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Financial results – Group

Sales at EUR 9 802 (10 040) million were 2.4% lower than a year earlier, mainly due to structural changes in Paper division and clearly lower hardwood pulp prices in Biomaterials division. Higher volumes in Consumer Board and Packaging Solutions divisions increased sales. Sales excluding the structurally declining paper businesses, and divested Barcelona Mill, increased by 3.1%, primarily due to the ramp-ups at Varkaus kraftliner and Beihai consumer board mills.

Stora Enso announced the divestment of the Arapoti Paper Mill in Brazil in late 2015 and the divestment was completed in March 2016, Divestment of the Suzhou mill site in China was announced and paper production ceased in June 2016. Stora Enso’s 33.33% ownership of the Swedish recycled materials company IL Recycling AB was divested in June 2016. Divestment of the Kabel coated magazine paper mill in Germany was completed in September 2016.

Operational EBIT at EUR 884 (915) million decreased 3.4%, mainly due to significantly lower hardwood pulp sales prices in Biomaterials division and higher fixed costs. Foreign exchange rate movements and lower variable costs had a favourable impact.

Operational EBIT margin at 9.0% (9.1%) remained almost on the previous year level. Lower variable costs mainly in energy and wood improved operational EBIT by EUR 48 million. The impact of exchange rates on sales and costs increased operational EBIT by EUR 76 million after hedges. Higher volumes mainly in Consumer Board and Packaging Solutions divisions increased operational EBIT by EUR 29 million and closed units by EUR 11 million. Lower sales prices in local currencies decreased the operational EBIT by EUR 94 million. Higher fixed costs decreased the operational EBIT by EUR 89 million, main reasons being the investments in innovation activities in Biomaterials division, higher maintenance costs and ramp up’s of new production sites, mainly Beihai consumer board mill, Varkaus Kraftliner mill, Varkaus LVL mill and Murow sawmill. Depreciation was EUR 12 million higher, primarily due to the ramp-ups at Varkaus kraftliner and Beihai consumer board mills.

The share of the operational results of equity accounted investments amounted to EUR 80 (EUR 80) million, with the main contributions from Bergvik Skog and Tornator.

IFRS operating profit includes a negative net effect of fair valuations of EUR 5 (negative EUR 11) million from the accounting of share-based compensation, Total Return Swaps (TRS) and CO2 emission rights. In addition, IFRS operating profit includes a negative net effect of EUR 121 (negative EUR 15) million from IAS 41 forest valuation from subsidiaries and joint operations and also a positive net effect of EUR 59 (positive EUR 404) million from Stora Enso’s share of net financial items, taxes and IAS 41 forest valuations of equity accounted investments. The biological asset fair value in the group’s equity accounted investments was increased approximately by EUR 52 million at Bergvik Skog and EUR 83 million at Tornator.

At the end of 2016, the closing fair value of biological assets in the Consumer Board Division’s forest operations in Guangxi China was EUR 174 million, compared to EUR 356 million at the end of 2015. The decrease is mainly due to reduced inventory as a result of a higher than previously estimated portion of over mature trees. The decrease is split into two components, a negative item affecting comparability (IAC) of EUR 77 million due to reduction of biological asset value below the cost base value and a fair value decrease of EUR 105 million. 

Annual impairment testing resulted in a net impairment of EUR 90 (EUR 236) million in Paper and Packaging Solutions divisions. The impairments in Paper division Newsprint Europe unit was EUR 78 million on fixed assets and related mainly to the further weakened long term earnings expectations due to a declining European paper market. There was an impairment of EUR 12 million in Packaging Solutions Corrugated China unit. EUR 11 million of the amount is due to goodwill impairment and EUR 1 million is a fixed asset impairment. The main reason for the impairment is the challenging market situation and a change in the customer base.

The group reported a positive IAC of EUR 181 million in Paper division related to the divestment of Suzhou Mill site in China. The rest of asset restructurings and disposals related IAC’s are the divestments of Arapoti Mill in Brazil, completed during the first quarter of 2016 (a negative IAC of EUR 28 million), the Kabel Mill in Germany (a negative IAC of EUR 5 million), IL Recycling 33.33% ownership (a positive IAC of EUR 16 million) and the planned restructuring of corrugated operations in Finland (a negative net impact of EUR 9 million). In addition there is a negative IAC of EUR 22 million due to increases of environmental provisions at several sites in Paper division and the segment Other.

IFRS operating profit was EUR 783 (EUR 1 059) million.

Segment share of operational EBIT, IAC, fair valuations and non-operational items and operating profit/loss
Year Ended 31 December
Operational EBIT IAC, Fair Valuations and Non-Operational items Operating Profit/Loss
EUR million 2016 2015 2016 2015 2016 2015
Consumer Board 254 290 -187 -32 67 258
Packaging Solutions 64 90 -22 -10 42 80
Biomaterials 224 313 -13 -5 211 308
Wood Products 88 81 - -1 88 80
Paper 211 77 78 -256 289 -179
Other 43 64 43 448 86 512
Total 884 915 -101 144 783 1 059
Net financial items -242 -245
Profit before Tax 541 814
Income tax expense -134 -31
Net Profit 407 783
Operational EBIT comprises the operating profit excluding IAC and fair valuations of the segments and Stora Enso’s share of the
operating profit excluding IAC and fair valuations of its equity accounted investments (EAI).

IAC = Items affecting comparability. These are exceptional transactions that are not related to normal business operations. The most common IAC’s are capital gains, additional write-downs or reversals of write-downs, provisions for planned restructuring and penalties. Items affecting comparability are normally disclosed individually if they exceed one cent per share.

Fair valuations and non-operational items include equity incentive schemes and related hedges, CO2 emission rights, valuations of biological assets and the group’s share of tax and net financial items of EAI.
Items affecting comparability, fair valuations and non-operational items
Year Ended 31 December
EUR million 2016 2015
Impairments and reversals of intangible asset and property, plant and equipment and biological assets -133 -266
Restructuring costs excluding fixed asset impairments -19 7
Disposals 144 -
Other -26 25
Items affecting comparability -34 -234
Fair valuations and non-operational items -67 378
Total -101 144
Segment share of operative assets, operative liabilities and operating capital
Year Ended 31 December
Operative Assets Operative Liabilities Operating Capital
EUR million 2016 2015 2016 2015 2016 2015
Consumer Board 2 486 2 527 513 512 1 973 2 015
Packaging Solutions 1 027 1 054 173 221 854 833
Biomaterials 2 880 2 760 195 171 2 685 2 589
Wood Products 766 723 235 204 531 519
Paper 1 629 1 999 653 795 976 1 204
Other and eliminations 2 267 2 089 636 449 1 631 1 640
Total 11 055 11 152 2 405 2 352 8 650 8 800
Key figures
2016 2015 2014
Sales, EUR million 9 802 10 040 10 213
Operational EBIT1, EUR million 884 915 810
Operational EBIT margin 9.0% 9.1% 7.9%
Operating profit (IFRS), EUR million 783 1 059 400
Operating margin (IFRS) 8.0% 10.5% 3.9%
Return on equity (ROE) 7.2% 14.6% 1.7%
Operational ROCE 10.2% 10.6% 9.5%
Debt/equity ratio 0.47 0.60 0.65
EPS (basic), EUR 0.59 1.02 0.13
EPS excluding IAC2, EUR 0.65 1.24 0.40
Dividend and distribution per share3, EUR 0.37 0.33 0.30
Payout ratio, excluding IAC2 56.9% 26.6% 75.0%
Payout ratio (IFRS) 62.7% 32.4% 230.8%
Dividend and distribution yield, (R share) 3.6% 3.9% 4.0%
Price/earnings (R share), excluding IAC2 15.7 6.8 18.6
Equity per share, EUR 7.36 6.83 6.43
Market capitalisation 31 Dec, EUR million 8 085 6 618 5 871
Closing price 31 Dec, A/R share, EUR 10.40/10.21 8.40/8.39 7.48/7.44
Average price, A/R share, EUR 8.50/7.88 8.87/8.70 7.29/7.16
Number of shares 31 Dec (thousands) 788 620 788 620 788 620
Trading volume A shares (thousands) 1 254 1 641 1 553
% of total number of A shares 0.7% 0.9% 0.9%
Trading volume R shares (thousands) 765 122 798 507 731 067
% of total number of R shares 125.0% 130.5% 119.5%
Average number of shares, basic (thousands) 788 620 788 620 788 620
Average number of shares, diluted (thousands) 789 888 789 809 789 210
1 Operational EBIT see chapter non-IFRS measures at the end of the Report of the Board of Directors.
2 Items affecting comparability (IAC) see chapter non-IFRS measures at the end of the Report of the Board of Directors.
3 See Board of Directors' proposal for dividend distribution.

Net financial expenses at EUR 242 million were EUR 3 million lower than a year ago. The net interest expenses decreased by EUR 26 million due to smaller and improved debt portfolio. Other net financial expenses were EUR 23 million higher mainly due to fair valuation of interest rate derivatives and higher expenses with bonds repurchases. The net foreign exchange impact in 2016 in respect of cash, interest-bearing assets and liabilities and related hedges was a loss of EUR 43 (loss EUR 43) million mainly due to the revaluation of foreign currency loans in subsidiaries and joint-operations.

The net tax charge totalled EUR 134 (EUR 31) million, equivalent to an effective tax rate of 25% (4%), as described in more detail in Note 9, Income taxes, to the group Consolidated Financial Statements.

The loss attributable to non-controlling interests was EUR 56 (EUR 24) million, leaving a profit of EUR 463 (EUR 807) million attributable to Company shareholders.

Earnings per share excluding items affecting comparability were EUR 0.65 (EUR 1.24) and including items affecting comparability EUR 0.59 (EUR 1.02). Operational return on capital employed was 10.2% (10.6%).

Group capital employed was EUR 8 594 million on 31 December 2016, a decrease of EUR 159 million on a year earlier.

Breakdown of Capital Employed Change
Capital Employed
31 Dec 2015, EUR million 8 753
Capital expenditure less depreciation 90
Impairments and reversal of impairments -53
Fair valuation of biological assets -120
Costs related to growth of biological assets -141
Available-for-sale: operative (mainly PVO) 122
Equity accounted investments 68
Net liabilities in defined benefit plans -61
Operative working capital and other interest-free items, net -119
Net tax liabilities -16
Translation difference 76
Other changes -5
31 Dec 2016, EUR million 8 594


Cash flow from operations improved further at EUR 1 633 (EUR 1 556) million and cash flow after investing activities was EUR 834 (EUR 599) million. Working capital decreased by EUR 283 (EUR 141) million mainly due to EUR 170 million higher trade payables and EUR 87 million lower short-term receivables. Payments related to restructuring actions and environmental provisions were EUR 47 million.

Operative Cash Flow
EUR million 2016 2015
Operational EBITDA1 1 371 1 408
IAC on operational EBITDA -77 -24
Dividends received from equity accounted investments 58 32
Other adjustments -2 -1
Change in working capital 283 141
Cash Flow from Operations 1 633 1 556
Cash spent on fixed and biological assets -798 -956
Acquisitions of equity accounted investments -1 -1
Cash Flow after Investing Activities 834 599
1 Restated according to the new reporting structure. See chapter Change in the reporting of costs related to growth of biological assets at the end of the Report of the Board of Directors.

At the end of the period, net interest-bearing liabilities of the group were EUR 2 726 (EUR 3 240) million. Cash and cash equivalents net of bank overdrafts amounted to EUR 949 (EUR 807) million.

Total unutilised committed credit facilities at the year-end 2016 were unchanged at EUR 700 million. The EUR 700 million committed credit facility agreement with a syndicate of 13 banks matures in January 2019. The facility will be used as a backup for general corporate purposes. In addition, Stora Enso has access to various long-term sources of funding up to EUR 1 000 (EUR 850) million.

The debt/equity ratio at 31 December 2016 was 0.47 (0.60). The currency effect on equity was positive EUR 115 (EUR 2) million net of the hedging of equity translation risks mainly due to strengthening of the Brazilian real, US dollar and Russian ruble. Chinese renminbi and Swedish crown had a negative impact on equity.

The fair valuation of cash flow hedges and available-for-sale investments recorded in other comprehensive income increased equity by EUR 148 (decrease EUR 282) million mainly due to increased electricity prices resulting to higher fair value of group’s shareholding in Pohjolan Voima.

At the end of the year, the ratings for Stora Enso’s rated bonds were as follows:

Ratings as at 31 Dec 2016
Rating agency Long/short-term rating Valid from
Standard & Poor’s BB (positive) / B 23 August 2016
Moody’s Ba2 (positive) / NP 4 August 2016

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