Everything that's made with fossil-based materials today can be made from a tree tomorrow.

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Part of Stora Enso's Annual Report 2016

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CEO's overview 12

Stora Enso strives to use its resources, people and knowhow to help meet the global challenges.

Reaching key financial targets

2016	2015	2014	Target
63%	32%	231%	See below2
10.2%	10.6%	9.5%	>13%
0.47	0.60	0.65	<0.80
3.1%	4.6%	0.9%
2.0	2.3	2.5	<3.0
25.3%	25.0%	25.1%	<20%

¹ Dividend per share / EPS

² To distribute 50% of net income over a cycle

³ Excluding the paper business and the divested businesses

⁴ Data for the comparative periods restated according to the new reporting structure

for the construction industry. Paper remains a strong cash generator for Stora Enso with its offering including newsprint, printing and writing papers as well as technical customer services.

Customers: the starting point for our businesses

There is a great eco-awareness among consumers, because people agree that we must use the resources of the planet more efficiently. Our renewability offering has an appeal that attracts new and existing customers. We have the privilege of working with customers around the world representing many strong brands, such as Tetra Pak, Nestlé, Coca-Cola, Samsung, Unilever, LG Electronics, SIG Combibloc, Munksjö, Oxford and METRO GROUP, to mention but a few.

Renewability is not only about our raw material which is re-usable and renewable. It is also linked to resource traceability and responsibility, production and material efficiency, logistics and the supply chain, and it is in the core of our agenda of sustainability – economically and environmentally. Our differentiation is also boosted by process know-how and a culture of innovation and ultimately by helping customers sell sustainable products to their consumers.

Innovation: the springboard for renewable future

Innovation at Stora Enso encompasses everything from forestry and biomass to new technologies, product development and digitalisation. As already mentioned, we are working with customers and NXP Semiconductors to explore intelligent packaging. Other examples include the development of micro-fibrillated cellulose (MFC) for source reduction and strength enhancement as well as barrier films that could potentially replace aluminium and plastics.

I would also like to point out the outstanding new multi-storey buildings built from our cross laminated wood (CLT), for example, in London,

Milan, Paris and Sydney. They demonstrate that 'wood is good' for building. In Trondheim, we have provided CLT to wooden accommodations for students. It is the largest CLT project in Europe and a real showcase of wooden construction, great architecture, interesting technology and smart energy solutions.

Biomaterials shows exceptional long-term promise as the demand for products based on sustainable sources continues to grow. Different fractions of biomass have the potential to be refined and made into new offerings. We are focusing on solutions that can exploit lignin, C5 and C6 sugars as building blocks for creating alternatives to fossil-based materials.

We take sustainability seriously

As a renewable materials company in the forest industry, we want to lead the way in combatting global warming, ensure the viability of forest land use, make a positive footprint in the communities where we are present and foster an ethical approach that goes beyond compliance.

Our work on sustainability was affirmed when Stora Enso was classified as a global leader in terms of combatting global warming by the international non-profit organisation CDP. It has included Stora Enso in its new 2016 Climate A List in recognition of our long-term actions and strategy to reduce emissions. In 2016 our CO2 emissions per saleable tonne of board, pulp, and paper were 39% lower than the 2006 benchmark level (38% lower in 2015).

Our position as a global renewable materials company also depends on our partners and suppliers. Suppliers are expected to follow our Supplier Code of Conduct. Thus, we are pleased to report that, by the end of 2016, 92% of Stora Enso's supplier spend was covered by the Supplier Code of Conduct.

In 2016, the focus of Stora Enso's sustainability was also on implementing the Human Rights Action Plan – created on the basis of the recommendations of our groupwide Human Rights Assessment. By the end of 2016 a total of 86% (69% at the end

of 2015) of the preventive and remediation actions were completed based on UN Guiding Principles on Business and Human Rights and criteria created in collaboration with the Danish Institute for Human Rights.

Focus on leadership and safety

Importantly, we recognise the power of our own people to ensure success. During the year, we have continued our work to educate and develop the leaders in our company and we run programmes to deepen employee engagement that supports growth as well as responsible stewardship.

Safety remains at the top of our people agenda. Tragically, a contractor's employee was killed in an accident in 2016 at our Fors Mill in Sweden. All accidents are unacceptable to Stora Enso and the causes of any accident are always thoroughly investigated in collaboration with the authorities to prevent them from happening again.

Transformation: responding to global trends

A growing population, urbanisation, digitalisation, changing lifestyles, a growing middle class and eco-awareness – these megatrends have significant implications for the forestry business, as well as the global warming. Stora Enso strives to use its resources, people and know-how to help meet the challenges facing the world and to realise the business opportunities inherent in that.

We believe that everything that's made with fossil-based materials today can be made from a tree tomorrow. Wood is the renewable answer to a sustainable future.

This is an exciting journey we are on, and I would like to thank all our partners, suppliers and employees for their contributions in 2016 and our customers and investors for their trust.

Karl-Henrik Sundström Stora Enso's CEO

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CEO's overview 13

Net debt to operational EBITDA1 ¹ Restated according to the new reporting structure. 2013 2014 2015 2016 EUR 0.37 Dividend proposal EUR 0.59 Earnings per share Financial performance 2013 2014 2015 2016 Operational ROCE Operational ROCE, % Operational ROCE, %, excl. transformational of total sales came from 67% growth businesses in 2016 7.0 490 6.0 430 Our fossil CO2 emissions¹ Million tonnes kg/tonne

Capital expenditure decreased 26% year-on-year.

Operational EBITDA1 Target <3.0

4.0 3.2 2.4 1.6 0.8 0.0 Target >13%

investment projects

¹ Covering direct and indirect fossil CO2 emissions (scopes 1 and 2) from pulp, paper, and board production units. Normalised figures are reported per unit of sales production. Historical figures recalculated due to changes in baseline following divestments or accuracy improvements.

Million tonnes 6.32 5.57 4.64 3.66 4.17 3.47 3.37 3.50 3.38 3.03 3.08 -51% kg/tonne 479 432 389 371 374 318 311 331 336 297 294 -39%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Trend 06–16

5.0 370 4.0 310 3.0 250 2.0 190

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Megatrends 14

Responding to megatrends

The world has a challenge on its hands. We have to lower our carbon footprint as temperatures continue to rise. Given the global challenges facing our planet, the need for new sustainable solutions is more important than ever. With trees as our base, we have an important role to play in creating a renewable future in bio-economy.

This has changed everything. The Paris climate change agreement in 2015 significantly increased interest in low-carbon solutions, encouraging a stronger transition towards an economy based on biological and renewable materials – the bioeconomy.

Stora Enso is a part of the bio-economy and focused on innovation in renewable materials. Products based on wooden fibres store carbon and can also replace non-renewable materials such as plastic, glass, steel, concrete and fossil fuels.

foods, salads and dairy products – produced with Cupforma and Trayforma boards that have a biodegradable coating – are being used to enable industrial composting.

More wooden buildings on the rise.

Stora Enso has launched Building Systems to help developers, main contractors, architects, engineers and suppliers better understand how to build with wood and wood's advantages over concrete and steel. Lighter, easy-to-assemble, lowcarbon and renewable.

Sustainable living, work and

play. Australia's first wooden office building, the Allianz Riviera stadium in France, the PEFC certified building project in Finland and the largest residential building made of solid wood in France are some of the projects underway using CLT by Stora Enso – saving on resource use and helping the environment.

Track and sense. We have a

number of on-going projects utilising Radio Frequency Identification (RFID) and Near Field Communications (NFC) for tracking and sensing to improve logistics as well as the functionality of packaging.

Shaping our future

Megatrends affect the world's demand for renewable materials.

Global warming

In 2015, mankind produced 40 billion tonnes of carbon dioxide emissions. Carbon neutrality can create a EUR 6 000 billion market for smart green solutions by 2050. 1

Growing population

The global population is estimated to reach 9 billion by 2050, leading to an even greater resource shortage. 1

By 2030, the world population of people aged 65 and older will double to one billion. 2

Urbanisation

Close to 70% of the world's population are expected to live in urban areas by 2050. 1 With pressure on infrastructure and resources, urbanisation is creating significant opportunities for more sustainable living.

Digitalisation

Half of the world's population will have access to the internet by 2030. 3 Retail e-commerce sales are projected to increase to USD 4 058 billion in 2020, making up 14.6% of total retail spending that year. 4

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Megatrends 15

Products based on wooden fibres can replace non-renewable materials in bio-economy.

Useful side streams. Stora Enso's fluting mill at Heinola, located by the headwaters of one of Finland's longest rivers, is turning organic material in the mill's wastewater into biogas – leading to cost savings and environmental improvements.

Fully renewable. A 100% renewable paper cup for hot and cold beverages, ice cream and take-away food made with Stora Enso board that has PE Green coating – an important step forward in substituting fossil-based plastics with a fully renewable material.

Changing lifestyles

The Chinese packaged food market is expected to reach USD 347 billion by 2018. 5 China's demand for packaged food will continue to grow at about 8% a year up to 2024. 6

Growing middle class

By 2030 60% of the world's population will be middle class. Middle class is defined as earning between 10 to 100 USD a day. 7

Eco-awareness

70% of consumers state that they have purchased an environmental product, even if it was more expensive. 66% have avoided a particular product or brand for environmental reasons. 8

Sources:

1 Sitra: Megatrends, 2016. 2 National Institute on Aging, 2007.
3 European Union Institute for Security Studies, 2011.
4 eMarketer, 08/2016.
5 Agriculture and Agri-Food Canada: Global Analysis Report, 2014.
6 Research and Markets: Packaged food markets in China, 2016.
7 United Nations Development Program, 2013. 8 Millward Brown for Tetra Pak: Environment Research, 2015.

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Strategy 16

The renewable materials company

Specialising in wood-based renewable materials, Stora Enso aims to make the best use of its experience and know-how to find solutions that can help drive the bio-economy.

Stora Enso's products made from trees and wood fibres are used in the printing, construction, retail, food, pharmaceutical and hygiene industries as well as in textiles, paints, glues and automotive. We believe that forest resources should be used to their full potential

to extract the highest possible refinement value.

Growth in managed forests binds carbon dioxide and new generations of trees replace those that are logged. In our business we refine biomass in the form of forest resources into

materials, such as timber and wooden building elements, packaging board, paper, pulp and other biomaterials. Our wood-based products are renewable, act as carbon sinks, and can be recycled several times before eventually being burnt to make bioenergy for heating, power or fuel.

Our customers

Brand owners and retailers Food industry Office suppliers

Transportation

Converters

Textile industry

Pharmaceutical, cosmetics and hygiene industries

Chemical industry

Construction businesses

Part of Stora Enso's Annual Report 2016

Our Purpose and Values

markets.

business.

daily work.

Our Purpose "Do Good for the People and the Planet" serves as an ethical compass as we balance the needs of different stakeholders in different

Our Values – "Lead" and "Do What's Right" – are about setting an example and leading in all aspects of our

According to our annual employee survey in 2016, 83% of our employees feel that they can identify with our Purpose. Furthermore, 75% agree that "Lead" and 84% agree that "Do what's right" are values that guide them in their

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Strategy 17

Growth in renewable business

Stora Enso's strategy is about profitable growth based on customer insight and innovation, supported by structured processes and motivated employees. The shift towards focusing on value added products is well underway. The financial results have improved, such as profit margins, profitability and cash generation. The transformation strategy now continues with a focus on customers and innovation.

In 2016, 67% of Stora Enso's sales came from growth businesses of Consumer Board, Packaging Solutions, Biomaterials and Wood Products. Although the paper business is declining, our Paper division provides a steady cash flow, which supports our transformation into a renewable materials company.

Customer-driven innovation

As expert in wood-based renewable materials, Stora Enso is striving to make the best use of its experience and know-how to find solutions for the future that can help meet the global challenges facing the world today. Innovation expands across the value chain to enable us to respond to market trends and customer demand by improved solutions for renewable materials. Partnerships, new business models and services are in the core of our thinking. The key innovation themes for Stora Enso are bio-based materials and chemicals, digitalisation, intelligent packaging and new packaging solutions.

To support the innovation agenda, Stora Enso has more than 250 scientists working in Helsinki, Imatra, Karlstad, Mönchengladbach and Stockholm. Additionally, Stora Enso has various co-operation agreements with Aalto University, KTH Royal Institute of Technology, Chalmers University, Rennovia Inc., Wallenberg Wood Science Center and SweTree Technologies.

Raw material – make the most of every fibre

Our approach to sustainable forest and plantation management takes the economic, social, and environmental aspects of sustainability into account. All round wood, chips, sawdust, and externally purchased pulp supplied to our mills come from sustainable sources. We use various tools, such as international certification schemes and traceability systems, to optimise wood procurement and land use efficiency without compromising sustainability. We also always make sure that harvested trees will be replaced by new growth.

Today we use about 50% of the wood that is harvested for our products. The rest is used

Sales

2006 Packaging Solutions1 Wood Products Other and eliminations From growth businesses -3% 21% 12% 70% 30% ² In 2006 includes merchants 2016 24% 67% 11% 16% 14% 2% 33% Operational EBIT ¹ In 2006 in Consumer Board ² In 2006 includes merchants Consumer Board Packaging Solutions1 Biomaterials Wood Products Paper2 Other and eliminations From growth businesses

for energy generation. With new innovative technologies, we will be able to create new products to use all of the wood fractions by utilising the lignin, hemi-cellulose and cellulose, thus paving the way for a myriad of new applications that were previously not thought possible.

Resource and process efficiency

Today over 75% of the energy we generate and use comes from carbon neutral sources. Most of our paper, pulp and board mills, and most of our saw mills use biomass in their internal energy production, in addition to the externally purchased energy. The excess heat and electricity is often sold to the surrounding community. We minimise cost and risks when sourcing supplementary energy, with a preference for low-carbon energy sources. Some 89% (81%) of our purchased electricity was generated from low-carbon sources including nuclear and renewable energy.

4.8 million tonnes of Stora Enso's paper, pulp and board capacity has been closed since 2006. The capital expenditure to transformation investments amounts to EUR 4.3 billion between 2012 and 2016.

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Strategy 18

Continuous efforts are made at our mills to increase the efficient use of water and other raw materials, to reduce waste, to reuse materials, and to create business opportunities from residuals and byproducts.

Sourcing from the best partners

In 2016, purchases of materials, goods, and services represented 48% of our total variable costs and fibre procurement 52%. We work with approximately 25 000 suppliers.

Stora Enso strives to build strong and measurable relationships with the best

suppliers globally, regionally and locally. We select our suppliers carefully, taking into consideration innovation, sustainability, quality and cost. Our best suppliers – partners – are innovators and leaders in their field.

Our suppliers are expected to follow Stora Enso's Supplier Code of Conduct and the applicable legal requirements. By the end of 2016, 92% of Stora Enso's spending on materials and services was covered by the Supplier Code of Conduct.

Read more on page 60 in the Sustainability Report.

The transformation strategy now continues with a focus on customers and innovation.

Sustainability – a positive total contribution to society

Stora Enso's Sustainability Agenda consists of social, environmental and economic elements with human rights acting as an over-arching theme. Stakeholder relations and materiality guide our sustainability work. Our aim is to ensure a positive total contribution to society.

To combat global warming, we are pushing towards carbon neutrality with the ambition to be, within a decade, as close to zero fossil carbon emissions, as is technically and commercially reasonable. We are developing a human rights strategy using a best practice methodology which will be further refined during 2017. The strategy will define a set of prioritised human rights that are the most relevant for Stora Enso. To enhance

community investment, our Sponsorship & Donations policy has been updated and recently generated baseline data will be used to improve our impact. During 2017 we will implement a new corporate community investment framework and related guidelines.

People – for a winning culture

Stora Enso's long-term efforts to develop leadership and culture remain high on the agenda. Within human resources, we have five key priorities: Leadership, Align and Engage, Workforce Planning and Employer Branding, HR Services and Occupational Health and Safety. Leadership is at the core of our people strategy as it is the strongest driver of performance and a winning culture. Our leadership themes focus on Business

Capital expenditure

Stora Enso aims to keep investments at or below the level of depreciation and the operational decrease in the value of biological assets over the business cycle.

Stora Enso's capital expenditure in 2016 was EUR 729 million while depreciation and the operational decrease in the value of biological assets totalled EUR 567 million.

Shareholder return

Stora Enso's dividend policy is to distribute half of the group's net profit over a business cycle to the shareholders as dividend.

01 Leadership and open communication are important areas in building at winning culture within our company.
02 We look at renewability as a cycle, from raw material to product after-life through recycling or product degradability – and as energy.

Acumen, Customer Focus, Do What's Right, People Management and Inspire & Motivate.

Everyone home safe, every day

At Stora Enso, our goal is to have a healthy workforce and accident-free workplace. While this work begins with our leaders, building up a company-wide safety culture means that everyone is responsible for making every workday healthy and safe. Safety management at Stora Enso is based on international standards, but our processes go beyond those requirements. Our Safety Toolbox is a set of tools designed to be used throughout the company. Responsibility for implementing each tool and programme in our units lies with line management, supported by local staff and the group-level OHS function.

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Strategy 19

Strengthened presence in China

The Beihai consumer board mill in Guangxi started up in May. With an investment of EUR 800 million, it is the largest Nordic direct investment in China, and significant in the history of Stora Enso.

Transformation continued with investment startups and non-core asset divestments.

Non-core asset divestments continued

The coated magazine paper mills Arapoti in Brazil and Kabel in Germany and the coated paper mill Suzhou's site in China were divested during the year.

Engineered wooden building elements

The new Laminated Veneer Lumber (LVL) line in Varkaus, Finland, meets our customers' growing need for sustainable wood products for construction and industrial applications.

Stora Enso was chosen as the Biobased brand of the year by the World Biomarkets.

Strategic university partnerships

Stora Enso collaborates with Aalto University, Chalmers University of Technology and the Royal Institute of Technology in long-term competence development, joint research and innovation.

Reducing environmental impacts

A new chemical plant at Skoghall Mill and reduced sulphur emissions at Skutskär Mill.

Building Systems by Stora Enso launched A new industrialised building system for wooden components to increase the use of wood as a construction material.

Improving assets in growth businesses

Fluff pulp capacity at Skutskär Mill will be increased to meet the growing demand in the hygiene market
New polyethylene (PE) coating lines at Beihai and Imatra mills
Warehousing and environmental performance improved at Imatra Mill

Strengthening bio-based chemicals development

A technology development agreement with specialty chemicals company Rennovia Inc.

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In recent years, we have innovated and developed new solutions from wood. Today, we can construct high-rise buildings, create stronger, lighter packaging and we are working to replace plastics with products from woodbased fibres. Even some paints and glues can be made using wood-based materials. On top of that, we can add intelligence to our products. It is now possible to put sensors on packages telling us exactly where they are, what is inside and if anything has happened to them.

Stora Enso's focus is on processing of wood for construction, fibre-based solutions for packaging, hygiene and textile applications as well as bio-based breakthrough material and chemical applications. Our innovations offer alternatives to the current use of oil or food-based products.

An integral part of the whole value chain

Research and innovation centres In addition to the research centres in Imatra (Finland) , Karlstad (Sweden), and Mönchengladbach (Germany), Stora Enso has opened two innovation centres. The Innovation Centre for biomaterials in Stockholm is focused on identifying business opportunities in markets for renewable materials and bio-based chemicals. The Innovation Centre for packaging in Helsinki is a cross-functional centre offering a design lab and virtual reality retail technology for customers seeking new ideas in

Innovation is not limited to new products or applications: it also involves how Stora Enso uses

Forestry

Forest and plantation management practices are critical to all Stora Enso businesses. End product competitiveness is closely linked to selecting the right raw material for the process and product. Research and development experts, specialised in biomass and fibres, work closely with business units.

New technologies

By innovating with new technologies, we believe there is the potential to use trees to produce anything that is currently made from fossil-based materials. The different fractions of fibre can be made into products that have new potential applications in specialty chemicals, construction, pharmaceutical, food, clothing, cosmetics, home and personal care.

Forestry New technologies Research and innovation centres Operations Products and applications

packaging.

Operations

assets and resources and manages the value chain. We constantly improve our processes and use energy, water and other raw materials as efficiently as possible.

Products and applications

Innovation continues in board and paper products to improve performance properties as well as reduce weight, costs and environmental impacts. Alternatives to plastic or aluminium packaging are driving many developments in consumer packaging. We are further developing solutions for wood-based construction as a viable alternative to concrete and steel. In biomaterials, cellulose and hemi-cellulose and lignin play a key role in the development of new or improved products.

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Innovation

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Innovation 21

Intelligence in packaging

There is a strong market interest in intelligent packaging which enhances end-user engagement, increases efficiency in the supply chain and assures safety throughout a product's route from production to consumer. We can put sensors on packages telling us exactly where they are, what is inside and if anything has happened to them. With incorporated digital chips, a package itself can be loaded with information about origin, ingredients, history or any other information the producer wants to provide. Precise shipping and careful handling are important to today's modern consumers, as is information about the product and how to use and care for it. Tailored RFID tags can be designed and encoded for NFC and UHF applications, and setup tampering functionality or digital personalisation. With connectivity comes valuable data about the customer's supply chain or consumer behaviour. Markus Mannström Chief Technology Officer With intelligent packaging, our main focus is to create solutions based on connectivity and cloud and data services. We respond to new customer needs with value-adding services in brand protection, consumer insight and supply chain applications.

Smart packages can easily be tracked and traced through the entire supply chain, providing full end-toend transparency.

Sensors to indicate a product's expiration date help to ensure integrity and safety.

Intelligent packaging can be used to verify the authenticity of the product.

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Innovation

Opportunities of renewability

Biomass to bio-based chemicals

Research in the Biomaterials division is focused on four innovation clusters, among them the transformation of the different sugars extracted from biomass into bio-based chemicals for various industries. In this area, Stora Enso has an 18-month joint development agreement with Rennovia Inc. which specialises in catalyst and process technologies.

We are only at the beginning of exploring the possibilities of MFC. It is a great motivator to be

amongst the first working with this and hopefully it will revolutionise the industry.

Henri Kastinen

MFC Specialist, Stora Enso Innovation Centre for packaging

Collaboration

During 2016 co-operation agreements were made with Aalto University, KTH Royal Institute of Technology, Chalmers University and Rennovia Inc. Furthermore, Stora Enso is heavily involved in developing the Wallenberg Wood Science Center R&D agenda for 2017–2022. During 2016, we also increased our shareholding in SweTree Technologies, a Swedish institute conducting high tech R&D in forestry and especially eucalyptus breeding.

More with MFC

Micro-fibrillated cellulose (MFC) has numerous possibilities within packaging for source reduction, strength enhancement, light weighting and moisture resistance. MFC based barrier films could potentially replace aluminium and reduce plastics. Following the successful commercial launch of MFC based liquid packaging board in the dairy segment, Stora Enso has additional MFC initiatives under development with customers.

The power of lignin

Utilising a greater part of wood is very much in focus these days in the bid to become more resource efficient and to develop the products of tomorrow. Lignin is one of the nontraditional products produced today on a commercially viable scale. Lignin has numerous applications in a range of industries, including automotive, construction and coatings. Refined lignin can replace petro-based phenols which are used in resins for adhesives, for example in plywood and veneer adhesive applications. In the future, lignin could also be developed into carbon fibre and carbon black applications.

have top scientists within different fields of expertise all working together. Stora Enso acts as a bridge between the research that is going on globally

and how you can apply that to our current or future customer businesses.

Heidi Saxell

R&D Manager, Biomaterials division

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Divisions 22

Divisions

Stora Enso has five divisions: Consumer Board, Packaging Solutions, Biomaterials, Wood Products and Paper. Across businesses, our expertise in wood and other biomass is focused on responding to customer and consumer demand in a changing world and the further development of renewable solutions.

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Divisions 23

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Divisions: Consumer Board 24

Consumer Board

The Consumer Board division's ambition is to be the global benchmark in high-quality virgin fibre and the preferred partner to customers and brand owners in premium end-use segments. A wide board and barrier coating selection is suitable for the design and optimisation of packaging for liquid, food, pharmaceutical and luxury goods.

Offering

Liquid packaging board
Food service board
General packaging board
Cigarette board
Graphical board
Specialty paper

Advantages

Renewable materials
Broad portfolio with strong product brands
Exciting innovations such as MFC and intelligent packaging
Global market, local presence
Worldwide distribution network and excellent service

The Consumer Board division serves converters, brand owners, and retailers globally and is expanding in growth markets to meet the rising demand for high-quality, functional and safe packaging.

Consumer Board division operates five mills in Finland, Sweden and China.

Sales by destination

20% Asia Pacific

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Divisions: Consumer Board 25

01 The start-up of Stora Enso's new consumer board mill in Beihai meets the growing demand for high-quality fibre-based food packaging in China and Asia Pacific.
02 In full operation, the Beihai mill will have an annual capacity of 450 000 tonnes of liquid packaging board and other high-grade carton board products.

Strategy

Global benchmark in high quality virgin fibre cartonboard

Business environment

Growth in the fragmented markets of China and Asia Pacific

The Consumer Board division aims at profitable growth by offering renewable solutions on a global scale. We are working in close cooperation with customers and brand owners to help them take full advantage of the division's offering of high quality virgin fibre board: Liquid Packaging, Food Service, General Packaging, Cigarette and Graphical Boards.

With growing consumer concerns over food safety, Consumer Board aspires to be the safest and most reliable supplier of high quality board for food packaging. Our ambition is to have the best offering in terms of customer value, innovation, product development, value chain co-operation and service. In addition, flawless delivery accuracy is one of the key purchasing criteria for customers.

Our markets are constantly changing and the Consumer Board division is aiming to increase its share with existing customers, but also to add new customers globally. The demand for consumer packaging board is expected to grow globally nine million tonnes in 2014–2021. The most significant growth in virgin fibrebased consumer board is taking place in the fragmented markets of China and Asia Pacific. Indirectly, fibre-based packaging competes with non-renewable alternatives, such as plastics, glass and metals.

Being locally present in key market areas allows for the integration of sourcing with production, customers and consumers. Consumer Board has a strong foundation in European markets, where its main competitors are BillerudKorsnäs, Metsä Board and Holmen. The main competitors outside Europe include Klabin, Evergreen, Weyerhaeuser, Georgia-Pacific and International Paper.

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Divisions: Consumer Board 26

Main achievements in 2016

Start-up of Beihai consumer board machine ahead of plan
Launch of a new board grade CKB Nude
Further commercialisation of MFC-based liquid packaging board
Step change in innovation activities with customers through Innovation Centre for Packaging
Birch CTMP-based board Performa Brilliance commercialised

Main focus and targets in 2017

Safety aiming at zero accidents • Continued ramp-up of Beihai board
mill and China sales • Commercialisation of intelligent packaging and continued
commercialisation of MFC • Successfully implement PE coating investments in Beihai and Imatra
Price and volume steering in a more competitive market environment

Focus for 2017 lies on continuing to ramp up the Beihai board mill and develop the sales in China and Asia-Pacific.

priority

Innovation approach

Focus on material efficiency and new solutions

Consumer Board division is developing new renewable solutions that meet the needs of customers and consumers. The Innovation Centre for packaging in Helsinki has been full with customer meetings since it opened in 2015. It enables us to innovate together with customers and we have entered into joint development agreements to implement customer-specific solutions.

Consumer Board's innovation work focuses on material efficiency, bio-barrier solutions and new materials and applications, such as MFC and intelligent packaging. We have continued the successful launch of MFC-based liquid packaging board for commercial applications in the dairy category. By using MFC in paperboard packaging, we can efficiently produce high-quality packaging that is durable and lighter, from fewer raw materials. Future developments include barrier films for grease and oxygen as well as biodegradable film as replacement for aluminum and transparent MFC films, which are expected to take 2–7 years before being commercially available.

Transformation in action

Beihai ramp-up a historical milestone

A new paperboard, CKB Nude™ by Stora Enso was launched in 2016. Made from pure virgin fibre, CKB Nude is designed to meet consumer preferences for renewable materials with a natural look and feel.

Stora Enso also introduced the new CKB® Carrier board grade in 2016. The CKB Carrier 380 g/m2 grade is a multilayer kraft-back board ideal for beverage multipacks and other packaging applications that require high-level durability combined with excellent printability and food safety.

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Divisions: Consumer Board 27

01 Food Service Board offers highquality board mainly for paper cups, plates and formed trays.
02 With RFID technology, smart packages can be easily tracked and traced through the supply chain.
03 General Packaging Board offers board for food, pharmaceutical, beverages, chocolate, cosmetics and luxury packaging.
04 Liquid Packaging Board serves a wide range of ambient and chilled packaging such as dairy products, juice and soups.

sustainable choices. The appearance of the packaging has a huge impact on how the product is perceived. The new CKB Nude is uncoated, brown board made from 100% virgin fibre and it is suitable for food packaging and many other end uses. I'm keen on seeing CKB Nude supporting brands in their bid to stand out on the shelf – by communicating a natural look and feel.

Essi Lauri Product Manager, Consumer Board division

Stora Enso's new consumer board machine at Beihai Mill in China successfully started production in May, and the official inauguration was held in June. The total investment of the project has been EUR 800 million as the mill area construction started from a green field site. The board machine is expected to reach full production within 18–24 months from the start-up, with an annual capacity of 450 000 tonnes of liquid packaging board and other high-grade paperboard products.

Customer demand for food service board and liquid packaging board is estimated to grow above the industry average. Stora Enso announced an investment of EUR 31 million in a new polyethylene (PE) coating line at the new Beihai consumer board mill. The investment supports the mill's future competitiveness by enabling short lead-times and full quality control for PE-coated prime Food Service Board (FSB). Another investment of EUR 70 million will increase the coating capacity and allow the further product development of the new generation of bio-barriers at Imatra Mills, Finland.

To further improve the environmental performance of the Skoghall Mill in Sweden, Stora Enso announced an investment of EUR 16 million in a new chemical plant at the mill. Another environmental investment of EUR 14 million at Imatra Mill was announced with the intention of reducing malodorous gas-related air emissions and improving air quality near the mill.

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Divisions: Consumer Board 28

Launched in 2016: CKB Nude™ The new cartonboard CKB Nude™, made from pure virgin fibre, is suitable for a wide range of end use applications: from food packaging to cosmetics and luxury due to its durability, light weight and printing quality. The printed cover of this report is also made of CKB Nude.

12 Operational ROOC .7% (Target: >20%) Financial performance: Consumer Board

Consumer Board division sales at EUR 2 342 (EUR 2 340) million were on the same level as previous year. Sales grew by 3.9% excluding the divestment of Barcelona Mill in Spain in autumn 2015, mainly due to the ramp up of the Beihai consumer board mill and higher sales in Skoghall and Fors mills.

Operational EBIT at EUR 254 (EUR 290) million was 12% down from previous year. Operational EBIT was positively impacted by higher volumes in the European mills and lower variable costs. Operational EBIT was negatively impacted by slightly higher fixed costs and the Beihai consumer board mill ramp up in the Guangxi region, China.

%	Key figures

EUR million	2016	2015	2014
Sales	2 342	2 340	2 297
Operational EBIT	254	290	292
Operational ROOC	12.7%	15.5%	17.8%
Cash flow from operations	453	481	386
Cash flow after investment activities	40	21	60
Average number of employees	4 118	4 239	4 429
Board delieveries, 1 000 t	2 507	2 458	2 434

Capital expenditure and depreciation

Capital expenditure

Depreciation and impairment charges

Sales and operational EBIT

Operational EBIT, %

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Divisions: Consumer Board 29

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Divisions: Packaging Solutions 30

Packaging Solutions

The Packaging Solutions division develops fibre-based packaging and operates at every stage of the value chain from recycling, containerboard and kraft-pulp manufacturing to providing corrugated packaging solutions to converters, brand owners and retailers. Key segments are food, beverages, consumer electronics, household and furniture, retail and industrial.

Offering

Kraftliner
SC fluting
Recycled liner
Recycled fluting
Corrugated boxes
Packaging automation
Design services
Technical service

Advantages

Access to fibre
Consumer insight
Design services
Know-how in material optimisation
Integrated supply chains and
streams of recycled materials • Modern technology
Integrated pulp and energy efficiency
Sustainability: the reduction of environmental impacts throughout the entire customer supply chain

Our solutions for packaging serve leading converters, brand owners and retailer customers, helping to optimise performance, reduce total costs and enhance sales.

Container board

Corrugated packaging

Our containerboard mills are located in Finland and Poland and we have converting plants in 10 countries in Europe and Asia.

Sales by destination

76% Europe

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Strategy

Opportunities for differentiation within the fragmented customer base Packaging Solutions division is driving the containerboard business to its full potential and selectively expanding in corrugated packaging, supporting containerboard. The best opportunities to grow value and volumes are in virgin fibre containerboard, in Eastern European RCP-based containerboard and in integrated corrugated packaging operations. The main operational focus is on succeeding with the kraftliner machine ramp-up at the Varkaus Mill and continuing to increase operational efficiency and improve profitability in all businesses through the recently implemented new operating models.

The customer base is fragmented both in Containerboards and Corrugated Packaging, offering opportunities for differentiation that serves all customers on the best level for their purposes. In Containerboards, the focus is to be a strategic supplier to important converters globally. In Corrugated Packaging, the focus is on building partnership positions with brand owners and retailers in our regional markets.

A number of important trends present opportunities for building value through packaging. Aging populations, the development of millennials as a more dominant group of consumers and changes in consumer behaviour are contributing to the increased prominence of private labels, intelligent packaging and online retail. Stora Enso's Packaging Solutions division is positioned as the industry thought leader in renewable packaging.

The focus of the division is on manufacturing corrugated packaging and high performance lightweight containerboard, primarily in growth markets.

Business environment

Leading status through vertically integrated supply chains

Divisions: Packaging Solutions 31

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Divisions: Packaging Solutions 32

Progress Target

Main achievements in 2016

Strong top-line growth
Successful ramp-up of Varkaus conversion from paper to kraftliner production – reaching EBITDA breakeven
Enhancement of customer-centricity
Higher asset productivity through operational excellence programmes

Main focus and targets in 2017

Safety aiming at zero accidents
Continued successful ramp-up of Varkaus containerboard mill operations and sales
Driving containerboard business to its full potential
Growing the corrugated business in selected markets
Further intelligent packaging initiatives
Efficient execution of the consolidation of corrugated
packaging operations in Finland • Driving more asset productivity

Success in ramping-up Varkaus supports to drive containerboard business to full potential.

priority

The division maintains a vertically integrated position in the supply chain, starting from collecting paper for recycling and purchasing virgin fibres to producing novel lightweight containerboards with modern low-cost technology and multiple and versatile corrugated packaging solutions. This approach has helped Packaging Solutions division achieve a leading status in the Nordic, Baltic, Polish and Russian markets. Our main competitors are Smurfit Kappa, Mondi, DS Smith and Billerud Korsnäs.

The division's innovations go beyond smart design and structure solutions. Packaging Solutions develops ways to enhance the whole supply chain – lowering total costs, reducing waste, improving shop-floor efficiency and building stronger brands with renewable, recyclable and biodegradable packaging. The Innovation Centre for Packaging in Helsinki continues to play an important role as a meeting hub where new innovations and product concepts are generated with customers.

Packaging Solutions works on multiple innovation levels, including technology, branded concept and customer-driven innovations to increase differentiation and value to our customers. Within intelligent packaging, Packaging Solutions has selected three target application areas: supply chain traceability, brand protection and authentication, and consumer engagement.

Innovation approach

A holistic approach to creating value for customers

Transformation in action

Focusing on future growth

The converted containerboard machine at the Varkaus Mill in Finland was officially inaugurated in April. Kraftliner production began in October 2015 and the market

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Divisions: Packaging Solutions 33

01 Along with high-class packaging solutions, Stora Enso creates value to customers with advice on material optimisation, packaging automation and processes.
02 Retail businesses are seeking ways to reduce waste and improve shop floor efficiency with shelf-ready packaging.
03 Customers are offered packaging design support in Stora Enso's ten DesignStudios worldwide.
04 Increasing online shopping raises the need for cost efficient logistics through weight reduction, fit-forpurpose packages and improved stacking and box filling.

In 2025, millennials born between 1980 and 2000 will represent 47% of the workforce. They are environmentally conscious and want brands which convey their values. For millennials, sustainable packaging is important throughout the value chain, from primary packaging to online delivery. They consider fibre-based packaging materials the most sustainable packaging material choice, and to guide their purchase decisions, they look for help from retailers and brand owners. 80% would prefer sustainable packaging to be clearly labelled as ecological.

Stora Enso Viewpoint™

acceptance for the quality of brown kraftliner has been good from the beginning. The mill reached EBITDA break-even during the third quarter of 2016. Full production is expected in the second half of 2017.

Stora Enso announced an investment of EUR 6.6 million to increase competitiveness in the Swedish corrugated packaging business. The investment encompasses a new corrugated cutting machine with high-quality printing in the Jönköping Mill and a smaller upgrade of the cutting system in the Skene Mill.

Stora Enso is also consolidating the manufacturing of corrugated packaging in Finland. The objective is to improve profitability and competitiveness by creating a centre of excellence for corrugated packaging in Lahti. As part of the consolidation, Stora Enso will invest approximately EUR 19 million in new machinery and supporting infrastructure in Lahti.

During 2016 Stora Enso started to evaluate the possible expansion of Ostrołęka Mill containerboard production in Poland. In early 2017 the feasibility study is at final stage.

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Divisions: Packaging Solutions 34

Eco-packaging for the fish industry

The EcoFishBoxTM was developed at Stora Enso's DesignStudio for packing fresh fish for shipment. Delivered as a flat corrugated board sheet, the waterproof and leak tight EcoFishBox is both cost competitive and more sustainable than the traditional polystyrene fish box.

Financial performance: Packaging Solutions 7 Operational ROOC .6% (Target: >20%)

Capital expenditure and depreciation

Capital expenditure

Depreciation and impairment charges

Sales and operational EBIT

Packaging Solutions division sales were EUR 1 044 (EUR 913) million, up 14% compared to 2015. The increase is mainly due to the ramp up of the Varkaus kraftliner mill. Sales growth excluding Varkaus would have been 3%.

Operational EBIT at EUR 64 (EUR 90) million was 29% down from the previous year mainly due to the ramp up of the Varkaus kraftliner mill and the challenges with the corrugated China operations. Operational EBIT would have grown by EUR 3 million excluding Varkaus kraftliner mill and corrugated China operations.

	Key figures
--	-------------	--

EUR million	2016	2015	2014
Sales	1 044	913	1 065
Operational EBIT	64	90	118
Operational ROOC	7.6%	11.1%	14.1%
Cash flow from operations	132	138	182
Cash flow after investment activities	63	20	128
Average number of employees	7 372	7 141	8 227
Board deliveries (external), 1 000 t	869	587	724
Corrugated packaging deliveries, million m²	1 082	1 112	1 104

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Divisions: Packaging Solutions 35

Shedding light on cardboard

AndBros is a Helsinki-based design company. Since its founding in 2011, the company has become well known for its playful design, especially the award-winning Cardboard Light Collection of cool lamp shades.

Ecological design is an integral part of what they do. Creatively, they also explore the possibilities of various materials. "In our lighting range, it is the design that first grabs people's attention. Only then do they notice that – Wow! – they are actually made of cardboard," says Antti-Jussi Silvennoinen from AndBros.

Stora Enso provides the corrugated cardboard sheets used in making the Cardboard Light lamp shades. The cardboard has a high quality and durability that makes it ideal for lamp shades. For the finished product, the material is laser cut and the coloured cardboard and transparent matt veneer added.

However, the outer package is as creatively designed as the lamp itself. Stora Enso's DesignStudio worked with AndBros to devise an outer package that supports the product through the logistics chain and ensures excellent product protection. Additionally, the outer package is produced from corrugated cardboard with "e-wave", which gives the consumer a sense of ecological premium.

"The outer packaging is a big part of the product – minimising the size and bundling the parts," says Silvennoinen. "Most importantly, it should reflect what the product stands for."

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Divisions: Biomaterials 36

Biomaterials

The Biomaterials division offers a wide variety of pulp grades to meet the demands of paper, board and tissue producers. We are maximising the business potential of the by-products extracted in our process, such as tall-oil and turpentine from biomass. Based on our strong innovation approach, all fractions of biomass such as sugars and lignin hold substantial potential for use in various applications.

Offering

Bleached Hardwood pulp
Bleached Softwood pulp
Unbleached pulp
Fluff
Dissolving pulp
Tall oil
Turpentine
Lignin
Xylose (2017)

Advantages

Access to biomass
Expertise in forests and plantations
Largest portfolio of pulp grades
Right pulp mix for customer needs
New Innovation Centre
Investments at Montes del Plata, Sunila, Skutskär, Danville and Raceland for current and future applications
Ability to trace wood to its origins

Biomaterials is developing new, innovative ways to maximise the value extractable from wood, as well as other kinds of nonfood-competing biomasses.

Stora Enso Biomaterials pulp mills

R&D facilities and/or pilot plants
Plantations

The division has a global presence with operations in Brazil, Finland, Laos, Sweden, Uruguay and the United States.

Sales by destination

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Divisions: Biomaterials 37

Juan Carlos Bueno Executive Vice President, Division Biomaterials

In the Biomaterials division, our mission is to find new, innovative ways to utilise our valuable raw material – wood – and simultaneously run the existing pulp and by-products businesses as efficiently as possible and to do so according to the needs and wishes of our customers.

Strategy

Strong position in existing pulp portfolio and new business platforms

The division aims at profitable growth by strengthening its position in selected pulp grades and by building a new business platform, which is based on innovative solutions produced out of renewable materials: wood and agricultural by-products. Stora Enso differentiates from other pulp suppliers through its extensive product portfolio and stable quality, which is supported by our strong technical customer service. The aim is to increase the share of specialised pulp, such as fluff and dissolving pulp, in our Nordic mills.

Regarding the new business platform, our focus will be to continue building our strong lignin business, further develop extraction and separation technology, create business based on extracted sugars and develop new applications based on pulp. In lignin, the short-term focus is on phenol replacement, which offers great potential and attractive margins. In the longer term the aim is to explore potential applications in other industries, as well. On the sugar side, Biomaterials has started producing xylose in the Raceland facility. This xylose will be sold to xylitol producers to be used in dental care and food applications.

Business environment

Arising opportunities in specialised pulp

Fluff and dissolving pulp demand is expected to grow in the coming years due to a growing population, increasing disposable income, changes in consumer behaviour and an aging population. The other growing segment in pulp is Bleached Eucalyptus Kraft Pulp (BEKP). Its demand growth is linked to growth in China and to the growth in tissue and specialty paper production as well as changes in consumer behaviour in developing countries.

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Divisions: Biomaterials 38

Progress Target

Main achievements in 2016

Signing a Joint Development Agreement with Rennovia to cooperate on bio-based chemical development
Getting the Innovation Centre up to full speed and proceeding in our four main innovation areas
Decision on increasing fluff capacity in the Skutskär Mill in Sweden to meet growing demand in the hygiene market
Start-up of Raceland bagasse-toxylose demonstration plant
Commercialisation of lignin

Main focus and targets in 2017

Safety, aiming towards zero accidents
Stabilising xylose production and commercialising xylose
Transforming a softwood paper pulp line in Skutskär Mill in Sweden into fluff pulp

Fluff pulp line at the Skutskär Mill increases the share of specialised pulp

priority

Other pulp makers in the markets include, for example, UPM, Metsä Fibre, Södra, Fibria (our partner in Veracel), Eldorado, CMPC, Arauco (our partner in Montes del Plata) and Suzano. In terms of new potential markets, the Biomaterials division will face competition not only from the traditional pulp makers mentioned above, but also from biochemical companies as well as the chemical industry.

Innovation approach

Development in the bio-plastics, textile and non-woven business segments

Transformation in action

Joint development and investments

In the area of innovation, Biomaterials division is developing new offerings based on non-food competing biomasses. Complementary technologies are being scouted to speed up the innovation process to new products. Also the potential for bioplastics is being explored – an area where the division is working closely together with Stora Enso's packaging divisions.

In pulp applications, we are focusing on developing technologies for the textile and non-woven business segments, in which there is an increasing need for new renewable and compostable solutions, for example in wet wipes.

The commercialisation of lignin from the integrated lignin extraction plant at Sunila Mill in Finland went ahead during the year and the first customer agreement has been signed. In terms of potential markets, refined lignin can be used, for example, in the production of adhesives and resins, coatings and specialty chemicals.

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04 01 A good reputation and a high standard for sustainability remain priorities, especially in the tissue and hygiene segments where the requirements come from endconsumers. 02 Sugars and lignin hold potential for use in applications in the specialty chemical, construction, personal care and food industries.

03 The innovation work in Biomaterials focuses on exploring new opportunities of wood and other kind of lignocellulosic biomasses.

04 RFID tracking technology within pulp bales is being developed to support supply chain efficiency and to serve our customers better in the future.

I was hired by Stora Enso via our local employment office at Älvkarleby, close to the Skutskär Mill in Sweden.

After my internship I worked my way up from being a summer worker to gaining a permanent position as an operator. With the high youth unemployment rate we have here, I think Stora Enso is doing the right thing by extending a helping hand to young people, so that they have the opportunity to work and learn new skills.

Christoffer Makaroff Operator at Skutskär Mill

The start-up process at the bagasse-to-xylose demonstration plant in Raceland, USA, was initiated in 2016 and the first batches of xylose are expected to be delivered in 2017. The demonstration plant is the first of its kind and will utilise sugar cane bagasse, which is a waste residue from the raw sugar manufacturing process.

To meet the growing demand in the hygiene market, Stora Enso announced an investment of EUR 26.5 million at Skutskär Mill in Sweden to increase its fluff pulp capacity by approximately 160 000 tonnes annually. Both hygiene and non-woven products are a fast-growing market.

To strengthen our bio-based chemicals development, Stora Enso signed a joint technology development agreement with specialty chemicals company Rennovia Inc in May. Companies will cooperate to develop processes for biobased chemicals and the joint development will give Stora Enso a solid platform to build on when constructing a portfolio of sustainable bio-based solutions.

To further enhance the reliability and traceability of our pulp deliveries, Stora Enso is working with key customers to improve service and to decrease costs in the overall logistics chain. One example is a project with a key customer in inventory management, where we take care of the customer's pulp warehouse to guarantee the right amount of pulp for their production each day. Another development area is implementing RFID technology, where the pulp bales are tagged to enable the constant tracking of the delivery from our mill all the way to customer's production.

Divisions: Biomaterials 39

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Divisions: Biomaterials 40

Biomaterials division sales were EUR 1 376 (EUR 1 484) million, down 7% on 2015 due to significantly lower hardwood pulp sales prices and also lower softwood pulp prices.

Operational EBIT at EUR 224 (EUR 313) million was 28% down from previous year mainly due to lower hardwood and softwood pulp sales prices in local currencies and higher fixed costs due to investments into innovation activities. Foreign exchange rates had a positive impact on operational EBIT.

Sales and operational EBIT

Depreciation and impairment charges

Capital expenditure

2013 2014 2015 2016

Operational EBIT, %

Key figures

EUR million	2016	2015	2014
Sales	1 376	1 484	1 104
Operational EBIT	224	313	89
Operational ROOC	8.5%	12.4%	3.9%
Cash flow from operations	419	385	136
Cash flow after investment activities	278	187	-108
Average number of employees	1 797	1 655	1 569
Pulp deliveries, 1 000 t	2 508	2 499	2 076

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Divisions: Wood Products 42

Wood Products

The Wood Products division aims to be the leading building solutions provider in wood-based construction and a leader in innovative wood-based solutions. The product range covers massive wood elements and wood components for urban construction. It also covers a variety of sawn timber goods and pellets for sustainable heating.

Offering

Cross laminated timber (CLT)
Laminated veneer lumber (LVL)
Construction Beams; Post and
beam, KVH
Industrial Components • Classic sawn
Pellets
Building Components

• Building Systems

Wood Products' solutions are geared to address high demands with regard to safety, quality, design and sustainability.

Production units

The division has over 20 production units in Europe and serves customers globally.

Sales by destination

21% 67% 11%

Advantages

Broad and versatile product portfolio
Own global sales network and distribution to serve customers
Customer service development
Broad operational platform in more than 20 sites in 10 countries
Industry leader in digitalised business processes
Effective supply chain from forest to customer
Sustainability throughout the supply chain

Asia Pacific Europe

Middle East and North Africa

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Divisions: Wood Products 43

Strategy

Classic sawn and higher value-added products

Business environment

Fragmented market structure provides opportunities

Wood Products division aims to be the leading provider of innovative wood-based solutions. The strategy is based on cost competitive classic sawn and the integrated production of higher value-added products. The aim is to grow in businesses where the division has a sustainable and strong market position, higher profitability and room for differentiation.

New innovative solutions in massive wooden building components have allowed wood to enter the market for new construction end uses that was traditionally dominated by concrete and steel. By taking an active role in developing the ecosystem, the Wood Products division aims to capture market share from the competing materials. The Building Solutions unit was established to support sales by showing how to use all our wooden products and to promote wood as a construction material.

Wood Products division is well positioned to capture the growth opportunity created by current mega trends such as urbanisation, sustainability awareness and digitalisation. The fragmented structure of the market provides a unique opportunity for Stora Enso as a strong player to position itself against competitors. The relatively low level of technical development within the industry provides opportunities for differentiation for larger producers as well as the ability to invest in long-term developments, such as digitalisation.

Wood Products division's global sales network and a broad product portfolio create a competitive edge in terms of global know-how. In addition, we differentiate by offering value to our customers through innovative service offerings setting up integrated distribution centres, offering Building Systems and Building Components as well as eBusiness solutions, supporting sales growth in all product segments.

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Divisions: Wood Products 44

Progress Target

Main achievements in 2016

Successful completion and startup of the LVL mill in Varkaus
Building Systems by Stora Enso launched in six selected markets
Added value for customers through sustainability in certified products and operations
Grand opening of the modernised Murów Mill
Strong growth in Building Components and Systems

Main focus and targets in 2017

Safety, aiming at zero accidents
Differentiation through services
Harvest the potential of existing assets
Improve the supply chain from forest to customer through digitalisation
Maximise log profitability

priority

Services such as Building Systems and eBusiness solutions offer added value to our customers.

Innovation approach

Continuing to boost digitalisation for future growth

Transformation in action

Enhancing LVL, CLT and classic sawn production

Wood Products division continues to develop digitalised business processes and to go from being an industry leader to becoming world-class in digitalisation among all industries. Digitalisation is an important tool for optimising processes and realising operational efficiency throughout the value chain, driving sales by monitoring consumer behaviour and trends, and developing new product and service offerings such as the design software Calculatis and the online ordering system MySupply.

Production started at Stora Enso's new laminated veneer lumber (LVL) line at Varkaus Mill in June. The new LVL line will meet the growing need for sustainable, high quality engineered, wooden building components.

Stora Enso divested its Hartola pre-fabricated wooden housing modules unit in Finland and entered into a partnership with the buyer, Pyhännän Rakennustuote Oy. Stora Enso will continue providing the buyer with massive wooden construction materials from classic sawn goods to elements such as cross laminated timber (CLT) and LVL.

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01 The new LVL line in Varkaus Mill with yearly capacity around 100 000 m3 further enhances Stora Enso's position as a global provider of high quality engineered wooden elements.
02 Wooden multi-storey houses constructed with Stora Enso's modular elements in Helsinki, Finland, won a Nordic housing competition organised by Housing Nordic.
03 Näpi, Imavere and Nebolchi Mills were the first Stora Enso mills to be granted the Sustainable Biomass Partnership (SBP) certificates for pellet production.

With the launch of Building Systems by Stora Enso, I am encouraged that a major company has made such

a large commitment and is sharing this tool and detailed specifications. In wood construction, there is clearly a need to open up the market. The general public will then become more familiar with wood, thus designers and builders will learn how to use it. This is an important step forward for the industry.

Santeri Lipasti Architect, Huttunen-Lipasti-Pakkanen Ltd

Stora Enso started a feasibility study to examine the building of a CLT production unit in connection with Gruvön Mill in Sweden. The expansion would add a total annual capacity of approximately 75 000 m3 of CLT, which would support our ambition to capture market share from non-renewable materials in the construction sector. The feasibility study will be finalised during spring 2017.

In spring 2016, Stora Enso launched Building Systems by Stora Enso in Central Europe – and in the Nordic region in the second half of 2016. For the first time in the wood industry there is a comprehensive architectural guideline and building systems descriptions that aim to increase the use of wood as a construction material. The building system allows the user to understand how to build with wood, to find options that are feasible for wooden construction, and to receive support throughout the construction.

The modernised sawmill in Murów, Poland was inaugurated in September. It enables Wood Products to meet growing urban construction needs and better serve customers in Central and Eastern European markets and to strengthen our offering to customers in selected global markets. The modernisation increased the sawmill's yearly capacity from 70 000 m3 to 400 000 m3.

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Divisions: Wood Products 46

Capital expenditure and depreciation

Capital expenditure

Depreciation and impairment charges

Sales and operational EBIT

Sales Operational EBIT, %

PEFC® certified CLT by Stora Enso

Mäihä house in Seinäjoki, Finland, was granted the first project certificate in the Nordic countries by PEFC, which is the world's largest forest and wood product certification system. Mäihä's CLT modules are built with 990 m3 of wood, including the frame, exterior claddings, other structures, built-in furniture and interiors.

Wood Products division sales were EUR 1 595 (EUR 1 603) million, down EUR 8 million from 2015, mainly due to conscious decision to lower the trading business volumes. The Building components sales has increased by 15%.

Operational EBIT at EUR 88 (EUR 81) million was 9% up from previous year. Operational EBIT was positively impacted by higher volumes of own products and lower volumes from the low margin trading business. Operational EBIT was negatively impacted by higher fixed costs related to the ramp up of new investments mainly at Murów sawmill and Varkaus LVL mill.

Key figures

EUR million	2016	2015	2014
Sales	1 595	1 603	1 779
Operational EBIT	88	81	89
Operational ROOC	16.8%	15.7%	17.3%
Cash flow from operations	142	118	86
Cash flow after investment activities	75	59	58
Average number of employees	3 937	3 824	4 046
Wood products deliveries, 1 000 m3	4 643	4 334	4 493

Part of Stora Enso's Annual Report 2016

Part of Stora Enso's Annual Report 2016

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Divisions: Wood Products 47

24/7 with MySupply

Developed by Stora Enso, MySupply is an online ordering system for wood products providing 'live' access to product availability, trading and shipping information as well as a load optimiser. The aim is to streamline the ordering process, save time and make doing business easier for customers and the Stora Enso sales team.

"MySupply makes it possible to place orders anytime and anywhere, with the advantage of seeing the stock situation live," says Greg Pickett, UK Sales Manager. "Ease of navigation and automation enables faster ordering times and enhanced account information. The ability to do this 'on-the-go' is a real benefit."

Accessible by computer, tablet or mobile phone, customers receive an order confirmation and package list instantly, confirming exactly which packs will be delivered and the total value of their order. The load optimiser feature shows how an order of timber packs, for example, fits optimally into a 3D truck in one or multiple loads as needed.

Duncan Rossall, Commercial Director at GE Robinson in Salford, UK, is extremely impressed with MySupply. "We appreciate the immediate information on stock and the tool is very easy to use and understand. It has helped to make our operation more efficient. The 'virtual truck' is brilliant."

MySupply was piloted in Australia and an advanced version launched in the UK. Within only three months, over 50% of orders in the UK were being processed using MySupply. The plan is to expand the service into other markets.

mysupply.storaenso.com

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Divisions: Paper 48

Paper

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Stora Enso is the second largest paper producer in Europe with an established customer base and a wide product portfolio for print and office use. Customers benefit from Stora Enso's broad selection of papers made from recycled and fresh wood fibre, as well as our valuable industry experience, know-how and customer support.

Offering

Newsprint and book papers
Uncoated magazine papers
Coated papers
Office papers
Technical customer service and support services
Supply chain and sustainability expertise
E-business solutions

Advantages

Competitive assets and efficient supply chain
Access to virgin and recycled fibre
Integrated pulp, well-invested in energy
Long-term customer relationships
Own sales network
Innovation beyond products
90% of the paper brands awarded ecolabels for environmental excellence

Our ambition is to be best in class in paper – better than the competition in operational excellence, understanding customer needs and profitability.

Paper production units

Stora Enso has nine paper mills with 19 production lines in Europe and operates one paper machine in China.

Sales by destination

81%

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Strategy

Operational efficiency and close co-operation with key customers

Business environment

Flyers and folders highly effective in retail and online commerce

Paper division's ambition is to be best in class in paper. This means being better than the competition in operational excellence, meeting customer needs and profitability. As European paper demand declines and competition intensifies, the Paper division is working closely with key customers and enhancing its competitiveness by lowering costs and improving efficiency and processes throughout its operations.

Since the borders between the end uses of the different paper grades are becoming more blurred, product segment strategies and offerings are regularly revised to maximise profitability and to ensure that we meet market needs. To ensure delivery reliability and reduced lead times, Paper division is implementing new supply chain management processes. E-commerce and other new services improve ways of working create new business models. The division also aims to gain new customers and business by offering these differentiating services and by strengthening sales-related processes and competencies.

The megatrend of digitalisation is driving structural change in the marketplace and affecting the demand for paper. The increased use of digital media has had a negative impact, especially on newsprint demand. New devices such as tablets also affect the demand for printed magazines and books. However, print and digital coexist and support each other. Advertisers see flyers and folders as a highly effective means for getting consumers to brick-and-mortar retail or online stores. We also see online retailers publishing printed magazines and establishing physical store locations to improve customer experience.

Copy paper is performing relatively well as people continue to print in offices and at home. Developments in digital technologies are also opening up the potential for new cost efficient print processes and on-demand production processes.

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01 Stora Enso is continuously striving to improve operational efficiency and performance. 02 More than 90% of our paper brands have been awarded one or more Ecolabels for
their environmental excellence. Production of MultiCopy Original involves zero CO2 emissions from fossil fuels. 03 Our product range covers papers made from
both recycled and fresh wood fibre: uncoated magazine, newspaper and book papers as well as coated paper and office products.

Main achievements in 2016

Clearly improved profitability due to lower variable and fixed costs and stable sales excluding the structural changes
Divestment of non-core assets
Strong cash flow, better productivity • Successful office paper optimisation at the Veitsiluoto and Nymölla mills after Varkaus paper machine conversion to packaging grades

Main focus and targets in 2017

Safety, aiming at zero accidents
Increase competitiveness through fit-for-purpose product offering, tight cost management and high capacity utilisation
Develop supply chain efficiency through digitalisation and automatisation
Further develop new business models and service offerings
Making sustainability a competitive advantage
Operational excellence

Increase competitiveness through operational excellence and fitfor-purpose products and services

Innovation approach

Toolbox to coach structured innovation work at mills

In terms of innovation, Paper division has its main emphasis on new or improved products, business models and services, and operational excellence. Product development focuses on improving product quality while keeping production costs at an attractive level. Opportunities in lower energy consumption and productivity increases in operations are also being explored – as is the creating and promoting of an innovation culture that adds structure to innovation processes and helps in the coaching of innovation work at mills.

Work will also continue to improve Paper division's efficiency, to keep operating rates as high as is viable and to streamline operations. The development of a 'Model Mill' concept has begun with the goal of lifting our best mills and their processes to higher efficiency levels.

During 2016 Stora Enso continued to divest its non-core assets. The divestment of the Arapoti magazine paper mill in Brazil to Papeles Bio Bio, a Chilean paper producer was completed in March.

The Kabel coated mechanical paper mill in Germany was divested to Hagen-Kabel Pulp & Paper GmbH. Stora Enso will continue to produce coated mechanical paper under the NovaPress brand at its Veitsiluoto Mill in Finland.

Transformation in action

Focus on core assets after divestments

Progress Target priority

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Divisions: Paper 51

Thanks to the renewable energy pipeline opened between the manufacturing sites of Volvo Cars and Stora Enso Ghent, Belgium, we are

now able to lower our CO2 emissions and energy costs by using substantially lower amounts of fossil fuels for heating. This collaboration supports our efforts to improve our internal efficiency and promote sustainability, both in the cars we make and in our production processes.

Eric Van Landeghem Managing Director, Volvo Car Gent The Suzhou Mill site in China was divested to the local government of the Suzhou National New & Hi-tech Industrial Development Area, which plans to convert the mill site from an industrial use to non-industrial use. The paper production stopped in June.

To reduce waste water emissions and to improve the profitability and energyefficiency of Stora Enso's Veitsiluoto pulp mill, an investment of EUR 13 million was announced in August. The investment will also enhance pulp quality and production stability.

In Ghent, Belgium, Stora Enso and Volvo Cars opened a new hot water pipeline between their manufacturing sites. The four-kilometre pipeline takes hot water that is heated using renewable energy from Stora Enso's Langerbrugge paper mill to the Volvo plant, where it is used to heat buildings and paint booths. This has resulted in a reduction of 40% in annual CO2 emissions at the Volvo plant.

Paper division has restructured its operations during recent years and Stora Enso is reviewing how to create the best conditions for Paper so that it can compete while facing increasing cost pressures and declining market demand. Therefore, an internal project was initiated to plan for the most efficient way to manage the paper business in the future.

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Launched in 2016: Prima Super G

The new paper grade Prima Super G is a light-weight uncoated paper for heatset printing. The glossy and smooth Prima Super G is produced at Stora Enso's Kvarnsveden Mill and it is ideal for flyers, inserts, brochures and magazines.

8 Cash flow after investing .5% activities to sales (Target: >7%) Financial performance: Paper

Paper division sales were EUR 3 245 (EUR 3 630) million, down 11% from 2015 due to restructuring and disposals. Stora Enso divested 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. Divestment of the Kabel coated magazine paper mill in Germany was completed in September 2016. Paper production ended in August 2015 at the Varkaus office paper mill which was converted into kraftliner mill.

Operational EBIT at EUR 211 (EUR 77) million was 174% up from 2015 due to lower variable costs and tight fixed costs management. The foreign exchange rate impact including the hedging result was positive.

Key figures

EUR million	2016	2015	2014
Sales	3 245	3 630	3 912
Operational EBIT	211	77	172
Operational ROOC	19.4%	5.5%	9.4%
Cash flow from operations	351	286	354
Cash flow after investment activities	277	201	243
Cash flow after investment activities to sales	8.5%	5.5%	6.2%
Average number of employees	5 786	6 810	7 700
Paper deliveries, 1 000 t	5 141	5 778	6 006

Capital expenditure and depreciation EUR million

Depreciation and impairment charges

Sales and operational EBIT EUR million % 5 000 10

Operational EBIT, %

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Divisions: Paper 53

Power of print in retail

METRO GROUP, based in Düsseldorf, is a leading international wholesale and retail group with some 220 000 employees worldwide . The operating business comprises METRO/MAKRO Cash & Carry, an international leader in the self-service wholesale trade; Media Markt and Saturn, the European market leader in consumer electronics retailing; and Real hypermarkets .

"Every year 144 billion pages of our advertising materials in A4 format are produced worldwide using 200 000 tonnes of paper supplied by our central paper sourcing function", says Heidi Stockum, Division Manager Strategic Paper Sourcing, METRO GROUP Advertising . "Stora Enso's customer-focus, quality of paper products, delivery accuracy and sustainability efforts have been the key to our successful long-term business partnership ."

METRO GROUP Advertising serves METRO GROUP internally in 28 countries as well as external customers along the value chain for the production and distribution of advertising products in both, physical and also digital formats .

"Resource and climate protection are high on our agenda – and on that of our customers", says Stockum . "This starts from our paper supply – from recycling processes to global forestry certificates . Our customers benefit from our comprehensive expertise to achieve their climate protection targets and consistently reduce their carbon footprint ."

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People and leadership 54

People and leadership

As Stora Enso becomes an increasingly global company, winning culture is driven by motivated employees and the right organisation, honouring the company's purpose "Do Good for the People and the Planet" and values "Lead" and "Do What's Right."

Commitment to leadership as the strongest driver of performance and winning culture is at the core of Stora Enso's People Strategy, which additionally focuses on workforce planning and employer branding, alignment and engagement, HR Services and occupational health and safety. Investments in leadership centre on the Leadership Themes: Customer Needs, Business Acumen, People Management, Inspire & Motivate and Do What's Right.

Programmes and tools to support growth

Stora Enso has completed several actions to drive progress towards a winning culture. Investments in leadership allow every manager to undertake a structured programme, Lead through People, to practice individual leadership and manage high performing teams. Tools such as 360 degree coaching and development centres allow managers and participants to improve their leadership and develop in their professional role.

To support the transformation of the company, Stora Enso has developed change agents in the Pathfinders, Pathbuilders and Pathbreakers programmes. In the programmes, diverse teams have focused on solving real business cases for the executive Group Leadership Team. In the GROW Global Trainee Programme, young talents have been enabled to perform and learn while completing business projects. The Commercial Excellence Programme focuses on improving the value creation for customers by building capabilities in value propositions, sales management and sales leadership.

Along with leadership, safety, business ethics and sustainability remain priorities. Our employees are trained in the Code of

Conduct and to further strengthen our focus on Do what's right, we have launched an Ethics Ambassador Programme and Ethical Spotlights.

More information on these priorities can be found in the Sustainability Report.

Measuring progress through the global employee survey – Your Voice

Stora Enso conducts an annual global employee survey (Your Voice) for all employees, for which the response rate in 2016 was 90%. The survey is both a tool to follow the progress on areas impacting our ability to deliver our strategic agenda, hence steering activities and priorities, as well as supporting managers and teams to continuously improve their way of working.

All main indices are showing a positive trend in 2016 and the data demonstrates how the quality of leadership impacts areas such as engagement and team efficiency. In addition to the positive trend, a key finding in the survey is a strong correlation between actively working with the result and an improved working climate.

Investing in leadership

5 000 participants in structured leadership programme Lead through People
1 900 leaders with 360 degree leadership coaching
141 change agents in Pathfinders, -builders and -breakers programmes
48 graduated GROW Trainees

Malin Bendz Executive Vice President Human Resources

By investing in leadership, we are creating the engagement we need as an organisation to perform and take the transformation forward. Reaching our target of a Leadership Index of 80 is a strong signal that we are on the right track.

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