CHINA -- Stora Enso announced Monday morning that it has signed an agreement to divest the key assets of its Suzhou Mill in China, including the land-use rights and buildings, to the local government of Suzhou National New & Hi-tech Industrial Development Area (SND).

The company said that during its 20 years of operation, the city of Suzhou has grown around the mill, making it difficult to develop and continue industrial operations at the current site. The cash consideration for the divestment of assets is approximately EUR 240 million.

The total gain on disposal to be reported in operating profit amounts to approximately EUR 180 million of which EUR 26 million will be recorded as a positive non-recurring item in Stora Enso's second quarter 2016 results and EUR 154 million is expected to be recorded as a positive non-recurring item in Stora Enso's fourth quarter 2016 results. The total net gain including the closure related costs after tax will be approximately EUR 150 million.

Production is planned to be stopped during June 2016 and the transaction is expected to be completed in the fourth quarter of 2016. Operational profitability of the mill is close to break even so the transaction will not have a material impact on Stora Enso's operational EBIT going forward.

"Suzhou Mill is a recognised high quality paper producer with an established customer base. However, the mill only has one paper machine and it will no longer be competitive after the emergence of larger-sized mills in the Chinese market. The location of the mill in the middle of a large city is not favourable for paper production," says Kati ter Horst, EVP Stora Enso's Paper division.

Based on annual figures for 2015, the divestment is expected to reduce Stora Enso's annual sales by EUR 126 million and simultaneously decrease the annual woodfree coated paper production capacity by approximately 240 000 tonnes. Suzhou Mill currently employs approximately 500 people, who will receive support in finding new employment opportunities.

About the buyer

SND is the administration of the Suzhou National New & Hi-tech Industrial Development Area, established in 1992. SND is part of the Suzhou City government. Suzhou City has approximately 11 million inhabitants and borders west Shanghai. SND plans to convert the mill site from industrial use to non-industrial use.