s sustainability requirements for suppliers and audit schemes training, coaching and best-practice sharing. The main responsibility cover its raw materials, and other goods and services procured. Suppliers for identifying and managing safety risks remains with the units. At mill are assessed for risks related to their environmental, social and business level, safety and health risks are assessed jointly, in co-operation with the practices through self-assessment questionnaires and supplier audits. occupational health service providers. Global health risks are monitored Findings from such assessments are continuously followed up. and assessed by Group Health and Safety.

Information Technology (IT) risks Personnel security risks Stora Enso operates in a business environment where information Personnel security can never be compromised, so Stora Enso has to has to be available and its confidentiality protected to support the be aware of potential security risks and give adequate guidelines to business processes. Management of risks is actively pursued within the people for managing risks related to, for example, travel, work and framework of Stora Enso’s Enterprise Risk Management process and living in countries with security or crime concerns. Focusing on the the Information Risk Management System. A number of security controls security of key personnel is also important from a business continuity were implemented during 2012 to strengthen the protection of confidential perspective. Stora Enso constantly monitors risks related to personnel information and to facilitate compliance with international regulations. security, including health issues, and information is available on the Intranet and delivered directly to travelling employees. An assistance Property and business disruption risks provider partner takes care of action in medical or security crises, Protecting production assets and business results is a high priority for under guidance from Stora Enso’s crisis management team. The crisis Stora Enso to achieve the target of avoiding any unplanned production management team is chaired by the Head of Human Resources, who stoppages. This is done by structured methods of identifying, measuring is a Group Executive Team member. and controlling different types of risk and exposure. Stora Enso Group Risk Management (GRM) manages this process together with insurance Natural catastrophe risks companies and other loss prevention specialists. Each year a number Stora Enso has to acknowledge that natural catastrophes such as of technical risk inspections are carried out at production units. Risk storms, flooding, earthquakes or volcanic activity may affect the improvement programmes and cost-benefit analysis of proposed Group’s premises and operations. However, most of the Group’s assets investments are managed by internal reporting and risk assessment are located in areas where the probability of flooding, earthquakes tools. Internal and external property loss prevention guidelines, fire loss and volcanic activity is low. The outcome of such catastrophes can control assessments, key machinery risk assessments and specific loss be diminished by emergency and business continuity plans that have prevention programmes are also utilised. been proactively designed together with the relevant authorities.

Stora Enso Financial Report 2012 31 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Report of the Board of Directors

Reputational investment processes. Tools such as sustainability due diligence and Business Practice Policy related risks Environmental and Social Impact Assessments (ESIA) help ensure Stora Enso’s Business Practice Policy is continuously kept up to date. that no unsustainable projects are initiated and all related risks and This policy clearly states Stora Enso’s support of ethical and legally opportunities are fully understood. They also enable project plans to compliant business practices, including, but not limited to, free and fair be adapted to suit local circumstances. competition and zero tolerance of corrupt activities of any kind. These commitments are also an integral part of Stora Enso’s Code of Conduct. Financial risks Stora Enso will continue to take action to emphasise its commitment to Stora Enso is exposed to several financial market risks that the Group ethical and compliant operations through risk assessments, corporate is responsible for managing under policies approved by the Board policies and training, supply change management and an effective of Directors. The objective is to have cost-effective funding in Group grievance mechanism. companies and manage financial risks using financial instruments to decrease earnings volatility. The main exposures for the Group are Governance risks interest rate risk, currency risk, funding risk and commodity price risk, Stora Enso is a large international Group containing a variety of especially for fibre and energy. operational and legal structures, so clear governance rules are essential. Stora Enso has well-defined Corporate Governance Financial risks are discussed in detail in Note 25, Financial Risk with bodies that have different tasks and responsibilities to ensure Management. structured handling of all important issues regarding the development of the Group. Environmental issues Stora Enso’s environmental work has two main focuses: first, to minimise Stora Enso’s Disclosure Policy emphasises the importance of the environmental impacts of its operations; secondly, to use raw materials transparency, credibility, responsibility, proactivity and interaction. It as efficiently as possible to ensure valuable natural and financial resources was formulated from the communications practices of the Group, are not wasted. which follow laws and regulations applicable to the Company. Stora Enso’s environmental costs in 2012 excluding interest and including Environmental risks depreciation totalled EUR 175 (EUR 200) million. Environmental costs Stora Enso may face high compliance and remediation costs under are related to operational costs which include e.g. water use and water environmental laws and regulations, which could reduce profit margins treatment, air emission abatement measures, waste management, and earnings. These risks are minimised through environmental administrative costs for environmental management, taxes, fees and management systems and environmental due diligence for acquisitions permits. and divestments, and indemnification agreements where effective and appropriate remediation projects are required. Remediation projects Provisions for environmental remediation amounted to EUR 114 (EUR are related to old activities and mill closures. 126) million at 31 December 2012, details of which are in Note 23 to the Consolidated Financial Statements, Other Provisions. In 2012, EUR 10 Product safety risks million was spent on remediation activities. There are currently no active Among the uses for Stora Enso paper and board are various food or pending legal claims concerning environmental issues that could have contact and other sensitive applications for which food and consumer a material adverse effect on Stora Enso’s financial position. and product safety issues are important. The mills producing these products have established or are working towards certified hygiene In 2012 Stora Enso’s environmental investments amounted to EUR 23 management systems based on risk and hazard analysis. To ensure (EUR 22) million. These investments were mainly to improve the quality the safety of its products, Stora Enso actively participates in CEPI of air and water, to enhance resource efficiency and to minimise the risk (Confederation of European Paper Industry) working groups on of accidental spills. chemical and product safety. In addition, all Stora Enso mills have certified ISO quality management systems. All Stora Enso’s units have operational responsibility for their environmental management. Stora Enso has management systems in place to ensure Social risks that all units adopt the best environmental practices. All Stora Enso’s pulp, Social risks may harm the development of investments, especially paper and board production units are certified according to the ISO 14001 in growth markets, and their relationship with local stakeholders. management system standard. A full list of the mills and their certifications Stora Enso strives to identify and minimise risks related to social can be seen in Stora Enso’s Global Responsibility Report 2012 or at the issues in good time, in order to guide decision-making in its website www.storaenso.com/certificates.

32 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Report of the Board of Directors

Stora Enso is committed to continually making improvements in normalised waste to landfill is 5% from 2007 levels by the end of 2013. environmental protection. Targets have been set for emissions to air, In 2012, 2.5% less waste went to landfill than in the target base-line year. process water discharges and waste. Progress towards these targets One challenge is the increased use of biomass fuels, which generate more is monitored on a quarterly basis, and consolidated results are reported ashes than other fuels, coupled with the reduced demand for residual ash transparently every year. for beneficial uses. New and innovative ways to reuse materials that would otherwise end up as wastes are therefore constantly being sought. For Stora Enso’s target is to reduce normalised process water discharges by instance, the Group’s current approaches and activities related to resource 10% of their 2005 levels by 2013. During 2012 the Group made progress and materials efficiency are being evaluated with the aim to establish a towards this target. Total discharges of process water have been reduced new target that will replace the current waste to landfill target. Despite by 7.5% since 2005. the challenges, 97% of the Group’s waste was successfully reused in 2012 (97% in 2011). Another target Stora Enso has set for its water discharges is to reduce the average Chemical Oxygen Demand (COD) of its water releases by Hazardous wastes from our production include used oils, solvents, paints, 10% from 2007 levels by the end of 2013. During 2012 no progress was laboratory chemicals and batteries. In 2012 Stora Enso’s production units achieved for normalised COD discharges and our performance is still created a total of 4 444 tonnes of hazardous waste, down from 7 777 4.5% lower than in 2007. tonnes in 2011. Hazardous wastes are disposed of by ensuring that they are safely processed at hazardous waste facilities or incinerators. Stora Normalised discharges of nitrogen and phosphorus into water were slightly Enso reports on disposal of its hazardous wastes in line with definitions higher in 2012 than in 2011. Compounds of nitrogen and phosphorus are set out in respective national regulations. No significant spills, releases or used to provide nutrient sources for the micro-organisms that are vital to leakages of hazardous wastes occurred in 2012. the biological waste water treatment processes. In natural water bodies, excessive amounts of nitrogen and phosphorus can lead to increased In 2012 Stora Enso continued to participate actively as a member of the biological activity through eutrophication. Over the past five years, Stora following associations and various international initiatives: World Business Enso’s normalised discharges of phosphorus have declined by 6% and Council for Sustainable Development (WBCSD), Confederation of discharges of nitrogen have increased by 12%. European Paper Industries (CEPI), The Alliance for Beverage Cartons and the Environment (ACE), UN Global Compact, The Forest Dialogue (TFD) Stora Enso’s atmospheric emissions mainly result from the combustion of and Water Footprint Network, as well as national industry federations and fuels used in energy generation. These emissions include carbon dioxide forest certification bodies.

(CO2), sulphur dioxide (SO2) and nitrogen oxides (NOX). Stora Enso has a

CO2 intensity reduction target for its pulp, paper and board mills. The target Verified information on environmental matters is published in the separate is to reduce the CO2 emissions per tonne of product from the Group’s pulp, report Global Responsibility 2012. paper and board mills by 35% compared with the baseline year 2006 Corporate Governance in Stora Enso by 2025. During 2012 Stora Enso’s normalised CO2 emissions continued to decrease and are currently 32% lower than in 2006. The reduction in Stora Enso’s Corporate Governance complies with the Finnish recent years has been achieved mainly through investments in biomass Corporate Governance Code (the “Code”) issued by the Securities boilers reducing the use of fossil fuels and increased internal power and Market Association that entered into force on 1 October 2010. The heat production. Other improvements have been made in productivity, Code is available at the internet website www.cgfinland.fi. Stora Enso’s the use of more efficient equipment and streamlined processes. This Corporate Governance also complies with the Swedish Corporate beneficial trend continued in 2012 thanks to efforts made in many mills, Governance Code (“Swedish Code”) which entered into force on such as. Langerbrugge and Maxau, which continued to leverage the recent 1 February 2010 (and applicable to Stora Enso as a foreign company investments made in power plants to increase the production of electricity, from 1 January 2011), with the exception of the deviations that are thus reducing their CO2 emissions by 110 000 tonnes compared with 2011. listed in Stora Enso’s full Corporate Governance Report. The deviations are due to differences between the Swedish and Finnish legislation, Over the five-year period 2008-2012, Stora Enso’s normalised governance code rules and practices, and in these cases Stora Enso emissions of nitrogen oxides (NOX) were increased by 8% but its our follows the practice in its domicile. The Swedish Code is issued by the normalised emissions of SO2 remained stable. Swedish Corporate Governance Board and is available at the internet website www.corporategovernanceboard.se. Residual materials that cannot be reused end up in landfills. In 2012 Stora Enso’s total waste to landfill rate decreased to 11 kg/tonne of pulp, Stora Enso’s full Corporate Governance Report is available as a PDF paper and board produced (12 kg/tonne in 2011). The target reduction in document at www.storaenso.com/investors/governance.

Stora Enso Financial Report 2012 33 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Report of the Board of Directors

Class Action Lawsuits in USA Changes in Organisational Structure and

In the context of magazine paper sales in the USA in 2002 and 2003, Group Management Stora Enso Oyj (SEO) and Stora Enso North America (SENA) were On 17 January 2012 Stora Enso announced that it was renewing its sued in a number of class action (and other civil) lawsuits filed in the Business Area and Reporting Segment structure. The changes in the USA by various magazine paper purchasers that claimed damages for Business Areas and management took effect as of 17 January 2012. alleged antitrust violations. On 14 December 2010 a US federal district court granted a motion for summary judgement that Stora Enso had The Group Executive Team has been as follows since 19 March 2012: filed on behalf of both SEO and SENA seeking dismissal of the direct Jouko Karvinen, Chief Executive Officer purchaser class action claims. Following appeal, a federal court of Juan Bueno, Executive Vice President, Biomaterials Business Area appeals on 6 August 2012 upheld the district court’s ruling as to SEO, Lars Häggström, Executive Vice President, Global People and which means that the direct purchaser class action claims against Organisation SEO have been found to be without legal foundation, but reversed Hannu Kasurinen, Executive Vice President, Building and Living the district court’s ruling as to SENA and referred that part of the case Business Area back to the district court for a jury trial to determine whether SENA’s Per Lyrvall, Executive Vice President, Global Ethics and Compliance, conduct did violate the federal antitrust laws. The appeal court’s General Counsel decision is procedural and does not constitute a legal finding that Mats Nordlander, Executive Vice President, Renewable Packaging SENA has violated antitrust laws. A motion by SENA requesting the Business Area US Supreme Court to review and reverse the federal court of appeals Lauri Peltola, Executive Vice President, Global Identity decision vacating the district court’s ruling as to SENA has been Karl-Henrik Sundström, Executive Vice President, Chief Financial dismissed by the Supreme Court and the case against SENA will now Officer (as of 1 August 2012) proceed to trial in the district court. Furthermore, most of the indirect Juha Vanhainen, Executive Vice President, Printing and Reading purchaser actions have been dismissed by a consent judgement, Business Area subject, however, to being reinstated if the plaintiffs in the direct cases are ultimately successful in obtaining a final judgement that SENA Markus Rauramo, Executive Vice President, Chief Financial Officer and violated antitrust laws. Since Stora Enso disposed of SENA in 2007, a member of the Group Executive Team, relinquished his duties with Stora Enso’s liability, if any, will be determined by the provisions in Stora Enso on 31 July 2012. the SENA Sales and Purchasing Agreement. No provisions have been made in Stora Enso’s accounts for these lawsuits. Share capital Stora Enso Oyj’s shares are divided into A and R shares. The A and R Legal Proceedings in Finland shares entitle holders to the same dividend but different voting rights. On 3 December 2009 the Finnish Market Court fined Stora Enso for Each A share and each ten R shares carry one vote at a shareholders’ competition law infringements in the market for roundwood in Finland meeting. However, each shareholder has at least one vote. from 1997 to 2004. Stora Enso did not appeal against the ruling. During the year a total of 1 000 A shares were converted into R shares. On 31 March 2011 Metsähallitus of Finland initiated legal proceedings The conversions were recorded in the Finnish Trade Register on 16 against Stora Enso, UPM and Metsäliitto claiming compensation for January 2012. damages allegedly suffered due to the competition law infringements. The total claim against all the defendants amounts to approximately On 31 December 2012 Stora Enso had 177 147 772 A shares and EUR 160 million and the secondary claim against Stora Enso to 612 390 727 R shares in issue, of which the Company held no A shares approximately EUR 85 million. and 918 512 R shares with an accountable par of EUR 1.6 million. The holding represents 0.12% of the Company’s share capital and 0.04% In addition, Finnish municipalities and private forest owners have of the voting rights. The total number of Stora Enso shares in issue was initiated similar legal proceedings. The total amount claimed from 789 538 499 and the total number of votes 238 386 844. all the defendants amounts to approximately EUR 70 million and the secondary claims and claims solely against Stora Enso to The Board of Directors is not currently authorised to issue, acquire or approximately EUR 25 million. dispose of shares in the Company.

Stora Enso denies that Metsähallitus and other plaintiffs have suffered Information on the fifteen largest shareholders by holding and voting any damages whatsoever and will forcefully defend itself. No provisions is presented in Stora Enso in Capital Markets on page 4. have been made in Stora Enso’s accounts for these lawsuits.

34 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Report of the Board of Directors

Share Distribution, 31 December 2012

By size of holding, A shares Shareholders % Shares % 1–100 2 956 38.36 162 259 0.10 101–1 000 4 030 52.29 1 523 284 0.86 1 001–10 000 683 8.86 1 629 199 0.92 10 001–100 000 32 0.42 592 491 0.33 100 001–1 000 000 1 0.01 603 718 0.34 1 000 001– 5 0.06 172 636 821 97.45 Total 7 707 100.00 177 147 772 100.00

By size of holding, R shares Shareholders % Shares % 1–100 6 472 19.95 432 234 0.07 101–1 000 18 645 57.45 8 504 245 1.39 1 001–10 000 6 671 20.56 18 431 607 3.01 10 001–100 000 562 1.73 15 163 770 2.48 100 001–1 000 000 78 0.24 25 811 265 4.21 1 000 001– 24 0.07 544 047 606 88.84 Total 32 452 100.00 612 390 727 100.00

According to Euroclear Finland.

Ownership Distribution, 31 December 2012 Proposal for the distribution of dividend

% of shares % of votes The Board of Directors proposes to the AGM that a dividend of EUR Foundation Asset Management 10.1 27.2 0.30 per share be distributed for the year 2012. Solidium Oy1) 12.3 25.1 Finnish institutions 15.8 21.9 The dividend would be paid to shareholders who on the record date of Under nominee names (non-Finnish/ the dividend payment, 26 April 2013, are recorded in the shareholders’ non-Swedish shareholders) 35.5 11.9 register maintained by Euroclear Finland Ltd. or in the separate register Swedish institutions 13.5 6.9 of shareholders maintained by Euroclear Sweden AB for Euroclear Swedish private shareholders 4.6 3.1 Sweden registered shares. Dividends payable for Euroclear Sweden Finnish private shareholders 4.5 2.7 registered shares will be forwarded by Euroclear Sweden AB and paid ADR holders 3.7 1.2 Total 100.0 100.0 in Swedish krona. Dividends payable to ADR holders will be forwarded by Deutsche Bank Trust Company Americas and paid in US dollars. 1) Entirely owned by the Finnish State

The Board of Directors proposes to the AGM that the dividend be paid Near-term outlook on 15 May 2013. In the first quarter of 2013 Group sales are expected to be at roughly similar level but operational EBIT in the order of magnitude one- Annual General Meeting third lower than in the fourth quarter of 2012 due to deterioration in The Annual General Meeting (AGM) will be held at 16.00 (Finnish time) European paper and Building and Living markets. In Biomaterials, on Tuesday 23 April 2013 at Marina Congress Center, Katajanokanlaituri Veracel Pulp Mill will take its annual maintenance stoppage during 6, Helsinki, Finland. the quarter.

Stora Enso Financial Report 2012 35 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Consolidated Financial Statements Consolidated Financial Statements

Consolidated Income Statement

Year Ended 31 December EUR million Note 2012 2011

Sales 3 10 814.8 10 964.9

Other operating income 5 218.8 208.9

Changes in inventories of finished goods and work in progress -6.9 31.7

Change in net value of biological assets 13 -5.0 -5.1

Materials and services -6 962.2 -6 998.5

Freight and sales commissions -1 007.5 -1 018.9

Personnel expenses 6 -1 360.8 -1 393.9

Other operating expenses 5 -578.3 -575.2

Share of results of equity accounted investments 14 107.7 118.0

Depreciation, amortisation and impairment charges 11 -531.6 -572.6

Operating Profit 3 689.0 759.3

Financial income 8 128.2 42.9

Financial expense 8 -335.5 -381.3

Profit before Tax 481.7 420.9

Income tax 9 8.7 -78.7

Net Profit for the Year 490.4 342.2

Attributable to:

Owners of the Parent 19 480.5 339.7

Non-controlling Interests 20 9.9 2.5

Net Profit for the Year 490.4 342.2

Earnings per Share

Basic and diluted earnings per share, EUR 33 0.61 0.43

Consolidated Statement of Comprehensive Income

Year Ended 31 December EUR million Note 2012 2011 Net profit for the period 490.4 342.2

Other Comprehensive Income (OCI)

Actuarial losses on defined benefit plans 21 -167.3 -55.8

Available-for-sale financial assets 15 -177.6 -240.5

Currency and commodity hedges 28 33.6 -128.4

Share of other comprehensive income of equity accounted investments 28 -4.2 -19.4

Currency translation movements on equity net investments (CTA) 29 -29.4 -76.2

Currency translation movements on non-controlling interests 20 -3.2 -

Net investment hedges 29 -16.8 6.0

Income tax relating to components of other comprehensive income 9 29.6 40.8 Other Comprehensive Income, net of tax -335.3 -473.5

Total Comprehensive Income 155.1 -131.3

Total Comprehensive Income Attributable to: Owners of the Parent 148.4 -133.8

Non-controlling interests 20 6.7 2.5 155.1 -131.3

The accompanying Notes are an integral part of these consolidated Financial Statements.

36 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Consolidated Financial Statements

Consolidated Financial Statements Consolidated Statement of Financial Position

As at 31 December EUR million Note 2012 2011

Assets

Fixed Assets and Other Non-current Investments

Goodwill O 12 225.9 224.3

Other intangible fixed assets O 12 44.6 57.8

Property, plant and equipment O 12 5 048.7 4 942.5

12 5 319.2 5 224.6

Biological assets O 13 221.7 212.6

Emission rights O 29.6 43.0

Equity accounted investments O 14 1 965.1 1 913.1

Available-for-sale: interest-bearing I 15 95.9 82.0

Available-for-sale: operative O 15 450.6 640.2

Non-current loan receivables I 18 134.2 125.3

Deferred tax assets T 9 143.1 121.9

Other non-current assets O 16 23.1 26.6

8 382.5 8 389.3

Current Assets

Inventories O 17 1 457.5 1 528.7

Tax receivables T 9 18.5 6.2

Current operative receivables O 18 1 688.2 1 654.6

Interest-bearing receivables I 18 297.0 281.5

Cash and cash equivalents I 1 849.9 1 138.8 5 311.1 4 609.8 Total Assets 13 693.6 12 999.1

Equity and Liabilities

Equity Attributable to Owners of the Parent

Share capital 19 1 342.2 1 342.2

Share premium 76.6 76.6

Treasury shares 19 -10.2 -10.2

Other comprehensive income 28 343.4 498.1

Cumulative translation adjustment 29 -10.1 32.0 Invested non-restricted equity fund 633.1 633.1

Retained earnings 2 929.0 2 961.2

Net profit for the period 480.5 339.7

5 784.5 5 872.7

Non-controlling Interests 20 91.5 87.1

Total Equity 5 876.0 5 959.8

Non-current Liabilities

Post-employment benefit provisions O 21 461.6 333.1

Other provisions O 23 142.0 147.7

Deferred tax liabilities T 9 343.8 401.0

Non-current debt I 27 4 341.3 3 339.4

Other non-current operative liabilities O 24 11.7 31.9

5 300.4 4 253.1

Current Liabilities

Current portion of non-current debt I 27 181.0 250.0

Interest-bearing liabilities I 27 607.0 779.5

Bank overdrafts I 27 4.5 4.5

Current operative liabilities O 24 1 685.6 1 678.7

Tax liabilities T 9 39.1 73.5 2 517.2 2 786.2 Total Equity and Liabilities 13 693.6 12 999.1

Items designated "O" comprise Operative Capital, items designated "I" comprise Interest-bearing Net Liabilities, items designated "T" comprise Net Tax Liabilities. The accompanying Notes are an integral part of these Consolidated Financial Statements.

Stora Enso Financial Report 2012 37 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Consolidated Financial Statements

Consolidated Cash Flow Statement

Year Ended 31 December EUR million Note 2012 2011 Cash Flow from Operating Activities Net profit for the year 490.4 342.2

Result from the Statement of Other Comprehensive Income 33.7 -127.3

Adjustments and reversal of non-cash items:

Taxes 9 -8.7 78.7

Depreciation and impairment charges 11 531.6 572.6

Change in value of biological assets 13 5.0 5.1

Change in fair value of options and TRS -26.1 9.8

Share of results of equity accounted investments 14 -107.7 -118.0

Profits and losses on sale of fixed assets and investments 5 4.8 -1.6

Net financial items 8 207.3 338.4 Pension adjustment -18.3 -

Dividends received from equity accounted investments 14 102.0 24.1

Interest received 16.8 23.6

Interest paid -168.4 -129.3

Income received on interest-bearing securities 8 0.1 0.2

Other financial items, net -78.7 -19.3

Income taxes paid 9 -103.6 -129.1

Change in net working capital, net of businesses acquired or sold 55.4 -173.3 Net Cash Provided by Operating Activities 935.6 696.8

Cash Flow from Investing Activities

Acquisition of subsidiary shares and business operations, net of acquired cash 4 -11.3 -25.0

Acquisition of shares in equity accounted investments 14 -114.5 -128.6

Acquisition of available-for-sale investments 15 -0.3 -0.6

Capital expenditure 3, 12 -541.0 -392.4

Investment in biological assets 13 -19.7 -17.2

Proceeds from disposal of shares in equity accounted investments and equity repayment 14 2.2 -

Proceeds from disposal of available-for-sale investments 15 0.5 1.0

Proceeds from sale of fixed assets 12 5.7 21.7

Payment of/proceeds from non-current receivables, net -5.3 -4.0 Net Cash Used in Investing Activities -683.7 -545.1

Cash Flow from Financing Activities

Proceeds from new long-term debt 1 471.5 61.7

Repayment of long-term liabilities -570.7 -83.3

Change in current borrowings -179.3 131.2

Dividends paid -236.6 -197.2

Equity injections less dividends to non-controlling interest 20 -2.5 -3.6 Net Cash Provided by/Used in Financing Activities 482.4 -91.2

Net Increase in Cash and Cash Equivalents 734.3 60.5 Translation adjustment -23.2 -29.3 Cash and cash equivalents at beginning of year 1 134.3 1 103.1 Net Cash and Cash Equivalents at Year End 1 845.4 1 134.3

Cash and Cash Equivalents at Year End 1 849.9 1 138.8 Bank Overdrafts at Year End -4.5 -4.5 1 845.4 1 134.3

The accompanying Notes are an integral part of these Consolidated Financial Statements.

38 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Consolidated Financial Statements

Consolidated Cash Flow Statement Supplemental Cash Flow Information

Year Ended 31 December EUR million Note 2012 2011 Change in Net Working Capital consists of: Change in inventories 90.2 -32.7 Change in interest-free receivables: Current 20.3 -12.3 Non-current 3.1 11.2 Change in interest-free liabilities: Current 9.0 -134.6 Non-current -50.2 -48.6 Proceeds from/payment of short-term interest-bearing receivables -17.0 43.7 Change in Net Working Capital, Net of Businesses Acquired or Sold 55.4 -173.3

Non-Cash Investing Activities Total capital expenditure 536.6 436.1 Amounts paid -541.0 -392.4 Non-Cash Part of Additions to Fixed Assets -4.4 43.7

Acquisitions Cash Flow on Acquisitions

Purchase consideration on acquisitions, cash part 4 13.1 40.7

Purchase consideration on acquisitions, non-cash part 4 - 4.2

Cash and cash equivalents in acquired companies, net of bank overdraft 4 -1.8 -15.7

Gain to retained earnings on non-controlling interest buy-outs 4 - 0.8 Payment concerning unfinished 2011 acquisition -4.3 - Total Acquisition Value 7.0 30.0

Acquired Net Assets Operating working capital 8.5 13.1

Operating fixed assets 12 5.8 52.0

Tax assets and liabilities 9 0.6 -4.6

Interest-bearing assets and liabilities -5.0 -5.4

Non-controlling interest 20 -0.2 -36.4 Value of previously held equity interests -2.8 - Total Net Assets Acquired 6.9 18.7

Goodwill 12 0.1 11.3 Total Net Assets Acquired and Goodwill 7.0 30.0

The accompanying Notes are an integral part of these Consolidated Financial Statements.

Stora Enso Financial Report 2012 39 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Consolidated Financial Statements - 0.2 29.6 37.2 40.8 Total 155.1 490.4 342.2 -239.1 -364.9 -200.8 -131.3 -514.3 5 876.0 5 959.8 6 254.7 - - - 0.2 6.7 9.9 2.5 2.5 -0.8 -3.6 87.1 37.2 -2.5 -3.2 91.5 51.8 Non- Interests controlling controlling - - 0.8 29.6 40.8 of the 148.4 480.5 339.7 Parent -236.6 -361.7 -197.2 -133.8 -514.3 5 784.5 5 872.7 6 202.9 to Owners Attributable - - 0.8 7.9 32.0 345.2 480.5 -55.8 291.8 339.7 -197.2 -236.6 -167.3 3 409.5 3 300.9 3 205.5 Earnings Retained

------4.1 32.0 CTA -1.5 -10.1 -42.1 -46.2 -71.7 -70.2 103.7 Hedges and Net Investment ------4.2 -4.2 -9.8 -33.4 -29.2 -19.4 -19.4 Equity OCI of Accounted Investments ------and 10.7 -5.7 27.9 33.6 33.3 77.9 -17.2 -95.1 -128.4 Hedges Currency Currency Commodity

------1.1 -0.8 362.2 540.6 780.0 -177.6 -178.4 -239.4 -240.5 Assets for Sale Financial Available Available ------3.9 3.9 3.9 Step Surplus Acquisition Revaluation ------10.2 -10.2 -10.2 Shares Treasury Treasury ------Non- 633.1 633.1 633.1 Invested Restricted Equity Fund

------and 76.6 76.6 76.6 Fund Share Share Reserve Premium Premium ------Share Share 1 342.2 1 342.2 Capital 1 342.2 CTA = Cumulative Translation Adjustment = Cumulative Translation CTA Income OCI = Other Comprehensive Balance at 31 December 2012 Acquisitions Dividend Total Comprehensive Income Comprehensive Total Income tax relating to components of OCI Income tax relating OCI before tax OCI before Balance at 31 December 2011 Profit for the period Profit Gain on buy-out of non-controlling interest Gain on buy-out of non-controlling Acquisitions Dividend Total Comprehensive Income Comprehensive Total Income tax relating to components of OCI Income tax relating OCI before tax OCI before Profit for the period Profit Balance at 31 December 2010 EUR million Statement of Changes of Statement in Equity

40 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements

1 2 3 4 5 6 7 Note 1 Accounting Principles 8 Principal activities 9 10 Stora Enso Oyj (“the Company”) is a Finnish limited liability company 2013 eliminates the ‘corridor method’, streamlines the presentation organised under the laws of the Republic of Finland and with its of changes in assets and liabilities arising from defined benefit plans 11 registered address at Kanavaranta 1, 00160 Helsinki. Its shares and enhances the disclosure requirements arising from the standard. 12 are currently listed on NASDAQ OMX Helsinki and Stockholm. The The amendment was issued in June 2011 with early adoption 13 operations of Stora Enso Oyj and its subsidiaries (together “Stora permitted. Stora Enso is not exercising the option of early adoption 14 Enso” or the “Group”) are organised into the following business areas: at the end of 2012. The effects of this amendment on the Group 15 Printing and Reading, Biomaterials, Building and Living, Renewable financial statements are under investigation. The EU endorsed this 16 Packaging, and Other, which includes the Nordic forest equity amendment in June 2012. 17 accounted investments, Stora Enso’s shareholding in Pohjolan Voima, • IFRS 7 Financial Instruments: Disclosures Amendments enhancing 18 operations supplying wood to the Nordic mills and Group shared disclosures about offsetting of financial assets and financial liabilities 19 services and administration. The Group’s main market is Europe, with effective from 1 January 2013. The effects of this amendment on the 20 an expanding presence in Asia and South America. Group financial statements are under investigation. The EU endorsed 21 this amendment in December 2012. These Financial Statements were authorised for issue by the Board of • IAS 32 Financial Instruments: Presentation amendments clarify 22 Directors on 5 February 2013. existing application issues relating to offsetting of financial assets 23 and financial liabilities requirements. The effects of this amendment 24 Basis of preparation on the Group financial statements are under investigation. EU has 25 The Consolidated Financial Statements of Stora Enso Oyj have endorsed this amendment in December 2012. 26 been prepared in accordance with International Financial Reporting • IFRS 10 Consolidated Financial Statements effective from 1 January 27 Standards (IFRS), as adopted by the European Union, including 2013 establishes principles for the presentation and preparation of 28 International Accounting Standards (IAS) and Interpretations issued by consolidated financial statements when an entity controls one or 29 the IFRS Interpretations Committee (IFRIC). The Consolidated Financial more other entities. The standard provides additional guidance on 30 Statements of Stora Enso Oyj have been prepared under the historical the process of determining possible control of an entity, especially 31 cost convention except as disclosed in the accounting policies below. in challenging cases. The effects of this new standard on the Group 32 The consolidated financial statements are presented in euro, which is financial statements are under investigation. The EU endorsed this the parent company’s functional currency. standard in December 2012. 33 • IFRS 11 Joint Arrangements effective from 1 January 2013 introduces Amended standard adopted in 2012 core principles for determining the type of joint arrangement in • IFRS 7 Financial Instruments: Disclosure amendments enhancing which the party to the joint arrangement is involved by assessing its disclosures about transfers of financial assets effective from 1 July rights and obligations and accounts for those rights and obligations 2011. These amendments are not relevant to the Group. in accordance with that type of joint arrangement. The effects of this new standard on the Group financial statements are under New and amended standards and investigation. The EU endorsed this standard in December 2012. interpretations not yet effective in 2012 • IFRS 12 Disclosure of Interests in Other Entities effective from 1 January • IAS 1 Presentation of Financial Statements (amendment) effective for 2013 requires the disclosure of information that enables users of financial years starting from 1 July 2012 introduces changes to the financial statements to evaluate the nature of, and risks associated presentation of items of other comprehensive income. The effects with its interests in other entities as well as the effects of the interests of this amendment on the Group financial statements are under on the financial position, performance and cash flow of the entity. The investigation. The EU endorsed this amendment in June 2012. effects of this new standard on the Group financial statements are • IAS 19 Employee benefits (amendment) effective from 1 January under investigation. The EU endorsed this standard in December 2012.

Stora Enso Financial Report 2012 41 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

• IFRS 13 Fair Value Measurement effective from 1 January 2013 Consolidation principles establishes the definition of fair value and introduces a single The Consolidated Financial Statements include the parent company, IFRS framework for measuring fair value while seeking to increase Stora Enso Oyj, and all companies in which it holds, directly or indirectly, consistency and comparability by requiring disclosures about fair over 50% of the voting rights. The Financial Statements of companies value measurements applied in the financial statements of an entity. that Stora Enso controls through management agreements with majority The effects of this new standard on the Group financial statements shareholders, but in which Stora Enso holds less than 50% of the voting are under investigation. The EU endorsed this standard in December rights are also consolidated. The existence and effect of potential voting 2012. rights that are currently exercisable or convertible are also considered • IAS 12 Income taxes (amendment) effective from 1 January 2012 when assessing whether an entity is consolidated. The principal provides additional regulation on deferred tax in the case of recovery subsidiaries are listed in Note 31 Principal Subsidiaries in 2012. of underlying assets. The amendment is not relevant to the Group. The EU endorsed this amendment in December 2012. Associated companies over which Stora Enso exercises significant • IAS 27 Consolidated and Separate Financial Statements effective influence and in which the Group generally holds between 20% and from 1 January 2013 was reissued and consolidation requirements 50% of voting rights are accounted for using the equity method, which previously stated in IAS 27 Consolidated and Separate Financial involves recognising in the Income Statement the Group’s share of the Statements have been revised and stated in IFRS 10 Consolidated equity accounted investment’s profit or loss for the year less any impaired Financial Statements. The effects of the changes on the Group goodwill. These companies are undertakings in which the Group has financial statements are under investigation. The EU endorsed this significant influence, but which it does not control; the most significant of change in December 2012. such companies are listed in Note 14 Equity Accounted Investments. The • IAS 28 Investments in Associates and Joint Ventures effective from Group’s interest in an associated company is carried in the Consolidated 1 January 2013 supersedes IAS 28 Investments in Associates and Statement of Financial Position at an amount that reflects its share of provides consequential amendments to the standard in response the net assets of the associate together with any remaining goodwill to a new standard IFRS 11 Joint Arrangements issued in 12 May on acquisition. When the Group share of losses exceeds the carrying 2011. The effects of the changes on the Group financial statements amount of an investment, the carrying amount is reduced to nil and are under investigation. The EU endorsed this change in December any recognition of further losses ceases unless the Group is obliged to 2012. satisfy obligations of the investee that it has guaranteed or to which it is • IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine otherwise committed. effective from 1 January 2013 introduces accounting treatment for stripping costs arising in the mining industry. The interpretation is Joint ventures that Stora Enso jointly controls with other third parties are not relevant to the Group. The EU endorsed this interpretation in also accounted for using the equity method as described above; the most December 2012. significant of such companies are listed in Note 14 Equity Accounted Investments. New standard not yet effective and not yet

endorsed by the EU in 2012 Acquired companies are accounted for under the purchase method • IFRS 9 Financial Instruments effective from 1 January 2015, to whereby they are included in the Consolidated Financial Statements from be applied on a modified retrospective basis, introduces new their acquisition date, whereas, conversely, divestments are included up requirements for classifying and measuring financial assets. The to their date of sale. standard also has an amendment to include requirements for the classification and measurement of financial liabilities and for All intercompany transactions, receivables, liabilities and unrealised profits, derecognition. Debt instruments meeting both a business model as well as intragroup profit distributions, are eliminated. Accounting test and a cash flow characteristics test are measured at amortised policies for subsidiaries and all equity accounted investments are adjusted cost. The use of fair value is optional in some limited circumstances. where necessary to ensure consistency with the policies adopted by Stora Investments in equity can be designated as fair value through other Enso. Non-controlling interests are presented as a separate component comprehensive income with only dividends recognised in profit or of equity. loss. All other instruments are measured at fair value with changes recognised in profit or loss. The effects of this new standard on the Non-controlling interests Group financial statements are under investigation. Non-controlling interests are presented within the equity of the Group in the Statement of Financial Position. The proportionate shares of profit or loss attributable to non-controlling interests and to equity holders of the parent company are presented in the Income Statement after the profit

42 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

for the period. Transactions between non-controlling interests and Group Statement of Comprehensive Income and Note 29 Cumulative Translation 1 shareholders are transactions within equity and are thus shown in the Adjustments and Equity Hedging. The cumulative translation differences 2 Statement of Changes in Equity and Note 20 Non-Controlling Interests. of divestments and liquidations are combined with their gain or loss on 3 The measurement type of non-controlling interests is decided separately disposal. The CTA is also recycled in the Income Statement upon the 4 for each acquisition. repayment of share capital, return of investment and any partial disposal 5 of a business unit. Segment information 6 7 The organisational structure of Stora Enso in described in Note 3 Segment Trade receivables 8 Information. The Group’s key non-IFRS performance metric is Operational Trade receivables are recognised initially at fair value and subsequently 9 EBIT, which is used to both evaluate the performance of its operating at their anticipated realisable value, an estimate being made for doubtful 10 segments and to steer allocation of resources to them. Operational EBIT receivables based on an objective review of all outstanding amounts at comprises the operating profit excluding non-recurring items and fair the year end. Losses relating to doubtful receivables are recorded in the 11 valuations from the segments and Stora Enso’s share of the operating Income Statement within Other Operating Expenses. Trade Receivables 12 profit of equity accounted investments (EAI) excluding non-recurring items are included in current assets under Current Operative Receivables. 13 and fair valuations. 14 Cash and cash equivalents 15 Non-recurring items are exceptional transactions that are not related Cash and cash equivalents comprise cash-in-hand, deposits held at call 16 to normal business operations. The most common non-recurring items with banks and other liquid investments with original maturity of less than 17 are capital gains, additional write-downs or reversals of write-downs, three months. Bank overdrafts are included in current liabilities. 18 provisions for planned restructuring and penalties. Non-recurring items 19 are normally specified individually if they exceed one cent per share. Investments 20 The Group classifies its investments in marketable debt and equity 21 Fair valuations and non-operational items include equity incentive securities, and investments in unlisted equity securities into three 22 schemes, synthetic options net of realised and open hedges, CO2 categories being trading, held-to-maturity and available-for-sale. emission rights, valuations of biological assets related to forest assets in Investments acquired principally for the purpose of generating a profit 23 EAI and the Group’s share of tax and net financial items of EAI. from short-term fluctuations in price are classified as trading investments 24 and are therefore fair valued through the Income Statement and presented 25 Foreign currency transactions as current assets. Investments with fixed maturity, which management has 26 Transactions in foreign currencies are recorded at the rate of exchange the intent and ability to hold to maturity, are classified as held-to-maturity, 27 prevailing at the transaction date, but at the end of the month, foreign- to be disclosed in non-current assets. Investments in listed and unlisted 28 currency-denominated receivables and liabilities are translated using the shares as well as payment-in-kind (PIK) notes are classified as available- 29 month-end exchange rate. Foreign exchange differences for operating for-sale. Management determines the classification of its investments at 30 items are recorded in the appropriate income statement account within the time of the purchase and re-evaluates such designation on a regular 31 operating profit, and, for financial assets and liabilities, are entered in basis. 32 the financial items of the Income Statement, except when deferred in equity as qualifying net investment hedges. Translation differences on Available-for-sale investments are initially recognised at fair value 33 non-monetary financial assets, such as equities classified as Available- and subsequent gains and losses are booked to equity in Other for-Sale, are included in equity. Comprehensive Income (OCI) and, when they are sold, the accumulated fair value adjustments are then included in the Income Statement. The Foreign currency translations – subsidiaries values of all investments for which the market value has been below The Income Statements of subsidiaries with functional and presentational the carrying value for more than a year are reviewed at least annually currencies other than the euro are translated into the Group reporting for impairment. If management believes that the diminution of value is currency using the average exchange rates for the year, whereas the permanent, then that part of the fair value reserve (OCI) represented by Statements of Financial Position of such subsidiaries are translated the impairment is transferred to the Income Statement. using the exchange rates at the reporting date. Exchange differences arising from the retranslation of the net investments in foreign entities Loan receivables that are non-euro foreign subsidiaries or equity accounted investments, Loan receivables are non-derivative financial assets with fixed or and of financial instruments that are designated as and are hedges of determinable payments that are not quoted in an active market. They are such investments, are recorded directly in shareholders’ equity in the recorded initially at fair value and are subject to regular and systematic Cumulative Translation Adjustment (CTA), as shown in the Consolidated review as to collectability. If any loan receivable is estimated to be

Stora Enso Financial Report 2012 43 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

unrecoverable, a provision is made for the shortfall between the carrying accounting under IAS 39, any cumulative gain or loss deferred in equity amount and the present value of the expected cash flows. Interest income at that time remains in equity and is accounted for as an adjustment on loan receivables is included in financial income. Loan receivables with to income or expense when the committed or forecast transaction is a maturity of less than 12 months are included in current assets under ultimately recognised in the Income Statement. However, if the forecast Interest-bearing Receivables and those with maturities greater than 12 transaction is no longer expected to occur, the cumulative gain or loss months, in Non-current Loan Receivables. reported in equity from the period when the hedge was effective is recognised in the Income Statement immediately. Debt

Debt is recognised initially at fair value, net of transaction costs incurred. Certain derivative transactions, while providing effective economic In subsequent periods, it is stated at amortised cost using the effective hedges under Group risk management policies, do not qualify for hedge interest method; any difference between proceeds, net of transaction accounting under the specific rules in IAS 39 and therefore changes in costs, and redemption value is recognised in the Income Statement over the fair value of such non-qualifying hedge instruments together with any the period of the borrowings. Interest expenses are accrued for and ineffectiveness of hedge-accounted instruments are accounted for at fair recorded in the Income Statement for each period. value through the Income Statement. Fair value changes of derivative instruments relating to sales, purchases and staff benefits are presented Debt with an original maturity greater than 12 months is classified as Non- under operating profit and specified in Note 28 Derivatives and in Note 6 current Debt in the Statement of Financial Position, though repayments Staff Costs. Fair value changes from all other derivatives are recognised falling due within 12 months are presented in Current Liabilities under the in the Income Statement under financial items. Current Portion of Non-current Debt. Short-term commercial paper, bank and other interest-bearing borrowings for which the original maturity is Hedges of net investments in foreign entities are accounted for similarly to less than 12 months are presented in Current Liabilities under Interest- cash flow hedges, the Group using either derivatives or borrowings for this bearing Liabilities. purpose. If the hedging instrument is a derivative, any gain or loss thereon relating to the effective portion of the hedge is recognised in equity in CTA, Derivative financial instruments and hedging as disclosed in the Consolidated Statement of Comprehensive Income; Financial derivatives are initially recognised in the Statement of Financial the gain or loss relating to the ineffective portion is immediately recognised Position at fair value and subsequently measured at their fair value at in the Income Statement. In addition, exchange gains and losses arising each reporting date, though the method of recognising the resulting gains on the translation of a borrowing that hedges such an investment are also or losses is dependent on the nature of the item being hedged. When recognised in CTA, any ineffective portion being immediately recognised derivative contracts are entered into, the Group designates them as either in the Income Statement. hedges of the exposure to changes in the fair value of recognised assets or liabilities (fair value hedges), hedges of forecast transactions or firm At the inception of a transaction the Group documents the relationship commitments (cash flow hedges), hedges of net investments in foreign between hedging instruments and hedged items, as well as its risk entities or as derivative financial instruments not meeting the hedge management objective and strategy for undertaking various hedge accounting criteria in accordance with IAS 39. transactions. This process includes linking all financial instruments designated as hedges to specific assets and liabilities or to specific Changes in the fair value of derivatives designated and qualifying as fair firm commitments or forecast transactions. The Group also documents value hedges, and which are highly effective, are recorded in the Income its assessment, both at the hedge inception and on an ongoing basis, Statement, along with any changes in the fair value of the hedged assets whether the derivatives used in hedging transactions are highly effective or liabilities attributable to the hedged risk. in offsetting changes in fair value or cash flows of hedged items.

Changes in the fair value of derivatives designated and qualifying as Fair value of financial instruments cash flow hedges, and which are effective, are recognised in equity in the The fair values of publicly traded derivatives, along with trading and Hedging Reserve within OCI, the movements of which are disclosed in available-for-sale securities, are based on quoted market prices at the the Consolidated Statement of Comprehensive Income. The cumulative reporting date; the fair values of interest rate swaps are calculated as gain or loss of a derivative deferred in equity is transferred to the Income the present value of the estimated future cash flows and the fair values Statement and classified as income or expense in the same period in of foreign exchange forward contracts are determined using forward which the hedged item affects the Income Statement. exchange rates at the reporting date.

When a hedging instrument expires, or is sold, terminated or exercised, In assessing the fair values of non-traded derivatives and other financial or has its designation revoked or no longer meets the criteria for hedge instruments, the Group uses a variety of methods and makes assumptions

44 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

based on market conditions at each reporting date. Quoted market Where local rules may result in invoices being raised in advance of 1 prices or dealer quotes for identical or similar instruments are used for the above, the effect of this revenue advancement is quantified and 2 non-current debt. Other techniques, such as option pricing models and an adjustment is made for it. 3 estimated discounted value of future cash flows, are used to determine 4 fair values for the remaining financial instruments. The face values, less Revenues from services are recorded when the service has been 5 any estimated credit adjustments, for financial assets and liabilities with performed. 6 a maturity of less than one year are assumed to approximate their fair 7 values. The fair values of financial liabilities for disclosure purposes Shipping and handling costs 8 are estimated by discounting the future contractual cash flows at the When Stora Enso is responsible for arranging transport for its sales, 9 current market interest rates available to the Group for similar financial such costs are not billed separately but are included in revenue in the 10 instruments. value of the goods billed to customers; the shipping costs incurred are shown in cost of sales. 11 Purchases and sales of financial instruments are recognised on the trade 12 date, which is the date on which the Group commits to purchasing or Research and development 13 selling the financial instrument. Financial instruments are derecognised Research costs are expensed as incurred in Other Operating Expenses 14 when the rights to receive or the cash flows from the financial instruments in the Consolidated Income Statement. Development costs are also 15 have expired or have been transferred and the Group has transferred expensed as incurred unless it is probable that future economic 16 substantially all risks, rewards and obligations of the ownership of the benefits will flow to the Group, in which case they are capitalised 17 financial instrument asset or liability. as intangible assets and depreciated over the period of the income 18 streams. Revenue recognition 19 20 Sales comprise products, raw materials and services less indirect Computer software development costs 21 sales tax and discounts, and are adjusted for exchange differences The cost of development or acquisition of new software clearly on sales in foreign currency. Sales are recognised after Stora Enso associated with an identifiable and unique product that will be 22 has transferred the risks and rewards of ownership to the buyer and controlled by the Group and has probable benefit exceeding its cost 23 the Group retains neither a continuing right to dispose of the goods, beyond one year is recognised as an intangible asset and amortised 24 nor effective control of those goods; usually, this means that sales are over the expected useful life of the software. Website costs are 25 recorded upon delivery of goods to customers in accordance with expensed as incurred. 26 agreed terms of delivery. Environmental remediation costs 27 28 Stora Enso terms of delivery are based on Incoterms 2010, which are Environmental expenditures resulting from the remediation of an 29 the official rules for the interpretation of trade terms as issued by the existing condition caused by past operations, and which do not 30 International Chamber of Commerce (ICC). The main categories of contribute to current or future revenues, are expensed as incurred. 31 terms covering Group sales are: Environmental liabilities are recorded when it is probable, based on 32 • “D” terms, under which the Group is obliged to deliver the goods to current interpretations of environmental laws and regulations, that a the buyer at the agreed place in the manner specified in the chosen present obligation has arisen and the amount of such liability can be 33 rule, in which case the Point of Sale is the moment of delivery to reliably estimated. the buyer. • “C” terms, whereby the Group arranges and pays for the external Discontinued operations and assets held for carriage and certain other costs, though the Group ceases to be sale responsible for the goods once they have been handed over to the A discontinued operation represents a separate major line of business, carrier in accordance with the relevant term. The Point of Sale is or geographical area, for which the assets less liabilities and net thus the handing over of the goods to the carrier contracted by the financial results may be distinguished physically, operationally and seller for the carriage to the agreed destination. for financial reporting purposes, which has been disposed of or is • “F” terms, being where the buyer arranges and pays for the carriage, classified as Held for Sale. An asset is classified as such when it is thus the Point of Sale is the handing over of goods to the carrier highly probable that the carrying amount of the asset will be recovered contracted by the buyer at the agreed point. through a sale transaction rather than continuing use.

Stora Enso Financial Report 2012 45 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Income taxes from 3 to 10 years and up to 20 years for patents. Intangible items The Group income tax expense/benefit includes taxes of Group acquired must be recognised as assets separately from goodwill if companies based on taxable profit/loss for the period, together with they meet the definition of an asset, are either separable or arise from tax adjustments for previous periods and the change in deferred contractual or other legal rights, and their fair value can be measured income taxes. reliably.

Deferred income taxes are provided using the liability method, as Intangible assets recognised separately from goodwill in acquisitions measured with enacted, or substantially enacted, tax rates, to reflect consist of marketing and customer-related or contract and technology- the net tax effects of all temporary differences between the tax bases based intangible assets. Typical marketing and customer-related and the accounting bases of assets and liabilities. No deferred tax assets are trademarks, trade names, service marks, collective marks, is recognised for the initial recognition of goodwill and the initial certification marks, customer lists, order or production backlogs, recognition of an asset or liability in a transaction which is not a customer contracts and the related customer relationships. The business combination and at the time of the transaction it affects contract and technology-based intangible assets are normally neither accounting profit nor taxable profit. Deferred tax assets reduce licensing and royalty agreements or patented technology and trade income taxes payable on taxable income in future years. The deferred secrets such as confidential formulas, processes or recipes. The fair tax assets, whether arising from temporary differences or from tax value determination of customer contracts and related relationships losses, are recognised only to the extent that it is probable that future is derived from expected retention rates and cash flow over the taxable profits will be available against which the assets can be utilised. customers’ remaining estimated life time. The value of trademarks is derived from discounted cash flow analysis using the relief from Goodwill royalty method. Goodwill represents future economic benefits arising from assets that are not capable of being individually identified and separately Property, plant and equipment recognised by the Group on an acquisition. Goodwill is computed Property, plant and equipment acquired by Group companies are stated as the excess of the cost of an acquisition over the fair value of at historical cost, augmented where appropriate by asset retirement the Group’s share of the fair value of net assets of the acquired costs. Assets arising on the acquisition of a new subsidiary are stated subsidiary at the acquisition date and is allocated to those groups of at fair value at the date of acquisition. Depreciation is computed on cash generating units expected to benefit from the acquisition for the a straight-line basis, as adjusted for any impairment and disposal purpose of impairment testing. In compliance with IFRS 3, the cost charges. The Statement of Financial Position value represents cost of an acquisition is equal to the sum of the consideration transferred, less accumulated depreciation and any impairment charges. Interest the value of the non-controlling interest in the acquisition and the fair costs on borrowings to finance the construction of these assets are value of the previously held interest in the acquired subsidiary. Goodwill capitalised as part of the cost during the construction period. arising on the acquisition of non-euro foreign entities is treated as an asset of the foreign entity denominated in the local currency and translated at the closing rate.

Goodwill is not amortised but tested for impairment on an annual basis, or more frequently if there is an indication of impairment. Gains and losses on the disposal of a Group entity include any goodwill relating to the entity sold.

Goodwill arising upon the acquisition of an equity accounted investment is included within the carrying amount of the investment and is assessed for impairment as part of that investment. Any excess of the Group’s share of the net fair value over the cost of the acquisition, after reassessment, is recognised immediately in the income statement. Intangible assets

Intangible assets are stated at historical cost and amortised on a straight-line basis over their expected useful lives, which usually vary

46 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Land is not depreciated as it is deemed to have an indefinite life, but Whilst intangible assets and property, plant and equipment are subject 1 otherwise depreciation is based on the following expected useful lives: to impairment testing at the cash generating unit (CGU) level, goodwill 2 is subject to impairment testing at the level of CGU or groups of CGUs, 3 Asset Class Depreciation Years which represents the lowest level within the Group that goodwill is 4 Buildings, industrial 10−50 monitored for internal management purposes. Buildings, office & residential 20−50 5 Groundwood mills 15−20 Leases 6 Hydroelectric power 40 7 Leases of property, plant and equipment under which the Group has Paper, board and pulp mills, 8 main machines 20 substantially all the rewards and risks of ownership are classified as 9 Heavy machinery 10−20 finance leases. All other leases are classified as operating leases. Converting factories 10−15 10 Finance leases are capitalised at the commencement of the lease Sawmills 10−15 at the lower of the fair value of the leased property or the estimated 11 Computers 3–5 present value of the minimum lease payments. Each lease payment 12 Vehicles 5 is allocated between the capital liability and finance charges so as to 13 Office equipment 3−5 Railway, harbours 20−25 achieve a constant interest rate on the finance balance outstanding. 14 Forest roads 10−35 The corresponding rental obligations, net of finance charges, are 15 Roads, fields, bridges 15−20 included in interest-bearing liabilities with the interest element of the 16 Intangible assets 3−20 finance charge being taken to the Income Statement over the lease 17 period. Property, plant and equipment acquired under finance leasing 18 Ordinary maintenance and repair charges are expensed as incurred, contracts are depreciated over the lesser of the useful life of the asset 19 but the costs of significant renewals and improvements are capitalised or lease period. 20 and depreciated over the remaining useful lives of the related assets. 21 Retirements, sales and disposals of property, plant and equipment Payments made under operating leases are expensed on a straight-line are recorded by deducting the cost and accumulated depreciation basis over the lease periods. When an operating lease is terminated 22 from the accounting records with any resulting terminal depreciation before the expiry of the lease period, any obligatory payment to the 23 adjustments reflected in impairment charges in the Income Statement. lessor by way of penalty is recognised as an expense in the period 24 Capital gains are shown in Other Operating Income. in which termination takes place. Lease termination benefits are 25 recognised on a discounted basis. 26 Spare parts are accounted for as property, plant and equipment if they Government grants 27 are major and used over more than one period, or if they are used 28 only in connection with an item of property, plant and equipment. In Government grants relating to the purchase of property, plant and 29 all other cases, spare parts are carried as inventory and recognised in equipment are deducted from the carrying value of the asset, the net 30 profit or loss as consumed. cost being capitalised. Other government grants are recognised as 31 income on a systematic basis over the periods necessary to match 32 Impairment them with the related costs which they were intended to compensate. The carrying amounts of most fixed assets are reviewed at each 33 reporting date to determine whether there is any indication of Biological assets impairment, whereas goodwill is tested annually. If any such indication IAS 41 Agriculture requires that biological assets, such as standing exists, the recoverable amount is estimated as the higher of the net trees, are shown in the Consolidated Statement of Financial Position selling price and the value in use, with an impairment loss being at market value. Group forests are thus accounted for at fair value less recognised whenever the carrying amount exceeds the recoverable estimated point-of-sale costs at harvest, there being a presumption amount. that fair values can be measured for these assets. Stora Enso also ensures that the Group’s share of the valuation of forest holdings in A previously recognised impairment loss on property, plant and equity accounted investments is consistent with Group accounting equipment is reversed if there has been a change in the estimates policies. used to determine the recoverable amount, however, not to an extent higher than the carrying amount that would have been determined The valuation of forest assets is based on discounted cash flow models had no impairment loss been recognised in prior years. For goodwill, whereby the fair value of the biological assets is calculated using however, a recognised impairment loss is not reversed. cash flows from continuous operations, that is, based on sustainable forest management plans taking into account growth potential. The

Stora Enso Financial Report 2012 47 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

yearly harvest from the forecast tree growth is multiplied by actual estimated selling price in the ordinary course of business, less costs wood prices and the cost of fertiliser and harvesting is then deducted. of completion and sale. The fair value of the biological asset is measured as the present value of the harvest from one growth cycle based on the productive Where market conditions result in the manufacturing costs of a product forestland, taking into consideration environmental restrictions and exceeding its net realisable value, a valuation allowance is made. other reservations. Valuation allowances are also made for old, slow moving and obsolete finished goods and spare parts. Such valuation allowances are detailed Fair value is deemed to approximate the cost when little biological in Note 10 Valuation Allowances and Note 17 Inventories, and in the transformation has taken place or the impact of the transformation Statement of Financial Position are deducted from the carrying value on price is not expected to be material, which varies according to the of the inventories. location and species of the assets. Provisions

Emission rights and trading Provisions are recognised when the Group has a present legal or The Group’s participation in the European Emissions Trading Scheme, constructive obligation as a result of past events, it is probable that in which it has been allocated allowances to emit a fixed tonnage of an outflow of resources will be required to settle the obligation and carbon dioxide in a fixed period of time, gives rise to an intangible a reliable estimate of the amount of the obligation can be made. asset for the allowances, a government grant and a liability for the Environmental provisions for site reinstatement are made when a obligation to deliver allowances equal to the emissions that have been project starts production, with the capitalised cost of the provision made during the compliance period. Emission allowances recorded as being depreciated over the useful life of the asset. Provisions are intangible assets are recognised when the Group is able to exercise discounted back to their current net present value if the effect of the control and are measured at fair value at the date of initial recognition. time value of money is material. If the market value of emission allowances falls significantly below the carrying amount, and the decrease is considered permanent, then an A restructuring provision is recognised in the period in which the Group impairment charge is booked for allowances which the Group will not becomes legally or constructively committed to the plan. The relevant use internally. The liability to deliver allowances is recognised based costs are those that are incremental to, or incurred as a direct result on actual emissions; this liability will be settled using allowances on of, the exit plan, are the result of a continuing contractual obligation hand, measured at the carrying amount of those allowances, with with no ongoing economic benefit, or represent a penalty incurred to any excess emissions being measured at the market value of the cancel the obligation. allowances at the period end. Employee benefits

In the Income Statement, the Group will expense, under Materials The Group operates a number of defined benefit and defined and Services, emissions made at the fair value of the rights at their contribution plans throughout the world, the assets of which are grant date, together with purchased emission rights at their purchase generally held in separate trustee administered funds. Such pension price. Such costs will be offset under Other Operating Income by the and post-retirement plans are generally funded by payments from income from the original grant of the rights used at their fair value employees and by the relevant Group companies, taking into account at the grant date, together with income from the release or sale of the recommendations of independent qualified actuaries. Group surplus rights. The Income Statement will thus be neutral in respect of contributions to the defined contribution pension plans are charged all rights consumed that were within the original grant. Any net effect to the Income Statement in the year to which they relate. represents the costs of purchasing additional rights to cover excess emissions, the sale of unused rights or the impairment of allowances For defined benefit plans, accounting values are assessed using the not required for internal use. projected unit credit method. Under this method, the cost of providing pensions is charged to the Income Statement so as to spread the Inventories regular cost over the service lives of employees in accordance with the Inventories are reported at the lower of cost and net realisable value advice of qualified actuaries who carry out a full valuation of the plan with cost being determined by the first-in first-out (FIFO) method or, every year. The pension obligation is measured as the present value alternatively, weighted average cost where it approximates FIFO. The of estimated future cash outflows using interest rates of highly rated cost of finished goods and work in progress comprises raw material, corporate bonds or government securities, as appropriate, that match direct labour, depreciation, other direct costs and related production the currency and expected duration of the related liability. overhead but excludes interest expenses. Net realisable value is the

48 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

The Group immediately recognises all actuarial gains and losses Earnings per share 1 arising from defined benefit plans directly in equity, as disclosed in its Basic earnings per share, applicable to owners of the parent, is 2 Statement of Comprehensive Income. Past service costs are identified calculated by dividing the net profit attributable to shareholders by 3 at the time of any plan amendments, however, and where vested, the weighted average number of ordinary shares in issue during the 4 are shown in the Income Statement, whereas unvested amounts year, excluding ordinary shares purchased by the Group and held as 5 are amortised systematically over the vesting period. In the Group treasury shares. Diluted earnings per share are computed by applying 6 Statement of Financial Position, the full liability for all plan deficits is the “treasury stock” method, under which earnings per share data 7 recorded, as adjusted for any past service costs still to be amortised. are computed as if the warrants and options were exercised at the 8 beginning of the period, or if later, on issue and as if the funds obtained 9 Executive share options and share awards thereby were used to purchase common stock at the average market 10 The costs of all employee-related share-based payments are charged price during the period. In addition to the weighted average number of to the Income Statement as personnel expenses over the vesting shares outstanding, the denominator includes the incremental shares 11 period. The synthetic option programmes are hedged by Total Return obtained through the assumed exercise of the warrants and options. 12 Swaps (TRS) which are settled with cash payments, allowing the 13 Company to receive cash compensation to partially offset any change The assumption of exercise is not reflected in earnings per share when 14 in the share price between the grant and settlement dates. the exercise price of the options exceeds the average market price of 15 the common stock during the period. The options have a dilutive effect 16 The fair value of employee services received in exchange for cash- only when the average market price of the common stock during the 17 settled options is recognised at the fair value of the liability incurred and period exceeds the exercise price of the options. 18 expensed rateably over the vesting period. The liability is remeasured 19 at each reporting date to its fair value using estimates of the number Dividend and capital repayments 20 of options that are expected to become exercisable and the latest Any dividend or capital repayment proposed by the Board is not 21 fair valuations using the Black and Scholes model, with all changes deducted from distributable shareholders’ equity until approved by recognised immediately in the Income Statement. the shareholders at the Annual General Meeting. 22 23 The fair value of employee services received in exchange for cash- 24 settled share awards is recognised at the fair value of the liability 25 incurred and expensed rateably over the vesting period. The liability 26 is remeasured at each reporting date to its fair value using estimates 27 of the number of share awards that are expected to be issued and the 28 latest fair valuations by using the Stora Enso R share closing price, 29 with all changes recognised immediately in the Income Statement. 30 31 32 33

Stora Enso Financial Report 2012 49 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 2 Critical Accounting Estimates and Judgements

Use of estimates the impairment testing, including sensitivity analysis, are explained The preparation of Consolidated Financial Statements conforming to further in Note 11 Depreciation and Fixed Asset Impairment Charges. IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of Fair value of financial instruments contingent assets and liabilities at the dates of the Financial Statements Where the fair value of financial assets and liabilities cannot be derived and the reported amounts of revenues and expenses during the period. directly from publicly quoted market prices, other valuation techniques The estimates are based on historical experience and various other such as discounted cash flow models, transaction multiples, the assumptions that are believed to be reasonable, though actual results Black and Scholes model and the Gordon model are employed. The and timing could differ from the estimates. Management believes that key judgements include future cash flows, credit risk, volatility and the accounting policies below represent those matters requiring the changes in assumptions about these factors which could affect the exercise of judgement where a different opinion could result in the reported fair value of the financial instruments. Investments in debt greatest changes to reported results. and equity securities of unlisted entities, such as Pohjolan Voima Oy (PVO), represent a significant portion of the Group’s assets and Fixed assets require significant management judgement, as explained in more For material fixed assets in an acquisition, an external advisor makes detail in Notes 15 Available-for-Sale Investments and 25 Financial a fair valuation of the acquired fixed assets and assists in determining Risk Management. their remaining useful lives. Management believes that the assigned values and useful lives, as well as the underlying assumptions, are Income taxes reasonable, though different assumptions and assigned lives could Tax assets and liabilities are reviewed on a periodic basis and balances have a significant impact on the reported amounts. are adjusted as appropriate. Management considers that adequate provision has been made for future tax consequences based upon The carrying amounts of fixed assets are reviewed at each reporting current facts, circumstances and tax law. However, should any tax date or whenever events or changes in circumstances indicate that positions be challenged and not prevail, different outcomes could the carrying amount of an asset may be impaired. The recoverable result and have a significant impact on the amounts reported in the amount of an asset is estimated as the higher of fair value less cost to consolidated financial statements. sell and the value in use, with an impairment charge being recognised whenever the carrying amount exceeds the recoverable amount. The Post-retirement benefits value in use is calculated using a discounted cash flow model which is The determination of the Group pension obligation and expense is most sensitive to the discount rate as well as the expected future cash subject to the selection of certain assumptions used by actuaries in flows. The key assumptions used in the impairment testing, including calculating such amounts, including, among others, the discount rate, sensitivity analysis, are explained further in Note 11 Depreciation and the expected rate of return on plan assets, the annual rate of increase Fixed Asset Impairment Charges. in future compensation levels and estimated lifespans. Amounts charged in the Income Statement are determined by independent Goodwill actuaries, however, where actual results differ from the initial estimates, Goodwill is tested by Cash Generating Unit (CGU) or by group of CGUs together with the effect of any change in assumptions or other factors, at least on an annual basis and any impairment is measured using these differences are recorded directly in equity, as disclosed in the the discounted cash flow valuation method. This method uses future Statement of Comprehensive Income. See Note 21 Post-Employment projections of cash flows from each of the reporting units in a CGU Benefits for detailed information on the assumptions used in the or group of CGUs and includes, among other estimates, projections pension liability calculations. of future product pricing, production levels, product costs, market supply and demand, projected maintenance capital expenditures and Biological assets an assumption of the weighted average cost of capital. A pre-tax Most of the Group’s interests in biological assets are held in equity discount rate used for the net present value calculation of projected accounted investment companies, though there are some smaller cash flows reflects the weighted average cost of capital. holdings owned directly as well. Biological assets, in the form of free standing trees, are accounted for under IAS 41, which requires that The Group has evaluated the most sensitive estimates which when the assets be measured at fair value less costs to sell. Fair value is changed could have a material effect on the fair value of the assets or determined using discounted cash flows from continuous operations goodwill and therefore could lead to an impairment. These estimates based on sustainable forest management plans taking into account are expected sales prices of the products, expected inflation rate of the growth potential of one cycle. These discounted cash flows require the product costs and discount rate. The key assumptions used in estimates of growth, harvest, sales price and costs, and changes in

50 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

these premises are included in the Consolidated Income Statement, 1 for directly owned interests, on the line for Change in Net Value of 2 Biological Assets and, for those assets shown in the Consolidated 3 Statement of Financial Position of Equity Accounted Investments, on 4 the line for Share of Results of Equity Accounted Investments. It is 5 therefore important that the management of both the Group and the 6 Equity Accounted Investments make appropriate estimates of future 7 price levels and trends for sales and costs, and undertake regular 8 surveys of the forest to establish the volumes of wood available for 9 cutting and their current growth rates. 10 Environmental provisions 11

The Group has made provisions for known environmental liabilities 12 based on management’s best estimate of the remediation costs. There 13 is uncertainty regarding the timing and amount of these costs and 14 therefore the final liability could differ significantly from the original 15 estimate. 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33

Stora Enso Financial Report 2012 51 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 3 Segment Information

In 2011 the organisational structure of Stora Enso comprised four main The activities of the Reportable Segments are: Business Areas: Packaging Business Area (comprising the Consumer Board and Industrial Packaging reportable segments), Publication Printing and Reading Paper Business Area (comprising the Newsprint and Book Paper and Printing and Reading’s wide offering serves publishers, advertisers, Magazine Paper reportable segments), Fine Paper Business Area and printing houses, merchants, office equipment manufacturers and office Wood Products Business Area. suppliers, among others. Printing and Reading produces newsprint, SC paper, coated paper grades and office paper. In January 2012 Stora Enso announced that it was renewing its Business Area and Reporting Segment structure. With the new Business Biomaterials Area structure Stora Enso wants to increase the transparency of the Biomaterials offers a variety of pulp grades to meet the demands of pulp business and show the different nature and focus of the different paper, board and tissue producers. Pulp is an excellent raw material: businesses. The paper reporting segments Newsprint and Book Paper, it is made from renewable resources in a sustainable manner, and has Magazine Paper and Fine Paper were combined into one Business Area many different uses. Biomaterials comprises mainly tree plantations, and Reporting Segment called Printing and Reading. The reporting the Group’s joint-venture Veracel and Montes del Plata pulp mills, and segments Consumer Board and Industrial Packaging, together with Nordic stand-alone mills. the plantations in Guangxi in China, formed the Renewable Packaging Business Area and Reporting Segment. A new Business Area and Building and Living Reporting Segment called Biomaterials was established comprising Stora Enso Building and Living provides wood-based innovations mainly the Company’s joint-venture pulp mills, stand-alone pulp mills and solutions for everyday living and housing needs. Product range and tree plantations. The Wood Products Business Area was renamed covers all areas of urban construction – from supporting structures to as Building and Living. The historical figures have been restated to be interior design and environmental construction. The further-processed in accordance with the new Business Area and Reportable Segments products include massive wood elements and housing modules, wood structure. The first financial report according to the new reporting components and pellets completed with various sawn timber goods. segment structure was first quarter 2012 Interim Review. Renewable Packaging

In 2012 the organisation and the reportable segments were: Renewable Packaging produces fibre-based packaging materials and innovative packaging solutions for all major consumer goods and Business Areas and Reportable Segments industrial packaging applications. Renewable Packaging operates in • Printing and Reading every stage of the value chain, from pulp production, material and • Biomaterials package production to recycling. The Business Area comprises three • Building and Living business units: Consumer Board, Packaging Solutions and Packaging • Renewable Packaging Asia. • Other Other The segment Other includes the Nordic forest equity accounted investments, Stora Enso’s shareholding in Pohjolan Voima, operations supplying wood to the Nordic mills and Group shared services and administration.

52 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Sales by Segment 1 Year Ended 31 December 2 External Internal Total External Internal Total 3 EUR million 2012 2011 Printing and Reading 4 705.6 133.7 4 839.3 4 881.8 140.2 5 022.0 4 Biomaterials 536.6 475.8 1 012.4 591.1 500.9 1 092.0 5 Building and Living 1 590.0 94.4 1 684.4 1 562.0 109.1 1 671.1 6 Renewable Packaging 3 143.5 72.5 3 216.0 3 125.3 69.3 3 194.6 7 Other 839.1 1 844.4 2 683.5 804.7 1 895.8 2 700.5 8 Elimination of internal sales - -2 620.8 -2 620.8 - -2 715.3 -2 715.3 9 Total 10 814.8 - 10 814.8 10 964.9 - 10 964.9 10 Sales include external service income of EUR 48.6 (EUR 38.3) million. 11 12 Segment Share of Operational EBIT, NRI, Fair Valuations and Non-Operational Items and Operating Profit 13 14 Year Ended 31 December NRI, Fair Valuations and 15 Operational EBIT Non-Operational Items Operating Profit 16 EUR million 2012 2011 2012 2011 2012 2011 17 Printing and Reading 218.1 285.3 68.9 -37.0 287.0 248.3 18 Biomaterials 82.1 169.2 -35.9 -5.9 46.2 163.3 Building and Living 28.8 62.8 -2.4 -35.3 26.4 27.5 19 Renewable Packaging 271.9 301.3 -53.8 -15.5 218.1 285.8 20 Other 17.4 48.1 93.9 -13.7 111.3 34.4 21 Total 618.3 866.7 70.7 -107.4 689.0 759.3 22 Net financial items -207.3 -338.4 23 Profit before tax 481.7 420.9 24 Income tax expense 8.7 -78.7 Net Profit 490.4 342.2 25 26 Operational EBIT comprises the operating profit excluding NRI and fair valuations of the segments and Stora Enso’s share of the operating profit excluding 27 NRI and fair valuations of its equity accounted investments (EAI). Fair valuations include equity incentive schemes, synthetic options net of realised and open hedges, CO2 emission rights and valuations of biological assets related to forest assets in EAI. 28 NRI = Non-recurring items. These are exceptional transactions that are not related to normal business operations. The most common non-recurring items are 29 capital gains, additional write-downs or reversals of write-downs, provisions for planned restructuring and penalties. Non-recurring items are normally specified individually if they exceed one cent per share. 30 31 Fair valuations and non-operational items include equity incentive schemes, synthetic options net of realised and open hedges, CO2 emission rights, valuations of biological assets related to forest assets in EAI and Group’s share of tax and net financial items of EAI. 32 33

Non-Recurring Items, Fair Valuations and Non-Operational Items Year Ended 31 December EUR million 2012 2011 Reversals and impairments of fixed assets 51.4 -19.5 Restructuring costs excluding fixed asset impairments -61.8 -39.6 Other 140.0 -20.8 Fair valuations and non-operational items -58.9 -27.5 Total 70.7 -107.4

Stora Enso Financial Report 2012 53 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Segment Share of Operative Assets, Operative Liabilities and Operating Capital Year Ended 31 December Operative Assets Operative Liabilities Operating Capital EUR million 2012 2011 2012 2011 2012 2011 Printing and Reading 3 852.0 3 936.2 890.2 864.8 2 961.8 3 071.4 Biomaterials 1 614.3 1 599.5 201.7 144.8 1 412.6 1 454.7 Building and Living 790.4 780.4 225.2 218.3 565.2 562.1 Renewable Packaging 2 904.4 2 700.9 554.3 548.0 2 350.1 2 152.9 Other and eliminations 1 993.9 2 226.4 429.5 415.5 1 564.4 1 810.9 Total 11 155.0 11 243.4 2 300.9 2 191.4 8 854.1 9 052.0

Fixed Assets, Depreciation and Impairment, and Capital Expenditure by Segment Year Ended 31 December Fixed Assets Depreciation and Impairment Capital Expenditure EUR million 2012 2011 2012 2011 2012 2011 Printing and Reading 2 576.9 2 615.6 189.5 266.8 125.7 105.8 Biomaterials 309.8 325.7 36.4 27.8 21.2 17.7 Building and Living 390.5 394.9 39.7 60.0 28.8 50.1 Renewable Packaging 1 870.3 1 685.8 236.5 196.8 338.0 237.6 Other 171.7 202.6 29.5 21.2 22.9 24.9 Total 5 319.2 5 224.6 531.6 572.6 536.6 436.1

Goodwill by Segment Year Ended 31 December Goodwill Goodwill on Acquisitions Impairment EUR million 2012 2011 2012 2011 2012 2011 Printing and Reading 83.0 83.0 - - - - Biomaterials ------Building and Living 111.5 109.9 - -0.1 - - Renewable Packaging 31.4 31.4 0.1 11.4 - - Other ------Total 225.9 224.3 0.1 11.3 - -

54 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Average Personnel 1 Year Ended 31 December Year Ended 31 December 2 Segment 2012 2011 Location 2012 2011 3 Printing and Reading 8 783 9 052 Baltic States 1 179 1 141 4 Biomaterials 839 810 Belgium 601 592 Building and Living 4 385 4 484 Czech Republic 719 679 5 Renewable Packaging 12 292 10 888 Finland 6 725 7 050 6 Other 2 478 2 724 France 481 484 7 Total 28 777 27 958 Germany 2 296 2 388 8 Poland 1 992 1 945 9 Russia 1 283 1 363 10 Spain 324 347 11 Sweden 6 078 6 342 Other Europe 1 581 1 652 12 Total Europe 23 259 23 983 13 Brazil 402 399 14 China (incl. Hong Kong) 4 262 2 972 15 India 503 251 16 North America 191 206 Other 160 147 17 Year-End Personnel 28 203 29 505 Total 28 777 27 958 18 19 20 External Sales by Destination and Origin Year Ended 31 December 21 Sales by Destination Sales by Origin Balance of Trade 22 EUR million 2012 2011 2012 2011 2012 2011 23 Austria 263.3 300.2 384.6 416.2 121.3 116.0 24 Baltic States 198.7 192.6 284.2 300.6 85.5 108.0 25 Belgium 157.8 180.5 284.7 304.7 126.9 124.2 26 Czech Republic 156.5 162.4 237.9 207.5 81.4 45.1 Denmark 182.0 168.7 19.6 2.0 -162.4 -166.7 27 Finland 784.7 830.1 3 714.9 3 782.7 2 930.2 2 952.6 28 France 627.5 678.9 187.6 197.2 -439.9 -481.7 29 Germany 1 510.1 1 574.1 930.9 925.6 -579.2 -648.5 30 Italy 269.7 311.5 0.3 3.3 -269.4 -308.2 31 Netherlands 309.5 317.1 20.8 20.5 -288.7 -296.6 32 Poland 372.1 358.9 240.4 253.5 -131.7 -105.4 Russia 323.2 304.3 215.0 213.0 -108.2 -91.3 33 Spain 347.4 357.7 127.6 138.0 -219.8 -219.7 Sweden 1 107.9 1 110.6 3 200.5 3 330.4 2 092.6 2 219.8 UK 694.0 707.0 23.7 38.7 -670.3 -668.3 Other Europe 865.5 978.0 165.2 91.3 -700.3 -886.7 Total Europe 8 169.9 8 532.6 10 037.9 10 225.2 1 868.0 1 692.6 Australia / New Zealand 198.4 184.3 27.2 21.4 -171.2 -162.9 Brazil 215.1 220.8 384.8 393.0 169.7 172.2 China (incl. Hong Kong) 567.2 513.5 298.2 271.8 -269.0 -241.7 Japan 327.1 348.4 - 0.2 -327.1 -348.2 Middle East 324.5 242.1 - - -324.5 -242.1 Uruguay 5.4 4.9 - - -5.4 -4.9 USA 138.3 129.9 49.5 42.1 -88.8 -87.8 Others 868.9 788.4 17.2 11.2 -851.7 -777.2 Total 10 814.8 10 964.9 10 814.8 10 964.9 - -

Stora Enso Financial Report 2012 55 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Total Assets, Capital Employed and Shareholders’ Equity by Location As at 31 December Total Assets Capital Employed Shareholders’ Equity EUR million 2012 2011 2012 2011 2012 2011 Austria 189.7 204.8 128.6 134.1 124.2 123.4 Baltic States 115.7 115.4 100.0 100.0 91.9 83.3 Belgium 507.4 543.6 422.8 458.6 268.5 283.6 Czech Republic 156.0 139.0 128.3 122.7 132.5 134.1 Finland 5 266.0 4 796.0 2 728.8 2 875.7 1 463.7 1 147.5 France 102.5 123.9 51.2 71.8 278.0 291.0 Germany 820.1 819.0 320.4 342.2 395.8 406.7 Poland 588.8 361.9 468.4 279.3 305.5 265.3 Russia 205.5 209.4 157.1 159.0 97.3 72.6 Spain 65.5 96.2 30.2 59.2 21.9 55.5 Sweden 3 578.5 3 485.7 2 336.7 2 298.0 1 044.6 1 370.0 Other Europe 137.5 117.8 39.5 112.6 166.4 268.0 Total Europe 11 733.2 11 012.7 6 912.0 7 013.2 4 390.3 4 501.0 Brazil 795.5 841.8 720.4 781.4 741.3 793.3 China (incl. Hong Kong) 569.9 602.9 443.5 456.3 104.5 105.7 Uruguay 494.2 404.9 494.2 404.9 494.2 404.9 USA 42.8 67.9 36.7 60.4 35.1 49.1 Other 58.0 68.9 26.0 -10.6 19.1 18.7 Total 13 693.6 12 999.1 8 632.8 8 705.6 5 784.5 5 872.7

Total capital employed represents operating capital less net tax liabilities.

Reconciliation of Operating Capital to Total Assets As at 31 December EUR million 2012 2011 Operating Capital 8 854.1 9 052.0 Gross-up for operating liabilities 2 300.9 2 191.4 Interest-bearing receivables 2 377.0 1 627.6 Tax receivables 161.6 128.1 Total Assets 13 693.6 12 999.1

Operating capital (“O” items) is designated thus on the Balance Sheet and represents the sum of fixed and biological assets, emission rights, unlisted shares, other non-current assets, inventories, current operative receivables and liabilities, provisions and other non-current operative liabilities.

56 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Fixed Assets, Capital Expenditure and Depreciation and Impairment by Location 1 2 Year Ended 31 December 3 Fixed Assets Depreciation and Impairment Capital Expenditure 4 EUR million 2012 2011 2012 2011 2012 2011 Austria 121.4 125.5 10.3 9.2 6.4 26.3 5 Baltic States 58.8 57.6 9.4 9.3 8.6 11.6 6 Belgium 423.0 454.6 39.1 38.9 7.6 9.2 7 Czech Republic 113.3 105.8 4.4 4.5 9.3 1.3 8 Finland 1 433.4 1 418.3 113.4 199.3 128.0 129.7 9 France 30.9 31.4 3.5 3.4 3.0 2.5 Germany 556.0 569.5 54.3 52.2 41.2 26.7 10 Poland 443.4 257.6 21.6 24.1 179.0 81.6 11 Russia 123.4 129.6 15.5 -7.6 4.8 11.4 12 Spain 18.1 48.3 32.4 6.9 2.0 2.8 13 Sweden 1 635.8 1 638.1 197.9 205.5 132.8 106.5 14 Other Europe 18.2 22.5 3.7 3.1 0.5 3.1 15 Total Europe 4 975.7 4 858.8 505.5 548.8 523.2 412.7 Brazil 95.1 103.7 0.2 8.3 2.9 4.2 16 China (incl. Hong Kong) 227.1 237.6 22.5 16.0 9.3 18.4 17 Uruguay ------18 USA 15.5 17.8 2.3 -1.0 0.3 0.5 19 Other 5.8 6.7 1.1 0.5 0.9 0.3 20 Total 5 319.2 5 224.6 531.6 572.6 536.6 436.1 21 22 23 24 25 26 27 28 29 30 31 32 33

Stora Enso Financial Report 2012 57 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 4 Acquisitions and Disposals

Acquisition of Group Companies Year Ended 31 December EUR million 2012 2011 Acquired Net Assets Cash and cash equivalents, net of bank overdraft 1.8 15.7 Fixed assets 5.8 52.0 Working capital 8.5 13.1 Tax assets and liabilities 0.6 -4.6 Interest-bearing assets and liabilities -5.0 -5.4 Non-controlling interests -0.2 -36.4 Fair Value of Net Assets in Acquired Companies 11.5 34.4 Goodwill (provisional for 2011) 0.1 11.3 Value of previously held equity shares -2.8 - Gain to retained earnings on non-controlling interest buy-outs - -0.8 Total Purchase Consideration 8.8 44.9

On 31 August 2012 Stora Enso acquired the remaining 50% The impact from Hebei Sununion Environmental Packaging Ltd, Hartola shareholding in the Finnish sawn timber trading company RETS and Danfiber A/S on the Group’s sales and net profit in 2012 was EUR Timber Oy Ltd, thus increasing the Group’s shareholding to 100%. 10.3 million and negative EUR 1.3 million, respectively. Prior to the acquisition RETS Timber Oy Ltd was accounted for with the equity accounting method, but since 1 September 2012 it has been On 28 July 2011 Stora Enso completed the acquisition of 51% of consolidated as a subsidiary in the Group’s financial statements. At the shares in the Chinese packaging company Inpac International the acquisition date the value of the Group’s 50% ownership in RETS Print & Packaging Co., Ltd., subsequently renamed Stora Enso Timber Oy Ltd was EUR 2.8 million. The consideration for the acquired Inpac Packaging Co. Ltd. Inpac is a packaging products group with shares amounted to EUR 2.8 million, which equals the fair value of production operations in China and India, and service operations the net assets acquired. The impact from RETS Timber Oy Ltd on the in Korea. Inpac specialises in manufacturing consumer packaging, Group’s sales and net profit in 2012 was EUR 56.4 million and EUR especially for global manufacturers of consumer electronics and other 0.7 million, respectively. consumer goods. The acquisition gives Stora Enso access to new customers in the fast-growing Chinese, Indian and Korean markets, On 20 July 2012 Stora Enso acquired 100% of the shares in the Chinese and it enables the Group to grow with global key customers in new packaging company Hebei Sununion Environmental Packaging Ltd. geographic areas. The impact from Inpac on the Group’s sales and net The consideration amounted to EUR 4.0 million, which equals the fair profit in 2011 was EUR 47.0 million and EUR 2.7 million, respectively. value of the net assets acquired. The Inpac acquisition accounting was finalised in the third quarter On 12 July 2012 Stora Enso spent EUR 1.6 million on acquiring a of 2012 and the final consideration amounted to EUR 44.5 million. module production unit at Hartola in Finland in a business operation During 2012 there was a EUR 0.2 million adjustment to the provisional acquisition. The consideration equals the fair value of the net assets net asset fair value amount presented in 2011 Financial Statement. acquired. The acquisition was financed from the Group’s own cash assets. The goodwill is based on future earnings expectations and synergy On 1 January 2012 Stora Enso spent EUR 0.4 million on acquiring benefits. The non-controlling interest in Inpac was valued as the 51% of the shares in Danfiber A/S, a Danish company operating as proportionate share of the acquiree’s net assets. a trading intermediary between the suppliers and buyers of paper for recycling. The consideration equals the fair value of Stora Enso’s share of the net assets acquired. The non-controlling interest in Danfiber A/S was valued as the proportionate share of the acquiree’s net assets.

58 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Inpac Acquisition 1

EUR million Final Fair Value Table 2 Cash and cash equivalents, net of bank overdraft 15.7 3 Fixed assets 52.4 4 Working Capital 12.5 5 Tax assets and liabilities -4.6 6 Interest-bearing assets and liabilities -5.4 7 Non-controlling interest -37.6 Net assets 33.0 8 Goodwill 11.5 9 Purchase consideration 44.5 10 11 Consideration 44.5 12 Cash and cash equivalents in acquired companies, net of bank overdraft -15.7 13 Cash flow impact 28.8 14 In 2011 Stora Enso spent EUR 0.4 million on buying out non-controlling 15 interests in Design Force AB. A gain of EUR 0.8 million was recorded 16 in retained earnings related to the buy-out. 17 18 There were no disposals of Group companies in 2012 or 2011. 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33

Stora Enso Financial Report 2012 59 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 5 Other Operating Income and Expense

The Group has recorded Other Operating Income of EUR 35.3 In the second quarter of 2012 Stora Enso Oyj received a dividend of (EUR 60.0) million and under Materials and Services an expense of EUR 40.7 million from Pohjolan Voima Oy. This was recorded as other EUR 21.5 (EUR 42.9) million relating to emission rights. The net income operating income. amounts to EUR 13.8 (EUR 17.1) million, of which income of EUR 35.1 (EUR 60.8) million reflects the fair value of the emission allowances The Group also generates income from its renewable power generation on the date when the Group obtained control over these rights and in Sweden, Belgium and Poland. The power is produced from biomass, also includes the result from the net sale of surplus allowances, and so the Group is entitled to Green Certificates for onward sale to

an expense of EUR 18.3 (EUR 36.8) million reflects the cost of CO2 electricity retailers for fulfilling their renewable power quota obligations. emissions from production. As the market price of the emission rights This income amounted to EUR 65.9 (EUR 58.9) million. dropped below the original grant date price, the surplus rights at year end were revalued resulting in an expense of EUR 3.0 (EUR 6.9) million. Total sales of excess freight capacity in 2012 amounted to EUR 51.2 Actual realised profits amounted to EUR 8.6 (EUR 15.8) million on the (EUR 59.3) million. disposal of surplus rights and EUR 11.3 (EUR 6.2) million is the value of excess emission rights held at the year end.

Other Operating Income and Expense Year Ended 31 December EUR million 2012 2011 Other Operating Income Emission rights granted and disposal gains 35.3 60.0 Sale of Green Certificates 65.9 58.9 Capital gains on sale of fixed assets 3.4 4.3 Dividend and Gain on sale of unlisted shares 41.3 4.4 Insurance compensation 2.1 3.7 Freight sales, rent and other 66.6 69.8 Subsidies 4.2 7.8 Total 218.8 208.9

Other Operating Expenses include Rents paid 94.2 86.3 Research and development 63.6 65.4 Credit losses 5.8 5.2

Materials and Services include Emissions rights to be delivered and disposal losses 21.5 42.9

Aggregate fees for professional services of an accounting nature related fees are incurred for assurance and associated services that rendered to the Group amounted to EUR 4.7 (EUR 5.5) million payable are reasonably related to the performance of the audit or review of to the principal independent auditor Deloitte. Audit fees relate to the the financial statements. Tax fees are incurred on account of tax audit of the annual financial statements or ancillary services normally compliance and advisory services. provided in connection with statutory and regulatory filings. Audit-

Principal Independent Auditor’s Fees and Services Year Ended 31 December EUR million 2012 2011 Audit fees 4.0 4.2 Audit-related 0.5 0.3 Tax fees 0.2 0.2 Other fees - 0.8 Total 4.7 5.5

60 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 6 Staff Costs

Personnel Expenses Year Ended 31 December 1 EUR million 2012 2011 2 Wages and salaries 1 034.6 1 014.8 3 Pensions (see below) 163.4 172.6 4 Share-based remuneration (Note 22) 2.0 1.8 5 Total return swaps -9.1 31.4 6 Other statutory employer costs 150.7 154.6 Other voluntary costs 19.2 18.7 7 Total 1 360.8 1 393.9 8 9

Pensions 10 Year Ended 31 December 11 EUR million 2012 2011 12 Defined benefit plans 17.5 15.9 13 Defined contribution plans 145.7 154.6 Other post-employment benefits 0.2 2.1 14 Pension Costs: Total 163.4 172.6 15 16 17 Total personnel expenses totalled EUR 1 360.8 million in 2012 The Group hedges its option programme by using Total Return Swaps 18 compared with EUR 1 393.9 million in 2011. The average number (TRS) shown under personnel costs alongside the option result to 19 of employees in 2012 amounted to 28 777, compared with 27 958 which they relate so that both the risk and the result from hedging 20 in 2011. Pension costs are discussed in Note 21 Post-Employment of that risk appear in the same section of the Income Statement. 21 Benefits. The options and the derivatives hedging do not qualify for hedge accounting as the options are priced by reference to valuation models, 22 In June 2011 the Labour Court in Finland gave a decision regarding whereas the TRS are priced by reference to the current market price 23 Kemijärvi Mill and Summa Mill co-operation related disputes. Following of the shares. The income of share-based remuneration net of TRS in 24 the decision Stora Enso compensated EUR 6.8 million to former 2012 amounted to EUR 7.1 million compared with an expense of EUR 25 Kemijärvi Mill and Summa Mill employees. The compensation was 33.2 million in 2011. 26 recorded in Wages and Salaries. 27 In 2012 the expense of the share-based remuneration itself was EUR 28 Share-based remuneration comprises share options and share awards, 2.0 million. However, due to the increase in the Stora Enso R share 29 which are described in more detail in Note 22 Employee Variable price from EUR 4.63 at 31 December 2011 to EUR 5.25 at 31 December 30 Compensation and Equity Incentive Schemes. 2012, an income of EUR 9.1 million was recorded in respect of TRS. 31 32 Group Executive Team and Board remuneration are described in Note 7. 33

Stora Enso Financial Report 2012 61 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 7 Board and Executive Remuneration

Board Remuneration and Committee Memberships

Year Ended 31 December 2012 2011 EUR thousand Cash Shares Total Total Committee Memberships Board Members at 31 December 2012 Gunnar Brock, Chairman 126.0 68.0 194.0 159.0 Remuneration, Nomination 2, 3), Financial and Audit Juha Rantanen, Vice Chairman 74.0 40.0 114.0 99.0 Nomination 2, 3), Financial and Audit Hock Goh 42.0 28.0 70.0 - Birgitta Kantola 62.0 28.0 90.0 80.0 Financial and Audit Mikael Mäkinen 42.0 28.0 70.0 60.0 Hans Stråberg 48.0 28.0 76.0 66.0 Remuneration Matti Vuoria 48.0 28.0 76.0 66.0 Remuneration Marcus Wallenberg 42.0 28.0 70.0 60.0 Former Board Members Carla Grasso (retired 20 April 2011) - - - - Total Remuneration as Directors 1) 484.0 276.0 760.0 590.0

1) 40% of the Board remuneration in 2012 was paid in Stora Enso R shares purchased from the market and distributed as to Chairman 14 044 R shares, Vice Chairman 8 262 R shares, and members 5 783 R shares each. The Company has no formal policy requirements for the Board members to retain shares received as remuneration. 2) Pekka Ala-Pietilä appointed by Solidium Oy is Chairman of the Nomination Board. Claes Dahlbäck is the member of the Nomination Board appointed by the Foundation Asset Management. 3) Stora Enso’s Nomination Board is appointed by the shareholders at the AGM. Gunnar Brock and Juha Rantanen were appointed thereto in their roles as Chairman and Vice Chairman of the Board of Directors. A member of the Board of Directors may not be Chairman of the Nomination Board.

Board Share Interests Shares Held1) A R Board Members at 31 December 2012 Gunnar Brock, Chairman - 39 362 Juha Rantanen, Vice Chairman - 25 338 Hock Goh - 5 783 Birgitta Kantola - 21 988 Mikael Mäkinen - 12 676 Hans Stråberg - 15 561 Matti Vuoria - 27 488 Marcus Wallenberg 2 541 23 203 Total Shares Held 2 541 171 399

1) Shares held by Board members and related parties. Marcus Wallenberg’s 2 541 A shares and 4 715 R shares are held by related parties. Other Board members’ related parties hold no Stora Enso shares.

62 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Group Executive Team (GET) Team. At the same time three other members left the team to take new 1 remuneration and share interests positions inside and outside the Company. Executive Vice President, 2 Shown in Note 22 Employee Variable Compensation and Equity Fine Paper Hannu Alalauri, Executive Vice President, R&D, Technology, 3 Incentive Schemes are details of total executive remuneration share Energy, Logistics and Investments, Country Manager Germany, Bernd 4 and share option interests and incentive schemes for the GET with Rettig and Chief Financial Officer, Markus Rauramo were replaced 5 further information provided in respect of the Chief Executive Officer by Executive Vice President, Global Ethics and Compliance, General 6 (CEO). The actual cash or cash equivalent received in the year is Counsel, Per Lyrvall, Executive Vice President Global Identity, Lauri 7 disclosed in the remuneration table for options and share awards that Peltola and Chief Financial Officer, Karl-Henrik Sundström. 8 vested in the year. The Company recommends and expects CEO and 9 GET members to hold Stora Enso shares at a value corresponding In accordance with their respective pension arrangements, GET 10 to at least one annual base salary. Stora Enso Shares received as members may retire at sixty or sixty-five years of age with pensions remuneration is therefore recommended not to be sold until this level consistent with local practices in their respective home countries. 11 has been reached. Additional information relating to the cost of options Contracts of employment provide for notice of six months prior to 12 and share awards as calculated in accordance with International termination with severance compensation of twelve months basic 13 Financial Reporting Standards is also disclosed in the text. salary if the termination is at the Company’s request. Executives 14 appointed before 2007 receive a further optional twelve months salary 15 The aggregate cost of GET remuneration in 2012 amounted to depending on employment. 16 EUR 8.4 (EUR 15.3) million of which EUR 0.1 (EUR 2.4) million related 17 to deferred Short Term Incentives. The rest of the decrease is mainly The ordinary annual salary review was effective, as normal, from 18 due to a lower fulfilment of the incentive-related financial performance 1 March. The outcome of the financial targets relating to the Short Term 19 criteria for 2011. and Long Term Incentive programmes was reviewed and confirmed by 20 the Remuneration Committee. 21 The total number of GET members remained nine during 2012. During 2012 three new members were appointed to the Group Executive 22 23 Group Executive Team Remuneration 24 Year Ended 31 December 25 2012 2011 26 EUR thousand CEO Others 1) GET Total CEO Others GET Total 27 Remuneration 28 Annual salary 1 119 3 328 4 447 1 081 3 351 4 432 Local housing (actual costs) - 127 127 - 179 179 29 Other benefits 14 135 149 13 473 486 30 Short Term Incentive programme 358 680 1 038 655 1 1473) 1 802 31 Long Term Incentive programme 239 551 790 1 248 2 509 3 757 32 1 730 4 821 6 551 2 997 7 659 10 656 33 Pension Costs Mandatory Company plans - 546 546 - 624 624 Stora Enso voluntary plans 416 787 1 203 416 1 211 1 627 416 1 333 1 749 416 1 835 2 251

Total Compensation, Excluding Deferred Short Term Incentives 2 146 6 154 8 300 3 413 9 494 12 907

Deferred Short Term Incentives 532) - 53 8904) 1 5395) 2 429

Total Compensation 2 199 6 154 8 353 4 303 11 033 15 336

1) The amounts below include payments related to Hannu Alalauri, Bernd Rettig and Markus Rauramo until their respective leaving date. The payments related the new GET members, Lauri Peltola, Per Lyrvall and Karl-Henrik Sundström are also included as of their starting date. 2) Settlement of deferred Short Term Incentive from performance year 2008, converted to Restricted Share Awards. 3) The amount includes payment related to Elisabet Salander Björklund's Short Term Incentive for performance year 2010. 4) Settlement of deferred Short Term Incentive from performance years 2007, 2008 and 2009, converted to Restricted Share Awards. 5) Settlement of deferred Short Term Incentive from performance year 2009, converted to Restricted Share Awards.

Stora Enso Financial Report 2012 63 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Executives other than CEO settlement date of EUR 550 917 based on the share price of EUR 5.635 Short Term Incentive (STI) programmes for management at that date. GET members have STI programmes with up to a maximum of 50% of their annual fixed salary, payable the year after the performance No GET members were eligible for new Restricted Share Awards in period. The STI for 2012 was based 70% on financial measures and 2012. For GET members the aggregate number of outstanding shares 30% on Individual Key Targets. derived from Restricted Share Programmes of previous years to be settled in 2013 is 31 870. The corresponding number to be settled in Option programmes for management 2014 is 31 870. No options have been awarded since 2007. During 2012, 75 000 options relating to the 2005 programme lapsed and no others were Chief Executive Officer – Jouko Karvinen exercised. In 2011 no options were exercised. The CEO has been employed since 1 January 2007 and took office following the 2007 Annual General Meeting on 29 March 2007. His Long Term Incentive (LTI) programmes for management contract was approved by the Board on his appointment. It has a GET members participate in a number of share-based LTI programmes. notice period of six months with a severance payment of twelve In 2007/2008 a Senior Executive section of the Performance Share months salary on termination by the Company but with no contractual programme was introduced. The shares granted under this programme payments on any change of control. Benefits include a car allowance will vest over a four-year period (2009−2012). The vesting date is 1 and pension provision under a Company defined contribution plan March each year. Since 2009 new Performance Share programmes that has acceptance from the UK Inland Revenue (RPS). Until 2012 have been launched each year. The Performance Share Plans vest in the Company and the CEO contributed to the CEO’s pension in total portions over three years, based on annually defined targets set by with a fixed contribution of 40% of the CEO’s fixed salary into defined the Remuneration Committee. All the programmes launched between contribution schemes (DC). The Company contributed with 35% and 2009 and 2011 can vest up to an absolute maximum vesting level of the CEO with 5% of the basic salary. As of April 2012 the CEO’s 150% of the number of shares awarded, provided that the result of the pension is secured with a in-lieu-of-pension cash allowance from the performance criterion exceeds the target. In the Performance Share Company, amounting to 35% of the basic salary. It should be noted programme launched in 2012, the absolute maximum vesting level was that the new arrangement does not impose any additional cost for the changed to 100% of the number of shares awarded. The performance Company. The retirement age is sixty. criterion for 2012 was based solely on financial measures. Short Term Incentive (STI) programme for CEO Under the Performance Share Plan 2012 GET members received The CEO is entitled to a STI programme decided by the Board each awards of 488 300 shares assuming maximum vesting level during year giving a maximum of 75% of annual fixed salary. The STI for the three-year vesting period is achieved. The increased number of 2012 was based 70% on financial measures and 30% on Individual shares granted under the Performance Share programme 2012 is Key Targets. mainly due to the change in the absolute maximum vesting level from 150% to 100% and the lower share value at grant 2012 (EUR 5.635) Option programmes for CEO compared to 2011(EUR 8.165). No options have been awarded since 2007. In 2007 the CEO was granted 157 646 options on joining Stora Enso with the estimated value Under the accounting rules for share-based payments, the non- at the grant date of 2 January 2007 as calculated by the option pricing cash charge for the executive options and restricted share awards is model being EUR 365 000. During 2012 the CEO did not exercise any calculated at the vesting value of shares and options granted in the of these options. year plus any fair value movement in the year on previous awards. The accounting charges will not agree with the actual cash costs on a Long Term Incentive (LTI) programmes for CEO year-to-year basis though the totals will match when they have all been The CEO participates in a number of share based LTI programmes. vested, cashed, expired or lapsed. The figures in the Group Executive As of 2007 the CEO participates in the Senior Executive section of Team Remuneration table refer to individuals who were executives at the Performance Share Plan. The shares granted under this four-year the time of settlement. programme vested with its last portion 1 March 2012. Since 2009 new performance share programmes with a three-year vesting period During the year the number of shares settled on executives (GET have been launched each year. All the programmes launched between member at settlement date) from previous awards derived from 2009 and 2011 can vest up to an absolute maximum vesting level of Restricted Share Programmes and Performance Share Programmes 150% of the number of shares awarded, provided that the result of amounted to 97 767 having a cash value at the 1 March 2012 the performance criterion exceeds the target, with the exception of

64 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

the additional performance award (70 000 shares) the CEO received in Share Programmes amounted to 51 828, including deferred STI from 1 2011, which can vest up to 100% in one portion at 1 March 2015 if the performance year 2008, having a cash value of EUR 292 051 at the 2 specifically defined performance targets will be met. In the Performance 1 March 2012 settlement date based on the share price of EUR 5.635 3 Share programme launched in 2012, the absolute maximum vesting at that date. 4 level was changed to 100% of the number of shares awarded. The 5 performance criterion for 2012 was based solely on financial measures. The CEO did not receive any new Restricted Share Award in 2012. 6 There are no outstanding shares derived from restricted share 7 The CEO received an award under the Performance Share Plan 2012 programmes of previous years to be settled. 8 of 193 266 shares. The grant value EUR 1 089 054 is based on the 9 share price at grant date (EUR 5.635) and assuming maximum vesting The CEO has a cap on total variable pay components that will be 10 level during the three-year vesting period is achieved. The performance applicable for STI and LTI payments made in 2013 and onwards such criterion for 2012 was based solely on financial measures. that if the aggregate outcome of STI and LTI would exceed 100% of 11 the CEO’s annual basic salary the LTI outcome would then be reduced 12 During the year the number of shares settled on the CEO from earlier accordingly. The additional performance award is not subject to the 13 awards derived from Restricted Share Programmes and Performance cap. 14 15 Group Executive Team Share Interests and Options 16 17 Synthetic Options Performance Restricted Executives in Office at the Year End R Shares Held 1) 2) (2006–2007) Share Awards Share Awards 18 Juan Carlos Bueno - - 101 830 30 240 19 Lars Häggström 1 045 - 59 916 - 20 Jouko Karvinen, CEO 237 009 157 646 332 334 - 21 Hannu Kasurinen 50 693 18 750 86 604 - 22 Per Lyrvall 19 205 5 000 49 069 - 23 Mats Nordlander 67 002 15 000 139 394 - Lauri Peltola 26 255 - 51 906 33 500 24 Karl-Henrik Sundström - - 45 800 - 25 Juha Vanhainen 58 314 18 750 99 161 - 26 Total, Serving Officers 3) 459 523 215 146 966 014 63 740 27 28 1) None of the GET members holds A shares. 2) There were no shareholdings by related parties of GET members as of 31 Dec 2012. 29 3) The Company recommends and expects GET members to hold Stora Enso shares at a value corresponding to at least one annual base salary. Stora Enso Shares received as remuneration is therefore recommended not to be sold until this level has been reached. 30 31 32 The following Executive Officers Shares Held when GET Synthetic Options Performance Share Effective Date of GET also Served in 2012 Membership Ended 1) (2006–2007) Awards Membership Ending 33 Hannu Alalauri 56 593 18 750 49 475 19 Mar 2012 Markus Rauramo, CFO 60 388 - - 31 Jul 2012 Bernd Rettig 77 572 22 500 81 787 19 Mar 2012 Total 194 553 41 250 131 262

1) Hannu Alalauri’s related parties held 300 R shares and Markus Rauramo’s related parties held 200 R shares when Alalauri’s and Rauramo’s GET membership ended.

Stora Enso Financial Report 2012 65 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 8 Net Financial Items

Financial Income and Expense Year Ended 31 December EUR million 2012 2011 Net Financial Expense in the Income Statement Financial income 128.2 42.9 Financial expense -335.5 -381.3 Total -207.3 -338.4

Represented by Interest expense Bank borrowings -211.4 -175.0 Net interest from interest rate derivatives 14.6 30.9 Finance leases -3.8 -4.2 Interest capitalised 8.8 1.9 Interest income 20.8 24.1 Income from interest-bearing securities 9.9 7.5 Exchange gains and losses Currency derivatives -71.4 0.1 Borrowings and deposits 59.8 -27.1 Other financial income (including listed securities) 37.7 11.2 Other financial expense Fair value hedges -1.0 -1.6 Other fair value changes -42.6 -10.2 Others (including listed securities) -28.7 -196.0 Total -207.3 -338.4

Gains and losses on derivative financial instruments are shown in Note 28 Derivatives.

Stora Enso currently holds PIK (Payment-In-Kind) note from Papyrus In 2011 Stora Enso recorded a write-down of EUR 11.7 million related Holding AB in Sweden with a nominal value of EUR 89.5 million. to its 19.46 % Arktos Group Ltd Oy shareholding and loan receivables. This unlisted financial security accrues interest which is shown in the The write-down of shares had a negative impact of EUR 1.5 million on table above as EUR 9.9 (EUR 7.5) million of income from interest- operating profit and the write-down of the loan receivables a negative bearing securities. The interest is accrued into the principal of the PIK impact of EUR 10.2 million on other financial expense. Note which will be repaid within a set number of years or when these businesses have a change in control. Exchange gains and losses shown in the previous table for currency derivatives relate to instruments that are fair valued through the Income Stora Enso recorded a provision of EUR 128.2 (USD 180.0) million in Statement as they do not meet hedge accounting criteria. The other the third quarter of 2011 due to NewPage Corporation’s Chapter 11 fair value changes included under other financial expenses are mainly filing in the USA. The provision was related to NewPage’s Stevens related to the change in the fair value of interest rate derivatives. Fees Point Mill Paper Machine (PM) 35 lease obligation guaranteed by for items such as unused committed credit facilities, guarantees and Stora Enso. On the divestment of Stora Enso North America Inc. rating agencies are included in other financial expenses and were (SENA) to NewPage, Stora Enso remained as a guarantor of the lease. EUR 21.7 (EUR 20.2) million at 31 December 2012. Costs on long- The provision was reported in the table above under other financial term debt issues are capitalised as part of non-current debt, which expense and exchange gains and losses on borrowings and deposits. at 31 December 2012 amounted to EUR 9.6 (EUR 6.1) million, and Stora Enso recorded EUR 13.6 million reversal of provision in the first are amortised by using the effective interest rate method through the quarter results of 2012 and EUR 9.5 million reversal of provision in Income Statement. EUR 2.1 (EUR 1.6) million were amortised in 2012 the second quarter results of 2012. The provision was fully settled and 2011 respectively. In most cases, the Group’s average borrowing in the second quarter of 2012 and in the final settlement agreement rate is used to determine the amount of borrowing costs of interest in December 2012, Stora Enso recorded EUR 10.5 million income in capitalised. its fourth-quarter results of 2012. The reversal of provisions and the settlement income were reported under other financial income.

66 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Total Foreign Exchange Gains and Losses in the Income Statement 1 Year Ended 31 December EUR million 2012 2011 2 Sales -11.2 11.8 3 Costs and expenses 5.1 -0.5 4 Net financial items -11.6 -27.0 5 Total -17.7 -15.7 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33

Stora Enso Financial Report 2012 67 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 9 Income Taxes

Tax Expense Year Ended 31 December EUR million 2012 2011 Current Tax -60.5 -74.6 Deferred Tax 69.2 -4.1 Total Tax 8.7 -78.7

Income Tax Rate Reconciliation Year Ended 31 December EUR million 2012 2011 Profit before tax 481.7 420.9 Tax at statutory rates applicable to profits in the country concerned 1) -121.1 -96.4 Non-deductible expenses and tax exempt income 2) 31.2 15.0 Valuation of deferred tax assets 6.5 -30.4 Taxes from prior years 5.1 9.7 Change in tax rates and tax laws 63.2 -4.6 Profits from equity accounted investments 26.2 31.4 Other -2.4 -3.4 Total Tax 8.7 -78.7

Effective Tax Rate -1.8% 18.7%

Statutory Tax Rate 25.1% 22.9%

1) Includes impact of EUR 9.9 million from tax holidays and other tax benefits in 2012. Includes impact of EUR 14.5 million from tax holidays and other tax benefits in 2011. 2) The tax value of non-deductible expenses of EUR 10.1 million has been netted against tax exempt income of EUR 41.3 million in 2012. The tax value of non-deductible expenses of EUR 12.9 million has been netted against tax exempt income of EUR 27.9 million in 2011.

In November 2012, the Swedish Parliament enacted a tax rate change At 31 December 2012 Stora Enso had EUR 2 318 (EUR 1 846) million from 26.3% to 22%. As a result, the Group income tax includes a of gross losses carried forward, of which some EUR 886 (EUR 891) benefit of EUR 63.2 million due to the application of the new rate to million had no expiry date, EUR 30 (EUR 22) million will expire within Swedish deferred tax assets and liabilities. The effect of the new rate five years and EUR 1 402 (EUR 933) million will expire thereafter. Tax on the Group’s share in Bergvik Skog AB is recognised in the Share of losses of EUR 1 333 (EUR 832) million relate to Finland. results of equity accounted investments.

68 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Change in Deferred Taxes 2012 1 2 Value at Income Acquisitions/ Translation Value at 3 EUR million 1 Jan 2012 Statement OCI Disposals difference 31 Dec 2012 Fixed assets -521.8 72.0 - 0.1 -12.0 -461.7 4 Financial instruments 4.1 - -6.5 - -1.7 -4.1 5 Untaxed reserves -41.0 3.1 - - -2.7 -40.6 6 Pensions and provisions 75.0 -19.9 32.0 - 1.1 88.2 7 Tax losses and tax credits carried forward 1) 196.8 30.0 - - -0.5 226.3 8 Other deferred taxes 7.8 -16.0 - -0.1 -0.5 -8.8 9 Total -279.1 69.2 25.5 - -16.3 -200.7 Equity hedges (CTA) - -4.1 4.1 - - - 10 Change in Deferred Tax -279.1 65.1 29.6 - -16.3 -200.7 11 Assets 2) 121.9 143.1 12 Liabilities 2) -401.0 -343.8 13 14 1) Tax losses with unrecognised tax value EUR 363.8 million. 2) Deferred tax assets and liabilities have been offset in accordance with IAS 12. 15 OCI = Other Comprehensive income CTA = Cumulative Translation Adjustment 16 17 18 Change in Deferred Taxes 2011 19 20 Value at Income Acquisitions/ Translation Value at 21 EUR million 1 Jan 2011 Statement OCI Disposals difference 31 Dec 2011 Fixed assets -548.7 32.6 - -4.7 -1.0 -521.8 22 Financial instruments -30.3 - 34.4 - - 4.1 23 Untaxed reserves -11.1 -29.6 - - -0.3 -41.0 24 Pensions and provisions 58.4 9.5 7.9 0.2 -1.0 75.0 25 Tax losses and tax credits carried forward 1) 203.1 -6.3 - - - 196.8 26 Other deferred taxes 17.0 -10.3 - 0.6 0.5 7.8 27 Total -311.6 -4.1 42.3 -3.9 -1.8 -279.1 Equity hedges (CTA) - 1.5 -1.5 - - - 28 Change in Deferred Tax -311.6 -2.6 40.8 -3.9 -1.8 -279.1 29 Assets 2) 111.0 121.9 30 2) Liabilities -422.6 -401.0 31 32 1) Tax losses with unrecognised tax value EUR 272.2 million. 2) Deferred tax assets and liabilities have been offset in accordance with IAS 12. 33

The recognition of the deferred tax assets is based on the Group’s estimations of future taxable profits available from which the Group can utilise the benefits.

Stora Enso Financial Report 2012 69 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 10 Valuation Allowances

Valuation and Qualifying Accounts

Inventory Obsolescence Inventory Net Spare Parts and Realisable Doubtful EUR million Consumables Finished Goods Valuation Receivables Total Allowances Carrying Value at 1 January 2011 88.6 11.9 3.7 40.7 144.9 Translation difference 0.1 - - -0.6 -0.5 Company acquisitions and disposals 0.1 1.5 0.3 0.4 2.3 Charge in Income Statement 11.1 2.3 2.0 5.2 20.6 Reversal in Income Statement -12.3 -0.8 -1.9 -5.4 -20.4 Carrying Value at 31 December 2011 87.6 14.9 4.1 40.3 146.9 Translation difference 1.3 - - 0.4 1.7 Company acquisitions and disposals - - - 0.3 0.3 Charge in Income Statement 13.7 1.2 1.9 5.7 22.5 Reversal in Income Statement -4.3 -1.4 -1.6 -1.2 -8.5 Carrying Value at 31 December 2012 98.3 14.7 4.4 45.5 162.9

Allowances related to trade receivables are discussed in more detail in Note 18 Receivables.

70 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 11 Depreciation and Fixed Asset Impairment Charges

Depreciation and Fixed Asset Impairment Charges 1 Year Ended 31 December 2 EUR million 2012 2011 3 Depreciation 4 Intangible fixed assets 16.7 17.6 Buildings and structures 81.7 80.0 5 Plant and equipment 461.7 449.8 6 Other tangible fixed assets 14.3 13.9 7 Total 574.4 561.3 8 Impairment and Disposal Losses 9 Intangible fixed assets 6.1 0.1 10 Land 2.5 - 11 Buildings and structures 0.9 1.6 12 Plant and equipment 50.2 40.3 Other tangible fixed assets 0.5 3.8 13 Total 60.2 45.8 14 15 Reversal of Impairment Buildings and structures -5.9 -7.6 16 Plant and equipment -97.1 -26.9 17 Total -103.0 -34.5 18 Depreciation and Impairment Charges 531.6 572.6 19 20 21

Depreciation a CGU may have more than one discount rate. The table in the goodwill 22 The total depreciation charge amounted to EUR 574.4 million and was impairment testing section below sets out the average pre-tax discount 23 EUR 13.1 million higher than in 2011. A breakdown of depreciation rates used for goodwill impairment testing, which are similar to those 24 and impairment charges by segment is set out in Note 3 Segment used in the fixed asset impairment testing. 25 Information. 26 Impairments were calculated with a value-in-use method for each CGU Impairment testing 27 based on the following main assumptions: 28 Goodwill is tested at the level monitored by senior management, • Sales price estimates in accordance with internal and external 29 which is groups of CGUs, whereas fixed assets are tested at the specialist analysis 30 CGU level, which can be a standalone mill or a group of mills. The • Inflation estimates of approximately 2% per year 31 recoverable amount of CGUs has been determined based on a value- • Current cost structure to remain unchanged 32 in-use calculation using cash flow projections from financial budgets • For goodwill testing a four-year future period was used after which approved by senior management. The pre-tax discount rates are the perpetuity value was based on zero growth rates, whereas for 33 calculated for each unit of cash flow taking into account the tax and fixed asset testing the period was the remaining expected economic risk profile of the country in which the cash flow is generated, therefore life of the assets.

Stora Enso Financial Report 2012 71 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Fixed asset impairment In 2011 EUR 34.5 million of fixed asset impairment charges were The total reversal of fixed asset impairment charge during 2012 reversed as a result of impairment testing and the disposal of fixed amounted to EUR 103.0 million, of which EUR 102.8 million resulted assets at several mills. Fixed assets impairments in 2011 in respect of from impairment testing and EUR 0.2 million resulted from the disposal the Group’s ongoing business amounted to EUR 45.8 million, which of fixed assets at several mills. The fixed asset impairment charge in resulted from impairment testing and from the permanent shutdown 2012 amounted to EUR 60.2 million, which resulted from impairment of Kopparfors Sawmill and its pellet mill in Sweden. testing and from the permanent shutdown of paper machine (PM) 1 at Hylte Mill in Sweden and other ongoing restructurings. Goodwill impairment testing There was no goodwill impairment in 2012 or 2011.

Business Area – Groups of Cash Generating Units

Year Ended 31 December 2012 2011 Goodwill at Impairment Average Goodwill at Impairment Average EUR million Year End charge Discount Rate Year End charge Discount Rate Printing and Reading - Newsprint and Uncoated Magazine Paper 83.0 - 8.1% 83.0 - 8.5% Building and Living - Central European Unit 108.6 - 8.1% 107.0 - 8.5% Building and Living - Building Solutions 2.9 - 8.1% 2.9 - 8.5% Renewable Packaging - Packaging Solutions 20.0 - 8.1% 20.0 - n/a Renewable Packaging - Asia 11.4 - 9.1% 11.4 - n/a Goodwill 225.9 - 224.3 -

Inpac goodwill in Renewable Packaging Asia was not tested for impairment in the 2011 annual goodwill impairment testing because accounting of the acquisition was preliminary at the end of 2011.

72 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Goodwill testing CGUs were changed in 2012 due to the reorganisation Newsprint and Uncoated Magazine Paper is the CGU where the 1 of the Group’s Business Area and Reporting Segment structure. difference between the discounted cash flows and the carrying value 2 Comparative financials for 2011 have been reclassified in the previous of the tested assets is lowest, and hence where a change in discount 3 table to reflect the current CGU structure. Newsprint and Book Paper rate, sales price or costs would have the most significant impact. 4 – Europe and Magazine Paper – Uncoated have been combined to 5 Impairment Testing Sensitivity Analysis in 2012 Printing and Reading – Newsprint and Uncoated Magazine Paper CGU. 6 The change in the Group’s Business Area and Reporting Segment Goodwill and 7 structure is discussed in detail in Note 3. EUR million Fixed Asset Impairment 8 1% change in the discount rate 176 9 The calculation of value in use is most sensitive to discount rate, 1% annual decrease in the sales price 1 342 10 sales price and costs. The table on the right summarises what effect 1% annual increase in the costs 1 182 a 1% change in the discount rate, 1% decrease in sales prices and 11 1% increase in costs would have had on the goodwill testing results. 12 13 Segment Impairment and Disposal Losses Less Reversals 14 Year Ended 31 December 15 EUR million 2012 2011 Printing and Reading -84.4 -2.5 16 Biomaterials 0.3 -6.2 17 Building and Living -0.4 20.2 18 Renewable Packaging 35.5 2.8 19 Other 6.2 -3.0 20 Total (impairment + / reversal -) -42.8 11.3 21 Comparatives in the above table have been restated to reflect the current Business Area and Reporting Segment structure, which is discussed in more detail 22 in Note 3. 23 24 25 26 27 28 29 30 31 32 33

Stora Enso Financial Report 2012 73 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 12 Fixed Assets

Fixed Asset Summary

Year Ended 31 December Property, Plant Intangible Total EUR million and Equipment Fixed Assets Goodwill Fixed Assets Acquisition Cost At 1 January 2012 17 991.6 365.6 1 170.3 19 527.5 Translation difference 237.1 -1.1 3.7 239.7 Reclassifications -3.4 3.4 - - Company acquisitions 8.4 -0.7 0.1 7.8 Additions 531.8 4.8 - 536.6 Disposals -329.0 -16.2 - -345.2 At 31 December 2012 18 436.5 355.8 1 174.1 19 966.4

Accumulated Depreciation, Amortisation and Impairment At 1 January 2012 13 049.1 307.8 946.0 14 302.9 Translation difference 150.7 -3.3 2.2 149.6 Disposals -320.4 -16.2 - -336.6 Company acquisitions 1.8 0.1 - 1.9 Depreciation 557.7 16.7 - 574.4 Impairment -51.1 6.1 - -45.0 At 31 December 2012 13 387.8 311.2 948.2 14 647.2

Net Book Value at 31 December 2012 5 048.7 44.6 225.9 5 319.2

Net Book Value at 31 December 2011 4 942.5 57.8 224.3 5 224.6

74 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Property, Plant and Equipment 1 2 Year Ended 31 December 3 Buildings and Plant and Other Tangible Assets in EUR million Land and Water Structures Equipment Assets Progress Total 4 Acquisition Cost 5 At 1 January 2011 256.4 2 855.6 14 009.4 465.9 265.5 17 852.8 6 Translation difference -6.9 -6.2 23.5 -2.8 -15.2 -7.6 7 Reclassifications 0.9 40.7 150.8 0.7 -195.9 -2.8 8 Company acquisitions - 4.4 34.5 1.4 1.0 41.3 Additions - 27.1 134.9 4.4 262.6 429.0 9 Disposals -1.4 -21.8 -296.0 -1.7 -0.2 -321.1 10 At 31 December 2011 249.0 2 899.8 14 057.1 467.9 317.8 17 991.6 11 Translation difference -3.7 30.3 193.4 2.5 14.6 237.1 12 Reclassifications - 20.5 155.1 7.2 -186.2 -3.4 13 Company acquisitions - 2.1 6.3 - - 8.4 14 Additions 0.3 20.9 197.8 11.2 301.6 531.8 Disposals -0.9 -21.9 -295.0 -1.4 -9.8 -329.0 15 At 31 December 2012 244.7 2 951.7 14 314.7 487.4 438.0 18 436.5 16 17 Accumulated Depreciation, Amortisation and Impairment 18 At 1 January 2011 49.5 1 826.4 10 549.9 346.9 13.2 12 785.9 19 Translation difference - -1.8 15.8 -3.2 -0.5 10.3 Disposals - -20.4 -283.7 -1.5 -0.2 -305.8 20 Company acquisitions - 0.1 4.6 0.7 - 5.4 21 Depreciation - 80.0 449.8 13.9 - 543.7 22 Impairment - -6.0 11.8 3.8 - 9.6 23 At 31 December 2011 49.5 1 878.3 10 748.2 360.6 12.5 13 049.1 24 Translation difference 0.2 22.0 127.2 0.8 0.5 150.7 25 Disposals - -20.7 -289.0 -1.3 -9.4 -320.4 Company acquisitions - 0.6 1.2 - - 1.8 26 Depreciation - 81.7 461.7 14.3 - 557.7 27 Impairment 2.5 -5.0 -49.0 0.5 -0.1 -51.1 28 At 31 December 2012 52.2 1 956.9 11 000.3 374.9 3.5 13 387.8 29 30 Net Book Value at 31 December 2012 192.5 994.8 3 314.4 112.5 434.5 5 048.7 31

Net Book Value at 31 December 2011 199.5 1 021.5 3 308.9 107.3 305.3 4 942.5 32 33

Stora Enso Financial Report 2012 75 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Capitalised Values

Year Ended 31 December Computer Software Capitalised Interest Finance Leases EUR million 2012 2011 2012 2011 2012 2011 At 1 January 27.1 29.9 54.5 48.2 76.6 87.3 Translation difference 0.2 0.1 1.2 -0.4 0.3 -0.1 Reclassifications 1.3 3.3 - 11.4 - 2.2 Acquisitions and disposals ------0.2 Capitalised in the year 1.8 4.8 8.8 1.9 1.0 0.5 Amortisation -9.2 -11.0 -6.8 -6.6 -12.4 -13.1 At 31 December 21.2 27.1 57.7 54.5 65.5 76.6

Computer software includes EUR 9.1 (EUR 10.4) million of capitalised own software at the year end; additions during the year were EUR 0.8 (EUR 2.8) million and depreciation was EUR 2.8 (EUR 1.5) million.

Fixed asset additions Fixed asset disposals

Acquisitions of Group companies in 2012 included EUR 5.9 (EUR There were no fixed asset disposals from divestments of Group 63.3) million of fixed assets therein with EUR 0.1 (EUR 11.3) million of companies in 2012. goodwill. This is discussed in more detail in Note 4 Acquisitions and Disposals. Other sundry asset proceeds from disposals totalling EUR 5.7 million are mainly minor sales in the normal course of operations. Most of Total capital expenditure for the year in Stora Enso Oyj and its the other EUR 17.6 million of proceeds from disposals in 2011 was subsidiaries amounted to EUR 536.6 (EUR 436.1) million. Details of accounted for by: ongoing projects and future plans are discussed in more detail in the • EUR 6.1 million from the sale of three paper machines from the Report of the Board of Directors. former Summa Mill and from the Varkaus Mill, which had been closed down earlier; • other sundry asset disposals totalling EUR 11.5 million, mainly minor sales in the normal course of operations.

76 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 13 Biological Assets

Most Group interests in biological assets are held in equity accounted million for the standing trees the amount directly disclosed in the Group 1 investments in Brazil, Finland, Sweden and Uruguay, thus the values Statement of Financial Position from subsidiary companies amounts 2 directly disclosed in the financial statements for biological assets are to only EUR 221.7 (EUR 212.6) million as shown below. The amount 3 limited. Whereas the Group’s indirect share of biological assets held by of land area is 136 000 hectares and majority of the land is leased. 4 equity accounted investments amounts to EUR 2 338.0 (EUR 2 238.2) 5 6 Biological Assets 7 Year Ended 31 December EUR million 2012 2011 8 Carrying Value at 1 January 212.6 190.5 9 Translation difference -5.6 10.0 10 Additions 19.7 17.2 11 Decrease due to harvest and damage -5.0 -5.1 12 Carrying Value at 31 December 221.7 212.6 13 14 During 2012 the main additions related to the continuing development • Tornator Oyj (Tornator), a 41% owned Finnish associate company, 15 of eucalyptus plantations in Guangxi in China. The biological assets had biological assets with a fair value of EUR 952.1 (EUR 950.9) 16 in Guangxi are currently carried at cost because if Stora Enso should million, of which Stora Enso’s share was EUR 390.4 (EUR 389.9) 17 not be able to build a mill, the biological assets must be returned to million. 18 the local government at cost. The carrying value at 31 December 2012 • Veracel Celulose S.A. (Veracel), a 50% joint-venture company in 19 was EUR 183.9 (EUR 172.7) million. Brazil, had biological assets fair valued at EUR 274.6 (EUR 309.3) 20 million, of which Stora Enso’s share was EUR 137.3 (EUR 154.7) 21 At 31 December 2012 Stora Enso’s biological assets had a fair value million. of EUR 221.7 (EUR 212.6) million and were located by value in China • Montes del Plata, a 50% joint-venture in Uruguay, had biological 22 83% (81%), Brazil 15% (17%) and other 2% (2%). In addition the assets with a fair value of EUR 229.9 (EUR 206.4) million, of which 23 Group has five equity accounted investments holding biological assets: Stora Enso’s share was EUR 114.9 (EUR 103.2) million. 24 • Bergvik Skog AB (Bergvik Skog), the 43.26% owned Swedish • Arauco Florestal Arapoti S.A., the 20% owned southern Brazilian 25 associate company, had biological assets with a fair value of associate company, had biological assets with a fair value of 26 EUR 3 879.0 (EUR 3 632.7) million, of which Stora Enso’s share EUR 87.1 (EUR 94.7) million, of which Stora Enso’s share was 27 was EUR 1 678.0 (EUR 1 571.5) million. EUR 17.4 (EUR 18.9) million. 28 29 30 31 32 33

Stora Enso Financial Report 2012 77 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 14 Equity Accounted Investments

Carrying Values of Equity Accounted Investments Year Ended 31 December EUR million 2012 2011 At 1 January 1 214.1 1 084.5 Translation difference 1.7 1.8 Additions 114.5 128.6 Disposal proceeds and equity repayment 1) -2.2 -1.0 Income Statement - Profit on disposal - 0.2 Subsidiary transfers and disposal adjustment -0.3 - Historical Cost at 31 December 1 327.8 1 214.1

Equity Adjustments At 1 January 699.0 659.5 Translation difference -55.7 -34.8 Share of results 107.7 117.8 Dividends received -107.0 -24.1 OCI -4.2 -19.4 Subsidiary transfers and disposal adjustment -2.5 - Equity Adjustment at 31 December 637.3 699.0

Carrying Value at 31 December 1 965.1 1 913.1

1) 2011 disposal proceeds are fully non-cash.

The Group’s share of results in equity accounted investments is material goodwill in respect of equity accounted investments either reported in operating profit to reflect the operational nature of these held in the Statements of Financial Position of those companies or in investments, especially those in wood and pulp supply. There is no the ownership of them.

Principal Equity Accounted Investments As at 31 December % EUR million Company Domicile 2012 2012 2011 Bergvik Skog AB: forest Sweden 43.26 697.0 634.2 Veracel Celulose S.A.: pulp mill and plantation Brazil 50.00 530.4 587.9 Montes del Plata: pulp mill project and plantation Uruguay 50.00 494.2 404.9 Tornator Oyj: forest Finland 41.00 169.4 176.5 Arauco Florestal Arapoti S.A.: plantation Brazil 20.00 24.6 27.0 Thiele Kaolin Company Inc: china clay USA 39.99 18.6 41.4 1 934.2 1 871.9 Others 30.9 41.2 Carrying Value at 31 December 1 965.1 1 913.1

Stora Enso acquired the remaining 50% of the shares in RETS been consolidated as a subsidiary in the Group’s financial statements. Timber Oy Ltd with effect from 1 September 2012, increasing the There were no major changes in the ownership of equity accounted Group’s shareholding to 100%. At the acquisition date the value of the investments during 2011. The 2012 and 2011 additions in equity Group’s 50% shareholding amounted to EUR 2.8 million. Prior to the accounted investments are due to equity injections into Montes del acquisition, RETS Timber Oy Ltd was accounted for with the equity Plata. accounting method, but since the acquisition date the company has

78 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Stora Enso has set up a jointly owned company, NSE Biofuels Oy 1.5 million of the 2010 write-downs were reversed and Stora Enso 1 Ltd, with Neste Oil Oyj to develop biofuel production at Varkaus Mill received a capital repayment of EUR 2.0 million from NSE Biofuels 2 in Finland. During 2010 a EUR 10 million loan to NSE Biofuels Oy was Ltd. At the year end 2012 the value of the shares amounted to EUR 3 converted into equity and in the fourth quarter of 2010 Stora Enso 0.5 (EUR 1.0) million. 4 recorded a EUR 15.3 million write-down of these shares, resulting in 5 an equity value for this investment of EUR 1.0 million. In August 2012 The average number of personnel in the equity accounted investments 6 Stora Enso announced that the Group and Neste Oil had decided not was 5 270 in 2012, compared with 5 060 in 2011. 7 to proceed with the plans to build a biodiesel plant. During 2012 EUR 8 9 Group Share of Equity Accounted Investment Income Statements 10 Year Ended 31 December 11 EUR million 2012 2011 Turnover 789.6 682.5 12 Cost of sales -679.9 -569.1 13 Trading Profit 109.7 113.4 14 IAS 41 Valuation 22.6 98.0 15 Operating Profit 132.3 211.4 16 Net financial items -73.2 -53.9 17 Net Profit before Tax 59.1 157.5 Tax 48.6 -39.7 18 Net Profit for the Period 107.7 117.8 19 20 21 In January 2011 Stora Enso announced that Montes del Plata would owned equity accounted investment Veracel. Each company has a build a new state-of-the-art 1.3 million tonnes per year pulp mill at 50% stake and is entitled to half of the mill’s output. In 2012, the 22 Punta Pereira, in the department of Colonia, Uruguay. The mill is Group’s share of the profit was EUR 5.4 (loss EUR 6.0) million inclusive 23 expected to start up approximately mid-year 2013. of a forest valuation loss of EUR 13.0 (gain EUR 2.4) million, and the 24 year end carrying value amounted to EUR 530.4 (EUR 587.9) million 25 During 2009, Stora Enso and Celulosa Arauco y Constitucion S.A. at the year end 2012. 26 (Arauco) established a joint venture company to combine their assets 27 in Uruguay to facilitate the joint acquisition of Grupo ENCE assets in In 2004, 56.7% of Stora Enso’s Swedish forest holding company 28 Uruguay. The Group contributed 100% of Stora Enso Uruguay S.A. Bergvik Skog was divested to institutional investors leaving the Group 29 shares to Forestal Cono Sur S.A. (FCS), Arauco’s 100% subsidiary in with a minority shareholding of 43.26% valued at EUR 697.0 (EUR 30 Uruguay, in return for 50% of the shares in FCS. Arauco and Stora 634.2) million at the year end 2012. In 2012, the Group’s share of 31 Enso then jointly acquired the majority of Spanish pulp producer Bergvik Skog’s profit came to EUR 108.2 (EUR 99.2) million, including 32 ENCE’s operations in Uruguay through the acquisition of three separate a forest valuation gain of EUR 39.7 (EUR 83.3) million. In November legal entities. Although the legal structure comprises four separate 2012 the Swedish Parliament enacted a tax rate change from 26.3% 33 entities, each owned on a 50:50 basis, they are run as one operation to 22.0%. As a result of the application of the new tax rate to Swedish under the name Montes del Plata. The joint venture comprises around deferred tax assets and liabilities, Bergvik Skog recognised a gain 246 300 hectares of owned land and 23 600 hectares of leased land in its income statement of which Stora Enso’s share amounted to around half of which is already planted with pine and eucalyptus. In approximately EUR 69.2 million. 2012, the Group’s share of Montes del Plata’s loss came to EUR 14.5 (loss EUR 10.1) million, including a forest valuation loss of EUR 0.7 Stora Enso’s Finnish forest holdings were divested into an equity (loss EUR 0.4) million, and the Group’s shareholding was valued at accounted investment, Tornator, in 2002. The Group’s 41% residual EUR 494.2 (EUR 404.9) million at the year end 2012. interest was worth EUR 169.4 (EUR 176.5) million at the year end 2012. In 2012, the Group’s share of Tornator’s loss came to EUR 2.1 Stora Enso and its Brazilian partner Fibria (formerly Aracruz Celulose (profit EUR 24.6) million, including a forest valuation loss of EUR 3.4 S.A.) have established a eucalyptus plantation currently encompassing (gain EUR 10.4) million. 211 380 hectares, of which 90 410 hectares are planted, and constructed a 1.1 million tonnes per year pulp mill for their jointly-

Stora Enso Financial Report 2012 79 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Group Share of Equity Accounted Investment Statements of Financial Position As at 31 December EUR million 2012 2011 Fixed assets 1 445.6 1 138.6 Biological assets 2 338.0 2 238.2 Operative receivables: Non-current 98.1 132.1 Current 141.9 115.1 Inventories 69.2 64.0 Cash 123.5 56.6 Total Assets 4 216.3 3 744.6

Liabilities Operative Liabilities: Non-current 100.3 74.2 Current 188.6 167.9 Debt: Non-current 1 351.5 954.9 Current 188.1 157.9 Tax liabilities 422.7 476.6 Total Liabilities 2 251.2 1 831.5

Net Equity in the Group Statement of Financial Position 1 965.1 1 931.1

Represented by Capital and Reserves 1 998.5 1 942.3 OCI -33.4 -29.2 Equity Accounting Value 1 965.1 1 913.1

Equity Accounted Investment Company Balances As at 31 December EUR million 2012 2011 Receivables from Equity Accounted Investments Non-current loan receivables 122.8 116.7 Trade receivables 8.2 11.1 Current loan receivables 95.7 53.5 Prepaid expenses and accrued income 12.1 0.5

Liabilities due to Equity Accounted Investments Trade payables 76.5 58.5 Accrued liabilities and deferred income 0.2 0.6

80 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Equity Accounted Investment Transactions 1 Year Ended 31 December EUR million 2012 2011 2 Sales to equity accounted investments 103.1 129.6 3 Interest on loan receivables from equity accounted investments 11.5 10.0 4 Purchases from equity accounted investments 339.4 374.2 5 6 7 The Group engages in transactions with equity accounted investments Total loans including interest receivable to equity accounted 8 such as sales of wood material and purchases of wood, energy and investments came to EUR 218.5 (EUR 170.2) million, of which EUR 95.4 9 pulp products. All agreements in Europe are negotiated at arm’s length (EUR 88.1) million was due from Bergvik Skog, EUR 26.5 (EUR 26.8) 10 and are conducted on terms that the Group considers customary in million from Tornator and EUR 89.7 (EUR 51.0) million from Montes the industry and generally no less favourable than would be available del Plata. Interest income on loans to equity accounted investments 11 from independent third parties. totalled EUR 11.5 (EUR 10.0) million, of which EUR 7.7 (EUR 7.3) million 12 came from Bergvik Skog, EUR 0.9 (EUR 0.9) million from Tornator and 13 EUR 3.0 (EUR 1.5) million from Montes del Plata. 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33

Stora Enso Financial Report 2012 81 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 15 Available-for-Sale Investments

The Group classifies its investments into three categories: trading, investments are considered to be non-current assets unless they are held-to-maturity and available-for-sale. At the reporting date the expected to be realised within twelve months. Group held only available-for-sale investments. All available-for-sale

Summary of Values Year Ended 31 December EUR million 2012 2011 Acquisition cost at 1 January Interest-bearing securities 76.1 68.7 Operative securities 104.0 106.8 Investments classified as available-for-sale 180.1 175.5 OCI in opening balance 542.1 782.6 Available-for-Sale Investments at 1 January 722.2 958.1 Translation difference 0.5 -0.1 Accrued interest on PIK Notes 9.9 7.5 Additions 0.3 0.6 Change in fair values accounted for as OCI -177.6 -240.5 Disposal proceeds -0.5 -1.0 Income Statement - gains and losses -8.3 -2.4 Carrying Amount at 31 December 546.5 722.2

Unrealised Gains and Losses on Securities Year Ended 31 December EUR million 2012 2011 Net Unrealised Holding Gains (OCI) 364.5 542.1 Cost 182.0 180.1 Market Value 546.5 722.2

Net unrealised holding gains (OCI) 364.5 542.1 Deferred tax -2.3 -1.5 Net Unrealised Holding Gains Shown in Equity as OCI 362.2 540.6

Change in Net Unrealised Holding Gains Shown in Equity as OCI -178.4 -239.4

Stora Enso is holding a Payment-In-Kind (PIK) note issued by Papyrus In December 2007 Stora Enso finalised the divestment of Stora Enso Holding AB. On 30 April 2008 Stora Enso completed the divestment North America Inc. (SENA) to NewPage with part of the consideration of its merchant business Papyrus to Altor Fund II, a private equity comprising a PIK note with nominal value of USD 200 million and venture. Part of the consideration comprised a PIK Note issued by 19.9% of the shares in NewPage Corporation. In September 2011, the Altor subsidiary Papyrus Holding AB with a nominal value of EUR NewPage Corporation voluntarily filed for Chapter 11 protection 57.3 million that was fair valued on receipt at EUR 50.4 million. The PIK under the US Bankruptcy Code to reorganise its debt. The PIK note Note is subordinate to senior debt in the purchaser but it has priority had a subordinated status in relation to normal debt and in the final over equity holders and matures on 7 May 2017. Interest accrues at settlement agreement in December 2012, Stora Enso’s rights and the rate of 9% for the first three years of the Note and higher for later obligations in relation to PIK note and equity interest ceased to exist. periods reaching 15% in 2013, and is added in arrears to the principal In addition, Stora Enso recorded EUR 10.5 million financial income of the PIK Note. Mandatory repayment of the PIK Note is required if from NewPage Corporation as a result of the settlement agreement. Altor disposes of more than 50% of the shares in Papyrus or 40% of The fair values of the shareholding and PIK note had remained at zero the assets, or if there is an IPO. The PIK Note at year end had a nominal since 2009. value of EUR 89.5 million including capitalised interest and a fair value of EUR 89.6 million.

82 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

PVO shares The electricity prices in the model are based on Nordpool prices. 1 The Group holds a 14.8% interest in Pohjolan Voima Oy (PVO), a Future derivative prices are used in the first five years of the model and 2 privately owned group of companies in the energy sector that produces thereafter increased by an inflation factor that is in line with the European 3 electricity and heat for its shareholders in Finland. Each subsidiary of Central Bank estimate. The historical financial statements provide the 4 the PVO group has its own class of shares that entitle the shareholder basis for the cost structure for each of the power assets, which are 5 to the energy produced in proportion to its ownership of that class of adjusted by the inflation factor in future years. The discount rate of 6 share. The shareholders then have an obligation to cover the costs of 4.13% used in the DCF is determined using the weighted average cost 7 production, which are generally lower than market prices. The holding is of capital method. The trading and transaction multiples are derived from 8 fair valued quarterly using an average of three methods: the discounted a peer group of European companies operating power assets similar to 9 cash flow model, trading and precedent transaction multiples. PVO’s. A +/- 5% change in the electricity price used in the DCF would 10 change the valuation by +/- EUR 79 million and a +/- 1% change in the discount rate would change the valuation by -/+ EUR 86 million. 11 12

PVO Shareholding at 31 December 2012 13 14 EUR million Share Series % Holding Asset Category Fair Value 15 PVO-Vesivoima Oy A 20.6 Hydro 111.9 16 Teollisuuden Voima Oy B 15.7 Nuclear 228.1 Nuclear under 17 Teollisuuden Voima Oy B2 14.8 construction 93.4 18 Other C,C2,V,H,M Various Various 7.1 19 Total 440.5 20 21

The valuation in 2012 amounted to EUR 440.5 (EUR 625.7) million In April 2011 Pohjolan Voima Oy announced that it had sold its 22 against a book value of EUR 85.8 (EUR 89.5) million, with the shareholding in Fingrid, the electricity transmission system operator in 23 revaluation of EUR 354.7 (EUR 536.2) million being taken to OCI. Finland. The transaction value was EUR 325 million and PVO recorded 24 The change in PVO’s value is mainly caused by changes in electricity a capital gain of approximately EUR 200 million. In May 2012 Stora 25 prices. No deferred tax is appropriate as under Finnish tax regulations Enso received a dividend of EUR 40.7 million as a result of Fingrid 26 holdings above 10% are exempt from tax on disposal proceeds. sale. In 2012 Stora Enso recorded a write-down of EUR 3.7 million in 27 relation to one power plant in Finland. 28 29 Principal Available-for-Sale Investments 30 As at 31 December 2012 31 EUR million Holding % Number of Shares Acquisition Cost Market Value 32 Packages Ltd, Pakistan - listed security 5 396 650 3.8 6.3 Papyrus PIK Note - unlisted interest-bearing security 82.3 89.6 33 Total Interest-Bearing Securities 86.1 95.9 Pohjolan Voima Oy - unlisted security 14.8 5 381 293 85.8 440.5 Others - unlisted securities n/a Various 10.1 10.1 Total Operative Securities 95.9 450.6

Total Available-for-Sale Investments at 31 December 2012 182.0 546.5 Total Available-for-Sale Investments at 31 December 2011 180.1 722.2

The difference of EUR 364.5 (EUR 542.1) million between the initial fair Statement of Changes in Equity. Euro-denominated assets comprise value at acquisition and reporting date market value of the Available- 98.8% (99.5%) of Available-for-Sale Investments. for-Sale Investments represents the OCI Reserve as shown in the

Stora Enso Financial Report 2012 83 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 16 Other Non-Current Assets

As at 31 December EUR million 2012 2011 Defined benefit plan assets (Note 21) - 2.4 Prepaid expenses and accrued income 0.1 5.8 Kotka earn-out receivable 3.5 8.6 Other non-current operative assets 19.5 9.8 Total 23.1 26.6

In 2012, EUR 2.0 (EUR 4.0) million of the earn-out component related to the disposal of the integrated mills at Kotka is included in the current other receivables in Note 18 Receivables.

Note 17 Inventories

As at 31 December EUR million 2012 2011 Materials and supplies 343.8 400.6 Work in progress 80.3 68.7 Finished goods 703.9 713.0 Spare parts and consumables 282.6 275.2 Other inventories 16.5 27.7 Advance payments and cutting rights 147.8 150.1 Obsolescence allowance - spare parts and consumables -98.3 -87.6 Obsolescence allowance - finished goods -14.7 -14.9 Net realisable value allowance -4.4 -4.1 Total 1 457.5 1 528.7

84 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 18 Receivables

Current Operative Receivables As at 31 December 1 EUR million 2012 2011 2 Trade receivables 1 401.9 1 427.4 3 Allowance for doubtful debts -45.5 -40.3 4 Prepaid expenses and accrued income 166.6 104.2 5 TRS Hedges 2.6 - 6 Other receivables 162.6 163.3 Total 1 688.2 1 654.6 7

Due to their short-term nature the carrying amounts of the above receivables are a reasonable approximation to their fair value. Any longer-term receivables 8 falling due after one year are included in non-current receivables. 9 10 11 Currency Breakdown of Current Operative Receivables As at 31 December 12 EUR million 2012 2011 13 EUR 828.6 865.6 14 USD 188.6 184.4 15 SEK 288.3 265.8 16 CNY 79.3 99.2 17 GBP 58.6 91.0 Other currencies 244.8 148.6 18 Total 1 688.2 1 654.6 19 20 21 The majority of the operative receivables denominated in US dollars for which no allowance has been made. These relate to a number of or British pounds are held in Group companies that have the euro and different countries and unrelated customers that have no recent history 22 Swedish krona as their functional currencies. As at 31 December 2012, of default. The age analysis of these trade receivables, net of allowance 23 EUR 116.9 (EUR 109.9) million of trade receivables were overdue, for doubtful debts, is as follows: 24 25 26 Age Analysis of Trade Receivables, Net of Allowance for Doubtful Debts As at 31 December 27 EUR million 2012 2011 28 Less than 30 days overdue 94.3 86.1 29 31 to 60 days overdue 7.2 9.1 30 61 to 90 days overdue 2.8 4.0 91 to 180 days overdue 5.1 3.3 31 Over 180 days overdue 7.5 7.4 32 Total: Overdue Accounts 116.9 109.9 33 Trade Receivables within their credit terms 1 239.5 1 277.2 Total 1 356.4 1 387.1

Credit losses amounted to EUR 5.8 (EUR 5.2) million, which resulted in positions of customers. If the Group has concerns as to the financial a net increase in the allowance for doubtful debts of EUR 5.2 (decrease state of a customer, an advance payment or a letter of credit that must EUR 0.4) million – see Note 25 Financial Risk Management for details be irrevocable and drawn on a bank is required. At the year end the of customer credit risk management. All allowances are made on an letters of credit awaiting maturity totalled EUR 42.8 (EUR 37.3) million. individual basis and are regularly reviewed for changes in the financial

Stora Enso Financial Report 2012 85 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

At 31 December 2012 allowances related to overdue trade receivables totalled EUR 45.5 (EUR 40.3) million. The age of the receivables under the doubtful accounts is shown in the table below.

Age Analysis of Doubtful Accounts As at 31 December EUR million 2012 2011 Less than 90 days 3.4 1.4 91 to 180 days 2.0 1.5 Over 180 days 40.1 37.4 Total 45.5 40.3

Interest-Bearing Receivables As at 31 December EUR million 2012 2011 Derivatives (see Note 28) 182.9 195.0 Loans to equity accounted investments 218.5 170.3 Other loan receivables 29.8 41.5 Total 431.2 406.8

Current Assets: Receivable within 12 months 297.0 281.5 Non-current Assets: Receivable after 12 months 134.2 125.3 Total 431.2 406.8

Annual interest rates for loan receivables at 31 December 2012 ranged 103.3) million against a carrying value of EUR 91.5 (EUR 88.1) million. from 0.0% (0.4%) to 8.5% (8.5%). Due to the nature of the Group Current interest-bearing receivables include accrued interest of EUR financial assets their carrying value is considered to approximate their 37.9 (EUR 33.9) million, of which EUR 37.4 (EUR 22.7) million relates fair value with the exception of the equity accounted investment loan to interest rate derivatives. to Bergvik Skog, which has a fair value at year end of EUR 108.0 (EUR

86 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 19 Shareholders’ Equity

At 31 December 2012 shareholder equity amounted to EUR 5 784.5 Stora Enso Oyj held shares with an acquisition cost of EUR 10.2 million, 1 (EUR 5 872.7) million, compared with market capitalisation on NASDAQ comprising 918 512 R shares at the end of 2012. The accountable par 2 OMX Helsinki of EUR 4.2 (EUR 3.7) billion. The market values of the of the shares was EUR 1.6 million, representing 0.12% of the share 3 shares were EUR 5.70 (EUR 5.03) for A shares and EUR 5.25 (EUR capital and 0.04% of voting rights. 4 4.63) for R shares. 5 At the end of 2012 Directors and Group Executive Team members 6 The A shares entitle the holder to one vote per share whereas R shares owned 2 541 (2 541) A shares and 630 922 (664 657) R shares, 7 entitle the holder to one vote per ten shares with a minimum of one vote, representing 0.03% of the total voting rights of the Company. Full 8 though the accountable par of both shares is the same. A shares may details of Director and Executive interests are shown in Note 7 Board 9 be converted into R shares at any time at the request of a shareholder. and Executive Remuneration. A full description of Company Option 10 At 31 December 2012 the Company’s fully paid-up share capital as Programmes is shown in Note 22 Employee Variable Compensation and entered in the Finnish Trade Register was EUR 1 342.2 million (EUR Equity Incentive Schemes. However, none of these have any impact on 11 1 342.2 million). The current accountable par of each issued share is the issued share capital. 12 EUR 1.70 (EUR 1.70). 13 14 15 Change in Share Capital 16 A shares R shares Total 17 At 1 January 2011 177 149 784 612 388 715 789 538 499 18 Conversion of A shares to R shares 16 May -762 762 - 19 Conversion of A shares to R shares 15 Nov -250 250 - At 31 December 2011 177 148 772 612 389 727 789 538 499 20 Conversion of A shares to R shares 16 Jan -1 000 1 000 - 21 At 31 December 2012 177 147 772 612 390 727 789 538 499 22 23 Number of votes as at 31 December 2012 177 147 772 61 239 0721) 238 386 844 24 25 Share Capital at 31 December 2012, EUR million 301.2 1 041.0 1 342.2 26

Share Capital at 31 December 2011, EUR million 301.2 1 041.0 1 342.2 27 28 1) R share votes are calculated by dividing the number of R shares by 10. 29 The shares in issue at 11 April 2013 will represent the total shares eligible to vote at the forthcoming Annual General Meeting. 30 31 32 33

Stora Enso Financial Report 2012 87 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 20 Non-Controlling Interests

Non-Controlling Interests Year Ended 31 December EUR million 2012 2011 At 1 January 87.1 51.8 Translation difference -3.2 - Non-controlling interests in companies acquired less disposals 0.2 37.6 Buy-out of non-controlling interests - -0.4 Gain to Retained Earnings on buy-outs - -0.8 Share of profit for the period 9.9 2.5 Dividends -2.5 -3.6 At 31 December 91.5 87.1

Principal Non-Controlling Interests As at 31 December EUR million 2012 2011 Stora Enso Inpac Packaging Group China, Korea and India 35.9 36.4 Stora Enso Arapoti Industria de Papel SA Brazil 25.8 21.8 Stora Enso Huatai Paper Co Ltd China 16.7 16.7 Corenso United Oy Group China 6.0 5.7 Others - 7.1 6.5 91.5 87.1

In January 2012 Stora Enso acquired 51% of the shares in Danfiber proportionate share of the acquiree’s net assets, and amounted to EUR A/S. The non-controlling interest has been valued as the proportionate 36.4 million as at 31 December 2011. The Inpac acquisition accounting share of the acquiree’s net assets, and amounted to EUR 0.4 million was finalised in the third quarter of 2012. During 2012 there was only as at 31 December 2012. a minor adjustment to the provisional non-controlling interest at the end of 2011 previously presented. In July 2011 Stora Enso completed the acquisition of 51% of the shares in the Chinese packaging company Inpac International Print In 2011 there were non-controlling interest buy-outs amounting to EUR & Packaging Co., Ltd., which was subsequently renamed Stora 0.4 million related to Design Force AB. A gain of EUR 0.8 million was Enso Inpac Packaging Co. Ltd. The non-controlling interests in recorded in retained earnings related to the buy-outs. the companies related to the Inpac group have been valued as the

88 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 21 Post-Employment Benefits

The Group has established a number of pension and other benefit plans Stora Enso’s total defined benefit obligations to current and former 1 for its operations throughout the world, the cost of which amounted to members of staff amount to EUR 1 289.6 (EUR 1 103.0) million though 2 EUR 163.4 (EUR 172.6) million in 2012, as shown in Note 6 Staff Costs. assets of EUR 827.4 (EUR 773.5) million have been put aside in various 3 The majority of plans are defined contribution schemes, the charge for pension schemes to cover these liabilities. The net funding position of 4 which amounted to EUR 145.7 (EUR 154.6) million. the defined benefit plans are shown in full in the Statement of Financial 5 Position and amount to EUR 462.2 million in 2012, an increase of 6 The retirement age for the management of Group companies has been EUR 130.8 million on the previous year’s liability of EUR 331.4 7 agreed at between 60 and 65 years, though members of the Group million. This increase is mainly caused by decreased discount rates 8 Executive Team have the right to retire at 60. The retirement age for in Finland, Germany, United Kingdom and Sweden, implementation 9 other staff either follows national retirement ages or is determined by of new mortality tables in Sweden and a reduction in the insured 10 local labour agreements. In the latter case, there may be certain pre- pension increase in Finland. The 2012 defined benefit expense in retirement liabilities accruing to the Company to cover the income of the Income Statement amounts to EUR 17.7 million and the actuarial 11 the early retirees between the age at which they ceased working and losses recorded in Other Comprehensive Income amount to EUR 167.3 12 the national retirement age. million. The 2011 defined benefit expense in the Income Statement 13 amounted to EUR 18.0 million and the actuarial losses recorded in 14 Other Comprehensive Income amounted to EUR 55.8 million. 15 Actuarial Losses Recognised Directly in Equity Year Ended 31 December 16 Total Operations 17 EUR million 2012 2011 18 Actuarial losses -167.3 -55.8 19 Deferred tax thereon 32.0 7.9 20 Total -135.3 -47.9 21

Group policy for funding deficits is intended to satisfy local statutory In the Group Statement of Financial Position the full liability for all plan 22 funding requirements for tax deductible contributions together with deficits is recorded, as adjusted if required for any past service costs 23 adjusting to market rates the discount factors used in the actuarial still to be amortised. The Group Statement of Financial Position fully 24 calculations. However, the emphasis of the Group is to provide reflects the actual surplus or deficits in its defined benefit plans thereby 25 defined contribution schemes for its post-employment benefits, thus aligning the net liability in the Statement of Financial Position. Details 26 all aspects of the provision and accounting for defined benefit schemes of the pension arrangements, assets and investment policies in the 27 are being evaluated. Group’s main operating countries are shown on the following page. 28 29 30 31 32 33

Stora Enso Financial Report 2012 89 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Defined Benefit Plan Summary by Country As at 31 December 2012 EUR million Finland Germany Sweden Other Total Defined Benefit Obligations (DBO) 414.0 289.0 410.2 176.4 1 289.6 Fair value of plan assets 369.0 6.3 318.8 133.3 827.4 Funded status 45.0 282.7 91.4 43.1 462.2 Effect of asset ceiling - - - - - Net Liability in Defined Benefit Plans 45.0 282.7 91.4 43.1 462.2

As at 31 December 2011 EUR million Finland Germany Sweden Other Total Defined Benefit Obligations (DBO) 387.0 261.0 298.1 156.9 1 103.0 Fair value of plan assets 359.4 5.8 281.6 126.7 773.5 Funded status 27.6 255.2 16.5 30.2 329.5 Effect of asset ceiling - - - 1.9 1.9 Net Liability in Defined Benefit Plans 27.6 255.2 16.5 32.1 331.4

The asset and liability figures for Sweden in 2012 include a plan not previously recognised within the pensions note (Assets in 2012 EUR 6.0 million (in 2011 EUR 7.4 million - EUR 1.9 million not recognised due to asset restriction); Liabilities in 2012 EUR 6.6 million (in 2011 EUR 5.5 million)).

Finland being co-ordinated with the national pension scheme retirement The Group funds its Finnish pension obligations mainly through defined age. Pensions are paid directly by the companies themselves to their contribution schemes, the charge in the Income Statement being former employees, this amounting to cash costs of EUR 19.1 (EUR EUR 45.6 (EUR 68.8) million. By contrast, the remaining obligations 19.3) million; the security for the pensioners is provided by the legal covered by defined benefit schemes resulted in a charge of EUR requirement that the book reserves held in the Statement of Financial 2.2 (EUR 2.6) million. Pension cover since 2001 has been organised Position are insured up to certain limits. entirely through local insurance companies. The total defined benefit obligation amounts to EUR 414.0 (EUR 387.0) million and the assets Sweden to EUR 369.0 (EUR 359.4) million, leaving a net liability of EUR 45.0 In Sweden most blue-collar workers are covered by defined (EUR 27.6) million. As state pensions in Finland provide by far the contribution schemes, the charge in the Income Statement being greatest proportion of pensions, Group liabilities are proportionately EUR 69.9 (EUR 54.9) million, with defined benefit schemes covering much smaller than in comparable countries. mainly white-collar staff. However, contributions paid during the year amounted to EUR 16.5 (EUR 16.0) million. Plan assets in Finland are managed by insurance companies. Details of the exact structure and investment strategy surrounding plan Total defined benefit obligations amounted to EUR 410.2 (EUR 298.1) assets are not available to participating employers as the assets million and assets to EUR 318.8 (EUR 281.6) million, leaving a net actually belong to the insurance companies themselves. The assets liability of EUR 91.4 million at the year end, compared with a net are managed in accordance with EU regulations, and also national liability of EUR 16.5 million the year before. This increase in net liability requirements, under which there is an obligation to pay guaranteed arose from decrease in discount rate, implementation of new mortality benefits irrespective of market conditions. table and from change in other assumptions and experiences. As in Finland, the greater part of Swedish pension provision comes from Germany state pensions, especially for those with defined contribution schemes. German pension costs amounted to EUR 24.5 (EUR 25.7) million, of Stora Enso has undertaken to pay over all local legal pension liabilities which EUR 12.3 (EUR 12.3) million related to defined contribution for the main ITP scheme to the foundation, thus the remaining liability schemes and EUR 12.2 (EUR 13.4) million to defined benefits. The total relates to other small schemes. defined benefit obligation is EUR 289.0 (EUR 261.0) million, nearly all of which is unfunded as total assets come to only EUR 6.3 (EUR 5.8) The long-term investment return target for the foundation is a 3% real million. Defined benefit pension plans are mainly accounted for in the return after tax, with investment policy defining long-term strategic Statement of Financial Position through book reserves with some minor allocation targets as property up to 10%, equity up to 30%, alternative plans using insurance companies or independent trustees. Retirement investments up to 10% and the balance in debt. benefits are based on years worked and salaries received during the pensionable service, the commencement of pension payments

90 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Other Countries Obligations were material only in the United Kingdom, at EUR 121.5 1 Total defined benefit obligations in the remaining countries amounted (EUR 107.5) million and assets at EUR 114.0 (EUR 107.5) million, 2 to EUR 176.4 (EUR 156.9) million, the assets to EUR 133.3 (EUR leaving a net liability of EUR 7.5 (EUR -) million. 3 126.7) million, so the net liability came to EUR 43.1 (EUR 32.1) million. 4 5 Pension and Post-Employment Benefit Provisions 6 As at 31 December EUR million 2012 2011 7 Defined benefit pension plan liabilities 439.9 312.8 8 Other post-employment benefit liabilities 21.7 20.3 9 Total Balance Sheet Liabilities 461.6 333.1 10 Defined benefit plan assets (Note 16) - 2.4 11 Net Defined Benefit Liability 461.6 330.7 12 13 14 Statement of Financial Position Receivables and Payables As at 31 December 15 Net Defined Benefit Plan Liability Defined Benefit Plan Assets Defined Benefit Plan Liabilities 16 EUR million 2012 2011 2010 2009 2008 2012 2011 2010 2009 2008 2012 2011 2010 2009 2008 17 Present value of funded obligations 963.4 807.0 760.3 686.9 645.0 0.5 280.2 258.5 207.7 178.1 962.9 526.8 501.8 479.2 466.9 18 Present value of unfunded 19 obligations 326.2 296.0 287.4 267.8 242.7 - - - - - 326.2 296.0 287.4 267.8 242.7 20 Defined Benefit Obligations (DBO) 1 289.6 1 103.0 1 047.7 954.7 887.7 0.5 280.2 258.5 207.7 178.1 1 289.1 822.8 789.2 747.0 709.6 21 Fair value of plan assets 827.4 773.5 743.1 668.2 591.7 0.5 282.6 275.3 226.2 181.1 826.9 490.9 467.8 442.0 410.6 22 Effect of asset ceiling - 1.9 ------1.9 - - - 23 Net Funding in Defined Benefit Plans 462.2 331.4 304.6 286.5 296.0 - -2.4 -16.8 -18.5 -3.0 462.2 333.8 321.4 305.0 299.0 24 Unrecognised prior service 25 costs -0.6 -0.7 -1.0 ------0.6 -0.7 -1.0 - - 26 (Asset)/Liability 461.6 330.7 303.6 286.5 296.0 - -2.4 -16.8 -18.5 -3.0 461.6 333.1 320.5 305.0 299.0 27 28

Amounts Recognised on the Statement of Financial Position – Defined Benefit Plans 29 As at 31 December 30 Total Defined Benefit Plans Defined Benefit Pension Plans Other Post-Employment Benefits 31 EUR million 2012 2011 2012 2011 2012 2011 32 Present value of funded obligations 963.4 807.0 963.4 807.0 - - 33 Present value of unfunded obligations 326.2 296.0 303.9 275.0 22.3 21.0 Defined Benefit Obligations (DBO) 1 289.6 1 103.0 1 267.3 1 082.0 22.3 21.0 Fair value of plan assets 827.4 773.5 827.4 773.5 - - Effect of asset ceiling - 1.9 - 1.9 - - Net Liability in Defined Benefit Plans 462.2 331.4 439.9 310.4 22.3 21.0 Unrecognised prior service costs -0.6 -0.7 - - -0.6 -0.7 Net Liability 461.6 330.7 439.9 310.4 21.7 20.3

Stora Enso Financial Report 2012 91 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Amounts Recognised in the Income Statement Year Ended 31 December Total Defined Benefit Plans Defined Benefit Pension Plans Other Post-Employment Benefits EUR million 2012 2011 2012 2011 2012 2011 Current service cost 10.2 9.7 9.3 8.6 0.9 1.1 Interest cost 43.9 45.8 43.1 45.0 0.8 0.8 Expected return on plan assets -34.9 -37.9 -34.9 -37.9 - - Past service cost recognised in the year 0.2 0.4 - 0.2 0.2 0.2 Other -1.7 - - - -1.7 - Total Included in Personnel Expenses 17.7 18.0 17.5 15.9 0.2 2.1

Defined Benefit Plan Asset Reconciliation Total Defined Benefit Plan Asset EUR million 2012 2011 Benefit plan asset at 1 January 2.4 16.8 Translation difference 0.1 0.3 Net expense in Income Statement - 2.7 Actuarial gain (losses) -0.1 -31.4 Contributions paid - 14.0 Reclassification -2.4 - Benefit Plan Asset of Financial Position - 2.4

Defined Benefit Plan Reconciliation As at 31 December Total Defined Benefit Plans Defined Benefit Pension Plans Other Post-Employment Benefits EUR million 2012 2011 2012 2011 2012 2011 Net liability at 1 January 330.7 303.6 310.4 285.7 20.3 17.9 Translation difference 0.4 -0.3 0.4 -0.3 - - Net expense in Income Statement 17.7 18.0 17.5 15.9 0.2 2.1 Actuarial losses recognised in equity 167.3 55.8 164.9 53.9 2.4 1.9 Contributions paid -54.5 -46.4 -53.3 -44.8 -1.2 -1.6 Net Liability of Financial Position 461.6 330.7 439.9 310.4 21.7 20.3

92 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

1 Statement of Financial Position Actuarial Losses Recognised in Equity As at 31 December 2 EUR million 2012 2011 3 Actuarial losses in equity at 1 January -202.7 -145.9 4 Actuarial losses recognised in equity -171.6 -53.9 5 Loss due to change in asset ceiling 4.3 -1.9 6 Translation difference -2.2 -1.0 Cumulative Actuarial Losses Recognised in Equity -372.2 -202.7 7 8 9 Statement of Actuarial Gains and Losses 10 Year Ended 31 December 11 EUR million 2012 2011 2010 2009 2008 12 Gain / loss on pension scheme assets Amount 16.4 9.9 40.5 45.8 -78.1 13 Percentage of scheme assets 2.0% 1.3% 5.5% 6.9% -13.2% 14 Loss / gain arising on pension scheme liabilities 15 Amount -188.0 -63.8 -73.0 -66.2 65.4 16 Percentage of liabilities 14.6% 5.8% 7.0% 6.9% -7.4% 17 Gain / loss due to change in asset ceiling 4.3 -1.9 - - - 18 Total Losses -167.3 -55.8 -32.5 -20.4 -12.7 19 20 Defined Benefit Plans: Country Assumptions Used in Calculating Benefit Obligations 21

Year Ended 31 December 22 Finland Germany Sweden 23 2012 2011 2012 2011 2012 2011 24 Discount rate % 3.25 4.25 3.25 4.25 3.0 3.50 25 Expected return on plan assets % 3.25 4.25 4.50 4.50 5.00 5.00 26 Future salary increase % 3.5 3.5 2.5 2.5 3.0 3.0 Future pension increase % 2.1 2.1 2.0 2.0 2.0 2.0 27 Average current retirement age 63.8 63.8 63.0 65.0 65.0 64.9 28 Weighted average life expectancy 88.60 88.00 85.00 85.00 88.70 87.00 29 30 31 Return on Plan Assets by Country 32 Year Ended 31 December 2012 EUR million Finland Germany Sweden Other Total 33 Actual return on plan assets 28.3 0.2 19.5 3.3 51.3 Estimated return used in actuarial calculations 14.7 0.3 14.8 5.1 34.9 Actuarial Gain / Loss for the Year Recognised in Equity 13.6 -0.1 4.7 -1.8 16.4

Year Ended 31 December 2011 EUR million Finland Germany Sweden Other Total Actual return on plan assets 33.5 0.1 5.7 8.5 47.8 Estimated return used in actuarial calculations 15.5 0.2 16.3 5.9 37.9 Actuarial Gain / Loss for the Year Recognised in Equity 18.0 -0.1 -10.6 2.6 9.9

Stora Enso Financial Report 2012 93 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Defined Benefit Plan Summary by Country as at 31 December 2012

As at 31 December 2012 EUR million Finland Germany Sweden Other Total Present value of funded obligations 414.0 14.6 388.4 146.4 963.4 Present value of unfunded obligations - 274.4 21.8 30.0 326.2 Defined Benefit Obligations (DBO) 414.0 289.0 410.2 176.4 1 289.6 Fair value of plan assets 369.0 6.3 318.8 133.3 827.4 Effect of asset ceiling - - - - - Net liability in the Defined benefit plans 45.0 282.7 91.4 43.1 462.2 Unrecognised prior service costs - - - -0.6 -0.6 Net Liability in the Balance Sheet 45.0 282.7 91.4 42.5 461.6

Represented by Defined benefit pension plans 45.0 282.7 91.4 20.8 439.9 Other post-employment benefits - - - 21.7 21.7 Net Liability in the Balance Sheet 45.0 282.7 91.4 42.5 461.6

Defined Benefit Plan Summary by Country as at 31 December 2011 As at 31 December 2011 EUR million Finland Germany Sweden Other Total Present value of funded obligations 387.0 12.0 279.4 128.6 807.0 Present value of unfunded obligations - 249.0 18.7 28.3 296.0 Defined Benefit Obligations (DBO) 387.0 261.0 298.1 156.9 1 103.0 Fair value of plan assets 359.4 5.8 281.6 126.7 773.5 Effect of asset ceiling - - - 1.9 1.9 Net liability in the Defined benefit plans 27.6 255.2 16.5 32.1 331.4 Unrecognised prior service costs - - - -0.7 -0.7 Net Liability in the Balance Sheet 27.6 255.2 16.5 31.4 330.7

Represented by Defined benefit pension plans 27.6 255.2 16.5 11.1 310.4 Other post-employment benefits - - - 20.3 20.3 Net Liability in the Balance Sheet 27.6 255.2 16.5 31.4 330.7

94 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

The two main financial factors affecting Group pension liabilities are underlying current investment policies in Group pension foundations 1 changes in interest rates and inflation expectations, so the aim of asset and trusts. The assumptions reflect a combination of historical 2 investment allocations is to neutralise these effects and maximise performance analysis and the forward-looking views of financial 3 returns. The expected return on plan assets was determined by markets as revealed through the yield on long-term bonds and price- 4 considering the long-term expected returns available on the assets earnings ratios of the major stock indices. 5 6 7 Plan Assets As at 31 December 8 2012 2011 9 EUR million Value % Value % 10 Equity 243.3 29.4 209.6 27.1 11 Debt 389.7 47.1 402.2 52.0 12 Property 67.0 8.1 70.4 9.1 13 Cash 38.1 4.6 19.3 2.5 Others 89.3 10.8 72.0 9.3 14 Total Pension Fund Assets 827.4 100.0 773.5 100.0 15 16 Plan assets do not include any real estate or other assets occupied by the Group or the Company's own financial instruments. The breakdown of Finnish pension assets EUR 369.0 (359.4) million is not disclosed separately as actual asset allocations can only be estimated based on known target values 17 published by the insurance companies concerned. 18 19 In 2013 contributions of EUR 50.0 million are expected to be paid. 20 In 2012 contributions of EUR 54.5 (EUR 46.5) million were paid. 21 22 23 24 25 26 27 28 29 30 31 32 33

Stora Enso Financial Report 2012 95 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 22 Employee Variable Compensation and Equity Incentive Schemes

The majority of production employees are members of labour unions allocation of restricted shares under a separate Young Talent Award with which either the Group or the forest industry customarily negotiate programme to a maximum of 100 young talents in the Company. collective bargaining agreements in Europe. Salaries for senior management are negotiated individually. Stora Enso has incentive Option programmes for management plans that take into account the performance, development and results (1999 to 2007) of both business units and individual employees. This performance- The Group has an option programme, but the last options granted based variable compensation system is based on profitability as well under this programme were granted in 2007 and there is currently as on attaining key business targets. no intention to issue any in the future. The seven-year programmes consist of financially hedged options and synthetic options with strike Short Term Incentive (STI) programmes prices set at levels representing current market prices at issue plus Group Executives, Business Area and Business Unit management have 10% premiums. The synthetic options are hedged by TRS that are STI programmes in which the payment is calculated as a percentage settled with cash payments allowing the Company to receive cash of annual basic salary with a maximum level ranging from 7% to 75%. compensation to partially offset any change in the share price between Non-management employees participate in a STI programme with the grant and settlement dates. Depending on local circumstances, a maximum incentive level of 7%. All incentives are discretionary. option holders have the choice of receiving either a payment in cash These performance-based programmes cover approximately 95% of representing the difference between the strike price and the share price employees globally, where allowed by local practice and regulations. at the time of exercise or an option to purchase existing R shares. If For performance year 2012 the annual incentive programmes were an employee chooses the option to purchase existing R shares, the based on financial targets and individually set key targets. Company first purchases in the market the relevant number of R shares and then transfers them to the employee, thus avoiding any dilution Long Term Incentive (LTI) programmes in the number of shares in issue. Options are not transferable and Starting in 2004 the Board approved the implementation of two share- expire if the employee leaves the Group. During the year no options based programmes (Restrictive and Performance Share Programmes) were exercised as the share price remained below the relevant strike to complement and partially replace the existing option programme. prices; 1 882 750 options from the 2005 scheme lapsed in 2012 and From 2005 to 2012 new share-based programmes have been launched 1 263 500 options from the 2006 scheme lapse on 28 February 2013. each year. Since 2009 new long-term incentive programmes for executives have been mainly performance share programmes. The Performance Share Plans are vesting in portions over a three-year period. The performance target is set annually by the Remuneration Committee. The programmes launched between 2009 and 2011 have a maximum vesting potential of 150% of the number of shares awarded, provided the performance criteria exceed the target. In the Performance Share programme launched in 2012, the absolute maximum vesting level was changed to 100% of the number of shares awarded. In 2010 and 2011 the Board also approved an annual

Option/Synthetic Option Programmes at 31 December 2012

Number of Number of Number of Number of Year of Strike Price Number Options Options Options Options Exercise Option Programme Issue Base Period Strike Price of Staff Issued Cancelled2) Exercised Outstanding Period 8 Feb 1 Mar 2010 2007 Synthetic 2007 14 Feb EUR 14.00 731 1 406 596 510 800 - 895 796 28 Feb 2014 3 Feb 1 Mar 2009 2006 Synthetic 2006 10 Feb EUR 12.46/13.321) 744 2 161 000 897 500 - 1 263 500 28 Feb 2013

1) Strike price of options granted to new CEO upon his appointment. 2) Includes options associated with divestment of SENA.

96 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

The fair value of employee services received in exchange for cash- At the year end, there were 2 159 296 (4 082 421) synthetic options 1 settled synthetic options and share awards is recognised at the fair outstanding, of which 2 159 296 (4 082 421) options were exercisable. 2 value of the liability incurred and expensed rateably over the vesting The strike price for the outstanding options was within the range EUR 3 period. The synthetic option liability is remeasured at each reporting 12.46 to EUR 14.00, with the weighted average strike price being EUR 4 date to its fair value using estimates of the number of options that are 13.16 (12.72) and a weighted average remaining contractual right of 5 expected to become exercisable and the latest fair valuations using the 0.6 (0.9) years. No options have been granted since 2007. 6 Black and Scholes model, with all changes recognised in the Income 7 Statement. The liability for share awards is also remeasured at each The fair values of the restricted and performance share awards have 8 reporting date to its fair value using estimates of the number of share been calculated using year end closing prices of Stora Enso R shares. 9 awards that are expected to be issued and the latest fair valuations by The outstanding restricted and performance share awards are shown 10 using the Stora Enso R share closing price EUR 5.25 (EUR 4.63) with below. all changes recognised in the Income Statement. 11 12 Share Awards at 31 December 2012 13 Projected Delivery of Outstanding Restricted and 14 Performance Share Awards at Year End Number of shares 2013 2014 2015 Total 15 2008 programme 74 000 - - 74 000 16 2009 programme 16 750 16 750 - 33 500 17 2010 programme 416 851 - - 416 851 18 2011 programme 362 540 427 541 70 000 860 081 19 2012 programme 1 054 003 790 503 790 503 2 635 009 20 Total 1 924 144 1 234 794 860 503 4 019 441 21

The costs of the Stora Enso Synthetic Option and Share-based instruments allow the Group to partially stabilise future cash flows related 22 Programmes are recognised as costs over the vesting period, being to the settlement of outstanding synthetic options, the Group pays for 23 the period between grant and right to exercise or award. The fair them as and when exercised and therefore they contain certain market 24 valuation and vesting impact of share-based programmes amounted to risks such as when the Company’s share price is below the option strike 25 a gain of EUR 0.9 (EUR 26.6) million. Synthetic options accounted for price. For this reason the movements on TRS and the option liability do 26 a gain of EUR 0.1 (EUR 1.3) million and the restricted and performance not match on a year-to-year basis, Group TRS instruments do not qualify 27 share awards amounted to a gain of EUR 0.8 (EUR 25.3) million. The for hedge accounting and therefore periodic changes to their fair value 28 year end liability of EUR 3.8 (EUR 4.7) million is shown in Non-current are recorded in the Income Statement in operative costs alongside the 29 Operative Liabilities of which EUR 0.0 (EUR 0.1) million relates to share-based programme costs to which they relate. 30 synthetic options and EUR 3.8 (EUR 4.6) million to the restricted and 31 performance share awards. No options were cashed in 2011 or 2012. At the year end there were TRS instruments outstanding covering 32 The actual cash cost for the restricted and performance share awards 10 960 672 (10 960 672) underlying Stora Enso Oyj R shares recorded totalled EUR 2.9 (EUR 28.4) million. at a net fair value asset of EUR 2.6 (liability EUR 22.6) million. The 33 change from a net liability of EUR 22.6 million to a net asset of EUR 2.6 Stora Enso utilises TRS to partially hedge exposures to changes in the million is due to a cash payment of EUR 16.1 million and a fair value share price of synthetic options granted under the Option Programmes increase of EUR 9.1 million due to the increase in share price from for Management which are settled with cash payments. While these TRS EUR 4.63 at 31 December 2011 to EUR 5.25 at 31 December 2012.

Stora Enso Financial Report 2012 97 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 23 Other Provisions

Other Provisions

EUR million Environmental Restructuring Other Obligatory Total Provisions Carrying Value at 1 January 2012 125.9 79.7 144.0 349.6 Translation difference 3.7 1.4 -1.6 3.5 Charge in Income Statement New provisions 0.2 62.7 6.9 69.8 Increase in existing provisions 2.8 6.4 1.7 10.9 Reversal of existing provisions -9.1 -9.3 -30.6 -49.0 Payments -9.9 -45.4 -116.0 -171.3 Carrying Value at 31 December 2012 113.6 95.5 4.4 213.5

Allocation between Current and Non-current Liabilities

Current liabilities: Payable within 12 months 6.2 64.9 0.4 71.5 Non-current liabilities: Payable after 12 months 107.4 30.6 4.0 142.0 Total at 31 December 2012 113.6 95.5 4.4 213.5

Environmental remediation amounted to EUR 9.9 (EUR 10.0) million. Other provisions include Provisions for environmental remediation amounted to EUR 113.6 EUR 1.2 (EUR 1.0) million related to pollution in the vicinity of million at 31 December 2012, a decrease of EUR 12.3 million compared Pateniemi Sawmill and two provisions related to the sites of closed with 31 December 2011. mills: EUR 1.6 (EUR 2.3) million related to the former Kemijärvi Pulp Mill and EUR 1.1 (EUR 1.2) million related to the site of the former Details of the principal provisions are: Summa Mill. Other environmental provisions in Finland amounted • Following an agreement between Stora Enso and the City of Falun, to EUR 0.8 million. the Group is obliged to purify runoff from the Kopparberg mine • Stora Enso Pulp AB has been removing mercury from the harbour before releasing the water into the environment. The provision at basin at Skutskär for a number of years in co-operation with the year end amounted to EUR 47.0 (EUR 45.4) million. local authorities. In addition, the Company is obliged to upgrade • The site adjacent to Skoghall Mill contains ground pollutants that an old landfill previously used by the mill to comply with revised must be removed. The provision at the year end amounted to EUR environmental regulations. At the year end Stora Enso Pulp AB had 19.6 (EUR 19.2) million. environmental provisions of EUR 12.7 (EUR 21.6) million. • The total environmental provision in Finland amounted to EUR 14.6 • EUR 6.5 (EUR 7.5) million of remaining environmental provision (EUR 17.6) million. The largest provision relates to the permanent relates mainly to landfills that were not disposed of as a part of the closure of newsprint operations at Varkaus during 2010 and disposal of Baienfurt Mill real estate in Germany during 2010.

98 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Restructuring provisions In 2011 the Group announced restructuring provisions related to 1 The Group has undergone major restructuring in recent years, restructuring measures in logistics, reorganisation in the Fine Paper 2 from divestments to mill closures and administrative cost-saving Business Area and permanent closure of Kopparfors Sawmill and its 3 programmes. New restructuring provisions for the year amounted to pellet mill in Sweden. 4 EUR 62.7 million, the main item being restructuring provisions related 5 to restructuring measures at Hylte Mill in Sweden amounting to EUR The liability at the end of 2012 for restructuring provisions amounted 6 24.7 million. to EUR 95.5 (EUR 79.7) million and covered the costs of closing down 7 operations, demolition, clearance and redundancy costs for reducing 8 In October 2012 Stora Enso announced the permanent shutdown of staff numbers. 9 paper machine (PM) 1 at Hylte Mill in Sweden with annual capacity 10 180 000 tonnes of newsprint by the end of the fourth quarter of Details of fixed asset impairments relating to restructuring provisions 2012 due to structural weakening of newsprint demand in Europe. are in Note 11 Depreciation and Fixed Asset Impairment Charges. 11 The planned closure and other efficiency improvements would 12 affect approximately 140 employees at Hylte Mill. In addition to the Other obligatory provisions 13 permanent shutdown of PM 1, in 2012 Stora Enso announced other Other obligatory provisions amounted to EUR 4.4 million at 31 14 restructuring measures at Hylte Mill. The restructuring provisions at December 2012, a decrease of EUR 139.6 million compared with 15 the year end amounted to EUR 23.5 million. 31 December 2011. The net change in existing provisions resulted 16 in a reversal of EUR 28.9 million. The main item is the reversal of the 17 In 2012 Stora Enso also announced other restructuring measures in existing provision related to NewPage’s Stevens Point Mill PM 35 lease 18 all Business Areas mainly related to restructuring and streamlining guarantee that amounted to EUR 23.1 million provision reversals. The 19 operations, and efficiency improvements. New restructuring provisions total cash payments made during the year totalled EUR 116.0 million, 20 by Business Areas were: Printing and Reading EUR 36.5 million the main item being the payments related to NewPage’s Stevens Point 21 (including Hylte as detailed above), Renewable Packaging EUR 18.3 Mill PM 35 lease guarantee. The NewPage provision has been fully million, Biomaterials EUR 5.0 million, Other EUR 1.7 million and settled and the payments during 2012 amounted to EUR 112.7 million. 22 Building and Living EUR 1.2 million. The NewPage provision has been presented as a current interest- 23 bearing liability in the 2011 Statement of Financial Position and full 24 The total cash payments made during the year in respect of established details of the provision are discussed in Note 8 Net Financial Items. 25 restructuring provisions amounted to EUR 45.4 million. 26 27 28 29 30 31 32 33

Stora Enso Financial Report 2012 99 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 24 Operative Liabilities

Non-Current Operative Liabilities As at 31 December EUR million 2012 2011 Post-employment benefit provisions (Note 21) 461.6 333.1 Other provisions (Note 23) 142.0 147.7 Accruals 0.9 22.9 Share-based payments (Note 22) 3.8 4.7 Other payables 7.0 4.3 Total 615.3 512.7

Current Operative Liabilities As at 31 December EUR million 2012 2011 Advances received 18.2 12.3 Trade payables 1 066.4 999.8 Other payables 95.2 129.2 Payroll and staff-related accruals 225.3 214.1 TRS Hedges - 22.6 Accrued liabilities and deferred income 209.0 236.4 Current portion of provisions 71.5 64.3 Total 1 685.6 1 678.7

100 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 25 Financial Risk Management

Risk management principles and process to be rolled over, thus being artificially prolonged from maturity to year 1 Stora Enso is exposed to several financial market risks that the Group end using the new higher interest rate. 2 is responsible for managing under policies approved by the Board of 3 Directors. The objective is to have cost-effective funding in Group The total Group floating rate net interest-bearing liability position, 4 companies and manage financial risks using financial instruments to excluding cash and cash equivalents but including floating legs of 5 decrease earnings volatility. The main exposures for the Group are interest rate swaps, is some EUR 1.3 (EUR 1.3) billion with an average 6 interest rate risk, currency risk, funding risk and commodity price risk, interest reset period of some 3.2 (1.5) months. The average interest reset 7 especially for fibre and energy. period for Group net interest-bearing liabilities, including all interest rate 8 derivatives but excluding cash and cash equivalents, is some 3.7 (3.1) 9 The Stora Enso Group Financial Risk Policy governs all financial years. A one percentage point parallel change up or down in interest 10 transactions in Stora Enso. This policy and any future amendments rates would also result in fair valuation gains or losses of some EUR 24.7 take effect when approved by the Board of Directors. All policies (EUR 23.6) million, presented under Other Financial Items, coming mainly 11 covering the use of financial instruments must comply. Stora Enso from interest rate swaps not qualifying for fair value hedge accounting. 12 Treasury Internal Risk Policy refines the guidance into more detailed Note 28 Derivatives summarises the nominal and fair values of the 13 instructions. The major financial market risks are detailed below. outstanding interest rate derivative contracts. 14 15 Interest rate risk Currency transaction risk 16 Fluctuations in interest rates affect the interest expense of the Group. As a The Group is exposed to currency risk arising from exchange rate 17 result of the cyclical nature of the economy, the Group has an interest rate fluctuations against its reporting currency euro. Currency transaction 18 risk policy of synchronising interest costs with earnings over the business risk is the impact of exchange rate fluctuations on the Group Income 19 cycle by swapping long-term fixed interest rates to short-term floating Statement, which is the effect of currency rates on expected future 20 interest rates. The Group’s duration benchmark is 12 months, though cash flows. The Group policy to mitigate this is to hedge 50% of the 21 the Treasury has a deviation mandate of between 3 and 24 months. The forecast major currency cash flows for 12 months. duration can be extended to 48 months with approval from the CFO. 22 The principal foreign exchange transaction exposure comprises both 23 As of 31 December 2012, a one percentage point parallel change up or the geographical location of Stora Enso production facilities and 24 down in interest rates impacts annual net interest expenses by EUR 10 the sourcing of raw material and sales outside the euro area, mainly 25 (EUR 11) million, assuming that the duration and the funding structure denominated in Swedish krona, US dollars and British pounds sterling. 26 of the Group stays constant during the year. This simulation calculates The table below shows the net operating cash flow by currency in 27 the interest effect of a 100 basis point parallel shift in interest rates on all 2012, the estimated net cash flow exposure for the next 12 months 28 floating rate instruments from their next reset date to the end of the year. and the transaction hedges in place as at 31 December 2012. 29 In addition, all short-term loans maturing during the year are assumed 30 31 Transaction Risk and Hedges in Main Currencies: 2012 32 As at 31 December EUR million EUR USD SEK GBP Other Total 33 Sales during 2012 6 250 1 540 1 240 650 1 135 10 815 Costs during 2012 -5 490 -580 -2 330 -120 -1 182 -9 702 Net Operating Flow 760 960 -1 090 530 -47 1 113

Estimated annual net operating cash flow exposure 1 030 -930 600 Transaction hedges as at 31 December 2012 -530 470 -270 Hedging Percentage as at 31 December 2012 for the next 12 months 51% 51% 45%

Additional GBP hedges for 13–15 months increase the hedging percentages by 3%.

Stora Enso Financial Report 2012 101 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Transaction Risk and Hedges in Main Currencies: 2011 As at 31 December EUR million EUR USD SEK GBP Other Total Sales in 2011 6 470 1 500 1 280 660 1 050 10 960 Costs in 2011 -5 730 -560 -2 280 -90 -1 090 -9 750 Net Operating Flow 740 940 -1 000 570 -40 1 210

Estimated annual net operating cash flow exposure 1 200 -870 600 Transaction hedges as at 31 December 2011 -540 380 -270 Hedging Percentage as at 31 December 2011 for the next 12 months 45% 44% 45%

Additional USD and GBP hedges for 13–16 months increase the hedging percentages by 7% and 4% respectively.

The table below shows the estimated effect on annual EBITDA of effects with an impact on prices and product flows, such as a product a 10% change up or down in the euro and Swedish krona value becoming cheaper to produce elsewhere, have not been considered in against the US dollar and British pound, measured against year end this calculation. The estimated currency effects are based on realised closing rates. The calculation is made net of currency cash flow flows from operations in 2011 and 2012, hedging levels at the year end hedges and assumes that no changes other than a single currency and the assumption that the currency cash flow hedging levels and exchange rate movement have taken place. In addition, as Swedish structures have stayed constant during the year. Hedging instruments mills have substantial sales invoiced in euros, the annual impact of a include foreign exchange forward contracts and foreign exchange change in SEK/EUR rates has been evaluated as well. Indirect currency options.

Annual EBITDA: Estimated Currency Effects As at 31 December 2012 As at 31 December 2011 Before Hedges Hedges Net Impact Before Hedges Hedges Net Impact EUR million 10% -10% 10% -10% 10% -10% 10% -10% 10% -10% 10% -10% 10% change in the EUR/USD rate -50 +60 +25 -10 -25 +50 -50 +60 - -35 -50 +25 10% change in the EUR/GBP rate -35 +45 +10 -15 -25 +30 -40 +45 +5 -20 -35 +25 10% change in the SEK/USD rate -35 +45 +20 -5 -15 +40 -40 +45 +5 -15 -35 +30 10% change in the SEK/GBP rate -15 +15 +5 -10 -10 +5 -10 +15 +5 -5 -5 +10 10% change in the SEK/EUR rate -65 +80 +30 -40 -35 +40 -75 +90 +30 -20 -45 +70

If the euro and Swedish krona moved up or down by 10% against Reserve. It is estimated that if the euro and Swedish krona had moved the US dollar and British pound in reference to trade receivables and by 10% against the US dollar and British pound, the OCI Hedging payables, with all other variables held constant, EBITDA for the year Reserve before taxes at the reporting date would have been some would change by some EUR 15 (EUR 18) million, mainly as a result EUR 82 (EUR 93) million different as a result of a one-time revaluation of foreign exchange gains and losses on the one-time retranslation of outstanding cash flow hedge accounted currency derivatives with of US-dollar-denominated trade receivables. There is a currency EUR 53 (EUR 63) million coming from US dollar hedges and EUR 29 breakdown of short-term operative receivables in Note 18 Receivables. (EUR 30) million coming from British pound hedges. The estimate assumes all other variables remained constant, such as the time-value The majority of derivatives that hedge forecasted foreign currency sales of the option hedges and the interest rate component of the forward and costs qualify for hedge accounting and therefore their fair value contracts. The corresponding nominal hedging levels in currencies changes are presented in Shareholder’s Equity under OCI: Hedging were USD 694 (USD 809) million and GBP 239 (GBP 249) million.

102 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Currency translation risk 1 Translation risk is the danger that fluctuations in exchange rates will prevailing at the reporting date, thus exposing consolidated Group 2 affect the value of Stora Enso’s net foreign currency denominated equity to fluctuations in currency rates. The resulting translation 3 assets and liabilities. Translation risk is reduced by funding assets, differences, along with other movements such as the translation 4 whenever economically possible, in the same currency as the asset. rate difference in the Income Statement, are recorded directly in 5 Shareholders’ Equity, though these cumulative differences materialise 6 The Statements of Financial Position of foreign subsidiaries, equity through the Income Statement on the disposal, in whole or in part, of 7 accounted investments and foreign currency denominated available- the foreign entity. The next table shows the translation exposure on 8 for-sale investments are translated into euros using exchange rates equity before and after hedges. 9 10 Translation Risk and Hedges: 2012 11 As at 31 December 12 Euro USD Czech 13 EUR million area area3) Sweden Republic Poland Brazil Other Total Capital employed, excluding equity accounted 14 investments 3 584 18 1 630 129 469 165 674 6 669 15 Equity accounted investments 189 513 708 - - 555 - 1 965 16 Net interest-bearing liabilities -1 010 -2 -1 290 4 -162 47 -344 -2 757 Non-controlling interests -3 - -3 - -1 -26 -59 -92 17 Translation Exposure on Equity 2 760 529 1 045 133 306 741 271 5 785 18 19 EUR/CZK1) 70 - - -70 - - - - EUR/SEK2) 542 - -542 - - - - - 20 Translation Exposure after Hedges 3 372 529 503 63 306 741 271 5 785 21 22 1) Foreign exchange forward contracts classified as hedges of investments in foreign assets. 2) SEK denominated bonds classified as hedges of investments in foreign assets. 23 3) Includes the equity accounted investment Montes del Plata in Uruguay, which has USD as its functional currency. 24 Translation Risk and Hedges: 2011 25 As at 31 December 26 Euro USD Czech EUR million area area3) Sweden Republic Poland Brazil Other Total 27 Capital employed, excluding equity accounted 28 investments 3 720 19 1 654 123 278 166 833 6 793 Equity accounted investments 207 446 644 - 1 615 - 1 913 29 Net interest-bearing liabilities -1 466 -11 -926 11 -13 34 -375 -2 746 30 Non-controlling interests -3 - -2 - -1 -22 -59 -87 31 Translation Exposure on Equity 2 458 454 1 370 134 265 793 399 5 873 32

EUR/CZK1) 68 - - -68 - - - - 33 EUR/SEK2) 449 - -449 - - - - - Translation Exposure after Hedges 2 975 454 921 66 265 793 399 5 873

1) Foreign exchange forward contracts classified as hedges of investments in foreign assets. 2) SEK denominated bonds classified as hedges of investments in foreign assets. 3) Includes the equity accounted investment Montes del Plata in Uruguay, which has USD as its functional currency.

Stora Enso Financial Report 2012 103 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

The table below shows the effect on consolidated equity of a +/- 10% the calculations are the foreign currency denominated equity and the change in the value of the euro against the US dollar, Swedish krona hedging levels at 31 December. The hedging instruments are foreign and Brazilian real at 31 December. The calculation includes the effects currency forward contracts, currency options and foreign currency of currency hedges of net investments in foreign entities and assumes denominated borrowings. Full details of actual CTA movements and that no changes take place other than a single currency exchange hedging results are given in Note 29 Cumulative Translation Adjustment rate movement on 31 December each year. The exposures used in and Equity Hedging.

Consolidated Equity: Currency Effects before Tax of a +/- 10% Movement

As at 31 December 2012 As at 31 December 2011 EUR million Before Hedges Hedges Net Impact Before Hedges Hedges Net Impact 10% change in the EUR/SEK rate 105 54 51 137 45 92 10% change in the EUR/USD rate 53 - 53 45 - 45 10% change in the EUR/BRL rate 74 - 74 79 - 79 Total Effect from Above 232 54 178 261 45 216

Liquidity and refinancing risk current portion of long-term debt, commercial paper borrowings and Funding risk arises from the difficulty of obtaining finance for operations other uncommitted short-term loans. at a given point in time. Stora Enso’s funding policy states that the average maturity of outstanding loans and committed credit facilities Refinancing risk, or the risk that maturing debt could not be refinanced covering short-term borrowings should be at least four years and not in the market, is mitigated by Stora Enso’s target of maintaining an even more than seven years. The policy further states that the Group must maturity profile of outstanding debt. The following table summarises have committed credit facilities to cover planned funding needs, the the repayment schedule of long-term debt.

Repayment Schedule of Non-current Debt: 2012 As at 31 December EUR million 2013 2014 2015 2016 2017 2018+ Total Bond loans 50.0 375.7 511.0 795.8 314.5 1 329.6 3 376.6 Loans from credit institutions 70.8 202.4 60.1 56.9 233.8 164.0 788.0 Financial lease liabilities 22.3 7.9 7.8 6.8 27.4 27.2 99.4 Other non-current liabilities 37.9 45.5 59.7 52.5 29.0 31.6 256.2 Fair value of derivatives hedging debt - - 2.1 - - - 2.1 Total Non-current Debt 181.0 631.5 640.7 912.0 604.7 1 552.4 4 522.3

Current Liabilities: Repayable within Next 12 Months 181.0 Non-current Liabilities: Repayable after 12 Months 4 341.3

Repayment Schedule of Non-current Debt: 2011

As at 31 December EUR million 2012 2013 2014 2015 2016 2017+ Total Bond loans 50.0 - 727.9 492.8 808.3 341.8 2 420.8 Loans from credit institutions 135.6 70.2 187.5 39.6 58.4 248.2 739.5 Financial lease liabilities 7.3 21.4 7.5 7.6 6.6 54.7 105.1 Other non-current liabilities 57.4 46.4 39.5 63.7 57.5 58.7 323.2 Fair value of derivatives hedging debt -0.3 - - 1.1 - - 0.8 Total Non-current Debt 250.0 138.0 962.4 604.8 930.8 703.4 3 589.4

Current Liabilities: Repayable within Next 12 Months 250.0 Non-current Liabilities: Repayable after 12 Months 3 339.4

104 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

The table below shows Group contractual undiscounted interest- maturity at the reporting date. Forward rates were used at point of 1 bearing financial liabilities, to be settled on a net cash basis, classified estimation for contractual finance charges. 2 under principal headings based on the remaining period to contractual 3 4 Contractual Maturity Repayments of Interest-bearing Liabilities, Settlement Net: 2012 5 6 EUR million 1 Year 2 Years 3 Years 4 Years 5 Years 5 Years+ 7 Non-current debt, carrying amounts 181.0 631.5 640.7 912.0 604.7 1 552.4 Less fair value adjustments to carrying amounts - -4.3 -6.5 -29.4 0.7 8.5 8 Estimated contractual finance charges 222.9 217.7 171.1 134.9 94.7 421.5 9 Contractual Repayments on Non-Current Debt 403.9 844.9 805.3 1 017.5 700.1 1 982.4 10 Current interest-bearing liabilities, carrying amounts 331.8 - - - - - 11 Contractual finance charges 1.4 - - - - - 12 Bank overdrafts 4.5 - - - - - 13 Total Contractual Repayments at 31 December 2012 741.6 844.9 805.3 1 017.5 700.1 1 982.4 14 Contractual Maturity Repayments of Interest-bearing Liabilities, Settlement Net: 2011 15 16 EUR million 1 Year 2 Years 3 Years 4 Years 5 Years 5 Years+ 17 Non-current debt, carrying amounts 250.0 138.0 962.4 604.8 930.8 703.4 18 Less fair value adjustments to carrying amounts 0.1 - -25.5 -7.6 -35.2 7.1 19 Estimated contractual finance charges 195.6 166.4 167.5 108.4 75.9 357.1 Contractual Repayments on Non-Current Debt 445.7 304.4 1 104.4 705.6 971.5 1 067.6 20 Current interest-bearing liabilities, carrying amounts 537.3 - - - - - 21 Contractual finance charges 1.5 - - - - - 22 Bank overdrafts 4.5 - - - - - 23 Total Contractual Repayments at 31 December 2011 989.0 304.4 1 104.4 705.6 971.5 1 067.6 24 25 Financial transactions counterparty credit risk The following table shows the balance of major counterparties at the 26 Financial counterparty risk is Stora Enso’s exposure on financial reporting date using Standard and Poor’s credit rating symbols. 27 contracts arising from a deterioration in counterparties’ financial health. 28 This risk is minimised by: External Counterparty Exposure 29 • entering into transactions only with leading financial institutions and As at 31 December EUR million Rating 2012 2011 30 with industrial companies that have a high credit rating; Company A A- 38.9 40.9 31 • investing in liquid cash funds only with financially secure institutions Company B A+ 35.9 20.3 32 or companies; Company C A- 29.1 50.0 • requiring parent company guarantees when dealing with any 33 Company D A+ 7.0 - subsidiary of a rated company. Company E A 3.9 1.5 Company F A 3.6 20.8 Ratings for external counterparties should be above or equal to A- for banks and BBB for industrial companies dealing in commodities, On the divestment of merchant business Papyrus, part of the sales and ISDA or equivalents are signed with the counterparty. Any other consideration comprised a PIK Note issued by the Altor subsidiary counterparty not meeting the requirements presented above has to Papyrus Holding AB. The PIK Note was classified as an available-for- be approved by the CEO. sale investment in interest-bearing securities and had at year end a nominal value of EUR 89.5 million and a fair value of EUR 89.6 million. The valuation of this PIK Note requires management judgement, and hence it is subject to uncertainty. The valuation method is described in more detail in Note 15 Available-for-Sale Investments.

Stora Enso Financial Report 2012 105 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Raw material and energy price risk The Group has certain investments in publicly traded securities (Note Group earnings are exposed to commodity and energy price volatility. 15 Available-for-Sale Investments). The market value of these equity Financial energy hedges are part of the total energy price risk investments was EUR 6.3 (EUR 3.8) million at the year end. As of management in the Group, whilst commodity risks are measured and 31 December 2012 there were no outstanding financial derivative hedged if economically possible. A 10% movement in energy and raw contracts designated as hedges of investments in publicly traded material prices would result in a EUR 27.2 (EUR 23.5) million change companies. Market value changes in these investments are recorded, in the fair value of energy and raw material hedging contracts. The after taxes, directly under Shareholders’ Equity in the Available-for- majority of these fair value changes, after taxes, are recorded directly Sale Reserve. in Equity under Hedging Reserves, until the contracts mature and the result is entered in the Income Statement. These estimates represent Customer credit risk only the sensitivity of the financial instruments to market risk and not Customer credit risk is Stora Enso’s exposure to contracts arising from the Group exposure to raw material and energy price risks as a whole, deterioration in the financial health of customers. Credit insurance has since the actual purchases are not financial instruments within the been obtained for customers in the main market areas of Western scope of the IFRS 7 disclosure requirements. The maturities of the Europe, Canada and the USA when appropriate. In other market energy and commodity contracts are between one month and four areas, measures to reduce credit risks include letters of credit, years. In 2011 the maturities ranged from one month to five years. prepayments and bank guarantees. The Group has also obtained export guarantees, covering both political and commercial risks, which The greater part of Group energy price risk has been covered by are used in connection with individual customers outside the OECD entering into long-term physical fixed price purchase agreements. The area. Management considers that no significant concentration of credit Group also has a 14.8% holding, valued at EUR 440.5 (EUR 625.7) risk with any individual customer, counterparty or geographical region million, in PVO, a privately owned group of companies in the energy exists for Stora Enso. The Age Analysis of Trade Receivables is given sector. The value of these shares is dependent on energy prices and in Note 18 Receivables. discussed in more detail in Note 15 Available-for-Sale Investments. Capital risk management

In addition, in an effort to mitigate the other commodity risk exposures, Stora Enso’s debt structure is focused on capital markets, whereas the Group has major associate and joint venture interests in forest banks are primarily used to provide back-up facilities. Group objectives companies in Finland, Sweden, Brazil and Uruguay, thus if prices when managing capital are to safeguard the ability to continue as increase for fibre in these four countries, so do the profits from these a going concern in order to provide returns for shareholders and Group interests. benefits for other stakeholders, as well as to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or Share price risk adjust the capital structure, the Group may, subject to shareholder Stora Enso utilises TRS to partially hedge exposures to changes in the approval as appropriate, vary the dividend paid to shareholders, buy share price of synthetic options granted under the Option Programmes its own shares in the market, return capital to shareholders, issue new for Management (see Notes 6 Staff Costs and 22 Employee Variable shares or sell assets to reduce debt. Compensation and Equity Incentive Schemes), which are settled with cash payments. While these TRS instruments allow the Group The Group monitors its capital on the basis of a target debt-to-equity to partially stabilise future cash flows related to the settlement of ratio of 0.80 or less, indicating a strong financial position, and financial outstanding synthetic options, they result in certain market risks flexibility. Debt-to-equity ratios are shown below: relating to Group share price developments. Group TRS instruments do not qualify for hedge accounting, and periodic changes to their fair Capital Structure value are recorded in the Income Statement. As at 31 December EUR million 2012 2011 Interest-bearing liabilities 5 133.8 4 373.4 As of 31 December 2012 there were TRS instruments outstanding Interest-bearing assets 2 377.0 1 627.6 covering 10 960 672 (10 960 672) underlying Stora Enso Oyj R shares Interest-bearing Net Debt 2 756.8 2 745.8 recorded at a net fair value asset of EUR 2.6 (net liability EUR 22.6) Equity Attributable to million, as disclosed in Note 28 Derivatives. A 10% increase in the Owners of the Parent 5 784.5 5 872.7 share price of Ordinary R Shares would result in a gain in the net fair Debt / Equity Ratio 0.48 0.47 value of the TRS instruments of EUR 5.7 million, based on a closing share price at year end of EUR 5.25 (EUR 4.63) on NASDAQ OMX Helsinki.

106 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 26 Fair Values

Carrying Amounts of Financial Assets and Liabilities by Measurement Category: 2012 1 2 Carrying Financial Items at Available-for- Amounts 3 Loans and Fair Value through Hedging Sale Financial by Balance 4 EUR million Receivables Profit and Loss Derivatives Assets Sheet Item Fair Value Note Financial Assets 5 Available-for-sale - - - 546.5 546.5 546.5 15 6 Non-current loan receivables 134.2 - - - 134.2 150.7 18 7 Trade and other operative receivables 1 356.4 2.6 - - 1 359.0 1 359.0 18 8 Interest-bearing receivables 114.1 138.9 44.0 - 297.0 297.0 18 9 Cash and cash equivalents 1 849.9 - - - 1 849.9 1 849.9 Total 3 454.6 141.5 44.0 546.5 4 186.6 4 203.1 10 11 Carrying 12 Financial Items at Measured Amounts Fair Value through Hedging at Amortised by Balance 13 EUR million Profit and Loss Derivatives Cost Sheet Item Fair Value Note 14 Financial Liabilities 15 Non-current debt - 2.1 4 339.2 4 341.3 4 660.8 27 Current portion of non-current debt - - 181.0 181.0 181.0 27 16 Interest-bearing liabilities 167.1 24.0 415.9 607.0 607.0 27 17 Trade and other operative payables - - 1 291.7 1 291.7 1 291.7 24 18 Bank overdrafts - - 4.5 4.5 4.5 19 Total 167.1 26.1 6 232.3 6 425.5 6 745.0 20 21 Carrying Amounts of Financial Assets and Liabilities by Measurement Category: 2011 22 23 Carrying Financial Items at Available-for- Amounts 24 Loans and Fair Value through Hedging Sale Financial by Balance 25 EUR million Receivables Profit and Loss Derivatives Assets Sheet Item Fair Value Note Financial Assets 26 Available-for-sale - - - 722.2 722.2 722.2 15 27 Non-current loan receivables 125.3 - - - 125.3 140.5 18 28 Trade and other operative receivables 1 387.1 - - - 1 387.1 1 387.1 18 29 Interest-bearing receivables 86.5 160.2 34.8 - 281.5 281.5 18 30 Cash and cash equivalents 1 138.8 - - - 1 138.8 1 138.8 31 Total 2 737.7 160.2 34.8 722.2 3 654.9 3 670.1 32 Carrying 33 Financial Items at Amounts Fair Value through Hedging Measured at by Balance EUR million Profit and Loss Derivatives Amortised Cost Sheet Item Fair Value Note Financial Liabilities Non-current debt - 1.1 3 338.3 3 339.4 3 458.6 27 Current portion of non-current debt - -0.3 250.3 250.0 250.0 27 Interest-bearing liabilities 106.9 56.1 616.5 779.5 779.5 27 Trade and other operative payables 22.6 - 1 213.9 1 236.5 1 236.5 24 Bank overdrafts - - 4.5 4.5 4.5 Total 129.5 56.9 5 423.5 5 609.9 5 729.1

Stora Enso Financial Report 2012 107 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Fair Value Hierarchy • Level 3: techniques which use inputs which have a significant effect The Group uses the following hierarchy for determining and disclosing on the recorded fair values that are not based on observable market the fair value of financial instruments by valuation technique: data. • Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities; See Note 15 Available-for-Sale Investments for more information on • Level 2: other techniques for which all inputs which have a significant Level 3 fair value measurement of available-for-sale financial assets effect on the recorded fair value are observable, either directly or listed in the following table: indirectly;

Fair Value Measurements Recognised in the Statement of Financial Position: 2012

As at 31 December EUR million Level 1 Level 2 Level 3 Total Derivative Financial Assets Hedging derivatives - 44.0 - 44.0 Derivatives at fair value through profit and loss - 141.5 - 141.5

Available-for-Sale Financial Assets Listed securities 6.3 - - 6.3 Unlisted shares - - 450.6 450.6 Unlisted interest-bearing securities - - 89.6 89.6 Total 6.3 185.5 540.2 732.0

Derivative Financial Liabilities Hedging derivatives - 26.1 - 26.1 Derivatives at fair value through profit and loss - 167.1 - 167.1 Total - 193.2 - 193.2

Fair Value Measurements Recognised in the Statement of Financial Position: 2011

As at 31 December EUR million Level 1 Level 2 Level 3 Total Derivative Financial Assets Hedging derivatives - 34.8 - 34.8 Derivatives at fair value through profit and loss - 160.2 - 160.2

Available-for-Sale Financial Assets Listed securities 3.8 - - 3.8 Unlisted shares - - 640.2 640.2 Unlisted interest-bearing securities - - 78.2 78.2 Total 3.8 195.0 718.4 917.2

Derivative Financial Liabilities Hedging derivatives - 56.9 - 56.9 Derivatives at fair value through profit and loss - 129.5 - 129.5 Total - 186.4 - 186.4

108 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Reconciliation of Level 3 Fair Value Measurements of Financial Assets: 2012 1 2 Unlisted Interest-bearing 3 EUR million Unlisted Shares Securities Total 4 Opening balance at 1 January 2012 640.2 78.2 718.4 Writedowns recognised through income statement -8.0 - -8.0 5 Losses/Gains recognised in other comprehensive income -181.5 1.5 -180.0 6 Additions 0.3 - 0.3 7 Disposals -0.4 - -0.4 8 Interest capitalised - 9.9 9.9 9 Closing Balance at 31 December 2012 450.6 89.6 540.2 10 11 Reconciliation of Level 3 Fair Value Measurements of Financial Assets: 2011 12 Unlisted 13 Interest-bearing EUR million Unlisted Shares Securities Total 14 Opening balance at 1 January 2011 879.4 72.2 951.6 15 Writedowns recognised through income statement -3.2 - -3.2 16 Losses recognised in other comprehensive income -236.5 -1.4 -237.9 17 Additions 0.6 - 0.6 18 Disposals -0.1 -0.1 -0.2 Interest capitalised - 7.5 7.5 19 Closing Balance at 31 December 2011 640.2 78.2 718.4 20 21 22 23 24 25 26 27 28 29 30 31 32 33

Stora Enso Financial Report 2012 109 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 27 Debt

Non-current debt at 31 December 2012 amounted to EUR 4 522.3 million, In August 2012 the Group tapped its above-mentioned two five-year an increase of EUR 932.9 million from the previous year’s EUR 3 589.4 bonds with a total of SEK 1 000 million (EUR 119 million) under its EMTN million. Redemptions amounted to EUR 508.3 million, the main items being programme. The SEK 1 350 million bond was tapped with SEK 850 million EUR 354.6 million repurchases of Eurobond notes as described below, a paying a floating coupon of Stibor + 3.90% at a price of 100.866, bringing EUR 42.0 million repayment on a loan agreement with Nordic Investment the total outstanding amount to SEK 2 200 million. The SEK 350 million Bank (NIB) denominated in euros, EUR 26.8 million in repayment on a bond was tapped with SEK 150 million with a fixed coupon of 5.75% at loan agreement with European Investment Bank (EIB) denominated in an issue price of 100.719, bringing the total outstanding amount to SEK euros and EUR 28.8 million repayments on loans from Finnish pension 500 million. institutions dominated in euros, with the remaining EUR 56.1 million going mainly to credit institutions. During the year, the Group raised EUR 1 472.3 In September 2012, the Group issued a EUR 500 million 5.5-year bond million of debt, of which EUR 1 311.6 million was raised through the issue under its EMTN programme. The bond pays a fixed coupon of 5.00% and of bonds and EUR 160.7 million through other loans primarily from credit has an issue price of 99.580. institutions as mainly explained below. The remaining net decrease in debt for the year of EUR 31.1 million relates mainly to termination and fair value There are no financial or change of control covenants in the bond issues movements of hedges, foreign exchange and amortisation. detailed above.

In February 2012 Stora Enso raised a long-term loan of EUR 150 million Borrowings have various maturities, details of which are set out in Note from EIB to finance the new containerboard machine investment at 25 Financial Risk Management, the longest being in 2036, and have either Ostrołeka Mill in Poland. fixed or floating interest rates ranging from 0.6% (0.5%) to 8.6% (8.6%). The majority of Group loans are denominated in euros, US dollars and In February 2012 the Group also issued a EUR 500 million seven-year Swedish krona. At 31 December 2012 unused committed credit facilities bond under the EMTN programme. The bond pays a fixed coupon of totalled EUR 700 (EUR 700) million, none of which was short term, expiry 5.5% and has an issue price of 99.824. Stora Enso additionally announced being in 2015 (2015). Additionally, the Group has access to various other a tender offer for its EUR 750 million Eurobond maturing in 2014. On 9 long-term sources of funding up to EUR 600 million mainly from Finnish March 2012 the Group announced that it had successfully repurchased pension funds. notes with nominal value EUR 336.8 million from the 2014 bond and the transaction was priced at 105.970. In November 2012, the Group In 2012 net interest-bearing liabilities increased by EUR 11.0 million repurchased an additional EUR 17.8 million of notes from the 2014 bond. to EUR 2 756.8 million. Cash and cash equivalents net of overdrafts increased from EUR 1 134.3 million at 31 December 2011 to EUR 1 845.4 In June 2012 Stora Enso issued two five-year bonds totalling SEK 1 700 million at 31 December 2012. million (EUR 193 million) under its EMTN programme. A SEK 1 350 million bond pays a floating coupon of three months Stibor + 3.90% and has an The breakdown of net interest-bearing liabilities including internal items issue price of 100.000. A SEK 350 million bond pays a fixed coupon of and operating capital by principal country/area is detailed below: 5.75% and has an issue price of 99.010.

Country/Area Breakdown As at 31 December Net Interest-bearing Liabilities Operating Capital EUR million 2012 2011 2012 2011 Euro area 1 010.3 1 465.9 3 683.1 3 999.2 Sweden 1 289.5 925.9 2 609.0 2 674.8 Brazil -46.7 -33.8 716.3 776.3 Uruguay - - 494.2 404.9 China (including Hong Kong) 277.0 288.5 445.4 455.2 Poland 161.7 13.0 477.9 289.7 Russia 59.8 86.4 153.9 157.2 Czech Republic -4.2 -11.4 129.5 124.4 USA 1.7 11.3 37.8 63.3 Other 7.7 - 107.0 107.0 Total 2 756.8 2 745.8 8 854.1 9 052.0

110 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Due to the short-term nature of most current Group financial liabilities by the derivatives hedging the debt (see Note 28 Derivatives). The 1 their carrying value is considered to approximate their fair value. current portion of non-current debt is EUR 181.0 (EUR 250.0) million. 2 However, the fair value of non-current debt, exclusive of the current A Repayment Schedule of Non-current Debt is presented in Note 25 3 part, is EUR 4 660.8 (EUR 3 458.6) million, against a carrying value of Financial Risk Management. 4 EUR 4 341.3 (EUR 3 339.4) million, the difference being partially offset 5 6 Currency Breakdown of Non-current Debt 7 As at 31 December 8 EUR million 2012 2011 EUR 2 742.4 2 097.9 9 USD 946.9 971.8 10 SEK 833.0 498.8 11 Other currencies - 20.9 12 Total 4 522.3 3 589.4 13 14 Bond Loans in Non-current Debt 15 16 Issue/ Interest Currency Nominal Outstanding Carrying Value Maturity Dates Description of Bond Rate % of Bond Value As at 31 December As at 31 December 17 Issued 18 2012 2011 2012 2011 2012 All Liabilities are Held by the Parent Company Currency million EUR million 19 Fixed Rate 20 1993–2019 Series C Senior Notes 2019 8.600 USD 50.0 50.0 50.0 38.6 37.9 21 2004–2014 Euro Medium Term Note 5.125 EUR 750.0 749.9 395.3 727.9 375.7 22 2006–2015 Swedish Fixed Real Rate 3.500 SEK 500.0 500.0 500.0 65.1 67.0 23 2006–2016 Global 6.404% Notes 2016 6.404 USD 507.9 507.9 507.9 418.3 405.8 24 2006–2036 Global 7.250% Notes 2036 7.250 USD 300.0 300.0 300.0 228.2 224.0 2010–2015 Euro Medium Term Note 5.750 SEK 2 400.0 2 400.0 2 400.0 269.6 280.0 25 2012–2017 Euro Medium Term Note 5.750 SEK 500.0 - 500.0 - 57.8 26 2012–2018 Euro Medium Term Note 5.000 EUR 500.0 - 500.0 - 495.8 27 2012–2019 Euro Medium Term Note 5.500 EUR 500.0 - 500.0 - 497.0 28 Total Fixed Rate Bond Loans 1 747.7 2 441.0 29 Floating Rate 30 2006–2018 Euro Medium Term Note Euribor+0.96 EUR 25.0 25.0 25.0 25.0 25.0 31 2006–2018 Euro Medium Term Note Euribor+0.72 EUR 50.0 50.0 50.0 49.9 49.9 32 2009–2016 Euro Medium Term Note Euribor+4.21 EUR 390.0 390.0 390.0 390.0 390.0 2010–2013 Euro Medium Term Note Euribor+2.83 EUR 25.0 25.0 25.0 25.0 25.0 33 2010–2013 Euro Medium Term Note Euribor+2.60 EUR 25.0 25.0 25.0 25.0 25.0 2010–2015 Euro Medium Term Note Stibor+3.70 SEK 1 400.0 1 400.0 1 400.0 158.2 164.0 2012–2017 Euro Medium Term Note Stibor+3.90 SEK 2 200.0 - 2 200.0 - 256.7 Total Floating Rate Bond Loans 673.1 935.6

Total Bond Loans 2 420.8 3 376.6

Stora Enso Financial Report 2012 111 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Current Interest-bearing Liabilities As at 31 December EUR million 2012 2011 Current loans 415.9 616.5 Derivative financial instruments (see Note 28) 191.1 163.0 Current Interest-bearing Liabilities 607.0 779.5 Bank overdrafts 4.5 4.5 Total Current Interest-bearing Liabilities 611.5 784.0

Current loan payables include accrued interest of EUR 84.1 (EUR Finance lease liabilities 79.2) million. Group short-term loans are denominated in euro 83% At 31 December 2012 Stora Enso had a small number of finance (65%), US dollars 5% (29%), Chinese renminbi 10% (6%) and Indian leasing agreements for machinery and equipment for which capital rupee 2% (-), with maturities ranging from payable on demand up to costs of EUR 65.5 (EUR 76.6) million were included in property, plant 12 months. and equipment; the depreciation and impairment thereon was EUR 12.4 (EUR 13.1) million. The aggregate leasing payments for the year amounted to EUR 10.4 (EUR 17.1) million, the interest element being EUR 3.8 (EUR 4.2) million. In 2012, new finance lease transactions amounted to EUR 1.0 (EUR 3.1) million.

Finance Lease Liabilities As at 31 December EUR million 2012 2011 Minimum Lease Payments Less than 1 year 25.6 10.7 1–2 years 10.2 26.1 2–3 years 9.9 10.4 3–4 years 8.7 10.2 4–5 years 29.1 9.0 Over 5 years 27.6 57.2 111.1 123.6 Future finance charges -11.7 -18.5 Present Value of Finance Lease Liabilities 99.4 105.1

Present Value of Finance Lease Liabilities Less than 1 year 22.3 7.3 1–2 years 7.9 21.4 2–3 years 7.8 7.5 3–4 years 6.8 7.6 4–5 years 27.4 6.6 Over 5 years 27.2 54.7 99.4 105.1

112 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 28 Derivatives

Shareholders’ equity – Fair values of derivatives 1 other comprehensive income Derivative financial instruments are recorded in the Statement of 2 Certain derivatives are designated as cash flow hedges and Financial Position at their fair values defined as the amount at which 3 measured to fair value with the fair value movements being recorded the instrument could be exchanged between willing parties in a current 4 in the separate equity category of OCI: Hedging Reserve. The other transaction other than in a liquidation or forced sale. The fair values 5 component of OCI is the Available-for-Sale Reserve representing the of such financial items have been estimated on the following basis: 6 difference between the reporting date fair value of investments and • Currency and equity option contract values are calculated using 7 their initial fair value at acquisition (see Note 15 Available-for-Sale year end market rates together with common option pricing models. 8 Investments). • The carrying amounts of foreign exchange forward contracts are 9 calculated using forward exchange rates at the reporting date. 10 Associate companies and joint ventures record amounts directly in • The fair values of interest rate swaps are calculated using a equity related to hedges and pensions, and the Group records its discounted cash flow analysis. 11 share of these amounts also in equity in the “OCI of Equity Accounted • Interest rate option fair values are calculated using year end interest 12 Investments” classification. This classification includes a deferred loss rates together with common option pricing models. 13 of EUR 10.3 (EUR 3.5) million in respect of Stora Enso’s associate • Commodity contract fair values are computed with reference to 14 company Bergvik Skog related to cash flow hedge-accounted interest quoted market prices on futures exchanges. 15 rate derivatives. In addition, the associate company Tornator has • The fair values of commodity options are calculated using year end 16 interest rate derivative cash flow hedges showing a deferred loss of market rates together with common option pricing models. 17 EUR 7.8 (EUR 14.0) million, the joint venture Montes del Plata has • The fair values of Total Return (Equity) Swaps are calculated using 18 foreign exchange cash flow hedges showing a deferred loss of EUR year end equity prices as well as year end interest rates. 19 0.7 (EUR 1.3) million, and the US associate Thiele Kaolin has amounts 20 recorded in OCI pertaining mostly to defined benefit pension plans The Group had no material outstanding embedded derivatives which 21 showing a deferred loss of EUR 14.6 (EUR 10.4) million. would have been separated from and accounted differently to the host contract at 31 December 2012 or 2011. 22 The estimated net amount of unrealised cash flow hedge gains net of 23 taxes amounted to EUR 10.7 (EUR loss 17.2) million of which a gain Certain gains and losses on financial instruments are taken directly to 24 of EUR 19.4 (EUR loss 15.3) million related to currencies and a loss equity to offset CTA or deferred under OCI. The remaining fair value 25 of EUR 8.7 (EUR 1.9) million to commodities. These unrealised gains movements are taken to the Income Statement as Net Financial Items 26 and losses are expected to be recycled through the Income Statement (Note 8 Net Financial Items). 27 within one to four years with the longest hedging contract maturing 28 in 2016 (2016), however the majority are expected to mature in 2013. 29 Any hedge ineffectiveness is presented as an adjustment to sales or to 30 materials and services, depending on the underlying exposure, totalling 31 gross losses of EUR 0.3 (gains EUR 2.6) million for commodity contract 32 hedges and nil for currency hedges in both 2012 and 2011. Derivatives used in currency cash flow hedges are forward contracts and options, 33 with swaps mainly used in commodity hedges.

Stora Enso Financial Report 2012 113 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Hedge Gains and Losses in Financial Items Year Ended 31 December EUR million 2012 2011 Net losses on fair value hedges -1.3 -36.9 Fair value changes in hedged items 0.3 35.3 Net Losses on Fair Value Hedges in Financial Items -1.0 -1.6

Non-qualifying hedges Net losses on interest rate derivatives -42.6 -10.2 Net losses/gains on currency derivatives -71.4 0.1 Net Losses in Financial Items -114.0 -10.1

Derivatives used in fair value hedges are mainly interest rate swaps.

Hedge Gains and Losses in Operating Profit Year Ended 31 December EUR million 2012 2011 Cash Flow Hedge Accounted Currency hedges -8.1 108.7 Commodity contract hedges -2.3 -8.1 Total -10.4 100.6 As adjustments to Sales 0.9 99.0 As adjustments to Materials and services -11.3 1.6 Realised from OCI through Income Statement -10.4 100.6

Commodity contract hedge ineffectiveness -0.3 2.6 Net Losses/Gains from Cash Flow Hedges -10.7 103.2

Non-qualifying Hedges Currency hedges 15.6 -1.4 Commodity contract hedges 0.3 0.1 Net Gains/Losses on Non-Qualifying Hedges 15.9 -1.3

Net Hedge Gains in Operating Profit 5.2 101.9

114 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Fair Values of Derivative Instruments 1 As at 31 December 2 Positive Negative Net Net Fair Values Fair Values Fair Values Fair Values 3 EUR million 2012 2011 4 Fair value hedge accounted 5 Interest rate swaps 7.2 - 7.2 8.5 6 Cash flow hedge accounted 7 Currency forward contracts 1.0 -0.4 0.6 -4.1 8 Currency options 30.0 -5.6 24.4 -16.1 Commodity contracts 3.8 -17.6 -13.8 - 9 Net investment hedge accounted 10 Currency forward contracts - -0.3 -0.3 1.0 11 Non-qualifying hedges 12 Interest rate swaps 117.4 -72.9 44.5 87.3 13 Interest rate options - -53.1 -53.1 -51.0 14 Currency forward contracts 9.3 -29.4 -20.1 7.9 Currency options 0.1 - 0.1 - 15 Commodity contracts 0.3 -0.1 0.2 -2.1 16 Equity swaps (TRS) 2.6 - 2.6 -22.6 17 Total 171.7 -179.4 -7.7 8.8 18

Positive and negative fair values of financial instruments are shown under Interest-bearing Receivables and Liabilities and Non-current Debt with the 19 exception of TRS, which is shown under Operative Receivables and Liabilities. 20 21 The presented fair values in the previous table include accrued interest and option premiums. The net premiums received on outstanding 22 derivatives were EUR 0.4 (EUR 0.5) million. 23 24 25 Nominal Values of Derivative Financial Instruments 26 As at 31 December 27 EUR million 2012 2011 Interest Rate Derivatives 28 Interest rate swaps 29 Maturity under 1 year - 61.6 30 Maturity 2–5 years 2 077.4 2 073.3 31 Maturity 6–10 years 250.0 250.0 32 2 327.4 2 384.9 33 Interest rate options 516.1 522.8 Total 2 843.5 2 907.7

Foreign Exchange Derivatives Forward contracts 1 975.1 1 750.2 Currency options 2 642.2 2 669.4 Total 4 617.3 4 419.6 . Commodity Derivatives Commodity contracts 330.7 236.7 Total 330.7 236.7

Total Return (Equity) Swaps Equity swaps (TRS) 54.8 73.3 Total 54.8 73.3

Stora Enso Financial Report 2012 115 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

The following table analyses the Group’s derivative financial instruments Contractual payments for net-settled derivative financial liabilities were to be settled on a gross basis into relevant maturity groupings based in the following maturity groupings: within one year EUR 41.3 (EUR on the remaining contract period at the reporting date. For Stora Enso 41.9) million and within two to five years EUR 90.2 (EUR 93.1) million. values are mainly for one year only.

Contractual Derivatives Maturity Repayments Gross Settlement As at 31 December 2012 As at 31 December 2011 EUR million 2013 2014+ 2012 2013+ Currency Forwards and Options: Cash Flow Hedges Outflow 862.3 14.4 777.4 89.4 Inflow 880.0 14.5 769.3 89.6 Currency Forwards and Options: Hedging of Net Investment Outflow 70.1 - 68.3 - Inflow 69.7 - 69.3 - Currency Forwards and Options: Fair Value in Income Statement Outflow 1 858.2 0.6 1 608.5 - Inflow 1 836.3 0.6 1 612.1 -

116 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 29 Cumulative Translation Adjustment and Equity Hedging

The Group operates internationally and is thus exposed to currency undertakings are aggregated with the financial instruments hedging 1 risk arising from exchange rate fluctuations on the value of its net these investments and the net is recorded directly in shareholders’ 2 investment in non-euro area foreign subsidiaries and equity accounted equity as CTA; this is expensed through the Income Statement on the 3 investments. Exchange differences arising from the translation of equity, divestment of a foreign entity. 4 results and dividends for foreign subsidiary and equity accounted 5 6 7 Cumulative Translation Adjustment Year Ended 31 December 8 EUR million 2012 2011 9 At 1 January 10 CTA on net investment in non-euro foreign entities 9.5 85.7 11 Hedging thereof 31.4 25.4 12 Net currency gains in equity 40.9 111.1 13 Tax on hedging -8.9 -7.4 32.0 103.7 14 15 CTA Movement for the Year Reported in OCI Restatement of opening non-euro denominated equity -9.6 -82.9 16 Difference in Income Statement translation 1.0 0.4 17 Internal equity injections and dividends -20.6 8.3 18 Other -0.2 -2.0 19 -29.4 -76.2 20 Hedging of Net Investment for the Year Reported in OCI 21 Hedging result -16.8 6.0 22 Taxes 4.1 -1.5 23 -12.7 4.5 24 At 31 December CTA on net investment in non-euro foreign entities -19.9 9.5 25 Hedging thereof (see below) 14.6 31.4 26 Cumulative net currency losses/gains in equity -5.3 40.9 27 Tax on hedging -4.8 -8.9 28 Net CTA in Equity -10.1 32.0 29 Hedging of Net Investment in Foreign Entities 30 Hedging 14.6 31.4 31 Tax on hedging -4.8 -8.9 32 Net Hedging Result in Equity 9.8 22.5 33 Realised gains 20.4 20.9 Unrealised losses/gains -10.6 1.6 Total Gains 9.8 22.5

Stora Enso Financial Report 2012 117 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

The Group is currently hedging only its equity exposure to the Czech to a loss of EUR 69.8 (EUR 107.7) million, and in Czech Republic, koruna and Swedish krona. The main movements in CTA in 2012 were amounting to a gain of EUR 35.1 (EUR 31.8) million. a gain of EUR 25.4 (loss of EUR 31.8) million related to the Polish zloty, a gain of EUR 37.9 (EUR 10.6) million related to the Swedish krona and There were no material releases of CTA through the Income Statement a loss of EUR 86.9 (EUR 71.1) million related to the Brazilian real. The in 2012 or 2011. most significant accumulated CTA balances are in Sweden, amounting

Amounts Recognised in the Statement of Financial Position – CTA and Equity Hedging As at 31 December Cumulative Translation Net CTA in the Statement of Adjustments (CTA) Equity Hedges Financial Position EUR million 2012 2011 2012 2011 2012 2011 Brazil 8.1 95.0 - - 8.1 95.0 China 3.4 3.5 - - 3.4 3.5 Czech Republic 35.1 31.8 -14.1 -12.4 21.0 19.4 Poland -12.1 -37.5 16.9 16.9 4.8 -20.6 Russia -10.7 -13.0 - - -10.7 -13.0 Sweden -69.8 -107.7 11.8 26.9 -58.0 -80.8 Uruguay 25.3 36.6 - - 25.3 36.6 USA 4.9 6.5 - - 4.9 6.5 Others -4.1 -5.7 - - -4.1 -5.7 CTA before Tax -19.9 9.5 14.6 31.4 -5.3 40.9 Taxes - - -4.8 -8.9 -4.8 -8.9 Net CTA in Equity -19.9 9.5 9.8 22.5 -10.1 32.0

Amounts Recognised in the Statement of Other Comprehensive Income – CTA and Equity Hedging As at 31 December Cumulative Translation Adjustments (CTA) Equity Hedges Net CTA in OCI EUR million 2012 2011 2012 2011 2012 2011 Brazil -86.9 -71.1 - - -86.9 -71.1 China -0.1 5.1 - - -0.1 5.1 Czech Republic 3.3 -3.8 -1.7 1.9 1.6 -1.9 Poland 25.4 -31.8 - -0.1 25.4 -31.9 Russia 2.3 -1.6 - - 2.3 -1.6 Sweden 37.9 10.6 -15.1 4.2 22.8 14.8 Uruguay -11.3 16.6 - - -11.3 16.6 USA -1.6 1.2 - - -1.6 1.2 Others 1.6 -1.4 - - 1.6 -1.4 CTA before Tax -29.4 -76.2 -16.8 6.0 -46.2 -70.2 Taxes - - 4.1 -1.5 4.1 -1.5 Net CTA in Equity -29.4 -76.2 -12.7 4.5 -42.1 -71.7

118 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Hedging of net investment in foreign entities 1 Group policy for translation risk exposure is to minimise this by and instruments used for hedging purposes are offset in CTA against 2 funding assets whenever possible and economically viable in the same the respective currency movements arising from the restatement of the 3 currency, but if matching of the assets and liabilities in the same net investments at current exchange rates on the reporting date; the 4 currency is not possible hedging of the remaining translation risk may net amount of losses included in CTA during the period as shown in 5 take place. The gains and losses net of tax on all financial liabilities the previous table came to EUR 12.7 (gains EUR 4.5) million. 6 7

Hedging Instruments and Unrealised Hedge Losses/Gains 8 As at 31 December 9 Nominal amount (Currency) Nominal amount (EUR) Unrealised Loss/Gain (EUR) 10 EUR million 2012 2011 2012 2011 2012 2011 11 Forward exchange contracts 12 Czech Republic 1 762.5 1 762.5 70.1 68.4 -0.2 0.7 13 Borrowings Sweden 4 650.0 4 000.0 541.8 448.8 -10.4 0.9 14 Total Hedging 611.9 517.2 -10.6 1.6 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33

Stora Enso Financial Report 2012 119 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 30 Commitments and Contingencies

Commitments As at 31 December EUR million 2012 2011 On Own Behalf Pledges given 0.7 1.3 Mortgages 6.0 9.7 On Behalf of Equity Accounted Investments Guarantees 652.7 418.4 On Behalf of Others Guarantees 4.9 5.0 Other commitments 0.1 - Other Commitments Own Operating leases in next 12 months 62.9 66.1 Operating leases after next 12 months 496.9 525.8 Pension liabilities 0.4 0.4 Other commitments 5.2 5.1 Total 1 229.8 1 031.8

Pledges given 0.7 1.3 Mortgages 6.0 9.7 Guarantees 657.6 423.4 Operating leases 559.8 591.9 Pension liabilities 0.4 0.4 Other commitments 5.3 5.1 Total 1 229.8 1 031.8

Guarantees are made in the ordinary course of business on behalf of arrangements, Stora Enso has signed an agreement to guarantee 50% equity accounted investments and occasionally others; the guarantees of USD 1 354 million of loans raised by Montes del Plata. Stora Enso’s entered into with financial institutions and other credit guarantors 50% share of the total guarantee will be a maximum of USD 677 million generally oblige the Group to make payment in the event of default (EUR 513.1 million) of which Stora Enso’s guarantee outstanding as by the borrower. The guarantees have off-Balance-Sheet credit of 31 December 2012 amounted to EUR 421.4 (EUR 128.1) million. risk representing the accounting loss that would be recognised at the reporting date if counterparties failed to perform completely as The Group’s share of total capital commitments in Montes del Plata contracted. The credit risk amounts are equal to the contract sums amounted to EUR 212.8 (EUR 435.7) million of which Stora Enso Oyj assuming the amounts are not paid in full and are irrecoverable from has guaranteed machinery supplier contracts to Andritz, one of the other parties. suppliers of production technologies and equipment for the new pulp mill, to the maximum exposure of EUR 189.0 million. The amount In 2012 the Group’s commitments amounted to EUR 1 229.8 (EUR outstanding as of 31 December 2012 was EUR 189.0 (EUR 189.0) 1 031.8) million. In addition, parent company Stora Enso Oyj has million. guaranteed the liabilities of many of its subsidiaries up to a maximum of EUR 788.6 (EUR 821.2) million as of 31 December 2012. Stora Enso Logistics AB has a time charter party with Wagenborg Scheepvaart B.V. of the Netherlands (WSBV) concerning three vessels; Stora Enso Oyj has also guaranteed the indebtedness of its Brazilian WSBV has in turn chartered the three vessels from owners in Denmark. joint venture, Veracel, to various local and international banks, the At the expiry of the three time charter parties in 2015, Stora Enso Oyj amount outstanding at the year end being EUR 22.3 (EUR 70.1) million. has guaranteed to pay the owners an amount equal to the difference between the stipulated loss value and the net sale price obtained by the Stora Enso and Arauco have the Montes del Plata joint venture pulp mill owners; however, always limited to 6/21 of the original facility amount. project ongoing in Uruguay. In September 2011 Stora Enso announced The maximum Group exposure under this guarantee amounted to EUR that the external financing for the project had been finalised. Montes 22.4 (EUR 22.4) million at the year end. del Plata has signed the loan agreements and as part of the financing

120 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

The Group leases office and warehouse space, cars, machinery and Contingent liabilities 1 equipment under various non-cancellable operating leases, some of Stora Enso has undertaken significant restructuring actions in recent 2 which contain renewal options. For certain leases deemed onerous, a years which have included the divestment of companies, sale of 3 provision has been made that amounts to EUR 7.3 (EUR 9.3) million assets and mill closures. These transactions include a risk of possible 4 at the end of 2012. The future cost for contracts exceeding one year environmental or other obligations the existence of which would be 5 and for non-cancellable operating leasing contracts are: confirmed only by the occurrence or non-occurrence of one or more 6 uncertain future events not wholly within the control of the Group. 7 Repayment Schedule of Operating Lease Commitments 8 As at 31 December Stora Enso is party to legal proceedings that arise in the ordinary EUR million 2012 2011 9 course of business and which primarily involve claims arising out Less than 1 year 62.9 66.1 10 of commercial law. The management do not consider that liabilities 1–2 years 54.6 57.2 related to such proceedings before insurance recoveries, if any, are 11 2–3 years 48.8 49.5 likely to be material to the Group financial condition or results of 12 3–4 years 40.0 43.6 operations. 13 4–5 years 32.0 33.7 Over 5 years 321.5 341.8 14 Total 559.8 591.9 • Class action lawsuits in USA 15 In the context of magazine paper sales in the USA in 2002 and 2003, 16 Stora Enso has material commitments in China, where the Group Stora Enso Oyj (SEO) and Stora Enso North America (SENA) were 17 has rental commitments for up to 50 years on some 90 000 hectares sued in a number of class action (and other civil) lawsuits filed in the 18 of land contracted to date, as well as being obliged to pay for the USA by various magazine paper purchasers that claimed damages 19 standing trees on land it has contracted to rent. Future land rental for alleged antitrust violations. On 14 December 2010 a US federal 20 payments reported under operating leases are estimated at EUR 261.9 district court granted a motion for summary judgment that Stora 21 (EUR 279.4) million for the plantations, and the capital commitments Enso had filed on behalf of both SEO and SENA seeking dismissal on existing trees amounted to EUR 9.3 (EUR 8.3) million at the end of the direct purchaser class action claims. Following appeal, a 22 of 2012. federal court of appeals on 6 August 2012 upheld the district court’s 23 ruling as to SEO, which means that the direct purchaser class action 24 Stora Enso Oyj has also signed a 15-year take-or-pay contract with claims against SEO have been found to be without legal foundation, 25 Rederi AB Trans-Atlantic for the operation of ships between Finland but reversed the district court’s ruling as to SENA and referred that 26 and Sweden. The Group’s commitment amounted to EUR 123.9 (EUR part of the case back to the district court for a jury trial to determine 27 147.8) million for the remaining nine years at the end of 2012. whether SENA’s conduct did violate the federal antitrust laws. The 28 appeal court’s decision is procedural and does not constitute a 29 Capital expenditure commitments at the balance sheet date but not legal finding that SENA has violated antitrust laws. A motion by 30 recognised in the financial statements amounted to EUR 71.8 (EUR SENA requesting the US Supreme Court to review and reverse 31 213.9) million. Commitments in relation to capital expenditure mainly the federal court of appeals decision vacating the district court’s 32 relate to ongoing project at Ostrołeka Mill in Poland. ruling as to SENA has been dismissed by the Supreme Court and the case against SENA will now proceed to a trial in the district 33 Stora Enso’s share of outstanding capital expenditure commitments court. Furthermore, most of the indirect purchaser actions have in joint ventures amounted to EUR 212.8 (EUR 435.7) million at the been dismissed by a consent judgment, subject, however, to being end of 2012. They relate to the ongoing Montes del Plata mill project reinstated if the plaintiffs in the direct cases are ultimately successful described earlier. in obtaining a final judgment that SENA violated antitrust laws. Since Stora Enso disposed of SENA in 2007, Stora Enso's liability, if any, will be determined by the provisions in the SENA Sales and Purchasing Agreement. No provisions have been made in Stora Enso’s accounts for these lawsuits.

• Legal Action in Brazil against Veracel On 11 July 2008 Stora Enso announced that a federal judge in Brazil had issued a decision claiming that the permits issued by the State of Bahia for the operations of Stora Enso’s equity accounted investment Veracel were not valid. The judge also ordered Veracel to take certain actions, including reforestation with native trees on

Stora Enso Financial Report 2012 121 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

part of Veracel’s plantations and a possible BRL 20 million (EUR 9 • Veracel’s potential tax exposure arising from PIS/COFINS tax million) fine. Veracel disputes the decision and has filed an appeal credits against it. Veracel operates in full compliance with all Brazilian laws In December 2011 Veracel Celulose S/A (Veracel) received a tax and has obtained all the necessary environmental and operating audit report, where the tax authority claimed that part of PIS (The licences for its industrial and forestry activities from the competent Social Integration Program) and COFINS (The Contribution for the authorities. In November 2008 a Federal Court suspended the Financing of Social Security) paid by Veracel on purchase of raw effects of the decision. Veracel has not recorded any provision for material and services, would not be eligible for tax credit. Stora Enso the reforestation or the possible fine. On 30 September 2009 a and Veracel consider the claim as unjustifiable and no provisions judge in the State of Bahia issued an interim decision ordering the have been made in Stora Enso’s or Veracel's accounts for this State Government of Bahia not to grant Veracel further plantation matter. The dispute is still pending. licences in the municipality of Eunápolis in response to claims by a state prosecutor that Veracel’s plantations exceeded the legal limits, which Veracel disputes. Veracel’s position is supported by documentation issued by the State environmental authority.

• Legal Proceeding in Finland On 3 December 2009 the Finnish Market Court fined Stora Enso for competition law infringements in the market for roundwood in Finland from 1997 to 2004. Stora Enso did not appeal against the ruling. On 31 March 2011 Metsähallitus of Finland initiated legal proceedings against Stora Enso, UPM and Metsäliitto claiming compensation for damages allegedly suffered due to the competition law infringements. The total claim against all the defendants amounts to approximately EUR 160 million and the secondary claim against Stora Enso to approximately EUR 85 million. In addition, some Finnish municipalities and private forest owners initiated similar legal proceedings. The total amount claimed by all these defendants amounts to approximately EUR 70 million and the secondary claims solely against Stora Enso to approximately EUR 25 million. Stora Enso denies that Metsähallitus, and other plaintiffs, suffered any damages whatsoever and will forcefully defend itself. No provisions have been made in Stora Enso’s accounts for these lawsuits.

• Kemijärvi Pulp Mill environmental case Kemijärvi Pulp Mill in Finland was permanently closed down in 2008. In December 2011 Vaasa Court of Appeal gave decision concerning the environmental permit for the closure of the mill. The judgement included an obligation to remove the majority of the sludge from the bottom of the water treatment lagoon. Stora Enso disagrees with the decision and has in January 2012 filed an appeal to Supreme Administrative Court.

• Norrsundet Pulp Mill environmental case The production of pulp at Norrsundet Mill in Sweden was permanently closed in December 2008. Provisions for refuse handling contamination on site and sea sediment have been recognized. In 2011 some chemical substances were found in the sea sediment outside the mill area. Discussions with the county administrative board about responsibility and possible actions are ongoing and no decisions had been taken by the balance sheet date.

122 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 31 Principal Subsidiaries in 2012

The following is a list of the Company’s fifty principal operating The subsidiaries Corenso-Elfes GmbH & Co. KG and Corenso United 1 subsidiary undertakings ranked by external sales; these companies (Deutschland) GmbH & Co. KG have made use of the exemption 2 along with the parent account for 97% (98%) of Group external sales. provisions under Sec. 264 b German Commercial Code (HGB). 3 The principal country in which each subsidiary operates is the country 4 of incorporation. The Group’s effective interest in the undertakings is 5 100% except where indicated and is held in each case by a subsidiary 6 undertaking except for those companies marked with “+” which are 7 held directly by the Parent Company. The countries operating outside 8 the euro area are indicated by “◊”. 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33

Stora Enso Financial Report 2012 123 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Subsidiary Companies (Ranked by External Sales) Sales Printing and Building and Renewable Country % Reading Biomaterials Living Packaging Other

Stora Enso Oyj Finland 25.49 • • • •

Stora Enso Skoghall AB ◊ Sweden 6.05 • Stora Enso Kvarnsveden AB ◊ Sweden 4.76 • Stora Enso Hylte AB ◊ Sweden 3.71 • Stora Enso Fors AB ◊ Sweden 3.31 • Stora Enso Nymölla AB ◊ Sweden 3.24 • Stora Enso Skog AB ◊ Sweden 2.98 • Stora Enso Wood Products GmbH Austria 2.90 • Stora Enso Kabel GmbH & Co. KG Germany 2.78 • • Stora Enso Maxau GmbH Germany 2.57 • Stora Enso Langerbrugge NV + Belgium 2.42 • Stora Enso Publication Papers Oy Ltd + Finland 2.28 • • Enocell Oy + Finland 2.12 • Stora Enso Poland S.A. (99.6%) +/◊ Poland 1.98 • Stora Enso Pulp AB ◊ Sweden 1.70 • • Stora Enso Corbehem SAS France 1.65 • Sydved AB (66.7%) ◊ Sweden 1.63 • Stora Enso Ingerois Oy + Finland 1.54 • Puumerkki Oy Finland 1.48 • Stora Enso Uetersen GmbH Germany 1.46 • Stora Enso Sachsen GmbH Germany 1.41 • • Stora Enso Timber AB ◊ Sweden 1.34 • Stora Enso Arapoti Indústria de Papel S.A. (80%) ◊ Brazil 1.28 • OOO Stora Enso Packaging BB ◊ Russia 1.24 • Stora Enso Suzhou Paper Co Ltd (97.9%) ◊ China 1.24 • Stora Enso Barcelona S.A. Spain 1.17 • Stora Enso Timber d.o.o. Slovenia 1.15 • Stora Enso Wood Products Oy Ltd + Finland 0.99 • Stora Enso Eesti AS + Estonia 0.97 • • Stora Enso Wood Products Zdirec s.r.o. ◊ Czech 0.94 • Stora Enso Packaging AB ◊ Sweden 0.90 • Stora Enso Packaging Oy + Finland 0.80 • RETS Timber Oy Ltd Finland 0.80 • Stora Enso Bioenergi AB ◊ Sweden 0.69 • Stora Enso Timber Australia Pty Ltd ◊ Australia 0.66 • Stora Enso Huatai Paper Co Ltd (60%) ◊ China 0.64 • Stora Enso Inpac Packaging Co. Ltd (51%) ◊ China 0.61 • Stora Enso WP Bad St. Leonhard GmbH Austria 0.61 • Stora Enso Timber Deutschland GmbH Germany 0.59 • Stora Enso Bois SAS France 0.46 • Corenso North America Corp. ◊ USA 0.43 • Stora Enso Wood Products Planá s.r.o ◊ Czech 0.43 • Stora Enso Deutschland GmbH + Germany 0.37 • • • Corenso United Oy Ltd + Finland 0.31 • Stora Enso Timber UK Ltd ◊ UK 0.24 • AS Stora Enso Latvija ◊ Latvia 0.23 • • UAB Stora Enso Lietuva ◊ Lithuania 0.21 • • Stora Enso Timber DIY Products B.V. NL 0.21 • Hangzhou Corenso Hualun Paper Core Co. Ltd (51%) ◊ China 0.18 • Stora Enso Packaging Kft ◊ Hungary 0.17 • Stora Enso Packaging SIA ◊ Latvia 0.16 •

124 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 32 Related Party Transactions

The key management personnel of the Group are the members of the Group representative, has been the Deputy Chairman of the Board of 1 Group Executive Team and the Board of Directors. The compensation Directors since 2008. Prices paid to PVO for electricity are based on 2 of key management personnel can be found in Note 7 Board and production costs, which are generally lower than market prices and in 3 Executive Remuneration. 2012 amounted to EUR 41.9 (EUR 48.6) million. 4 5 In the ordinary course of business the Group engages in transactions In August 2012 Stora Enso and Neste Oil announced that they had 6 on commercial terms with equity accounted investments and other decided not to proceed with their plans to build a biodiesel plant, for 7 related parties with the exception of Veracel and PVO that are no less which the two companies had applied for funding under the European 8 favourable than would be available to other third parties. Stora Enso Union NER 300 programme. NSE Biofuels Oy Ltd, a joint venture of 9 intends to continue with transactions on a similar basis with its equity Stora Enso and Neste Oil, has been developing biofuel manufacturing 10 accounted investments further details of which are shown in Note 14 technologies and the company carried out several trials at a pilot plant Equity Accounted Investments. in Varkaus between 2009 and 2011. NSE Biofuels Oy Ltd continues 11 as a joint vehicle of Stora Enso and Neste Oil to develop innovations 12 The Group’s principal subsidiary companies are listed in Note 31 in the field of gasification and ultra clean gas. 13 Principal Subsidiaries in 2012. 14 Financial arrangements 15 Pulp The Group borrows from or has financial arrangements with several 16 Stora Enso and its local partner Fibria (formerly Aracruz Celulose financial institutions where certain members of the Stora Enso Board of 17 S.A.) have constructed a 1.1 million tonnes per year eucalyptus pulp Directors or Group Executive Team also act as members of the Board 18 mill in Brazil for their jointly owned company, Veracel; each company of Directors, Supervisory Board or Executive Management Group of 19 has a 50% stake and is entitled to half of the mill’s output. The mill one or more of those bodies. These include Skandinaviska Enskilda 20 commenced production in May 2005 and shipments of eucalyptus Banken AB in the case of Marcus Wallenberg. All Group borrowings 21 pulp are sent to Stora Enso mills in Europe and China. Sales to Group and financial arrangements have been negotiated on arms-length companies in 2012 totalled 545.5 (537.1) thousand tonnes with an terms and several have existed for a number of years and prior to the 22 invoice value of EUR 194.5 (EUR 182.0) million. Stora Enso Oyj has current Board membership. 23 also guaranteed the indebtedness of Veracel to various local and 24 international banks the amount outstanding at the year end being EUR Research and development 25 22.3 (EUR 70.1) million. Stora Enso conducts research and development activities mainly 26 through its three research centres but also increasingly through global 27 Stora Enso and Arauco have the Montes del Plata joint venture pulp networks, including leading partner institutes and universities. Together 28 mill project ongoing in Uruguay. In 2011 Montes del Plata finalised with the classical Nordic research partner networks, Central European 29 its external financing by signing loan agreements with several and Latin American universities are becoming increasingly important 30 counterparties. As part of the financing arrangements, Stora Enso partners for Stora Enso in the field of research and development. In 31 has signed an agreement to guarantee 50% of USD 1 354 million of addition, a 32.24% interest is held in one partner, Oy Keskuslaboratorio 32 loans raised by Montes del Plata. Stora Enso’s 50% share of the total – Centrallaboratorium AB (KCL). KCL is the leading pilot plant for guarantee will be a maximum of USD 677 million (EUR 513.1 million) pulping, papermaking, coating and printing trials. 33 of which Stora Enso’s guarantee outstanding as of 31 December 2012 was EUR 421.4 (EUR 128.1) million. In addition, the Group’s share of Paper for recycling total capital commitments in Montes del Plata amounted to EUR 212.8 The Group owns non-controlling interests in several paper recyclers (EUR 435.7) million of which Stora Enso Oyj has guaranteed EUR 189.0 from which paper for recycling is purchased at market prices. (EUR 189.0) million. Forest assets and wood procurement

Energy The Group has a 41% interest in Tornator with the remaining 59% The Group holds a 14.8% interest in Pohjolan Voima Oy (PVO), a being held by Finnish institutional investors. Stora Enso has long-term privately owned group of companies in the energy sector that produces purchase contracts with the Tornator Group for approximately 1.8 electricity and heat for its shareholders in Finland. Each subsidiary of million cubic metres of wood annually at market prices, and in 2012 the PVO group has its own class of shares that entitle the shareholder purchases of 2.0 (2.0) million cubic metres came to EUR 60.0 (EUR to the energy produced in proportion to its ownership of that class of 56.9) million. share. Stora Enso is the second-largest shareholder in PVO, being entitled to a capacity share of 438 MW and Juha Vanhainen, as

Stora Enso Financial Report 2012 125 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

The Group has a 43.26% interest in Bergvik Skog with the remaining Stevedoring 56.74% held mainly by institutional investors. The Group has long- The Group currently owns 34.39% of the shares of Steveco Oy, a term supply contracts with Bergvik Skog under which Bergvik Skog Finnish company engaged in loading and unloading vessels. The other sells some 5.0 million cubic metres of wood annually to Stora Enso at shareholders in Steveco are UPM-Kymmene, Finnlines and Ahlström market prices. In 2012 these purchases of 4.9 (5.2) million cubic metres Capital. Stevedoring services are provided by Steveco at market prices amounted to EUR 123.7 (EUR 156.5) million and Group sales, mainly and in 2012 amounted to EUR 3.5 (EUR 4.9) million. forest management services, to Bergvik Skog amounted to EUR 42.0 (EUR 37.3) million. Maintenance Stora Enso and ABB signed an agreement in September 2008 to The Group also has loan receivables from Bergvik Skog amounting establish a joint-venture company to provide maintenance services to EUR 91.5 (EUR 88.1) million and from Tornator amounting to EUR to Group mills starting on 1 January 2009. As a result, ABB has 49% 26.4 (EUR 26.3) million. of the shares in Efora Oy but as the shareholders’ agreement provides that ABB has 51% of the votes, ABB has operative control. Total services acquired from Efora Oy in 2012 amounted to EUR 197.8 (EUR 199.7) million.

126 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Notes to the Consolidated Financial Statements

Note 33 Earnings per Share and Equity per Share

Earnings per Share 1 Year Ended 31 December 2 2012 2011 3 Net profit for the period attributable to the owners of the parent, EUR million 480.5 339.7 4 Total comprehensive income attributable to the owners of the parent, EUR million 148.4 -133.8 5

Weighted average number of A and R shares 788 619 987 788 619 987 6 Diluted number of shares 788 619 987 788 619 987 7

Basic Earnings per Share, EUR 0.61 0.43 8 Total Recognised Income and Expense per Share, EUR 0.19 -0.17 9 10 Equity per Share 11 As at 31 December 12 2012 2011 13 Shareholders' equity, EUR million 5 784.5 5 872.7 14 Market value, EUR million 4 221.7 3 726.4 15 Number of A and R shares 788 619 987 788 619 987 16 Basic Shareholders' Equity per Share, EUR 7.33 7.45 Dividend per Share Paid/Declared, EUR 0.30 0.30 17 18 Market Value per Share, EUR A shares 5.70 5.03 19 R shares 5.25 4.63 20 21 22 23 24 25 26 27 28 29 30 31 32 33

Stora Enso Financial Report 2012 127 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Extract from the Parent Company Financial Statements Extract from the Parent Company Financial Statements

Accounting principles Parent Company Balance Sheet

The Parent Company Financial Statements are prepared according to Assets As at 31 December Generally Accepted Accounting Principles in Finland (Finnish GAAP); EUR million 2012 2011 see Group Consolidated Financial Statements Note 1, Accounting Fixed Assets and Non-current Investments Principles. The main differences between the accounting policies of Intangible assets 32.9 38.8 the Group and the Parent Company are: Tangible assets 992.0 954.1 • Accounting of amortisation of capitalised goodwill Shares in Group companies 7 036.4 8 911.2 • The valuation of financial assets, financial liabilities, financial Other investments 2 686.6 482.9 instruments and securities 10 747.9 10 387.0 • Accounting of post-employment Defined Benefit Plans Current Assets • The presentation and accounting of deferred tax Inventories 480.7 486.1 • Accounting of equity incentive schemes Short-term receivables 625.4 919.4 • Accounting of financial leases. Cash and cash equivalents 3 008.4 1 227.6 4 114.5 2 633.1

Total Assets 14 862.4 13 020.1

Parent Company Income Statement Equity and Liabilities Year Ended 31 December As at 31 December EUR million 2012 2011 EUR million 2012 2011 Sales 3 293.9 3 397.7 Share capital 1 342.2 1 342.2 Changes in inventories of finished goods and Share premium 3 638.8 3 638.8 work in progress 19.6 -15.2 Invested non-restricted equity fund 633.1 633.1 Production for own use - 0.1 Retained earnings 231.4 620.2 Other operating income 151.7 171.7 Net profit/loss for the period 664.0 -152.2 Materials and services -2 318.0 -2 335.5 6 509.5 6 082.1 Personnel expenses -309.0 -312.1 Depreciation and value adjustments -42.8 -127.9 Appropriations 449.1 379.5 Other operating expenses -654.4 -665.7 Provisions 55.6 207.2 Operating Profit 141.0 113.1 Non-current Liabilities 3 963.2 2 876.9 Net financial items 583.2 -324.9 Current Liabilities 3 885.0 3 474.4

Profit/Loss before Extraordinary Items 724.2 -211.8 Total Equity and Liabilities 14 862.4 13 020.1 Extraordinary income 13.8 52.7 Profit/Loss before Appropriations and Taxes 738.0 -159.1 Appropriations -69.5 7.5 Income tax expense -4.5 -0.6 Net Profit/Loss for the Period 664.0 -152.2

128 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Extract from the Parent Company Financial Statements

Parent Company Cash Flow Statement Year Ended 31 December EUR million 2012 2011 Cash Provided by Operating Activities Net profit/loss for the period 664.0 -152.2 Taxes 4.5 0.6 Appropriations 69.5 -7.5 Extraordinary items -13.8 -52.7 Depreciation and value adjustments 42.7 127.9 Unrealised foreign exchange wins and losses 17.4 -2.7 Other no-cash items -43.4 -11.2 Financial income and expenses -583.3 324.9 Interest received 16.3 25.5 Interest paid net of amounts capitalised -224.2 -166.5 Dividends received 808.1 22.4 Other financial items paid net -52.4 63.2 Income taxes paid -4.7 -0.7 Change in net working capital 45.3 -82.9 Net Cash Provided by Operating Activities 746.2 88.0

Cash Flow from Investing Activities Capital expenditure -94.3 -121.5 Proceeds from sale of fixed assets 1.3 6.3 Investment in subsidiary shares -3.4 -0.5 Proceeds from disposal of subsidiary shares 1 878.0 2.0 Proceeds from disposal of shares in equity accounted investments 2.2 0.0 Proceeds from disposal of shares in other companies 0.4 0.3 Proceeds from (payment of) long-term receivables net -2 005.9 -90.5 Net Cash Used in Investing Activities -221.7 -203.9

Cash Flow from Financing Activities Proceeds from (payment of) long-term liabilities net 1 078.9 13.5 Proceeds from (payment of) short-term borrowings net 362.8 321.2 Dividends paid -236.6 -197.2 Group contributions paid and received 51.9 2.2 Net Cash Used in Financing Activities 1 257.0 139.7

Net Increase (Decrease) in Cash and Cash Equivalents 1 781.4 23.8 Translation adjustment -1.0 1.1 Cash and cash equivalents at start of year 1 227.0 1 202.1 Cash and Cash Equivalents at Year End 3 007.4 1 227.0

Stora Enso Financial Report 2012 129 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d The Board of Directors’ Proposal for the Distribution of Dividend The Board of Directors’ Proposal for the Distribution of Dividend

The Parent Company distributable shareholders’ equity on 31 December 2012 amounted to EUR 1 528 495 979.09, including the profit for the period of EUR 664 011 113.01. The Board of Directors proposes to the Annual General Meeting of the Company that the distributable funds be used as follows:

Dividend of EUR 0.30 per share from the distributable shareholders’ equity to be distributed on 789 538 499 shares, not to exceed EUR 236 861 549.70 Remaining in distributable shareholders’ equity EUR 1 291 634 429.39 Distributable shareholders’ equity on 31 December 2012, total EUR 1 528 495 979.09

There have been no material changes in the Parent Company’s financial position since 31 December 2012. The liquidity of the Parent Company remains good and the proposed dividend does not risk the solvency of the Company.

Helsinki, 5 February 2013

Gunnar Brock Chairman

Juha Rantanen Vice Chairman

Hock Goh

Birgitta Kantola

Mikael Mäkinen

Hans Stråberg

Matti Vuoria

Marcus Wallenberg

Jouko Karvinen CEO

130 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Auditor’s Report Auditor’s Report

To the Annual General Meeting of procedures that are appropriate in the circumstances, but not for Stora Enso Oyj the purpose of expressing an opinion on the effectiveness of the We have audited the accounting records, the financial statements, company’s internal control. An audit also includes evaluating the the report of the Board of Directors, and the administration of Stora appropriateness of accounting policies used and the reasonableness Enso Oyj for the year ended 31 December, 2012. The financial of accounting estimates made by management, as well as evaluating statements comprise the consolidated income statement, statement the overall presentation of the financial statements and the report of of comprehensive income, statement of financial position, cash the Board of Directors. flow statement, statement of changes in equity and notes to the consolidated financial statements, as well as the parent company’s We believe that the audit evidence we have obtained is sufficient and income statement, balance sheet, cash flow statement and notes to appropriate to provide a basis for our audit opinion. the financial statements. Opinion on the consolidated financial statements Responsibility of the Board of Directors and In our opinion, the consolidated financial statements give a true and the Chief Executive Officer fair view of the financial position, financial performance, and cash The Board of Directors and the Chief Executive Officer are responsible flows of the group in accordance with International Financial Reporting for the preparation of consolidated financial statements that give a Standards (IFRS) as adopted by the EU. true and fair view in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, as well as for the preparation Opinion on the company’s financial statements and of financial statements and the report of the Board of Directors that the report of the Board of Directors give a true and fair view in accordance with the laws and regulations In our opinion, the financial statements and the report of the Board governing the preparation of the financial statements and the report of of Directors give a true and fair view of both the consolidated and the Board of Directors in Finland. The Board of Directors is responsible the parent company´s financial performance and financial position in for the appropriate arrangement of the control of the company’s accordance with the laws and regulations governing the preparation accounts and finances, and the Chief Executive Officer shall see to of the financial statements and the report of the Board of Directors it that the accounts of the company are in compliance with the law in Finland. The information in the report of the Board of Directors is and that its financial affairs have been arranged in a reliable manner. consistent with the information in the financial statements.

Auditor’s Responsibility Other opinions Our responsibility is to express an opinion on the financial statements, We support that the financial statements should be adopted. on the consolidated financial statements and on the report of the The proposal by the Board of Directors regarding the treatment Board of Directors based on our audit. The Auditing Act requires of distributable funds is in compliance with the Limited Liability that we comply with the requirements of professional ethics. We Companies Act. We support that the Board of Directors of the parent conducted our audit in accordance with good auditing practice in company and the Chief Executive Officer should be discharged from Finland. Good auditing practice requires that we plan and perform liability for the financial period audited by us. the audit to obtain reasonable assurance about whether the financial statements and the report of the Board of Directors are free from Helsinki, 5 February 2013 material misstatement, and whether the members of the Board of Directors of the parent company or the Chief Executive Officer are Deloitte & Touche Oy guilty of an act or negligence which may result in liability in damages Authorized Public Audit Firm towards the company or have violated the Limited Liability Companies Act or the articles of association of the company. Mikael Paul APA An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements and the report of the Board of Directors. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of financial statements and report of the Board of Directors that give a true and fair view in order to design audit

Stora Enso Financial Report 2012 131 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Capacities by Mill in 2013

Capacities by Mill in 2013

Printing and Reading Capacity Cores Location Grade 1 000 t Capacity Mill Location Grade 1 000 t China (Hangzhou, Foshan) CHN Cores 60 Anjala FIN Impr. news, book 435 Corenso Edam NLD Cores 8 Arapoti BRA LWC 185 Corenso Elfes (Krefeld) DEU Cores 30 Corbehem FRA LWC 330 Corenso Poland (Tychy) POL Cores 6 Dawang CHN SC 170 Corenso Svenska (Bäckefors, Mohed) SWE Cores 28 Hylte1) SWE News 690 Corenso Tolosana (Tolosa) ESP Cores 15 Kabel DEU LWC, MWC, HWC 495 Corenso UK (Bolton) GBR Cores 25 Kvarnsveden1) SWE SC, news, impr. news 1 020 Imatra FIN Cores 8 Langerbrugge BEL SC, news, impr. news, dir. 555 Loviisa FIN Cores 22 Maxau DEU SC 530 Wisconsin Rapids USA Cores 32 Nymölla SWE WFU 500 Total 234 Oulu FIN WFC 1 125 Sachsen DEU News, directory 320 Capacity Suzhou CHN WFC 245 Corrugated packaging Grade million m² Uetersen DEU WFC 230 Baltic states Corrugated packaging 105 Varkaus FIN WFU 285 Kaunas Veitsiluoto FIN LWC, MWC 1 020 Riga Total 8 135 Tallinn Finland Corrugated packaging 200 1) Stora Enso plans to permanently shut down newsprint capacity Heinola (205 000 t in Hylte PM2 and 270 000 t in Kvarnsveden MP11).Capacities of PM2 and PM11 are included in the table above. Lahti Ruovesi Renewable Packaging Kristiinankaupunki Capacity Hungary Corrugated packaging 25 Consumer board Location Grade 1 000 t Komárom Barcelona ESP WLC 170 Poland Corrugated packaging 315 Fors SWE FBB 410 Łódz Imatra FIN SBS, FBB, LPB 1 095 Mosina Ingerois FIN FBB 220 Ostroł˛eka Skoghall SWE LPB, FBB, WTL 800 Tychy Total 2 695 Russia Corrugated packaging 345 Arzamas Plastic coating Balabanovo Forshaga SWE Plastic coating 115 Balabanovo offset Imatra FIN Plastic coating 270 Lukhovitsy Total 385 Sweden Corrugated packaging 280

Containerboards Jönköping Heinola FIN SC fluting 300 Skene Testliner, RCP fluting, sack Vikingstad Ostroł˛eka POL paper, wrapping paper 635 Total 1 270 Total 935

Coreboard Capacity Capacity Inpac Location Grade million pcs million m² Saint Seurin sur l’Isle FRA Coreboard 95 Corrugated and Pori FIN Coreboard 125 consumer Wisconsin Rapids USA Coreboard 85 Qian'an, Hebei CHN packaging 400 50 Total 305 Corrugated and consumer Gaobu, Dongguan CHN packaging 175 34 Corrugated and Chennai, Tamil consumer Nadu IND packaging 250 30 Total 825 114

132 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Capacities by Mill in 2013

Building and Living Chemical Pulp Further Business Capacity processing Pellet CLT Mill Location Grade Area 1 000 t Capacity capacity capacity capacity Neutral Sulphite Mill Location 1 000 m³ 1 000 m³ 1 000 t 1 000 m³ Semi-Chemical Renewable Ala SWE 375 40 - - Heinola FIN Pulp Packaging 265 Alytus LIT 180 90 - - Short and Renewable Kaukopää, Imatra FIN long-fibre Packaging 800 Amsterdam NLD - 110 - - Short and Printing and Bad St Leonhard AUT 390 290 - 60 Nymölla SWE long-fibre Reading 335 Brand AUT 470 290 - - Renewable Pälkäne 1) FIN - - - - Ostroł˛eka POL Long-fibre Packaging 100 Gruvön SWE 420 150 100 - Printing and Long-fibre Hartola 1) FIN - - - - Oulu FIN Reading 360 Honkalahti FIN 310 90 - - Renewable Skoghall SWE Long-fibre Packaging 350 Imavere EST 350 190 100 - Short and Renewable Impilahti RUS 120 - 25 - Tainionkoski, Imatra FIN long-fibre Packaging 180 Kitee FIN 260 120 - - Short and Printing and Launkalne LAT 200 - - - Varkaus FIN long-fibre Reading 225 Murow POL 70 20 - - Short and Printing and Veitsiluoto FIN long-fibre Reading 375 Nebolchi RUS 220 30 25 - Chemical Pulp Total (incl. Biomaterials) 5 170 Näpi EST 75 130 15 - of which market pulp 2) 1 225 Pfarrkirchen DEU - 160 - - Planá CZE 340 270 - - 2) Market pulp defined as dried pulp shipped out from the mill to Sollenau AUT 300 270 - - external customers. Uimaharju FIN 280 35 - - Deinked Pulp (DIP) Varkaus FIN 260 - - - Business Capacity Ybbs AUT 590 420 - 60 Mill Location Grade Area 1 000 t Zdírec CZE 550 270 - - Printing and Total 5 760 2 975 265 120 Hylte SWE DIP Reading 450 Printing and 1) Elementing capacity at Pälkäne (120 000 m²) and module construction Langerbrugge BEL DIP Reading 680 capacity at Hartola (1 000 modules) not included in the total figures. Printing and Maxau DEU DIP Reading 295 In addition, Veitsiluoto Sawmill in Finland with sawing capacity of 200 000 m³ is reported in the Printing and Reading Business Area. Printing and Sachsen DEU DIP Reading 430 Total 1 855 Biomaterials Chemical Capacity CTMP Mill Location Pulp Grade 1 000 t Business Capacity Short and Mill Location Grade Area 1 000 t Enocell FIN long-fibre 450 Renewable Short, long-fibre Fors SWE CTMP Packaging 185 Skutskär SWE and fluff pulp 540 Renewable Sunila FIN Long-fibre pulp 370 Kaukopaa FIN CTMP Packaging 220 Montes del Plata (50% share) URU Short-fibre pulp 250 Renewable Skoghall SWE CTMP Packaging 270 Veracel (50% share) BRA Short-fibre pulp 570 Total 675 Total 2 180

See next page for the Abbreviations used in the tables.

Stora Enso Financial Report 2012 133 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Capacities by Mill in 2013

Abbreviations used in the tables: LWC light-weight coated paper SC super-calendered paper MWC medium-weight coated paper HWC heavy-weight coated paper WFU wood free uncoated WFC wood free coated FBB folding boxboard WLC white lined chipboard SBS solid bleached sulphate board LPB liquid packaging board WTL white top liner RCP recovered paper DIP deinked pulp CTMP chemi-thermo-mechanical pulp

The formula: (Sum of net saleable production of two best consecutive months / Available time of these two consecutive months) x Available time of the year

134 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Calculation of Key Figures Calculation of Key Figures

Operational return on capital employed, Operational EBIT 100 x Operational ROCE (%) Capital employed1) 2)

Operational return on operating capital, Operational EBIT 100 x Operational ROOC (%) Operating capital1) 2)

Return on equity, ROE (%) Profit before tax and non-controlling items – taxes 100 x Total equity2)

Equity ratio (%) Total equity 100 x Total assets

Interest-bearing net liabilities Interest-bearing liabilities – interest-bearing assets

Debt/equity ratio Interest-bearing net liabilities Equity3)

CEPS Net profit/loss for the period3) – Fixed asset depreciation and impairment Average number of shares

EPS Net profit/loss for the period3) Average number of shares

Payout ratio, excl. NRI, % Dividend distribution / share 100 x EPS excl. NRI

Dividend yield, % Dividend distribution / share 100 x Closing price of share

Price/earnings ratio (P/E), excl. NRI Closing price of share EPS excl. NRI

Operational EBIT Operating profit/loss excluding NRI and fair valuations of the segments and Stora Enso’s share of operating profit/loss excluding NRI and fair valuations of its equity accounted investments (EAI)

Operational EBITDA Operating profit/loss excluding fixed asset depreciation and impairment, share of results of equity accounted investments, NRI and fair valuations

Net debt to operational EBITDA Interest-bearing net liabilities Operational EBITDA

Last twelve months (LTM) Twelve months preceding the reporting date

1) Capital employed = Operating capital – Net tax liabilities 2) Average for the financial period 3) Attributable to owners of the Parent

Stora Enso Financial Report 2012 135 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Information for Shareholders Information for Shareholders

Annual General Meeting (AGM) Corporate Governance Report 2012 is published in English and Stora Enso Oyj’s AGM will be held at 16.00 (Finnish time) on Tuesday downloadable as a PDF file from the Company's website. A Finnish 23 April 2013 at the Marina Congress Center, Katajanokanlaituri 6, translation of the report can be found on the Company’s website. Helsinki, Finland. Global Responsibility Report is published in English and downloadable Nominee-registered shareholders wishing to attend and vote at as a PDF file from the Company’s website. the AGM must be temporarily registered in the Company’s register of shareholders on the record date, 11 April 2013. Instructions for Printed Interim Reviews (in English, Finnish and Swedish) are submitting notice of attendance will be given in the invitation to the distributed to shareholders registered with Euroclear Finland and AGM, which can be consulted on the Company’s website at Euroclear Sweden who have requested a copy. Interim Reviews are www.storaenso.com/agm. published in English, Finnish and Swedish on the Company’s website, from where they can be downloaded as PDF files. AGM and dividend in 2013 11 April Record date for AGM Mailing lists for financial information 23 April Annual General Meeting (AGM) • Finnish and Swedish shareholders: 24 April Ex-dividend date Changes of address are updated automatically based on the popu- 26 April Record date for dividend lation registers in Finland and Sweden. Please request addition to 15 May Dividend payment effective or removal from mailing lists by e-mail group.communications@ storaenso.com, by mail Stora Enso Oyj, Global Communications, P.O. Box 309, FI-00101 Helsinki or by tel. +358 2046 131. Dividend • Registered ADR holders should contact DBTCA. Beneficial owners The Board of Directors proposes to the AGM that a dividend of EUR of Stora Enso ADRs should contact their broker. 0.30 per share be paid to the shareholders for the fiscal year ending • Other stakeholders: see details for Finnish and Swedish shareholders. 31 December 2012. The dividend payable on shares registered with Euroclear Sweden will be forwarded by Euroclear Sweden AB and paid in Information for holders of American Depositary Swedish krona. The dividend payable to ADR holders will be forwarded by Receipts (ADRs) Deutsche Bank Trust Company Americas (DBTCA) and paid in US dollars. The Stora Enso dividend reinvestment and direct purchase plan is administered by Deutsche Bank Trust Company Americas. The plan Publication dates for 2013 makes it easier for existing ADR holders and first-time purchasers of 5 February Financial results for 2012 Stora Enso ADRs to increase their investment by reinvesting cash 18 February Annual Report 2012 distributions or by making additional cash investments. The plan is 23 April Interim Review for January–March intended for US residents only. Further information on the Stora Enso 19 July Interim Review for January–June ADR programme is available at www.adr.db.com. 22 October Interim Review for January–September Contact information for Stora Enso ADR holders Distribution of financial information Deutsche Bank Shareholder Services Stora Enso’s Annual Report is comprised of four separate reports: c/o American Stock Transfer & Trust Company Rethink Stora Enso 2012, Financial Report 2012, Corporate Peck Slip Station, P.O. Box 2050 Governance Report 2012 and Global Responsibility Report 2012. New York, NY 10272-2050, USA Toll-Free number (within the USA only): +1 866 249 2593 Rethink Stora Enso 2012 is published in English, Finnish and Swedish, [email protected] and distributed to shareholders registered with Euroclear Finland and Euroclear Sweden who have requested a copy. Rethink Stora Enso Contacts 2012 is downloadable as a PDF file from the Company’s website. Ulla Paajanen-Sainio SVP, Investor Relations Financial Report is published in English and downloadable as a PDF Stora Enso Oyj file from the Company’s website. The Official Financial Statements P.O. Box 309, (in Finnish), an English translation of the Parent Company Financial FI-00101 Helsinki, Finland Statements and the list of principal subsidiaries can be found on the Tel. +358 2046 21242 Company’s website. [email protected]

136 Stora Enso Financial Report 2012 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d w

Information for Shareholders

Concept and design: Miltton Oy Photography: Jenni-Justiina Niemi Printing: Erweko Oy Cover stock: Ensocoat 2S 240 g/m2, Stora Enso, Imatra Mills (ISO 14001 certified) Text stock: LumiSilk 100 g/m2, Stora Enso, Oulu Mill (ISO 14001 certified)

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 Financial Report 2012 137 WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d Global Volume 3 PeoPle and Responsibility Rethink PuRPose Stora Enso Rethink 2012 Stora Enso 2012 Report

Stora Enso 2012

Insert Stora Enso Facts & Figures 2012

Stora Enso Rethink 2012 Stora Enso Global Responsibility Stora Enso is transforming itself into Report 2012 a value-driven company focused on Find out more about Stora Enso’s growth markets, with its newly performance on issues related to defined purpose guiding the journey. sustainability in this in-depth report, Rethink magazine plots this which follows guidelines defined by progress, including the company’s the Global Reporting Initiative (GRI). major investments in China, and provides insight into the people around the globe.

Stora Enso Oyj P.O. Box 309 FI-00101 Helsinki, Finland Visiting address: Kanavaranta 1 Tel. +358 2046 131

Stora Enso AB P.O. Box 70395 SE-107 24 Stockholm, Sweden Visiting address: World Trade Center Klarabergsviadukten 70 Tel. +46 1046 46 000 storaenso.com facebook.com/storaenso twitter.com/storaenso [email protected] WorldReginfo - 35e8960c-ad99-442e-adb0-e5af8e09d22d