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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 1995. 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 45 000 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 1 000 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 0.24 -0.29 0.16 -0.01 0.25 0.05 0.07 0.01 0.02 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 2005. Allows repurchase up to : A shares 9 000 000 R shares 32 700 000 Status through 23 February 2005: Number of Average % of Shares shares purchased: purchase price: authorisation A shares12 30010.650.10 R shares19 378 30010.8959.3 2001200220032004 Total shares in issue: 906 753 299 899 778 299 864 262 499 837 243 399 Share Buy-Back Programme

12 North America H2 2004

13 13 USD million20032004H1/04 H2/04 Sales (1 000 tonnes) 2 707 2 8201 3361 484 Sales 1 887 1 9979181 079 EBITDA* 95 14217125 EBITA* -184 -140-130-10 Capital Expenditure 182 20412084 Cash flow after Capex -121 -61-10039 Market-related downtime (1 000 tonnes) 79 7 7 Stora Enso North America Business Results *excluding non-recurring items

14 14 Stora Enso North America Activities During H2 2004 Significant improvement in performance –Loss of USD 10 million EBITA versus USD 130 million loss in H1 2004 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 2000-2015 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 2015 63 320 264 51 2000 54 325 207 30 Demand growth %/a (2000-2015) 0 1 2 3 4 5 020406080100 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 2003-2013 by segment - % over 4 below 0 2 - 04 - 2 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. 2000 2015E 2000 2015E 1 282 1 418 29,8 51,4 Brazil Paper and board consumption, kg/capita Population, mill. 167 198 42,8 59,4 Paper and board consumption, kg/capita Russia Population, mill. 145 133 22,9 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 2004 5 sawmills in Estonia, Latvia, extensive procurement One sawmill in Alythus, Lithuania Sawmills in Czech Republic Procurement / wood supply from Russia procurement volume in 2004 7.2 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 240 000 tonnes coated woodfree (including sheeting, in 2005) –Paper sold to Chinese market –Reliant on imported pulp Core factory in Hangzhou –Capacity 10 000 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 900 000 tonnes of annual capacity –Production from mid-2005 –70 000 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 Q1 2005 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 Q1 2005 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 www.storaenso.com for more information.www.storaenso.com

34 Appendix

35 35 Highlights Q4 2004 IV/2003I/2004II/2004III/2004IV/2004 Sales, EUR million 3 028.83 017.93 102.93 033.13 241.9 Operating profit*, EUR million 77.4103.458.5131.642.9 EPS, EUR -0.050.490.060.160.18 EPS*, EUR 0.000.060.060.100.03 Cash EPS*, EUR 0.350.410.430.450.38 Debt/Equity0.490.390.420.410.38 *) 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 0.10 0.04 -0.01 0.03 -0.06 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 Tonnes20032004I/2004II/2004III/2004IV/2004 Publication Paper Europe448 000240 00093 00074 00021 00052 000 North America49 000 Fine Paper Europe146 00036 00012 0008 0003 00013 000 North America30 0007 0007 000 Packaging 109 00081 00020 00016 00037 0008 000 Total782 000364 000125 00098 00061 00080 000 Market-Related Production Curtailments

39 39 EUR million 2002 20032004 Sales 12 783 12 17212 396 Operating profit* 900526336 % of sales* 7.04.32.7 Profit before tax and minority interests* 709319269 Profit for the period-241138740 Earnings per share (EPS)*, EUR0.550.240.25 Annual Key Figures *) excluding net non-recurring items

40 40 EUR million20032004I/04II/04III/04IV/04 Sales12 17212 3963 0183 1033 0333 242 EBITDA*1 7111 508394363418333 Operating profit*5263361035913243 Operating profit47170621959206223 Profit before tax*319269814911525 Net profit13874040752131150 EPS*, EUR 0.240.250.060.060.100.03 EPS, basic, EUR 0.160.890.490.060.160.18 CEPS*, EUR 1.631.670.410.430.450.38 ROCE*, % 4.53.03.72.24.91.6 Debt/Equity0.490.380.390.420.410.38 Summary Financials *excluding non-recurring items

41 41 200220032004 Sales (1 000 tonnes) 13 14913 551 14 409 Sales (EUR million) 12 78312 172 12 396 EBITDA* (EUR million) 2 1461 711 1 508 Operating profit* (EUR million) 900526336 Operating profit (EUR million) -178471706 Earnings per share* (EUR) 0.550.24 0.25 Earnings per share (EUR) -0.270.160.89 Cash earnings per share* (EUR) 1.951.631.67 Net debt (EUR million) 3 227 3 9193 051 Debt to equity0.380.49 0.38 ROCE* (%) 7.04.5 3.0 Key Figures * excluding non-recurring items

42 42 Transaction Risk and Hedges in 2004 1) excluding non-recurring items EUR million EURUSDGBPSEKCADOther Total Sales 20046 2003 3009001 10010080012 400 Costs 2004- 6 200-1 800-200-2 000-200-500-10 900 Net operating cash flow01 500700-900-1003001 500 Transaction hedges as at 31 Dec222136-103-28 Hedging percentage as at 31 Dec14.8%19.4%11.4%28.0% Average hedging percentage during 200411.9%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 43.0 8.7-3.848.2 38.2 % sales 3.9 0.9-0.44.4 3.3 Fine Paper 10.1 18.14.627.9 13.7 % sales 1.3 2.30.63.5 1.7 Packaging Boards 51.3 82.167.784.8 43.0 % sales 7.8 11.99.612.6 6.1 Wood Products 9.5 11.421.310.9 -8.9 % sales 2.6 3.15.12.8 -2.3 excluding non-recurring items

47 47 EUR million20032004I/04II/04III/04IV/04 Change % III/IV Sales 4 295.74 343.31 019.21 069.61 090.61 163.96.7 Operating profit111.1 91.38.7-3.848.238.2-20.7 % of sales2.62.10.9-0.44.43.3 ROOC, %*2.82.30.9-0.44.63.6 Deliveries, 1000 t 6 954 7 3981 7321 8191 8462 0018.4 Production, 1000 t 7 011 7 3961 8301 7821 8861 8990.7 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 million20032004I/04II/04III/04 IV/04 Change % III/IV Sales 3 197.7 3 173.1788.9786.3791.8806.11.8 Operating profit 153.5 64.318.14.627.913.7-50.9 % of sales 4.8 2.02.30.63.51.7 ROOC, %* 4.4 1.92.20.53.21.6 Deliveries, 1000 t 3 591 3 8939599649749952.2 Production, 1000 t 3 624 4 0339849991 0411 010-3.0

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 million20032004I/04II/04III/04 IV/04 Change % III/IV Sales 2 761.6 2 771.5692.0704.4674.6700.53.8 Operating profit 292.4 277.682.167.784.843.0-49.3 % of sales 10.6 10.011.99.612.66.1 ROOC, %* 11.6 10.613.110.713.46.5 Deliveries, 1000 t 3 006 3 1197767907667872.7 Production, 1000 t 3 050 3 090771775798747-6.4

50 50 EUR million20032004I/04II/04III/04 IV/04 Change % III/IV Sales 1 400.0 1 566.8373.1419.2388.5386.0-0.6 Operating profit 26.5 34.711.421.310.9-8.9N/A % of sales 1.9 2.23.15.12.8-2.3 ROOC, %* 5.1 5.27.012.56.3-5.2 Deliveries, 1000 m 3 5 822 6 6641 5971 7771 5951 6956.3 Production, 1000 m 3 6 168 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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