Stora Enso Interim Review January-June 2007

Year-on-year improvement maintained under difficult operating conditions; challenges will continue through 2007 Stora Enso Oyj Stock Exchange Release 26 July 2007 at 10.00 GMT Summary of Second Quarter Results (compared with Q2/2006) * Sales were EUR 3 805.2 (EUR 3 616.3) million. * Operating profit was EUR 216.7 (EUR 118.2) million excluding non-recurring items and EUR 229.5 (EUR 124.9) million including non-recurring items, both including EUR 21.3 (EUR -44.7) million net impact of non-operational nature. * Profit before tax was EUR 164.2 (EUR 53.2) million excluding non-recurring items, and EUR 177.0 (EUR 59.9) million including non-recurring items. * Net profit was EUR 125.1 (EUR 38.8) million excluding non-recurring items and EUR 143.9 (EUR 40.9) million including non-recurring items. * Earnings per share were EUR 0.16 (EUR 0.05) excluding non-recurring items and EUR 0.18 (EUR 0.05) including non-recurring items. Cash earnings per share were EUR 0.48 (EUR 0.39) excluding non-recurring items. * ROCE excluding non-recurring items was 7.5% (4.1%). Message from CEO Jouko Karvinen: "The Stora Enso Group continued its year-on-year improvement trend in the second quarter of 2007, under very challenging conditions. As anticipated, the shortage of birch pulpwood caused by the unusually short winter harvesting season resulted in higher wood costs and necessitated pulp production curtailments in stand-alone pulp mills in Finland. In addition, our profitability faces negative pressure from both direct and indirect effects of a continually weakening US dollar. Concerted efforts were made to meet these challenges and I am pleased with our ability to continue to serve our customers. Wood flows were continually optimised and high levels of maintenance stoppages were taken during the period. Despite these actions, the profitability of the paper and board divisions was lower than in the previous quarter, partly due to seasonal effects. Year-on-year, taking into account the Celbi Pulp Mill divestment, Fine Paper achieved double-digit year-on-year earnings improvement, as did Wood Products. Packaging Board suffered from a shortage of wood requiring production curtailments at Enocell Pulp Mill in Finland. Conditions for our magazine paper business remained difficult, resulting in clearly unsatisfactory profitability, which is being addressed as a top priority. Wood Products continued to perform well for another quarter. "Looking ahead for the rest of this year we anticipate further fibre cost increases. Rising wood costs cause us to revise our estimate of input cost inflation from 2.0-2.5% to about 3.5% for the full year 2007. Timely resolution of the roundwood export duty issue between Russia and the EU, specifically for birch pulpwood, is critical, not only to avoid further standstills at our mills; shortage of wood has increased the wood costs to such a level that the Finnish wood market's competitiveness is at a serious risk. "Our ongoing portfolio review is progressing as planned. The decisions will be announced when appropriate." Near-term market outlook In Europe the positive economic outlook is expected to support market demand for publication paper, which is also anticipated to benefit from the usual seasonal upswing in the autumn. Newsprint demand and prices are expected to remain mainly stable. Magazine paper prices, which have been trending downwards, are expected to stabilise. The outlook for fine paper demand and prices remains healthy, and steady growth in demand is anticipated, except for the seasonal slowdown due to summer holidays. The demand for packaging board is forecast to remain rather good with prices generally stable, and a slight improvement in some business segments is predicted. Market conditions for wood products are expected to moderate somewhat after an exceptionally strong first half of 2007. In North America further weakening in demand for newsprint is anticipated, and prospects for magazine paper and coated fine paper are uncertain. Announced reductions in domestic supply and trade policy initiatives are expected to improve the supply and demand balance in the coated paper market. In Latin America demand for coated magazine paper should remain healthy and prices are forecast to rise. In China healthy demand for coated fine paper is predicted, keeping prices stable. http://hugin.info/132206/R/1142196/216101.pdf Markets Compared with Q2/2006 In Europe market demand was stronger for publication paper, fine paper and packaging board. Markets for wood products improved steadily except in the USA, where demand contracted. Prices were higher than a year ago in newsprint, lower in magazine paper, unchanged in coated fine paper and higher in uncoated fine paper. Prices for most packaging boards and wood products were higher. In North America market demand was clearly weaker than a year ago for newsprint, but virtually unchanged for coated magazine paper and clearly stronger for uncoated magazine paper. Prices were lower in all publication paper segments. Market demand for coated fine paper weakened during the year, but prices remained largely stable. In Latin America market demand for coated magazine paper was stronger but prices lower than a year ago. In China market demand for coated fine paper was stronger but prices were unchanged. Compared with Q1/2007 In Europe market demand strengthened in newsprint, industrial and speciality papers, and wood products, but weakened in magazine paper and seasonally in fine paper. Publication paper prices were unchanged, but there was some downward pressure in the non-contracted business. Fine paper prices improved and packaging board prices were stable. Sales prices for wood products rose in most markets except Central Europe, where there were some downward price adjustments due to increased wood supply resulting from storms. In North America market demand for all publication papers improved slightly. Magazine paper prices were rather stable, but newsprint prices eroded further. Market demand for coated fine paper weakened, but prices remained unchanged. In Latin America market demand for coated magazine paper strengthened and prices remained firm. In China market demand for coated fine paper strengthened and prices increased slightly. Stora Enso Deliveries and Production +---------------------------------------------------------------------------+ | | | | | | | Change| Change| | | Q1-| Q1-| | | |s Q2/07-|s Q2/07-| | |Q2/06|Q2/07| Q2/06| Q1/07| Q2/07| Q2/06| Q1/07| |------------------------+-----+-----+------+------+------+--------+--------| |Paper and Board | | | | | | | | |deliveries (1 000 | | | | | | | | |tonnes) |7 197|7 518| 3 578| 3 790| 3 728| 150| -62| |------------------------+-----+-----+------+------+------+--------+--------| |Wood Products deliveries| | | | | | | | |(1 000 m3) |3 309|3 463| 1 746| 1 666| 1 797| 51| 131| |------------------------+-----+-----+------+------+------+--------+--------| |Paper and Board | | | | | | | | |Production (1 000 | | | | | | | | |tonnes) |7 327|7 578| 3 576| 3 833| 3 745| 169| -88| +---------------------------------------------------------------------------+ Q2/2007 Results (compared with Q2/2006) Sales at EUR 3 805.2 million were 5.2% higher than in the second quarter of 2006, mainly due to higher average prices for wood products and office papers, and increased deliveries of publication paper and packaging board. Operating profit excluding non-recurring items increased by EUR 98.5 million to EUR 216.7 million, which is 5.7% of sales. Operating profit was clearly higher in Wood Products, approximately the same in Fine Paper, but lower in Publication Paper, due to the declining performance in magazine papers, and in Packaging Board. The decrease in Publication Paper operating profit was due to lower magazine paper prices and higher wood, recycled paper and maintenance costs. Fine Paper operating profit remained unchanged because increases in uncoated fine paper prices offset higher wood and maintenance costs. Fine Paper operating profit rose more than 20% on a comparable basis, adjusting for the EUR 13.5 million impact of Celbi Pulp Mill divestment in the second quarter of 2006. Fine paper deliveries were lower due to the divestment of Celbi Pulp Mill and the permanent shutdown of Berghuizer PM 7 in April 2007. Packaging Board operating profit was lower due to production curtailments for about five weeks at the stand-alone Enocell Pulp Mill. Excluding this effect, the year-on-year earnings would have been up almost 20% despite more scheduled maintenance and higher wood costs. Deliveries of wood to the Group's mills totalled 11.4 million cubic metres, an increase of 0.4 million cubic metres or 3.3% on the second quarter of 2006. Wood costs were considerably higher in the second quarter of 2007 than a year earlier, except in North America. Key Figures Q1- Q1- EUR million 2005 2006 Q2/06 Q2/07 Q2/06 Q1/07 Q2/07 Sales 13 187.5 14 593.9 7 224.0 7 660.6 3 616.3 3 855.4 3 805.2 EBITDA excluding non-recurring items 1 501.1 1 872.8 903.5 1 041.4 387.3 568.9 472.5 Operating profit excluding non- recurring items 371.2 782.1 365.2 524.0 118.2 307.3 216.7 Non-recurring items (operational) -417.3 -133.7 -16.5 44.8 6.7 32.0 12.8 Operating margin excluding non- recurring items, % 2.8 5.4 5.1 6.8 3.3 8.0 5.7 Operating profit -46.1 648.4 348.7 568.8 124.9 339.3 229.5 Net financial items1) -165.3 -104.0 -22.9 -129.0 -85.2 -56.7 -72.3 Profit before tax and minority interests excluding non-recurring items 273.1 602.5 264.1 439.0 53.2 274.8 164.2 Profit before tax and minority interests -144.2 631.8 377.6 483.8 59.9 306.8 177.0 Net profit for the period excluding non-recurring items 230.3 439.4 197.0 332.3 38.8 207.2 125.1 Net profit for the period -107.4 589.2 267.3 366.4 40.9 222.5 143.9 EPS excluding non-recurring items, Basic, EUR 0.28 0.55 0.25 0.41 0.05 0.26 0.16 EPS, Basic, EUR -0.14 0.74 0.33 0.46 0.05 0.28 0.18 CEPS excluding non-recurring items, EUR 1.70 1.94 0.93 1.07 0.39 0.59 0.48 ROCE excluding non-recurring items, % 3.4 6.8 6.3 9.1 4.1 10.8 7.5 1) Includes capital gains of EUR 130.0 million (sale of Sampo shares) in Q1/2006, EUR 33.0 million (sale of Finnlines shares) in Q4/2006 totalling to EUR 163.0 million in 2006. CEPS = (Net profit for the period + depreciation and amortisation)/average number of shares Non-recurring items are exceptional transactions that are not related to normal business operations. The most common non-recurring items are capital gains, additional write-downs, restructuring provisions and penalties. Non-recurring items are normally specified individually if they exceed one cent per share. Change Change % Q1- % Change Q2/07- Q2/07- % Q2/07- Q1- EUR million Q2/06 Q1/07 Q2/06 Sales 5.2 -1.3 6.0 EBITDA excluding non-recurring items 22.0 -16.9 15.3 Operating profit excluding non- recurring items 83.3 -29.5 43.5 Non-recurring items (operational) 91.0 -60.0 n/a Operating margin excluding non- recurring items, % 72.7 -28.8 33.3 Operating profit 83.7 -32.4 63.1 Net financial items1) 15.1 -27.5 n/m Profit before tax and minority interests excluding non-recurring items 208.6 -40.2 66.2 Profit before tax and minority interests 195.5 -42.3 28.1 Net profit for the period excluding non-recurring items 222.4 -39.6 68.7 Net profit for the period 251.8 -35.3 37.1 EPS excluding non-recurring items, Basic, EUR 220.0 -38.5 64.0 EPS, Basic, EUR 260.0 -35.7 39.4 CEPS excluding non-recurring items, EUR 23.1 -18.6 15.1 ROCE excluding non-recurring items, % 82.9 -30.6 44.4 1) Includes capital gains of EUR 130.0 million (sale of Sampo shares) in Q1/2006, EUR 33.0 million (sale of Finnlines shares) in Q4/2006 totalling to EUR 163.0 million in 2006. CEPS = (Net profit for the period + depreciation and amortisation)/average number of shares Non-recurring items are exceptional transactions that are not related to normal business operations. The most common non-recurring items are capital gains, additional write-downs, restructuring provisions and penalties. Non-recurring items are normally specified individually if they exceed one cent per share. Operating profit includes a positive net effect of EUR 21.3 million (negative EUR 44.7 million) from the accounting of share-based compensation, Total Return Swaps (TRS) and CO2 emission rights. These non-operational items have a positive cash impact of EUR 22.2 million from the exercised TRS and they are all reported in the segment Other. There were two non-recurring items with a net positive impact of EUR 12.8 million (positive EUR 6.7 million) on operating profit: a negative non-cash actuarial valuation adjustment of EUR 11.6 (USD 14.6) million related to the new labour agreements in North America and a capital gain, net of provisions, of EUR 24.4 million from the sale of warehouses and office properties in Sweden and Denmark by Stora Enso's Papyrus paper merchant. The share of associated company results amounted to EUR 19.8 (EUR 20.2) million; the main contributions were from Bergvik Skog and Tornator. Net financial items were EUR -72.3 (EUR -85.2) million. Net interest expenses decreased to EUR 55.8 (EUR 58.4) million and net foreign exchange losses on borrowings, currency derivatives and bank accounts were EUR 0.1 (EUR 11.1) million. Other financial items totalled EUR -16.4 (EUR -15.7) million, mainly arising from the fair valuation of financial items. Profit before taxes and minority interests excluding non-recurring items increased by EUR 111.0 million to EUR 164.2 million and profit before tax amounted to EUR 177.0 (EUR 59.9) million including non-recurring items. Net taxes totalled EUR -33.1 (EUR -19.0) million, leaving a net profit for the quarter of EUR 143.9 (EUR 40.9) million. The profit attributable to minority shareholders was EUR 2.6 (EUR 2.3) million, so the profit attributable to Company shareholders was EUR 141.3 (EUR 38.6) million. Earnings per share excluding non-recurring items increased by EUR 0.11 to EUR 0.16. Earnings per share including non-recurring items were EUR 0.18 (EUR 0.05). Cash earnings per share were EUR 0.48 (EUR 0.39) excluding non-recurring items. The return on capital employed was 7.5% (4.1%) excluding non-recurring items. Capital employed was EUR 11 683.5 million on 30 June 2007, a net increase of EUR 341.8 million, mainly due to decreased pension and tax liabilities. January-June 2007 Results (compared with the same period in 2006) Sales at EUR 7 660.6 million were 6.0% higher than in the first half of 2006, mainly due to higher prices for wood products and increased deliveries in all segments except Fine Paper, where deliveries were lower mainly due to the divestment of Celbi Pulp Mill in July 2006. Publication Paper deliveries were higher, largely due to the standstill at Port Hawkesbury Mill in 2006 and the acquisition of Arapoti Mill in September 2006. Operating profit excluding non-recurring items increased by EUR 158.8 million to EUR 524.0 million and was clearly higher in Wood Products. Operating profit was lower in Publication Paper despite higher newsprint prices, because magazine paper sales prices declined while wood and recycled paper costs rose. Fine Paper operating profit increased because higher office paper prices more than offset higher maintenance costs and the divested Celbi Pulp Mill's EUR 26.6 million operating profit in the first half of 2006. Packaging Board operating profit was largely unchanged because higher sales volumes were offset by higher raw material and maintenance costs, and production curtailments at Enocell Pulp Mill. The share of associated company results amounted to EUR 44.0 (EUR 51.8) million; the main contributions were from Bergvik Skog and Tornator. Net financial items were EUR -129.0 (EUR -22.9) million. The difference is mainly due to a non-recurring capital gain of EUR 130.0 million from the sale of shares in Sampo Oyj in the first half of 2006 and from the fair valuations of financial instruments. Profit before taxes and minority interest excluding non-recurring items increased by EUR 174.9 million to EUR 439.0 million. Net taxes totalled EUR -117.4 (EUR -110.3) million. Earnings per share excluding non-recurring items increased by EUR 0.16 to EUR 0.41. Earnings per share including non-recurring items were EUR 0.46 (EUR 0.33). Q2/2007 Results (compared with Q1/2007) Sales at EUR 3 805.2 million were 1.3% lower than the previous quarter's EUR 3 855.4 million. Deliveries increased in Wood Products and decreased in Fine Paper, partly due to the permanent shutdown of Berghuizer PM 7. Deliveries were almost unchanged in Packaging Board and Publication Paper. Realised prices were in local currencies higher for wood products and industrial packaging, and somewhat higher for uncoated and coated fine paper, lower for publication paper, particularly for magazine grades, and somewhat lower for consumer board. Operating profit excluding non-recurring items decreased by EUR 90.6 million to EUR 216.7 (EUR 307.3) million, which is 5.7% of sales. Operating profit decreased in all product segments except Wood Products. Operating profit was decreased by lower sales prices in Publication Paper and lower sales volumes in Fine Paper, but increased by higher sales prices in Wood Products. The second quarter was also affected by a high level of maintenance and holiday shutdowns, increasing wood costs and approximately five weeks of production curtailments at Packaging Board's Enocell Pulp Mill due to a shortage of wood. Profit before tax amounted to EUR 164.2 (EUR 274.8) million excluding non-recurring items and EUR 177.0 (EUR 306.8) million including non-recurring items. Earnings per share were EUR 0.16 (EUR 0.26) excluding non-recurring items. Earnings per share including non-recurring items were EUR 0.18 (EUR 0.28). Cash earnings per share were EUR 0.48 (EUR 0.59) excluding non-recurring items. The return on capital employed was 7.5% (10.8%) excluding non-recurring items. Capital employed was EUR 11 683.5 million on 30 June 2007, a net increase of EUR 177.9 million due to increased working capital and decreased provisions. Capital Structure Change Change % 30 % 30 Jun 07 Jun 07 - - 31 Dec 30 Jun 31 Mar 30 Jun 30 Jun 31 Mar EUR million 06 06 07 07 06 07 Fixed assets 11 234.7 11 200.6 11 029.2 11 029.5 -1.5 0.0 Operative working capital 2 183.6 2 517.4 2 415.4 2 497.4 -0.8 3.4 Non-current interest-free items, net -1 204.0 -1 292.4 -1 050.7 -954.3 -26.2 -9.2 Operating Capital Total 12 214.3 12 425.6 12 393.9 12 572.6 1.2 1.4 Net tax liabilities -873.4 -1 083.9 -888.3 -889.1 18.0 -0.1 Capital Employed 11 340.9 11 341.7 11 505.6 11 683.5 3.0 1.5 Associated companies 805.2 762.2 868.3 907.3 19.0 4.5 Total 12 146.1 12 103.9 12 373.9 12 590.8 4.0 1.8 Equity attributable to Company shareholders 7 799.6 7 104.4 7 642.0 8 052.9 13.4 5.4 Minority interests 103.5 91.6 106.2 117.0 27.7 10.2 Net interest-bearing liabilities 4 243.0 4 907.9 4 625.7 4 420.9 -9.9 -4.4 Financing Total 12 146.1 12 103.9 12 373.9 12 590.8 4.0 1.8 Financing (compared with Q1/07) Cash flow from operations was EUR 377.7 (EUR 210.2) million and cash flow after investing activities EUR 190.6 (101.3) million compared with the first quarter of 2007. Cash flow from operations improved due to moderating increase in working capital. At the end of the period, interest-bearing net liabilities were EUR 4 420.9 million, a decrease of EUR 204.8 million due to redemptions of long-term debt. Unutilised credit facilities and cash and cash-equivalent reserves totalled EUR 1.6 billion. Shareholders' equity amounted to EUR 8 052.9 million or EUR 10.21 (EUR 9.69) per share, compared with the market capitalisation on the Helsinki Stock Exchange on 30 June 2007 of EUR 11.0 billion. The debt/equity ratio at 30 June 2007 was 0.55 (0.61). The currency effect on equity was positive EUR 59.6 million net of the hedging of equity translation risks. Cash Flow Change Change Change % Q1- % % Q2/07 Q2/07 Q2/07 - Q1- Q1- - - Q1- EUR million 2006 Q2/06 Q2/07 Q2/06 Q1/07 Q2/07 Q2/06 Q1/07 Q2/06 Operating profit 648.4 348.7 568.8 124.9 339.3 229.5 83.7 -32.4 63.1 Adjustments* 1 060.9 576.7 477.1 310.8 256.2 220.9 -28.9 -13.8 -17.3 Change in working capital 199.1 -221.5 -458.0 -31.6 -385.3 -72.7 -130.1 81.1 -106.8 Cash Flow from Operations 1 908.4 703.9 587.9 404.1 210.2 377.7 -6.5 79.7 -16.5 Capital expenditure -583.4 -275.0 -296.0 -107.3 -108.9 -187.1 74.4 71.8 7.6 Cash Flow after Investing Activities 1 325.0 428.9 291.9 296.8 101.3 190.6 -35.8 88.2 -31.9 * Adjustments include depreciations, other non-cash income and expenses and capital gains and losses which are included in proceeds from the sale of fixed assets and shares. Capital Expenditure for January-June 2007 Capital expenditure for the first half of 2007 totalled EUR 296.0 million, which is 57% of scheduled depreciation and 3.9% of sales. The Group's capital expenditure for 2007 is expected to be in range of EUR 800-850 million. The main projects during the first six months were PM 6 at Huatai in China (EUR 20.9 million), land acquisitions in South America (EUR 17.2 million) and PM 3 at Varkaus Mill in Finland (EUR 14.9 million). Short-term risks and uncertainties Possible further price rises for major raw materials, especially wood, the availability of birch pulpwood and continued US dollar decline are short-term risks. Near-term market outlook In Europe the positive economic outlook is expected to support market demand for publication paper, which is also anticipated to benefit from the usual seasonal upswing in the autumn. Newsprint demand and prices are expected to remain mainly stable. Magazine paper prices, which have been trending downwards, are expected to stabilise. The outlook for fine paper demand and prices remains healthy, and steady growth in demand is anticipated, except for the seasonal slowdown due to summer holidays. The demand for packaging board is forecast to remain rather good with prices generally stable, and a slight improvement in some business segments is predicted. Market conditions for wood products are expected to moderate somewhat after an exceptionally strong first half of 2007. In North America further weakening in demand for newsprint is anticipated, and prospects for magazine paper and coated fine paper are uncertain. Announced reductions in domestic supply and trade policy initiatives are expected to improve the supply and demand balance in the coated paper market. In Latin America demand for coated magazine paper should remain healthy and prices are forecast to rise. In China healthy demand for coated fine paper is predicted, keeping prices stable. Second Quarter Events April Stora Enso signed a mill site land acquisition agreement with Beihai City Government in Guangxi, China. The agreement provides Stora Enso a total of 250 hectares of industrial land for possible future use as a mill site. It is located by the sea in the Tieshangang Industrial Zone of Beihai City in the north of Beibu Gulf in the South China Sea, near Vietnam. The purchase price of EUR 27 million is to be paid in the third quarter of 2007. May Stora Enso announced an investment of EUR 25 million in a new copy paper sheeter, two packaging lines and a new machine hall at its Veitsiluoto fine paper mill in Finland. The project, which will increase mill specialisation within the division, was scheduled to start in June 2007 and be completed within a year. Stora Enso signed a new EUR 1.4 billion syndicated credit facility agreement with a group of 15 banks. The facility, which has a maturity of five years, is for general corporate purposes including the refinancing of an existing EUR 1.75 billion syndicated facility. The new loan facility has a margin of 0.225% p.a. over Euribor. June Stora Enso announced the start of co-determination negotiations concerning possible temporary lay-offs of personnel at its Kemijärvi pulp mill in Finland due to the shortage of wood. Stora Enso announced that it will upgrade and modernise the two board machines (BM 2 and BM 3) and chemi-thermomechanical pulping (CTMP) plant 2 at its Fors Mill in Sweden to improve quality and pulp production. This project, costing a total of EUR 29 million, is scheduled to start in 2007. Stora Enso also announced that it is investing EUR 16.8 million to reduce energy costs by increasing packaging-derived fuel and biofuel combustion capacity at its Anjalankoski Mill. Packaging-derived fuel is the source-separated, processed, dry combustible part of municipal solid waste. Stora Enso's subsidiary paper merchant Papyrus sold warehouses and office properties in Sweden and Denmark to the Swedish listed property company Kungsleden. The total value of the cash deal, which had a positive impact on Stora Enso's cash flow in the second quarter of 2007, was EUR 50.4 million. A capital gain of approximately EUR 24.4 million has been recorded as a non-recurring item in Stora Enso's second quarter results under Merchants. The company also announced that Papyrus is to build a new 27 000 m2 Scandinavian Central Warehouse in the Port of Göteborg in Sweden to increase efficiency and give Scandinavian customers access to a wider product range with improved product availability. Papyrus is purchasing 49 000 m2 of land from Scandinavian Distripoint AB, a company owned by the City of Gothenburg, for the building site at a cost of EUR 3.2 million. The total capital expenditure in the project will be EUR 35 million. Sauga Sawmill in Estonia was permanently shut down in June as announced in March 2007. The closure is expected to have a slightly positive impact on the full year operating profit. Inspections by Competition Authorities In 2004 the US antitrust authorities started investigations concerning the sale of coated magazine paper in the USA from autumn 2002 until spring 2003. On Thursday 19 July 2007, following a jury trial in the US Federal District Court in Hartford, Connecticut, the jury found Stora Enso not guilty of the charges. Coincident with this investigation, Stora Enso has been named in a number of class action lawsuits filed in the USA. These lawsuits are still pending. As a result of an investigation, the Finnish Competition Authority has proposed to the Finnish Market Court that a fine of EUR 30 million be imposed on Stora Enso for violating competition laws in the purchasing of wood in Finland in the period from 1997 to 2004. Stora Enso considers the proposal groundless. No provision has been made in Stora Enso's accounts for the above-mentioned investigations and lawsuits. Share Capital During the quarter 284 857 A shares were converted into R shares. The conversion was recorded in the Finnish Trade Register on 16 July 2007. During the quarter the Company allocated 3 204 repurchased R shares under the terms of the Stora Enso North America Option Plan. On 30 June 2007 Stora Enso had 178 102 667 A shares and 611 435 832 R shares in issue, of which the Company held no A shares and 938 522 R shares with a nominal value of EUR 1.6 million. The holding represents 0.12% of the Company's share capital and 0.04% of the voting rights. Events after the Period Stora Enso has announced a quality-driven investment of EUR 15 million to upgrade board manufacturing at its Imatra mills in Finland. Kai Korhonen, Senior Executive Vice President, Packaging Board and member of the Executive Management Group (EMG), has chosen to retire and leave his duties at Stora Enso. He will relinquish his current duties by 31 August 2007, but will continue to undertake special assignments for CEO Jouko Karvinen until the end of 2007. Kai Korhonen's successor will be announced before the end of August. Stora Enso has decided to start a pre-feasibility study for a pulp and paper mill complex in Nizhny Novgorod, Russia which will be undertaken in close co-operation with the Russian government. The objective is to manufacture paper for Russian consumers from Russian wood in Russia. Jussi Huttunen, Senior Executive Vice President, Market Services left Stora Enso to pursue new opportunities. This report is unaudited. Helsinki, 26 July 2007 Stora Enso Oyj Board of Directors Segments Publication Paper Change Change Change % Q1- % % Q2/07- Q1- Q1- Q2/07- Q2/07- Q1- EUR million 2006 Q2/06 Q1/07 Q2/07 Q2/06 Q2/07 Q2/06 Q1/07 Q2/06 Sales 4 773.4 1 145.2 1 240.5 1 217.4 2 316.2 2 457.9 6.3 -1.9 6.1 Operating profit* 251.6 55.3 63.5 35.9 125.6 99.4 -35.1 -43.5 -20.9 % of sales 5.3 4.8 5.1 2.9 5.4 4.0 -39.6 -43.1 -25.9 ROOC, %** 6.2 5.4 6.5 3.7 6.1 5.1 -31.5 -43.1 -16.4 Deliveries, 1 000 t 6 929 1 662 1 824 1 834 3 328 3 658 10.3 0.5 9.9 Production, 6 955 1 674 1 882 1 842 3 391 3 724 10.0 -2.1 9.8 1 000 t * Excluding non-recurring items **ROOC = 100% x Operating profit/Operating capital Publication Paper's performance deteriorated during the second quarter of 2007, depressed by the coated and uncoated magazine business areas. Sales were EUR 1 217.4 million, up 6.3% on the second quarter of 2006 because coated magazine paper sales increased and a year ago there was a standstill at Port Hawkesbury Mill and Arapoti Mill was not yet part of the Group. Operating profit at EUR 35.9 million was 35.1% lower than a year earlier mainly because magazine paper prices decreased in all regions, while prices increased for raw materials, especially wood and recycled paper. The operating profit benefited from EUR 15 million refund of the German energy tax and release of EUR 9 million restructuring provision at Reisholz Mill, both entered in the second quarter as a cumulative adjustment for the first half of 2007. The deteriorating trend in magazine papers caused by a combination of weak pricing conditions and increased fibre costs will require significant changes in cost structures. These changes may include capacity reductions should underlying conditions not improve rapidly. Markets Compared with Q2/2006 In Europe demand for all publication paper grades was stronger than a year ago. Producer inventories were up in newsprint and uncoated magazine paper, but down in coated magazine paper. Prices were higher for newsprint and lower for magazine paper. In North America demand was clearly weaker for newsprint, clearly stronger for uncoated magazine paper and almost unchanged for coated magazine paper. Inventories were higher but prices lower in all product segments. In Latin America demand was stronger but prices were lower. Compared with Q1/2007 In Europe demand for newsprint strengthened but demand for magazine paper weakened. Producer inventories rose. Prices were virtually unchanged for all grades, but the non-contractual business has recently been facing increasing price pressure. In North America demand for all publication paper grades improved slightly. Newsprint prices declined further, but magazine paper prices remained fairly stable. In Latin America demand strengthened and prices remained firm. Fine Paper Change Change Change % Q1- % % Q2/07- Q1- Q1- Q2/07- Q2/07- Q1- EUR million 2006 Q2/06 Q1/07 Q2/07 Q2/06 Q2/07 Q2/06 Q1/07 Q2/06 Sales 2 956.3 738.9 738.6 684.9 1 515.2 1 423.5 -7.3 -7.3 -6.1 Operating profit* 166.0 46.3 61.5 41.1 99.0 102.6 -11.2 -33.2 3.6 % of sales 5.6 6.3 8.3 6.0 6.5 7.2 -4.8 -27.7 10.8 ROOC, %** 7.1 7.2 11.4 7.6 7.7 9.5 5.6 -33.3 23.4 Deliveries, 1 000 t 3 839 945 966 894 1 939 1 860 -5.4 -7.5 -4.1 Production, 1 000 t 3 861 944 951 924 1 973 1 875 -2.1 -2.8 -5.0 * Excluding non-recurring items **ROOC = 100% x Operating profit/Operating capital Sales were EUR 684.9 million, a decrease of EUR 54.0 million on the second quarter of 2006 mainly due to the sale of Celbi Pulp Mill and the permanent shutdown of Berghuizer PM 7 in April 2007. Fine Paper operating profit improved year-on-year when adjusted for the EUR 13.5 million contribution from the divested Celbi Pulp Mill. Operating profit was EUR 41.1 million, EUR 5.2 million less than in the second quarter of 2006 as higher prices and improved cost efficiency were more than offset by higher wood and pulp costs and seasonally increased maintenance. Markets Compared with Q2/2006 In Europe coated fine paper demand was stronger than a year ago, driven by economic growth, but prices were unchanged. Industry inventories were similar to a year ago. In uncoated fine paper, demand was somewhat better due to economic growth, prices were higher and industry inventories were lower than a year ago. In North America coated fine paper demand was clearly weaker than a year ago due to the economic slowdown, but prices were unchanged. In coated fine paper producer inventories were slightly higher than a year ago. Chinese coated fine paper demand was stronger than a year ago, but prices were unchanged. Compared with Q1/2007 In Europe coated fine paper demand was weaker than in the previous quarter following the normal seasonal trend. Coated fine paper prices rose slightly, and industry inventories increased. In uncoated fine paper, demand was seasonally weaker than in the previous quarter, but prices continued to rise. Producer inventories increased to normal levels. In North America coated fine paper demand was weaker than in the previous quarter but prices were unchanged. Producer inventories continued increasing slightly, but only to normal levels. Chinese coated fine paper demand continued to grow and prices increased slightly. Merchants Sales were EUR 479.4 million, up 5.9% on the second quarter of 2006 mainly due to increased sales volumes and higher prices. Operating profit was EUR 8.2 million excluding non-recurring items, up by EUR 5.3 million on the second quarter of 2006, boosted by volume increases and margin improvements. Suppliers' price increases were successfully passed on and costs were kept generally stable. Packaging Board Change Change Change % Q1- % % Q2/07- Q2/07- Q2/07- Q1- EUR million 2006 Q2/06 Q1/07 Q2/07 Q1-Q2/06 Q1-Q2/07 Q2/06 Q1/07 Q2/06 Sales 3 531.5 881.8 919.8 909.0 1 750.8 1 828.8 3.1 -1.2 4.5 Operating profit* 323.4 70.8 106.5 62.5 170.3 169.0 -11.7 -41.3 -0.8 % of sales 9.2 8.0 11.6 6.9 9.7 9.2 -13.8 -40.5 -5.2 ROOC, %** 11.5 10.0 15.4 9.1 12.1 12.4 -9.0 -40.9 2.5 Deliveries, 1 000 t 3 850 971 1 000 1 000 1 930 2 000 3.0 0.0 3.6 Production, 1 000 t 3 883 958 1 000 979 1 963 1 979 2.2 -2.1 0.8 * Excluding non-recurring items **ROOC = 100% x Operating profit/Operating capital Packaging Board operated under difficult conditions as it suffered from a shortage of wood and significant year-on-year wood cost increases during the second quarter of 2007. Sales were EUR 909.0 million, up 3.1% on the second quarter of 2006 mainly due to higher volumes. Operating profit was EUR 62.5 million, down 11.7% on the second quarter of 2006 due to about five weeks of curtailments in pulp production caused by a shortage of wood. Markets Compared with Q2/2006 Cartonboard demand was stronger in Europe. Producer inventories were lower and market prices higher, mainly in recovered fibre grades, but also in primary fibre cartonboard. Prices for consumer board were lower due to exchange rate trends. Volumes and prices for industrial packaging and speciality papers were higher than a year ago. Compared with Q1/2007 Cartonboard demand in Europe was unchanged on the previous quarter. Exports to overseas continued decreasing. Producer inventories increased and cartonboard market prices improved slightly. Prices for consumer board were unchanged. Volumes and prices for industrial packaging and speciality papers were similar to the previous quarter. Wood Products Change Change Change % Q1- % % Q2/07- Q1- Q1- Q2/07- Q2/07- Q1- EUR million 2006 Q2/06 Q1/07 Q2/07 Q2/06 Q2/07 Q2/06 Q1/07 Q2/06 Sales 1 676.4 437.8 479.8 530.7 814.9 1 010.5 21.2 10.6 24.0 Operating profit* 59.1 14.9 53.7 57.8 18.7 111.5 n/m 7.6 n/m % of sales 3.5 3.4 11.2 10.9 2.3 11.0 n/m -2.7 n/m ROOC, %** 9.2 8.9 32.9 33.9 5.6 34.0 n/m 3.0 n/m Deliveries, 1 000 m3 6 572 1 746 1 666 1 797 3 309 3 463 2.9 7.9 4.7 * Excluding non-recurring items **ROOC = 100% x Operating profit/Operating capital Wood Products sales and profitability benefited from excellent market conditions in the first half of 2007. Sales were EUR 530.7 million, up 21.2% on the second quarter of 2006 mainly due to higher sales prices. Operating profit was EUR 57.8 million, an increase of EUR 42.9 million on the second quarter of 2006 aided by higher sales prices and improved cost efficiency. Markets Compared with Q2/2006 Markets improved steadily over the year except in the USA, where the booming housing market of recent years turned down during the second half of 2006. In all other markets good demand and rapid raw material cost escalation supported a steady improvement in market prices following several years of weakness. Compared with Q1/2007 Demand remained good in Europe, Asia, North Africa and the Middle East. Sales volumes were generally higher than in the previous quarter due to seasonally stronger construction activity. Sales prices rose in most markets except Central Europe, where increased supply following winter storm Kyrill led to some downward price adjustments. The North American market, which accounts for only a small percentage of sales, remained depressed with weak demand and low prices. Financials Key Ratios Q1- Q1- 2005 2006 Q2/06 Q2/07 Q2/06 Q1/07 Q2/07 Earnings per share (basic), EUR -0.14 0.74 0.33 0.46 0.05 0.28 0.18 Earnings per share excl. non-recurring items, EUR 0.28 0.55 0.25 0.41 0.05 0.26 0.16 Cash earnings per share (CEPS), EUR 1.65 2.34 1.02 1.13 0.39 0.62 0.50 CEPS excl. non-recurring items, EUR 1.70 1.94 0.93 1.07 0.39 0.59 0.48 Return on capital employed (ROCE), % -0.4 5.6 6.1 9.9 4.4 11.9 7.9 ROCE excl. non- recurring items, % 3.4 6.8 6.3 9.1 4.1 10.8 7.5 Return on equity (ROE), % -1.4 7.7 7.4 9.1 2.3 11.4 7.2 Debt/equity ratio 0.70 0.54 0.69 0.55 0.69 0.61 0.55 Equity per share, EUR 9.16 9.89 9.01 10.21 9.01 9.69 10.21 Equity ratio, % 41.0 45.3 41.4 46.7 41.4 44.1 46.7 Operating profit, % of sales -0.3 4.4 4.8 7.4 3.5 8.8 6.0 Operating profit excl. non-recurring items, % of sales 2.8 5.4 5.1 6.8 3.3 8.0 5.7 Capital expenditure, EUR million 1 145.3 583.4 275.0 296.0 107.3 108.9 187.1 Capital expenditure, % of sales 8.7 4.0 3.8 3.9 3.0 2.8 4.9 Capital employed, EUR million 11 678 11 341 11 341 11 683 11 341 11 505 11 683 Interest-bearing net liabilities, EUR million 5 084 4 243 4 908 4 421 4 908 4 626 4 421 Average number of employees 46 166 45 631 46 051 44 026 46 051 43 504 44 026 Average number of shares (million) periodic 798.7 788.6 788.6 788.6 788.6 788.6 788.6 cumulative 798.7 788.6 788.6 788.6 788.6 788.6 788.6 cumulative, diluted 799.2 788.9 789.1 788.9 789.1 788.9 788.9 Change Change % Change % % Q1- Q2/07- Q2/07- Q2/07- Q2/06 Q1/07 Q1-Q2/06 Earnings per share (basic), EUR 260.0 -35.7 39.4 Earnings per share excl. non-recurring items, EUR 220.0 -38.5 64.0 Cash earnings per share (CEPS), EUR 28.2 -19.4 10.8 CEPS excl. non-recurring items, EUR 23.1 -18.6 15.1 Return on capital employed (ROCE), % 79.5 -33.6 62.3 ROCE excl. non- recurring items, % 82.9 -30.6 44.4 Return on equity (ROE), % 213.0 -36.8 23.0 Debt/equity ratio -20.3 -9.8 -20.3 Equity per share, EUR 13.3 5.4 13.3 Equity ratio, % 12.8 5.9 12.8 Operating profit, % of sales 71.4 -31.8 54.2 Operating profit excl. non-recurring items, % of sales 72.7 -28.8 33.3 Capital expenditure, EUR million 74.4 71.8 7.6 Capital expenditure, % of sales 63.3 75.0 2.6 Capital employed, EUR million 3.0 1.5 3.0 Interest-bearing net liabilities, EUR million -9.9 -4.4 -9.9 Average number of employees -4.4 1.2 -4.4 Average number of shares (million) periodic cumulative cumulative, diluted Key Exchange Rates for the Euro One Euro is Closing Rate Average Rate 31 Dec 06 30 Jun 07 31 Dec 06 30 Jun 07 SEK 9.0404 9.2525 9.2517 9.2232 USD 1.3170 1.3505 1.2563 1.3297 GBP 0.6715 0.6740 0.6819 0.6748 CAD 1.5281 1.4245 1.4247 1.5087 Transaction Risk and Hedges in Main Currencies as at 30 June 2007 EUR million USD GBP SEK JPY Estimated annual net operating cash flow 1 350 700 -1 000 250 exposure Transaction hedges as at 30 Jun. 422 236 -680 44 Hedging percentage as at 30 Jun. for the next 12 31% 34% 68% 18% months Condensed Consolidated Income Statement Q1- Q1- EUR million 2006 Q2/06 Q1/07 Q2/07 Q2/06 Q2/07 Sales 14 593.9 3 616.3 3 855.4 3 805.2 7 224.0 7 660.6 Other operating income 364.9 43.6 16.7 38.6 93.8 55.3 Materials and -3 -4 services -8 111.5 -1 958.5 -2 160.0 -2 212.5 946.2 372.5 Freight and sales commissions -1 751.4 -478.0 -430.7 -432.0 -870.7 -862.7 Personnel -1 -1 expenses -2 200.9 -623.3 -483.7 -557.8 167.7 041.5 Other operating expenses -988.9 -206.1 -185.0 -156.2 -446.2 -341.2 Depreciation and impairment -1 257.7 -269.1 -273.4 -255.8 -538.3 -529.2 Operating Profit / (Loss) 648.4 124.9 339.3 229.5 348.7 568.8 Share of results of associated companies 87.4 20.2 24.2 19.8 51.8 44.0 Net financial items -104.0 -85.2 -56.7 -72.3 -22.9 -129.0 Profit / (Loss) before Tax 631.8 59.9 306.8 177.0 377.6 483.8 Income tax -42.6 -19.0 -84.3 -33.1 -110.3 -117.4 Net Profit / (Loss) for the Period 589.2 40.9 222.5 143.9 267.3 366.4 Attributable to: Equity holders of the Parent Company 585.0 38.6 219.2 141.3 263.6 360.5 Minority interests 4.2 2.3 3.3 2.6 3.7 5.9 589.2 40.9 222.5 143.9 267.3 366.4 Earnings per share Basic earnings per share, EUR 0.74 0.05 0.28 0.18 0.33 0.46 Diluted earnings per share, EUR 0.74 0.05 0.28 0.18 0.33 0.46 Chang Chang Chang e % e % e % Q1- Q2/07 Q2/07 Q2/07- - - Q1- EUR million Q2/06 Q1/07 Q2/06 Sales 5.2 -1.3 6.0 Other operating income -11.5 131.1 -41.0 Materials and services -13.0 -2.4 -10.8 Freight and sales commissions 9.6 -0.3 0.9 Personnel expenses 10.5 -15.3 10.8 Other operating expenses 24.2 15.6 23.5 Depreciation and impairment 4.9 6.4 1.7 Operating Profit / (Loss) 83.7 -32.4 63.1 Share of results of associated companies -2.0 -18.2 -15.1 Net financial items 15.1 -27.5 -463.3 Profit / (Loss) before Tax 195.5 -42.3 28.1 Income tax -74.2 60.7 -6.4 Net Profit / (Loss) for the Period 251.8 -35.3 37.1 Attributable to: Equity holders of the Parent Company 266.1 -35.5 36.8 Minority interests 13.0 -21.2 59.5 251.8 -35.3 37.1 Earnings per share Basic earnings per share, EUR 260.0 -35.7 39.4 Diluted earnings per share, EUR 260.0 -35.7 39.4 Consolidated Statement of Recognised Income & Expense Q1- Q1- EUR million 2006 Q2/06 Q1/07 Q2/07 Q2/06 Q2/07 Defined benefit plan actuarial 135.1 - - 2.6 - 2.6 gains / (losses) Tax on actuarial movements -46.6 - - -0.7 - -0.7 Aggregate fair value movements 251.6 -5.6 51.1 169.7 -109.3 220.8 in Available-for-Sale assets Currency and commodity hedges -45.3 -2.4 -37.5 53.8 86.3 16.3 Associate hedges 11.1 3.6 -0.1 3.4 7.1 3.3 Tax on Other Comprehensive 50.2 2.2 10.2 -17.2 4.3 -7.0 Income Movements (OCI) Currency translation movements -86.4 -30.7 -69.0 66.4 -70.6 -2.6 on equity net investments (CTA) Equity net investment hedges 118.0 37.2 32.1 -9.1 75.8 23.0 Tax on equity hedges -30.7 -9.6 -8.3 2.3 -19.7 -6.0 Net Income & Expense Recognised 357.0 -5.3 -21.5 271.2 -26.1 249.7 directly in Equity Net profit / (loss) for the year 589.2 40.9 222.5 143.9 267.3 366.4 Total Recognised Income & 946.2 35.6 201.0 415.1 241.2 616.1 Expense for the Year Attributable to: Equity holders of the Parent 942.0 33.3 197.7 412.5 237.5 610.2 Company Minority interests 4.2 2.3 3.3 2.6 3.7 5.9 Total Recognised Income & 946.2 35.6 201.0 415.1 241.2 616.1 Expense for the Year Condensed Consolidated Cash Flow Statement EUR million Q1-Q2/06 Q1-Q2/07 Cash Flow from Operating Activities Operating profit 348.7 568.8 Adjustments 576.7 477.1 Change in net working capital -221.5 -458.0 Change in short-term interest-bearing receivables 54.8 15.7 Cash Flow Generated by Operations 758.7 603.6 Net financial items -116.1 -72.4 Income taxes paid -72.6 -91.8 Net Cash Provided by Operating Activities 570.0 439.4 Cash Flow from Investing Activities Acquisitions of subsidiaries -8.5 -0.8 Acquisitions of associated companies 0.0 -72.6 Proceeds from sale of fixed assets and shares 214.2 70.3 Capital expenditure -275.0 -296.0 Proceeds from (payment of) the non-current -17.0 18.4 receivables, net Net Cash Used in Investing Activities -86.3 -280.7 Cash Flow from Financing Activities Change in long-term liabilities 124.4 -134.0 Change in short-term borrowings -430.9 236.0 Dividends paid -354.9 -354.9 Minority equity injections less dividends -1.1 7.4 Options exercised -1.6 -0.8 Repurchase / Sale of own shares 0.0 0.2 Net Cash Used in Financing Activities -664.1 -246.1 Net Increase (Decrease) in Cash and Cash -180.4 -87.4 Equivalents Cash and bank in acquired companies 0.7 0.0 Cash and bank in sold companies -0.7 0.0 Translation adjustment -7.1 -2.7 Net cash and cash equivalents at the beginning of 351.4 309.6 period Net Cash and Cash Equivalents at Period End 163.9 219.5 Cash and Cash Equivalents at Period End 299.4 318.4 Bank Overdraft at Period End -135.5 -98.9 Net Cash and Cash Equivalents at Period End 163.9 219.5 Acquisitions of Subsidiary Companies Cash and cash equivalents 0.7 - Working capital -1.2 - Operating fixed assets 2.9 0.4 Interest-bearing assets 0.0 - Tax liabilities 0.3 - Interest-bearing liabilities -0.6 - Non-cash share exchange 0.0 - Minority interests -0.2 0.4 Fair Value of Net Assets 1.9 0.8 Goodwill 6.6 0.0 Total Purchase Consideration 8.5 0.8 Disposal of Subsidiary Companies Cash and cash equivalents 0.7 0.0 Working capital 7.5 0.0 Operating fixed assets 44.1 0.9 Interest-bearing assets 0.9 0.0 Tax liabilities -13.5 0.0 Interest-bearing liabilities -1.5 0.0 Minority interests - 0.5 Net Assets in Divested Companies 38.2 1.4 Income Statement capital gain (goodwill realised) - 0.6 Total Disposal Consideration 38.2 2.0 Property, Plant and Equipment, Intangible Assets and Goodwill EUR million 2006 Q1-Q2/06 Q1-Q2/07 Carrying value at 1 January 11 213.2 11 213.2 10 440.4 Acquisition of subsidiary companies 283.1 9.5 0.4 Additions 559.1 270.3 278.3 Additions in biological assets 24.3 4.7 17.7 Change in emission rights 54.4 74.7 -90.2 Disposals -237.3 -63.7 -38.7 Depreciation, amortisation and -1 257.7 -538.3 -529.2 impairment Translation difference and other -198.7 -172.7 -58.3 Balance Sheet Total 10 440.4 10 797.7 10 020.4 Borrowings EUR million 2006 Q1-Q2/06 Q1-Q2/07 Non-current borrowings 4 081.0 4 324.2 3 889.9 Current borrowings 1 146.9 1 401.0 1 177.6 5 227.9 5 725.2 5 067.5 Carrying value at 1 January 6 055.6 6 055.6 5 227.9 Debt acquired with new subsidiaries 4.4 0.6 0.0 Debt disposed with sold subsidiaries -12.0 -4.4 0.0 Proceeds from / payments of borrowings -683.7 -158.1 -131.7 (net) Translation difference and other -136.4 -168.5 -28.7 Total Borrowings 5 227.9 5 725.2 5 067.5 Condensed Consolidated Balance Sheet Change Change % % 30 Jun 30 Jun 07 - 07 - 30 Jun 31 Dec EUR million 31 Dec 06 30 Jun 06 30 Jun 07 06 06 Assets Fixed Assets and Other Non-current Investments Fixed assets O 10 230.8 10 601.5 9 881.1 -6.8 -3.4 Biological assets O 111.5 77.8 131.4 68.9 17.8 Emission rights O 98.1 118.4 7.9 -93.3 -91.9 Investment in associated companies A 805.2 762.2 907.3 19.0 12.7 Available-for-sale: Listed securities I 41.2 78.3 49.2 -37.2 19.4 Available-for-sale: Unlisted shares O 794.3 402.9 1 009.1 150.5 27.0 Non-current loan receivables I 149.2 145.9 128.6 -11.9 -13.8 Deferred tax assets T 53.5 67.0 65.0 -3.0 21.5 Other non-current assets O 61.1 23.2 44.9 93.5 -26.5 12 344.9 12 277.2 12 224.5 -0.4 -1.0 Current Assets Inventories O 2 019.5 2 145.8 2 219.9 3.5 9.9 Tax receivables T 124.8 109.7 154.3 40.7 23.6 Operative 2 156.6 2 272.6 2 443.6 receivables O 7.5 13.3 Interest-bearing 185.5 293.7 150.4 receivables I -48.8 -18.9 Cash and cash 299.4 318.4 equivalents I 609.0 6.3 -47.7 5 095.4 5 121.2 5 286.6 3.2 3.8 Total Assets 17 440.3 17 398.4 17 511.1 0.6 0.4 Equity and Liabilities Equity attributable to 7 799.6 7 104.4 8 052.9 Company shareholders 13.4 3.2 Minority interests 103.5 91.6 117.0 27.7 13.0 Total Equity 7 903.1 7 196.0 8 169.9 13.5 3.4 Non-current Liabilities Post-employment 763.1 896.7 680.8 benefit provisions O -24.1 -10.8 Other provisions O 308.3 161.9 100.0 -38.2 -67.6 Deferred tax 793.0 900.9 794.0 liabilities T -11.9 0.1 Non-current debt I 4 081.0 4 324.2 3 889.9 -10.0 -4.7 Other non-current 193.7 257.0 218.4 operative liabilities O -15.0 12.8 6 139.1 6 540.7 5 683.1 -13.1 -7.4 Current Liabilities Current portion of 630.2 584.8 337.9 long-term debt I -42.2 -46.4 Interest-bearing 516.7 816.2 839.7 liabilities I 2.9 62.5 Operative liabilities O 1 992.5 1 901.0 2 166.1 13.9 8.7 Tax liabilities T 258.7 359.7 314.4 -12.6 21.5 3 398.1 3 661.7 3 658.1 -0.1 7.7 Total Liabilities 9 537.2 10 202.4 9 341.2 -8.4 -2.1 Total Equity and 17 398.4 17 511.1 Liabilities 17 440.3 0.6 0.4 Items designated with "O" comprise Operating Capital Items designated with "I" comprise Interest-bearing Net Liabilities Items designated with "T" comprise Net Tax Liabilities Items designated with "A" comprise Associate Companies Changes in Group Shareholders' Equity Retaine Capital Treasur d Share Reserve y Earnin EUR million Capital s Shares OCI CTA gs Total Balance at 31 1 423.3 1 009.2 -180.8 67.6 -218.9 5 525.0 7 625.4 December 2004 Repurchase of - - -344.7 - - - -344.7 Stora Enso Oyj shares Cancellation of -41.2 -224.4 265.6 - - - 0.0 Stora Enso Oyj shares Dividend (EUR - - - - - -365.3 -365.3 0.45 per share) Buy-out of - - - - - -43.2 -43.2 minority interests Net profit for - - - - 0.2 -111.1 -110.9 the period Net expense - - - 400.4 91.6 -33.2 458.8 recognised directly to equity Balance at 31 1 382.1 784.8 -259.9 468.0 -127.1 4 972.2 7 220.1 December 2005 Cancellation of -39.9 -15.9 249.1 - - -193.3 0.0 Stora Enso Oyj shares Dividend (EUR - - - - - -354.9 -354.9 0.45 per share) Options - -1.7 0.2 - - - -1.5 exercised Buy-out of - - - - - - 0.0 minority interests Net profit for - - - - 3.2 263.6 266.8 the period Net expense - - - -11.6 -14.5 - -26.1 recognised directly to equity Balance at 30 1 342.2 767.2 -10.6 456.4 -138.4 4 687.6 7 104.4 June 2006 Options - -0.3 0.1 - - - -0.2 exercised Buy-out of - - - - - -0.1 -0.1 minority interests Net profit for - - - - -9.0 321.4 312.4 the period Net expense - - - 279.2 15.4 88.5 383.1 recognised directly to equity Balance at 31 1 342.2 766.9 -10.5 735.6 -132.0 5 097.4 7 799.6 December 2006 Dividend (EUR - - - - - -354.9 -354.9 0.45 per share) Options - -0.8 0.1 - - - -0.7 exercised Buy-out of - - - - - 0.2 0.2 minority interests Net profit for - - - - -1.4 360.4 359.0 the period Net expense - - - 233.4 14.4 1.9 249.7 recognised directly to equity Balance at 30 1 342.2 766.1 -10.4 969.0 -119.0 5 105.0 8 052.9 June 2007 CTA = Cumulative Translation Adjustment OCI = Other Comprehensive Income Commitments and Contingencies EUR million 31 Dec 06 30 Jun 06 30 Jun 07 On Own Behalf Pledges given 1.0 1.1 0.8 Mortgages 146.8 207.8 131.4 On Behalf of Associated Companies Mortgages 0.8 0.8 0.0 Guarantees 343.0 355.7 276.6 On Behalf of Others Guarantees 9.5 10.8 10.2 Other Commitments, Own Leasing commitments, in next 12 38.4 35.3 31.6 months Leasing commitments, after next 12 130.3 141.2 122.2 months Pension liabilities 0.2 0.5 0.2 Other commitments 17.1 85.8 20.2 Total 687.1 839.0 593.2 Pledges given 1.0 1.1 0.8 Mortgages 147.6 208.6 131.4 Guarantees 352.5 366.5 286.8 Leasing commitments 168.7 176.5 153.8 Pension liabilities 0.2 0.5 0.2 Other commitments 17.1 85.8 20.2 Total 687.1 839.0 593.2 Purchase Agreement Commitments EUR million Scheduled Contract Payments Contract Type of Supply Total 2007 2008-9 2010-11 2012+ Fibre 2 420 235 462 430 1 293 Energy 792 187 405 186 14 Logistics 670 119 152 105 294 Other Production costs 121 74 21 25 1 4 003 615 1 040 746 1 602 Capital Expenditure 335 224 79 29 3 Total Contractual Commitments 4 338 839 1 119 775 1 605 Net Fair Values of Derivative Financial Instruments EUR million 31 Dec 06 30 Jun 06 30 Jun 07 Net Net Positive Negative Net Fair Fair Fair Fair Fair Values Values Values Values Values Interest rate swaps 48.1 -12.2 59.0 -74.7 -15.7 Interest rate options -1.8 -0.2 0.0 -4.3 -4.3 Cross-currency swaps -1.2 -2.4 0.0 0.0 0.0 Forward contracts 28.2 14.9 10.4 -18.7 -8.3 FX options 5.9 8.1 7.3 -2.1 5.2 Commodity contracts 63.2 194.7 88.3 -3.5 84.8 Equity swaps 7.0 -21.6 38.1 -7.5 30.6 Total 149.4 181.3 203.1 -110.8 92.3 Nominal Values of Derivative Financial Instruments EUR million 31 Dec 06 30 Jun 06 30 Jun 07 Interest Rate Derivatives Interest rate swaps Maturity under 1 year 177.4 100.0 0.0 Maturity 2-5 years 2 152.1 2 517.8 2 337.2 Maturity 6-10 years 2 490.5 2 318.8 2 582.8 4 820.0 4 936.6 4 920.0 Interest rate options 318.0 148.1 786.3 Total 5 138.0 5 084.7 5 706.3 Foreign Exchange Derivatives Cross-currency swap agreements 6.9 62.6 0.0 Forward contracts 1 778.4 1 407.2 1 688.5 FX Options 662.8 1 036.1 1 235.4 Total 2 448.1 2 505.9 2 923.9 Commodity Derivatives Commodity contracts 635.8 558.7 523.8 Total 635.8 558.7 523.8 Equity swaps Equity swaps 328.6 399.4 220.4 Total 328.6 399.4 220.4 Sales by Segment EUR million Q1/06 Q2/06 Q3/06 Q4/06 2006 Q1/07 Q2/07 Publication 1 171.0 1 145.2 1 226.7 1 230.5 4 773.4 1 240.5 1 217.4 Paper Fine Paper 776.3 738.9 722.8 718.3 2 956.3 738.6 684.9 Merchants 496.3 452.6 450.1 508.2 1 907.2 532.9 479.4 Packaging 869.0 881.8 909.0 871.7 3 531.5 919.8 909.0 Board Wood 377.1 437.8 418.5 443.0 1 676.4 479.8 530.7 Products Wood Supply 674.8 651.3 633.9 687.2 2 647.2 778.6 796.3 Other -756.8 -691.3 -722.9 -727.1 -2 898.1 -834.8 -812.5 Total Sales 3 607.7 3 616.3 3 638.1 3 731.8 14 593.9 3 855.4 3 805.2 Operating Profit by Segment excluding Non-recurring items EUR million Q1/06 Q2/06 Q3/06 Q4/06 2006 Q1/07 Q2/07 Publication Paper 70.3 55.3 57.0 69.0 251.6 63.5 35.9 Fine Paper 52.7 46.3 32.4 34.6 166.0 61.5 41.1 Merchants 9.6 2.9 7.7 12.5 32.7 16.6 8.2 Packaging Board 99.5 70.8 93.7 59.4 323.4 106.5 62.5 Wood Products 3.8 14.9 21.4 19.0 59.1 53.7 57.8 Wood Supply 8.9 1.3 5.0 -12.4 2.8 12.2 3.5 Other 2.2 -73.3 12.1 5.5 -53.5 -6.7 7.7 Operating Profit excl. 247.0 118.2 229.3 187.6 782.1 307.3 216.7 Non- recurring Items Non-recurring items -23.2 6.7 -177.2 60.0 -133.7 32.0 12.8 Operating Profit (IFRS) 223.8 124.9 52.1 247.6 648.4 339.3 229.5 Net financial items 62.3 -85.2 -42.5 -38.6 -104.0 -56.7 -72.3 Associated companies 31.6 20.2 10.2 25.4 87.4 24.2 19.8 Profit before Tax and 317.7 59.9 19.8 234.4 631.8 306.8 177.0 Minority Interests Income tax expense -91.3 -19.0 37.3 30.4 -42.6 -84.3 -33.1 Net Profit 226.4 40.9 57.1 264.8 589.2 222.5 143.9 - - Non-recurring Items by Segment - EUR million Q1/06 Q2/06 Q3/06 Q4/06 2006 Q1/07 Q2/07 Publication Paper -2.9 4.4 -225.2 11.4 -212.3 13.3 -3.0 Fine Paper -22.0 3.8 72.0 8.5 62.3 19.2 -5.2 Merchants - - - 0.4 0.4 - 24.4 Packaging Board - -5.5 - 4.3 -1.2 4.3 -1.0 Wood Products 1.7 1.2 -24.0 0.4 -20.7 -12.0 - Wood Supply - 1.5 - 0.7 2.2 - - Other - 1.3 - 34.3 35.6 7.2 -2.4 Total Non-recurring Items -23.2 6.7 -177.2 60.0 -133.7 32.0 12.8 - Operating Profit by Segment - EUR million Q1/06 Q2/06 Q3/06 Q4/06 2006 Q1/07 Q2/07 Publication Paper 67.4 59.7 -168.2 80.4 39.3 76.8 32.9 Fine Paper 30.7 50.1 104.4 43.1 228.3 80.7 35.9 Merchants 9.6 2.9 7.7 12.9 33.1 16.6 32.6 Packaging Board 99.5 65.3 93.7 63.7 322.2 110.8 61.5 Wood Products 5.5 16.1 -2.6 19.4 38.4 41.7 57.8 Wood Supply 8.9 2.8 5.0 -11.7 5.0 12.2 3.5 Other 2.2 -72.0 12.1 39.8 -17.9 0.5 5.3 Operating Profit 223.8 124.9 52.1 247.6 648.4 339.3 229.5 Net financial items 62.3 -85.2 -42.5 -38.6 -104.0 -56.7 -72.3 Associated companies 31.6 20.2 10.2 25.4 87.4 24.2 19.8 Profit before Tax and 317.7 59.9 19.8 234.4 631.8 306.8 177.0 Minority Interests Income tax expense -91.3 -19.0 37.3 30.4 -42.6 -84.3 -33.1 Net Profit 226.4 40.9 57.1 264.8 589.2 222.5 143.9 Stora Enso Shares - Closing Price Helsinki, EUR Stockholm, SEK New York, USD A share R share A share R share ADRs April 13.54 13.48 123.50 123.25 18.28 May 14.21 14.19 132.25 132.00 19.06 June 13.89 13.98 125.00 127.25 18.73 Trading Volume Helsinki Stockholm New York A share R share A share R share ADRs April 132 705 121 364 854 218 792 10 191 550 3 463 600 May 3 756 362 107 802 972 120 800 13 101 399 3 235 300 June 234 182 78 002 457 780 106 12 068 620 2 757 200 Total 4 123 249 307 170 283 1 119 698 35 361 569 9 456 100 Basis of Preparation This unaudited interim financial report has been prepared in accordance with the accounting policies set out in International Accounting Standard 34 on Interim Financial Reporting and in the Group's Annual Report for 2006. The Group has adopted IFRS 7, Financial Instruments: Disclosures, and the complementary Amendment to IAS 1, Presentation of Financial Statements - Capital Disclosures which is mandatory for the Group's accounting periods beginning on or after 1 January 2007. The adoption of this standard and amendment will result in additional disclosures relating to financial instruments and how an entity manages its capital in the Group's Annual Report. Reclassification in 2006 Operating profit for 2006 has been reclassified. Total Return Swaps (TRS) which are partially hedging cash settled synthetic option programmes for Management, previously reported in other financial items, are now reported in operating profit under personnel expenses, with an effect on income of EUR -64.0 million, EUR -11.1 million and EUR 24.6 million in Q2/2006, Q1-Q2/2006 and Q1-Q4/2006, respectively. TRS instruments do not qualify for hedge accounting and therefore all periodic changes to their fair value are recorded in the Income Statement. Calculation of Key Figures Return on capital employed, ROCE (%) 100 x Operating profit____ Capital employed 1) 2) Return on operating capital, 100 x Operating profit____ ROOC (%) Operating capital 1) 2) Return on equity, 100 x Profit before tax and minority items - taxes ROE (%) Total Equity 2) Equity ratio (%) 100 x Total Equity Total assets Interest-bearing net liabilities Interest-bearing liabilities - interest-bearing assets Debt/Equity ratio Interest-bearing net liabilities Equity 1) Capital employed = Operating capital - Net tax liabilities 2) Average for the financial period For further information, please contact: Jouko Karvinen, CEO, tel. +358 2046 21410 Hannu Ryöppönen, CFO, tel. +358 2046 21450 Kari Vainio, EVP, Corporate Communications, tel. +44 7799 348 197 Keith B Russell, SVP, Investor Relations, tel. +44 7775 788 659 Ulla Paajanen-Sainio, VP, Investor Relations and Financial Communications, tel. +358 2046 21242 Stora Enso's third quarter results 2007 will be published on 25 October 2007. It should be noted that certain statements herein which are not historical facts, including, without limitation those regarding expectations for market growth and developments; expectations for growth and profitability; and statements preceded by "believes", "expects", "anticipates", "foresees", or similar expressions, are forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 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. www.storaenso.com www.storaenso.com/investors pp. Jukka Marttila Jussi Siitonen