Business News

Stora Enso continues pulp, fine paper and sawnwood production at Varkaus, newsprint production planned to be permanently closed down

Thursday 22. April 2010 - Stora Enso announced on 19 August 2009 that it planned to close down the Varkaus mill site in Finland permanently by the end of 2010 unless there were a robust recovery in the supply and demand balance for office paper that would allow clearly profitable operation.

since then, the supply and demand balance and
pricing of office paper have improved. Stora Enso is therefore able to keep the
pulp mill and fine paper mill in production as long as financially viable and
there is competitive fibre available for the Group in the long term. The
operations of the sawmill and, as announced earlier, the biofuel joint venture
with Neste Oil, NSE Biofuels Oy, and its demonstration plant will also continue.

At the same time, the situation in newsprint has dramatically deteriorated.
Because of the overcapacity in newsprint and directory paper, and resulting weak
earnings, Stora Enso plans permanently to close down newsprint production at
Varkaus with combined annual capacity of 290 000 tonnes, by the end of the third
quarter of 2010. The proposed closure would affect about 200 people out of 512
people employed at Stora Enso’s Varkaus Mill. The plan will not substantially
affect the amount of renewable energy production at Varkaus.

The European newsprint market is structurally oversupplied, with 18% excess
capacity expected in 2010. Consequently, newsprint sales prices have fallen
significantly. In the longer term, newsprint demand in Europe is expected to
continue to decline, as has already been happening in North America for some
time. In addition, newsprint production at Varkaus relies on less-competitive
fresh fibre, and Varkaus is far away from most of its customers.

The restructuring actions in Wood Products, including the recent closure of
Tolkkinen sawmill and the divestment of Kotka sawmill announced today, are
improving the customer and business portfolio for the remaining Wood Products
units, including Varkaus sawmill, which will continue to operate.

As before, Stora Enso will support redeployment of those affected by the plans
through efficiently offering jobs internally and eligibility for outplacement
services. The Group works closely with local employment and economic development
centres to find new job opportunities for people affected. Stora Enso will also
support financially those who would like to start their own business. The early
efforts taken with other stakeholders in Varkaus and at national level have been
of great importance and will help in finding positive solutions.

Any decision on closures or restructuring actions will be taken later when the
co-determination negotiations concerning the plans have been undertaken and
concluded as required.

Weak market conditions have already caused the temporarily shutdown of Varkaus
newsprint machine PM 2. As a result of the co-determination negotiations that
were announced on 19 February 2010, PM 2 production is temporarily curtailed
until further notice.

Estimated financial impact
Stora Enso anticipates that the planned permanent shutdown of newsprint
production at Varkaus would have the following financial impacts on the
Newsprint segment:

——————————————————————————–
| | EUR million |
——————————————————————————–
| One-time non-cash fixed asset and working capital | 0 |
| write-downs in Q2/2010 | |
——————————————————————————–
| One-time cash provisions Q2/2010 as non-recurring | 23 |
| items | |
——————————————————————————–
| Annual sales reduction | 148 |
——————————————————————————–
| Annual working capital reduction | 9 |
——————————————————————————–
| Annual operating profit improvement | 9 |
——————————————————————————–

In August 2009 Stora Enso estimated that the proposed closures, divestments and
product swaps would improve annual operating profit by EUR 140 million to EUR
160 million from the beginning of 2011 onwards, conditional on the provisional
planned closure of Imatra PM 8 and Varkaus Mill and the divestment of Kotka
Mill. Imatra PM 8 was permanently closed down in March 2010 and the product
swaps between the uncoated fine paper mills at Imatra, Varkaus and Veitsiluoto
were concluded by the end of the first quarter of 2010. The short-term outlook
for uncoated fine paper allows Stora Enso to keep Varkaus PM 3 in production for
the time being. A favourable supply and demand balance will be decisive for the
future of fine paper production, and the availability of cost-competitive wood
for the Group remains a critical precondition for the future of the fine paper
mill and sawmill.