Merrill Lynch European Paper Forum

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Merrill Lynch European Paper Forum

• Lars Bengtsson
• President, Stora Enso North America
• London, 9 September 2005

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• 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.

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April - June 2005Results
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Highlights Q2 2005
I/2005 II/2005 Sales, EUR million 3
144.9 3 187.3 Operating profit, EUR million
112.7 17.7 EPS, EUR 0.07 0.00 EPS,
EUR 0.07 -0.01 Cash EPS, EUR 0.41
0.35 Debt/Equity 0.51 0.58

• Demand increased moderately for newsprint and
  uncoated fine papers and decreased slightly in
  coated fine paper
• Profitability was impacted by
• Finnish labour dispute
• Strengthening of US dollar
• Resumption of production after Q1 2005 rebuilds
• Higher proportion of sales in Europe

) excluding non-recurring items
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Finnish Labour Dispute Effects

• Q2 2005 effects of the labour dispute
• Lost production of paper and board 850 000 tonnes
• Operating profit was decreased by about EUR 150
  million
• Q3 2005 effects of the labour dispute
• Lost production of paper and board 100 000 tonnes
• Operating profit will be decreased by about EUR
  40 million
• The new three year agreement changes labour
  practises significantly and contributes to the
  long term competitiveness of the Finnish forest
  products industry
• Continuous production over holiday periods now
  possible
• Increased flexibility of outsourcing

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European Profit Improvement Programme
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Profit 2007

• Profit improvement target of EUR 300 million from
  mid 2007 onwards
• Efficiency improvements in production, sales,
  logistics, working capital management, sourcing
  and administration
• Closures and disposal of units with especially
  high costs or low long-term earnings potential
• More information is planned to be announced with
  the third quarter 2005 results

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North America
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Stora Enso North AmericaBusiness Results
USD million 2004 H1/04 H2/04 H1/05 Sales (1
000 tonnes) 2 820 1 336 1 484 1 400 Sales 1
997 918 1 079 1 171 EBITDA 142 17 125 106 EBITA
-140 -130 -10 -33 Capital Expenditure
204 120 84 73 Cash flow after Capex
-61 -100 39 33 Market-related downtime (1 000
tonnes) 7 7

• The North American operations are expected to
  reach EBITA break-even during the third quarter
  of 2005

excluding non-recurring items
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Stora Enso North AmericaProfit Enhancement
Programme

• Three-year Programme Included
• Restructuring selected manufacturing assets
• Targeted capital investments (USD 250m)
• Permanent shutdowns of production units
• Workforce reduction
• Current Status
• Three paper machine shutdowns
• Four paper machines modernised
• PM 64 Whiting Mills early 2006
• Labour negotiations not totally completed
• Workforce currently 5 200 reduced from 7 300 in
  2000
• The anticipated financial benefits of USD 145
  million p.a. are expected to be reached during
  the second half of 2005

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Stora Enso North America
Niagara
Duluth
Port Hawkesbury
Stevens Point
Kimberly
Whiting
Wisconsin Rapids
Biron
Publication Paper
Packaging Boards
Fine Paper
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Reorganisation of Stora Enso North America

• The North American division was merged into the
  global product divisions on 1 September 2005
• Coated Magazine Paper, Uncoated Magazine Paper
  and Newsprint have been integrated into Stora
  Enso Publication Paper
• Fine Paper has been integrated into Stora Enso
  Fine Paper
• Speciality Papers has been integrated into Stora
  Enso Packaging Boards and
• North American marketing and sales has been
  integrated into Market Services
• Support areas will continue to be locally led
• North American operations will no longer be
  regarded as a division of the company and
  separate reporting of the financial figures will
  be discontinued

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Recent Events
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Acquisition of Schneidersöhne Group

• Schneidersöhne Group In brief
• By sales volume the second-largest paper merchant
  in Germany and the fifth-largest in Europe
• Net sales EUR 1 130 million in 2004
• Sales volume 1 100 000 tonnes of coated and
  uncoated fine paper in 2004
• 2 100 employees and operations in 11 countries
• Biggest markets Germany and Switzerland
• Financial Effects
• Acquisition price on a debt-free basis of EUR 450
  million
• Stora Ensos EPS will be improved by EUR 0.02 and
  CEPS EUR 0.05
• The Groups interest-bearing debt will increase
  by EUR 450 million
• The debt/equity ratio will increase by 0.06
• Synergies of EUR 15 million from 2008 onwards
• Fully consolidated from July 2005

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Combined Operations of Papyrus and Schneidersöhne
Papyrus
Schneidersöhne
Papyrus Schneidersöhne
Source Eugropa
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Stora Enso to Joint Venture within Liquid
Packaging Boards in China

• Stora Enso has signed a letter of intent to start
  a JV with Chinese board producer Foshan Huaxin
  Packaging Co., Ltd.
• Stora Enso will have a clear majority
  shareholding
• Final agreement expected to be signed during Q4
  2005
• Foshan Huaxin Packaging Co., Ltd has begun
  investing USD 160m in building a WLC machine with
  a production capacity of 250k tonnes p.a.
• Stora Enso plans to change the scope of the
  investment by modifying the machine to
  manufacture primary-fibre-based products such as
  liquid packaging boards, cupstock, cigarette
  boards and other cartonboards at an estimated
  additional cost of USD 90m
• Stora Enso will be the first producer of liquid
  packaging board for aseptic end uses in China
• The machine will be completed during the second
  half of 2006

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Possible Divestment of Grycksbo Mill

• Stora Enso is exploring the possibility of
  selling its Grycksbo Mill in Sweden
• Coated fine paper business to focus on
  multi-coated graphical grades
• Part of Profit 2007 and rationalisation of fine
  paper business
• Total annual capacity 280 000 tonnes of
  on-machine matt-coated fine papers
• 500 employees
• Paper machine Built Rebuilt
• PM10 1957 1998
• PM9 1936 1994
• PM7 1928 1991

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Emerging Markets
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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
• Started-up in May 2005
• First customer deliveries completed
• First tonnes to Stora Ensos mills in Finland,
  China and Germany
• 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
Division office
Sales office
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Reporting Veracel

• Veracel is reported as an associated company
  according to the equity accounting method
• Stora Ensos share of Veracels pre-tax profit is
  shown as part of associated company line
• Veracel reports in Brazilian reals and Stora Enso
  in euros
• Impact of currency changes
• Stora Enso buys the pulp from Veracel according
  to the cost plus method and invoices its mills
  at market price of pulp
• The result is included in Fine Paper segment

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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 30 000 tonnes
• Cores sold to different industries plastics,
  paper, etc.
• Joint venture with Shandong Huatai Paper
• Joint venture with Foshan Huaxin Packaging
• Plantations in southern China

JV
Plantations
Core board
Fine paper mill
Sales office
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Shangdong Huatai Paper JV
Stora Enso Suzhou Mill
Corenso Hangzhou
Guangxi, Beihai Stora Enso plantations
Foshan Huaxin Packaging, Zhuhai
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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 Mm3/a
• 2 port terminals, 4 railway terminals
• 4 logging companies, total harvest 0.4 Mm3/a

Sawmills
Corrugated packagingboard and packaging materials
Wood procurementfocus
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Market Outlook
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Near-term Market OutlookWestern Europe

• Price Demand Comments

Magazine Papers
SC
Demand seasonally good and prices improving in
non-contractual business
Demand seasonally good and prices improving in
non-contractual business
CMR
Newsprint
Demand firm and prices stable
Fine Papers
WFC
Demand healthy prices are expected to remain
fairly stable
WFU
Upturn in demand price pressure easing
Packaging Boards
Anticipated stable prices and demand
Wood Products
Market balance expected to remain reasonable
improving price outlook
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Near-term Market OutlookNorth America

• Price Demand Comments

Magazine Papers
SC
Improved demand prices forecasted to rise
mainly for non-contractual business
CMR
Improved demand prices forecasted to rise mainly
for non-contractual business
Newsprint
Demand rather weak prices expected to rise due
to favourable supply and demand balance
Fine Papers
WFC
Seasonal pick-up in demand prices should remain
stable
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Paper Price Development in Germany 2000-2005
Euro tonnes
Source PPI Germany pricewatch
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Paper Price Development in USA2000-2005
USD/mt
Source Pulp Paper Week
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Appendix
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Capital Expenditure and Depreciation
Capital expenditure
Depreciation
EUR million
Capital expenditure as of sales
31
Share Buy-Back Programme

• Current programme approved by AGM 2005 to end 21
  March 2006. Allows repurchase up to
• A shares 17 900 000
• R shares 62 150 000
• Status through 2 September 2005
• Number of Average of Shares shares
  purchased purchase price authorisation
• A shares 38 600 10.74 0.2
• R shares 22 408 200 10.58 36.06
• 2002 2003 2004 15 July 2005
• Total shares in issue 899 778 299 864 262 499
  837 243 399 812 977 099

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Dividend and Share Repurchases
EUR million
EUR
Value of shares repurchased
Dividend paid
Average share price
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Shares Outstanding
Million
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Summary Financials

• EUR million 2004 II/04 I/05 II/05
• Sales 12 396 3 103 3 145 3 187
• EBITDA 1 511 361 389 298
• Operating profit 339 56 113 18
• Operating profit 709 56 113 6
• Profit before tax 272 47 84 0
• Net profit 741 50 59 -10
• EPS, EUR 0.26 0.06 0.07 0.00
• EPS, basic, EUR 0.89 0.06 0.07 -0.01
• CEPS, EUR 1.67 0.43 0.41 0.35
• ROCE, 3.0 2.1 4.1 0.6
• Debt/Equity 0.38 0.43 0.51 0.58

excluding non-recurring items
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Net Financial Items

• EUR million II/04 III/04 IV/04 I/05 II/05
• Net interest -34.9 -31.8 -32.6 -27.6
  -40.2
• Foreign exchange profit/loss -1.6 -1.5 -2.8
  5.7 11.2
• Valuation of financial instruments 5.9 5.7
  7.1 -19.2 -12.8
• Other financial items 4.4 0.6 -4.2 -2.0
  7.2
• Total -26.2 -27.0 -32.5 -43.1 -34.6

• Higher interest cost owing to increased net debt
  in Q2 2005
• Estimated quarterly interest expense about EUR
  37-40 million for Q3 and Q4 2005

excluding non-recurring items
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Debt/Equity
Target lt 0.8
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