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Credit Suisse First Boston 2005 Global Basics Conference March 3, 2005 Kai Korhonen Senior Executive Vice President Stora Enso Paper.

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Presentation on theme: "Credit Suisse First Boston 2005 Global Basics Conference March 3, 2005 Kai Korhonen Senior Executive Vice President Stora Enso Paper."— Presentation transcript:

1 Credit Suisse First Boston 2005 Global Basics Conference March 3, 2005 Kai Korhonen Senior Executive Vice President Stora Enso Paper

2 2 It should be noted that certain statements herein which are not historical facts, including, without limitation those regarding expectations for market growth and developments; expectations for growth and profitability; and statements preceded by believes, expects, anticipates, foresees, or similar expressions, are forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of Since these statements are based on current plans, estimates and projections, they involve risks and uncertainties which may cause actual results to materially differ from those expressed in such forward-looking statements. Such factors include, but are not limited to: (1) operating factors such as continued success of manufacturing activities and the achievement of efficiencies therein, continued success of product development, acceptance of new products or services by the Groups targeted customers, success of the existing and future collaboration arrangements, changes in business strategy or development plans or targets, changes in the degree of protection created by the Groups patents and other intellectual property rights, the availability of capital on acceptable terms; (2) industry conditions, such as strength of product demand, intensity of competition, prevailing and future global market prices for the Groups products and the pricing pressures thereto, price fluctuations in raw materials, financial condition of the customers and the competitors of the Group, the potential introduction of competing products and technologies by competitors; and (3) general economic conditions, such as rates of economic growth in the Groups principal geographic markets or fluctuations in exchange and interest rates.

3 3 Outline Stora Enso In Brief Key Financial Matters Long-Term Paper Demand Trends Our Strategic Approach to the Future Near-Term Market Outlook Questions and Discussion

4 4 Stora Enso in Brief Paper Packaging Boards Forest Products We will be the leading forest products company in the world Vision: A world leader –16.2 million tonnes of paper and board capacity –7.7 million m3 of sawn and processed wood products Three core product areas –Paper, Packaging Boards and Forest Products Sales: EUR 12.4 billion (= USD 16.1 billion) Approximately employees in 40 countries Market capitalisation: EUR 9.6 billion (= USD 12.5 billion) Dividend yield: 3.9% as of 2/21/05 Shares listed on Helsinki, Stockholm and New York stock exchanges

5 5 Leading Producers of Paper and Board, January 2005 Capacity in tonnes Source: Jaakko Pöyry Consulting Measured by installed capacity

6 6 Core Business Drivers Stora Enso, Sales 2004Core Business Drivers EUR 12.4 billion

7 Key Financial Matters

8 8 Change in EPS from 2003 to 2004 excluding non-recurring items EUR Sales prices GROUP TOTAL 2004 GROUP TOTAL 2003 Sales volume Energy Associated companies Financing costs Fixed and other costs Change in Finnish tax law

9 9 Earnings Per Share and Dividend EPS, excluding non-recurring itemsEURPayout ratio %Dividend * *) Board proposal

10 10 Capital Expenditure and Depreciation Capital expenditure Capital expenditure as % of salesEUR millionDepreciation Goodwill depreciation

11 11 Current programme approved by AGM 2004 to end 17 March Allows repurchase up to : A shares R shares Status through 23 February 2005: Number of Average % of Shares shares purchased: purchase price: authorisation A shares R shares Total shares in issue: Share Buy-Back Programme

12 North America H2 2004

13 13 USD million H1/04 H2/04 Sales (1 000 tonnes) Sales EBITDA* EBITA* Capital Expenditure Cash flow after Capex Market-related downtime (1 000 tonnes) Stora Enso North America Business Results *excluding non-recurring items

14 14 Stora Enso North America Activities During H Significant improvement in performance –Loss of USD 10 million EBITA versus USD 130 million loss in H Both volumes and prices increased About USD 10 million negative effect on Port Hawksbury mill result related to the CAD appreciation Modification of health care benefits announced in Q3/2004

15 15 Profit Enhancement Programme Programme proceeding according to plan Three paper machine shutdowns Four Paper machines modernised –PM 26 at Biron Mill to be completed February 2005 –PM 64 Whiting Mills postponed until early 2006 Workforce to be further reduced to some 5000 people by mid 2005 from 7300 in 2000 Savings of USD 145 million p.a. to be realised by mid-year 2005

16 Long-Term Paper Demand Trends

17 17 Growth of Paper and Paperboard Demand by Region East Europe and China drives future growth aspirations East Europe Latin America Africa Asia excl. Japan & China China Japan North America Western Europe Oceania Average 2.2 %/a Per capita, kg World North America Western Europe China Demand growth %/a ( ) Share of consumption (325 million tons), % Source: Jaakko Pöyry Consulting

18 18 Co-existence of Media Newsprint Printing & Writing papers Expansion of Internet/www PCs Mini Computers Radio Cinema TV Laser Printers CD-ROMs Mainframe Computers Colour TV Cable TV VCR Satellite TV Newsprint and Printing & Writing Paper Consumption in Western Europe Historically e-media has been complementing rather than threatening the print media. Source: Jaakko Pöyry/RISI Broadband Million tonnes

19 19 Study on the Drivers for Paper Demand Trends Paper grades Newsprint Mechanical –Coated –Uncoated Fine papers –Coated –Uncoated End-use segments Newspapers Magazines Commercial printing Key cross-cutting drivers Marketing spend level and mix Technology and competing media Consumer behaviour and demographics

20 20 Towards value added products and continuous productivity improvement Strategic responses Leverage Stora Ensos global marketing network and account management Strategic Responses Differ by segment and geography Assets Operations Marketing Deploy low cost regions/raw materials Consolidation/selective exits Expected demand growth CAGR by segment - % over 4 below Commercial Office Magazines Newspaper s Mature Markets Emerging Markets Magazines Newspaper s Commercial Office

21 Emerging Markets: A Strategic Approach to our Future

22 22 What Do We Mean by Emerging Markets? Low-cost local resources (raw materials, labour) Fast economic growth, low GDP per capita Focus areas for Stora Enso Brazil Chile Argentina Large, fast-growing market Fibre resources Low fibre costs Local markets China Russia

23 23 Paper and board consumption, kg/capita Demand Growth in Emerging Markets China Population, mill E E ,8 51,4 Brazil Paper and board consumption, kg/capita Population, mill ,8 59,4 Paper and board consumption, kg/capita Russia Population, mill ,9 52,7 Almost double in 15 years More than double Increase 30% Source: Jaakko Pöyry Consulting

24 24 Present Operations in Russia and Eastern Europe Corrugated packaging board mills in Riga, Balabanova and Arzamas 9 new packaging plants in Russia, Hungary and the Baltic States since1995 Intercell in Poland and Serbia Sawmilling mill in Karelia operating since Autumn 2003 Novgorod mill started up in April sawmills in Estonia, Latvia, extensive procurement One sawmill in Alythus, Lithuania Sawmills in Czech Republic Procurement / wood supply from Russia procurement volume in Mm 3 /a 2 port terminals, 4 railway terminals 4 logging companies, total harvest 0.4 Mm 3 /a Sawmills Corrugated packaging board and packaging materials Wood procurement focus

25 25 Present Operations in China Fine paper mill in Suzhou –Capacity tonnes coated woodfree (including sheeting, in 2005) –Paper sold to Chinese market –Reliant on imported pulp Core factory in Hangzhou –Capacity tonnes –Cores sold to different industries: plastics, paper, etc. Joint venture with Shandong Huatai Paper Plantations in southern China Core board Fine paper mill Sales office Plantations JV

26 26 Present Operations in South America Veracel – a joint venture together with Brazilian pulp maker Aracruz, based in Rio de Janeiro –A new pulp mill now under construction with tonnes of annual capacity –Production from mid-2005 – hectares of eucalyptus plantations –Stora Ensos share of production intended for captive use South American division office in Sao Paulo Sales offices in Sao Paulo, Santiago and Buenos Aires Veracel Aracruz Sao Paulo Sales office Division office

27 27 Veracel Before

28 28 Veracel Now

29 29 Harvesting in Veracel

30 Near-Term Market Outlook

31 31 Near-term Market Outlook Western Europe Price DemandComments Magazine Paper SC CMR Newsprint Fine Papers WFC WFU Packaging Boards Timber Demand is strong; Prices expected to increase Q Good demand; prices stable Good demand; prices under pressure Firm demand outlook; moderate price increases are being implemented Global demand outlook stable, some European markets weak; Increased supply will put pressure on sawn products prices Demand is strong; Prices expected to increase Q Demand is strong; Prices expected to increase Q1 2005

32 32 Near-term Market Outlook North America Price DemandComments Magazine Paper SC CMR Newsprint Fine Papers WFC Speciality Papers Demand stable; some price increases are anticipated Demand remains strong; price increases will continue to be implemented Demand remains strong; further price increases anticipated Demand stable; order back-log strengthening Demand remains strong; price increases will continue to be implemented

33 Questions & Discussion Visit for more

34 Appendix

35 35 Highlights Q IV/2003I/2004II/2004III/2004IV/2004 Sales, EUR million Operating profit*, EUR million EPS, EUR EPS*, EUR Cash EPS*, EUR Debt/Equity *) excluding non-recurring items Higher deliveries in most business areas; demand improved Low U.S. dollar depressed earnings Seasonal shutdown resulted in lower production and higher fixed costs Some costs rose

36 36 Change in EPS III/2004 vs IV/2004 EUR excluding non-recurring items -0.02

37 37 Factors Affecting Profitability during the Fourth Quarter Profitability negatively impacted by about: EUR 40 million of higher fixed costs related to holiday season shutdowns EUR 15 million of higher wood costs EUR 10 million energy-related costs EUR 15 million effect of the weakening of US dollar net of hedges –Average weakening 5.8 % in Q4 vs Q3 2004

38 38 Tonnes I/2004II/2004III/2004IV/2004 Publication Paper Europe North America Fine Paper Europe North America Packaging Total Market-Related Production Curtailments

39 39 EUR million Sales Operating profit* % of sales* Profit before tax and minority interests* Profit for the period Earnings per share (EPS)*, EUR Annual Key Figures *) excluding net non-recurring items

40 40 EUR million I/04II/04III/04IV/04 Sales EBITDA* Operating profit* Operating profit Profit before tax* Net profit EPS*, EUR EPS, basic, EUR CEPS*, EUR ROCE*, % Debt/Equity Summary Financials *excluding non-recurring items

41 Sales (1 000 tonnes) Sales (EUR million) EBITDA* (EUR million) Operating profit* (EUR million) Operating profit (EUR million) Earnings per share* (EUR) Earnings per share (EUR) Cash earnings per share* (EUR) Net debt (EUR million) Debt to equity ROCE* (%) Key Figures * excluding non-recurring items

42 42 Transaction Risk and Hedges in ) excluding non-recurring items EUR million EURUSDGBPSEKCADOther Total Sales Costs Net operating cash flow Transaction hedges as at 31 Dec Hedging percentage as at 31 Dec14.8%19.4%11.4%28.0% Average hedging percentage during %30.8%14.7%43.3%

43 43 EPS EUR excluding non-recurring items

44 44 ROCE % Target > 13% over the cycle Present WACC = 8.7% before tax excluding non-recurring items

45 45 Debt/Equity Target < 0.8 restated debt/equity ratio

46 46 Operating Profit by Product Area EUR million IV/03I/04II/04III/04IV/04 Publication Paper % sales Fine Paper % sales Packaging Boards % sales Wood Products % sales excluding non-recurring items

47 47 EUR million I/04II/04III/04IV/04 Change % III/IV Sales Operating profit % of sales ROOC, %* Deliveries, 1000 t Production, 1000 t Publication Paper In Europe: Publication paper demand was better than year ago Prices were stable, overseas prices increased In North America: Magazine paper demand was good and prices increased Imports increased Newsprint demand was stable

48 48 Fine Paper In Europe: Fine paper demand followed the normal seasonal pattern Uncoated fine paper prices remained similar to the previous quarter Moderate price increases were implemented in coated segment In North America : Demand for coated fine paper increased substantially Price increases were implemented Asia: Fine paper demand experienced seasonal weakening; prices stabilised *100% x Operating profit/Operating capital EUR million I/04II/04III/04 IV/04 Change % III/IV Sales Operating profit % of sales ROOC, %* Deliveries, 1000 t Production, 1000 t

49 49 Packaging Boards Demand was good in all businesses Some prices were increased in consumer boards and coreboards *100% x Operating profit/Operating capital EUR million I/04II/04III/04 IV/04 Change % III/IV Sales Operating profit % of sales ROOC, %* Deliveries, 1000 t Production, 1000 t

50 50 EUR million I/04II/04III/04 IV/04 Change % III/IV Sales Operating profit N/A % of sales ROOC, %* Deliveries, 1000 m Production, 1000 m Wood Products Increased raw material costs in the Baltic region, Russia and Sweden Wood products markets are oversupplied in Europe, North America and Japan Globally the wood products market is stable European construction market (whitewood) is polarised –Weak outlook in the UK, the Netherlands and Germany; strong elsewhere Joinery and retail businesses (redwood) are stable in Europe and overseas market *100% x Operating profit/Operating capital

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