Stora Enso Oyj

Ulla Paajanen-Sainio - Head, Investor Relations Karl-Henrik Sundström - Chief Executive Officer Seppo Parvi - Chief Financial Officer

Lars Kjellberg - Credit Suisse Linus Larsson - SEB Tom Burton - Bank of America Merrill Lynch Carl Hawthorne - Jefferies Mikael Doepel - Handelsbanken Harri Taittonen - Nordea Stephen Benson - Goldman Sachs Mikael Jåfs - Kepler Chevreux

Thank you everybody and good morning or good afternoon, wherever you are in the world. So, I would like just to make sure that we are all on the same page.

We had a pre announcement October 12th and we are reiterating the same message as we did there. So it is a sale of around €2.5 billion, basically flat versus a year ago.

However, if you do takeaway the Corenso divested business and the structure of the claim paper, we are actually growing with almost 5%. That is obviously mainly coming from Montes del Plata.

I’ll report about the joint venture in Uruguay, but also in consumable. Operational EBIT increased by almost 17% to $246 million, a margin increase to 9.8%, almost 10% in EBIT margin and is very much driven by the strong performance in our biomaterials divisions.

I also would like to point out that maintenance costs were about €30 million higher than we indicated at the end of Q2, and we have an impact between €5 million and €7 million of the strike in Finland. We continued second quarter in a row with a strong cash flow and we've managed to reduce our net debt to EBITDA to 2.5 times from 2.8 year ago and actually from 2.7 a quarter ago.

So cash flow is continuing. If you go to the next slide, you can actually see in a sequential perspective that the profit improvement in the quarter is basically all coming from biomaterials.

Of that 41%, roughly 50% is coming from where our sales supported by the depreciation of the Brazilian real, and then 25% of that 41% is coming from performance of Montes del Plata, and 25% is coming from the performance of our Nordic mills which been doing extremely well. I also would like to comment that the sequential increase in consumer board is €2 million, and they have to take into consideration all those €13 million in higher maintenance costs.

Roughly around €5 million is coming from consumer board, but also about €2 million from the strike. So down the line result of consumer board is slightly better.

The packaging solutions, we have to remember here that €8 million in the sequential is coming from the Varkaus, which was headed -- was handed over to Packaging Solution in the month of August. That’s about €8 million that we describe in the report, and in there is also a capital loss of selling our unit in Hungary.

As you can see paper had a challenging quarter and basically went down €6 million. It's driven by two things, the strike in Finland, the price and slightly higher maintenance costs.

If you then go to the next slide, you can see our journey of our operational return on capital employed since 2012. We have continuously improved the return on capital employed, excluding and including our strategic investments.

So you can see now, we are getting to 11.6%, excluding the Guangxi project and yet about 13% when we include the Guangxi -- exclude the Guangxi project which indicates we’re on the right track or reaching our strategic targets. So what have we done in the last couple of quarters?

We have got Montes del Plata up and running. That’s the main driver behind our growth.

The Murow sawmill is supporting the profitable growth in sawmilling. We’ve got the Sunila Biorefinery coming up in the first quarter 2015.

We had the Virdia acquisition in 2014. The Imatra debottlenecking was ready as planned in the third quarter of 2015.

And I am very, very happy today to announce that the production in Varkaus is up and running. We have already produced a couple of thousand tons of saleable quality, which is an astonish achievement of the team in Varkaus.

So what we do have in progress? Yes, we have the Guangxi mill being according to plan, will be ready mid-2016, where wood products the second investment of the Varkaus mill to start to produce wood building elements, which will be ready in the second quarter of 2016.

And then we have the biomaterials, lost a part of the payment for the Virdia acquisition while we have the xylose demonstration plant up and running, which will be in early 2017. The Guangxi mill is moving ahead very, very fast.

It’s less than a year ago when we started the piling and we are now being at this stage. As you can see here on the slide, that’s the main machine building where actually at the moment part of the board machine is being installed.

And it’s all proceeding according to plan, despite having a heavy monsoon a few weeks ago. The transformation journey continues and if you look upon the sales, the top-line drove from being 30% of non-paper sale into 2006, we have now in the third quarter 2015 reached 64%.

On the EBIT line, we have gone from 38% to 97%. We did have a bit of a challenging result in paper in this quarter, partly as I explained because of price, maintenance and partly of the finished side being down to 3%, which means that 97% of our profit are coming from the growth areas.

With that, I would like to hand over it to Seppo to go through financials in a little bit more detail. Thank you very much.

Thank you, Karl. So I will start with some key figures and financials on this page.

As like Karl already said, sales of €2.5 billion, flat year-over-year but it’s fair to notice that sales excluding structural decline in paper, divestments went up 4.9%. EBITDA margin reached 14.1%, but by the way I have seen through my life time with the company [indiscernible].

That’s a nice and great improvement. It’s almost 1 percentage point up compared to year ago and almost 2 percentage points up, compared to Q2 this year.

Operational EBIT at €246 million, 17% improvement compared to a year ago. EPS €0.16 and operational return on capital employed reached 13.1% when we exclude the burden of Guangxi, including our return on capital employed was 11.6%, a significant improvement compared to a year ago, where it was 9.7%.

And net debt to last 12 months operational EBITDA at 2.5 compared to a year ago at 2.8. Then moving forward to next page where we have a breakdown of the foreign exchange impact by division.

Like in the previous quarter, so we can see that the impact is by far large is in biomaterials division, where it was almost €40 million for the quarter. Net impact in the quarter was €57 million in Q3 it was €59 million Q2 year-on-year.

And important to notice that it’s very much if you look at year-on-year by U.S. dollar and Brazilian real and with the past quarter very much Brazilian real that the value during the quarter by 30%.

Moving forward to next page, where we have a summary of the sensitivities in different items. As a new item there, we have added sensitivity of Brazilian real and there's 10% trading against euro, the value of the Brazilian real.

That has an impact of €10 million. Otherwise if you look at the paper, there are no major changes, but I would like to highlight the 10% FX on market pulp on our result which is €125 million, which I think is less than many people normally expect us takeaway.

So it’s worth to notice that we are not so sensitive and that we have a long position in pulp. Then on the following page we have debt maturity profile, and we have been working on prolonged maturity structure profile.

You might remember we issued ten 12 year bonds, in total €150 million earlier this year and that prolonged debt maturity structure. And we have also reduced average interest rate from earlier 4.7% to 4.4%.

And I mentioned [indiscernible] average maturity has prolonged by 0.4 years it is now 4.3 years. Then some comments indeed of the performance of different divisions and I will start with consumer part.

There our sales increased by a bit over 4% due to increased volumes in food service and general packaging. Operational EBIT decreased by €15 million, mainly due to higher pulp and chemical costs that effected about 5 million and like we already communicated, in the previous quarter Guangxi project is having an effect of about €10 million a quarter.

That's is of course seen in the comparison figures compared to previous year. Just to know that operating EBIT excluding Guangxi project was approximately €88 million, and operational return on capital at 16%, and excluding Guangxi at 30%.

And just a reminder, that in Q4 we have scheduled maintenance at Fors and Skoghall mills. Then moving to packaging solutions, where sales decreased to 80% year-on-year, but here we have to remain at that divestment of Corenso had no effect and that’s excluding Corenso divestment, at the FX sales remains unchanged year-on-year.

OpEx and EBIT was down €17 million, but again is effected by Corenso. It has net effect of €10 million as well as Varkaus project conversion of the paper machine to that line had a negative effect of €8 million in the quarter, and divestment of Komárom mill in Hungary, €4 million.

This all was temporary issues of topics. So take those into account and we can also see positive underlying trend in the business there.

And like Ulla said already we are now already producing in fact lot of cost, which is a great achievement that they've done. Maintenance in Q4 has paying as we planned.

Then moving to biomaterials, there sales increased by 38% due to Montes del Plata volumes increasing and FX foreign exchange movements having negative [ph]. And operational EBIT went up €76 million, thanks to Montes del Plata efficiency improving, volumes going up as well, FX driven by both U.S.

dollar and versus the real development and also we have good performance in our mills in Nordic countries. And also higher hardwood pulp prices here in the quarter still.

And also important to note that operational return on capital improved to 15.5%m, and meeting our strategic target for the biomaterials division. I think you know we have maintenance going on at Skutskär Mill that actually started already in Q3 but continued in Q4, and Sunila pulp mill will have the annual maintenance stop during the quarter.

Then look at the wood products. Their profitability improved even total sales that declined by 12%, mainly as a result of the lower volumes in North Africa and Middle Eastern export markets.

It’s very positive news and I think a proof point of the improved performance of the division that our operational EBIT remains stable at €22 million. And that is thanks to the fact that lower sales prices and volumes were compensated by reduced costs, and operational return on capital at 17.5%, very close to strategic target of 18%.

Then finally paper, the good cash flow continues. Sales declined by 5% due to lower sales prices and operational EBITDA decreased as per the EBITDA sales price development and higher pulp costs.

But the good news is and I think it’s very important for us, as a Group, that the cash flow of the investing activities to sales improved actually from 4.5% to 9.2% due to improved working capital. That is again proving the fact that the performance in paper is good, cash flow wise and meeting again our strategic target of 7%.

In Q4, there will be maintenance of Nymölla Mill and the footnote is that the maintenance impact is expected to be €20 million lower in Q4 compared to Q3 this year. Then capital expenditures for full year, where we have changed the forecast up a bit from the previously forecasted €820 million to €880 million range to €940 million to €970 million, and it’s driven by Varkaus and Guangxi projects, their capitalization and basic of the capital expense the payments has been faster than we have previously estimated.

Important to note is that the total CapEx expenditure for these projects remains unchanged. So it’s more an issue of pacing and timeline when it comes to cash flow of payment for the CapEx.

And just a reminder, that this forecast includes about €90 million CapEx for biological assets. Then some news on ForEx valuation that we also came out this morning.

It is an issue for Q4 but it’s actually important and big change it that it's something we want to at least track already now. And there is an approximately I think there is a printing mistake actually here.

It’s €435 million -- no, it’s correct, increase in the fair value for our part and it’s due to the fact that the [indiscernible] where we have 49% ownership but WACC has been decreased from 6.25% to 5.2% and that is recorded in IFRS operating profit in Q4 but it’s hard to say if [indiscernible] our operational EBIT that we recall. And then comments on the expected targets.

Q3 follow up, like we have promised earlier, we continue to follow on track how we are doing compared to those strategic targets. And first of all growth excluding paper at 4.9%, it was 4.8% in Q2.

That is short of meeting our target. Also like recommended, net of EBITDA at 2.5, this again meeting the target.

There we still make [indiscernible] fixed cost net sales, where we are 25% compared to target of 20%, I think it's of course something we are working on every day with the continues improvement actions, but also top-line growth that we are targeting is of course important to improve this ratio. Debt to equity reduced to 66%.

This continues to be below our target of 80% and our personal return on capital at 11.6 and Guangxi is actually meeting our target of 13%, almost standing at 13.1%. The divisions, for the divisions we fixed an exceptional date that we have operational return on operating capital.

As a target level in consumer board we spent 16.4%, which is slightly below 20% target level, but like I said early, excluding Guangxi, we are already at 30% level. Packaging solution is 8.7%, which is below our 20% target and actually also lower than in Q2, but there we have to remember the FX of Varkaus conversion and the figures of the division as sales as the effect on the divestment in Hungary that we made.

Biomaterials meeting the target of 15% and wood products at 17.5%, which is actually more or less of those segment that’s target 18% and paper overachieving the cash flow invested [indiscernible] the sales target of 7%, now standing at 9%. Then about the guidance for Q4 and that we are reconfirming, what we talked already earlier last week to the market.

So Q4 sales are estimated to be similar to the amount of €2.5 billion reported in Q3, and of course EBIT is expected could be in line with the €246 million reported in third quarter of 2015. And as a reminder that maintenance impact is expected to be €40 million lower in the fourth quarter compared to the third quarter.

Then over to you Karl.

Yes, as a summary, I would like to highlight sales excluding, that’s the businesses and the declining paper growth nearly 5%. An improvement on operational EBITDA of 17%, continued strengthening the balance sheet and ending up with a net debt to EBITDA of 2.5 times.

The transformation continues. Cross line in production has started in Varkaus.

The Varkaus wood product investment will be ready in Q2 2016 and the Guangxi project ready my mid-2016. And with that, I hand over for questions.

Thank you. Good afternoon.

I had a couple of questions. Starting where we ended with Varkaus, how do you see that progressing?

It seems as if you -- as you put, it's very fortunately started this fund a bit earlier than expected. So what sort of volumes do you see in the balance of this current year and run rate in 2016?

And when do you expect Varkaus to breakeven if I stop there?

So first of all, we have started a few days ago and that produced a couple of thousand tons. The quality is of sellable quality and I think that has to do with the experience of the crew.

They have been making paper for a long period and they are very enthusiastic about the new life of the mill. We are trying to ramp as fast as we can and I think usually it's 18 to 24 months to ramp up the mill to the high yield and that’s what we said and that’s what we stand for.

And it will contribute to profit already in 2016. That’s what we have said and we haven’t gone into the breakeven details.

If you're looking up the very considerable profits now generated in pulp, and I recall from the Investor Day at London that you said you did not really anticipate any -- maybe outside the China part, but other big investments in pulp. Why do you spend in pulp now?

How do you think about pulp being now 40% plus of your EBIT? Is that a view of as you share that it's a sustainable level of EBIT and margins as you're now after target and would you consider to invest more in pulp?

And also of course with that backdrop, how do you view the China prospective pulp mill? Yay or nay to that one?

To be very honest Lars, I didn’t think we could reach the targeted 15% this fast. I think if we take the three pieces, I'm very happy with the differentiation strategy we’ve had with the Nordic pulp amidst to turn them into something that is slightly different than just commodity pulp.

So that I'm happy with. And I think that has paid off.

When it comes to Montes del Plata, I think they are ramping up better than expected and I guess a lot of process is fine tuned and wood consumptions and so forth. So that is.

But the big help of the Veracel, which is coming basically two ways, it’s the dollar-euro plus the dollar-reals. I think over a longer time, since Brazil is a main producer of hardwood pulp in the world, this might affect the end price and I know with a lot of capacity coming on stream.

So I probably -- if I would consider any investments, it’s probably more in specialized pulp and not a big pulp project. And if you are coming to the big -- the phase 2 in China, we have to repeat that we will not take this -- any proposal because we don’t have any authorization to the Board until I get that machine up and running and ramping.

So that’s where I am on that one.

That’s fine. Just few more quicker questions I suppose.

First one, on the significant increase in capacity in frozen book boards that’s coming in Europe, Metsä Board, Kotkamills and various other, and including your own [indiscernible] with bit of a distant and fair away, how do you see that market playing out? Clearly U.S., competitors based in the U.S.

are posing some concerns already about product coming Europe into the U.S. How do you see this playing out in the European context?

I think what we are actually focusing on is to be a very strong player in basically three board rates. One is liquid packaging board, the other one is food service board, and the third one is what you call CUK, and I would call CKB.

That’s the volume areas where we are focusing on. Then in SBS we are focusing on some of the premium segments and we do the same in some of the -- what I would call folding box board.

We are not going into the general area of folding box board. We are trying to stay in the segments where we are relevant.

Did I answer your question?

Sure. There’s two technical ones related to Seppo.

I guess the very good profitability is generating some tax benefits. Can you share with us what you think for the tax rates in the fourth quarter and what we should view the tax rate as normalized?

And also on the working capital side, of course you are releasing quite a bit of working capital. Where do you see this ending up relative to revenues?

Yes, first of all, on the tax rate, like Lars said, for DTL [ph] we expect that started and effective tax rate will be around 20%. And when it comes to working capital and the effect -- we continue to aim a target to come down towards 12% level.

That’s what we have said also earlier and we see that third potential to call. So basically we think that is there is to call.

There is of course seasonality with the quarter that will bring working capital of course down towards end of the year, but I cannot be more specific on that.

First question on Guangxi. What’s the situation in terms of permits at Guangxi?

Are all permits in place at this stage?

All permits in place.

There is nothing preventing you to start up at any point as you would wish to?

Well it’s Seppo here. Of course normal proceeds is that when you start a production then you need to …

Get a final approval.

… final approval but nothing [multiple speaker] normal or something that would be pending as such. That's normal proceeds that it will go through in every country.

But those final permits, what does that imply. Could those entail delays, what are the …?

No we don’t see that.

Okay. Then on the Varkaus project, could you just maybe talk a bit more about that.

So there was an 8 million negative impact in the third quarter. As we move into the fourth quarter you sound pretty optimistic.

Should we expect that to be fully reversed or partly reversed or more than fully reversed or what’s the expectation from your side in Q4 [indiscernible] and especially what’s baked into your guidance when you talk about the Group guidance in that sense?

What is baked into it that you will have some of that in there, and it will be partly compensated by selling the early part of the production, which already on the second [indiscernible] within the saleable. So, so far it’s looking good but some of that will continue into the fourth quarter, yes.

Okay, that’s very clear. And on the CapEx guidance, so for timing reasons if I understand, you're right.

You are hiking your CapEx for 2015. Could you maybe say something against that backdrop about 2016 CapEx?

No, I not really. I say no.

We must give guidance in connection to full year results but they are also stated earlier in the calls and also in the Capital Markets Days that we expect capital expenditure to start to come down gradually, gradually towards the depreciation levels.

But are you saying -- so it will higher than depreciation next year?

So what we have to admit is that we have a long term, and we said that very clearly in the Capital Markets. So over time and already next year reducing the CapEx and getting towards depreciation level, but it will obviously -- we are not giving guidance going one go.

So investments next year will be lower than this year and the aim is to bring them down towards more in line with the depreciation.

But you’re not at this stage committing to CapEx?

No we have not yet, we are right in the budgeting process.

And then just finally, if you could repeat well I think you already said something about the strike costs. How big were the strike cost in Q3 and if you could just repeat how it was spread?

I missed that part of presentation.

I gave it, so it is really the strike costs is €5 million to €7 million. I gave it an impact of about €2 million in consumer board and then I indicated a value without saying one for paper.

That’s fair enough.

And the problem is usually a bit because when it’s in integrates you lose three days for one-day strike.

I just had two questions please. The first is on the consumables side.

I wondered if you could talk a little more about the pricing environment in Europe in that segment? You obviously announced the six and five year a time price increase.

I just noticed yesterday, I think it was one of your larger competitors, the CEO said that you didn’t think price increases were likely to be successful in that segment due to the capacity growth coming online. Are you so confident in guessing that price increase in November?

And then just as a second part to that…

I would like to say, when you say competitor, is that a competitor competing without the liquid, food service or CUK?

It’s on the liquid board side at least…

So we believe that the pricing is going to be stable in the basket for the whole consumer board quarter-on-quarter for us.

And then the second question was on the Group level EBIT performance. And I wonder if it’s possible to get a constant currency growth basis and if you -- looking across the divisions if you were to strip out the FX benefits in biomaterials, is that possible.

It looks like underlying constant currency EBIT would have been down across the Group FX. Is that correct?

We have a pit which I put in because I don’t think you can talk about constant currency in some of these things. We are a euro based company and krona based company.

We do sell certain commodities in U.S. dollars for example, but that is obviously linked to the cost structure that we’re having.

So, I think it’s important to keep that in mind because you cannot separate price from currency. They are very, very linked.

And mostly important to note, this is broke at biomaterials division post performance and sales figure that compared to Q3 last year the pulp mill is ramping up, volumes are increasing, hardwood pulp prices are higher than a year ago and efficiencies at the pulp are improving continuously.

I did give you some guidance about it, because of the 41 that is coming out of a -- 50% I said was coming out of sales and in that basket there is a performance, yes but also be currency and the are other 50% of my 41% on my Slide No. 2 is actually divided by Montes del Plata improvement and the improvement in the Nordic mills.

Could you give us a little bit of guidance on the cost line or ramp ups? With the next year people are little bit concerned about kraftliner prices.

I'm just wondering to think how you're going to be ramping up with price in mind in kraftliner?

So in kraftliner, if you're talking about the write-downs, we are handling this in a very responsible manner and you have to remember, the kraftliner is highly quality kraftliner. And a lot of those customers, almost -- some are between 70 to 80, we already dealing with through the floating business we’re having in.

So we have been talking to them for a long period and we are replacing a lot of imported with not the same quality. So even anything like you might sounds like is any commodity -- it is a huge difference between kraftliner and kraftliner.

Sure, but you would expect broadly stable kraftliner prices next year even with your ramp up of capacity?

Yes.

And then the next question I’ve got is on FX. Can I just confirm that the €57 million you talk about, that’s pre FX hedges?

If you think about the report, it's because that is the net FX in the profit and loss.

Net FX?

Absolutely.

Most of my questions have already been answered, but one question still. In terms of the paper pricing there are some talks out there in the market of some hikes and undergrads going into 2016.

what’s your take in that?

On the paper, we think in general that its sequentially going to be kind of stable, but it's not the prices we have last year. And I don’t want to integrate.

Do you dare to take a peek into 2016?

No. I work with paper and so does he.

We basically have reviewed the next quarter. This was my all duration, and I wish I could have a longer term, it is so many factors moving around.

First question is just to confirm on the FX impact that you see in the financial line, the €43 million negative item. So that’s basically no cash impact there.

So I was also looking that from the cash flow side of things that the financials where bit sort of higher cost than previous quarters?

Yes, Harri that is correct, it's mainly coming from the evaluation of U.S. dollar based loans, not in Brazil.

Exactly, so basically that’s [indiscernible] cash on us [indiscernible] is a bit higher this quarter, it's just a question of basically timing.

The bonds that we purchased back from the market, [indiscernible].

Excellent, okay. On the sort of the Chinese, the harvesting costs, now you are -- you're back to the normal after the sort of changes you made in the previous quarter, but could you confirm that and then also what sort of benefit in the cost you have now compared to the -- to before the automization in the harvesting over there?

So we are now getting close to 70% automization in the harvesting and we are driving it even further up during next year. And this is a very important part for us because it's such a big cost.

So this is 100% focused of the whole forest group in the Guangxi. So we’re working on it, yes.

Okay, excellent. Well so the last question, I know it's a bit sort of far away and you probably don’t want to sort of go into specifics, but given that there is always lot of sort of -- honestly [indiscernible] the Chinese market over the longer term and with the capacity addition you are sort of implementing there, I'm just get a feel of what sort of uptake or sort of understanding or value sort of a commitments there are currently existing that you can base on rather than sort of selling on to the markets?

Okay. So first of all, China has slowed down its growth, yes.

And -- but we are still talking yes below 6% in the latest report, which is for that kind of economy enormous if we compare to whatever I see in Europe or even in the U.S. so it’s still growth.

I think for me it’s actually the most important part in China is how is the middle class development in China because the products we are aiming at and the one -- the customers that we had worked with, that’s their selling group. And so far I haven’t seen anything changing that.

I just had a couple of questions around the Varkaus expansion. So have you disclosed at all how much of your volume is actually contracted to customers over the ramp up or once you are finally ramped up, or are you are pushing this into some kind of spot market?

I tried to answer that before. so somewhere between 70% to 80% of the customers we are targeting are actually customers that we're already doing business in and the floating business from Heinola.

And [indiscernible] plant that you see there.

And we had some contracts that we haven’t really -- because we need to show that we have the right quality and like I said earlier thumb rule number 2 was a sellable quality.

Okay. And secondly, you pushed this volume into the market and you displace imports.

Where will those imports go? Maybe it’s a bit of a philosophical question here but where do you think that that import volume will have to go?

Or are they just going to have to close?

I don’t know that. I also tried to make a point earlier, this is top quality kraftliner, which is very much sort after.

So we feel good with this and this was not really available in the market before. So I think we are sitting in a very good position, but I don’t know what is going to happen to it.

So where does the majority of the import come from at the moment?

It’s coming from U.S. as well as from Australasia.

One last question.

Thank you so much. Yes, I have a question regarding the paper market.

And then if I remember correctly, you curtailed some 10% of your capacity. In Q2 this quarter it’s 7% of the capacity.

How do you see that market developing given that your sort of outlook and then your visibility is rather short as you point out?

Hey Mikael, what you are referring to the paper production?

I was referring to shouldn’t you really try to take out some capacity from the market instead of having a lot of idle capacity, basically your view on that. I know that you cannot sort of give a direct comment, but for how long would it suitable to just have machines idled?

So paper production was curtailed as you said 7% and that I agree with you. If the market continues as it does, we will have to take actions, like we have done previously.

So don’t worry that we wouldn’t be responsible in what we do. That we will do.

But I can’t go any closer into that as you understand but we will take what we need to do.

No, I just want to thank everybody for joining this call and I thank you for the good questions and I wish you a very nice weekend. Bye, bye.

Thank you.