Stora Enso

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Stora EnsosCompetitive Edge

• Keith B. Russell
• Senior Vice President, Investor Relations
• London, 20 June 2003

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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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Stora Enso Today
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Stora Enso In Brief
Paper
Packaging Forest
Products

• A world leader
• 15 million tonnes of paper and board
• 6.7 million m3 of sawn products
• Three core product areas
• Paper, Packaging and Forest Products
• Sales EUR 12.8 billion
• Approximately 43 000 employees in 40 countries
• Market capitalisation EUR 9 billion
• Shares listed on Helsinki, Stockholm and New York
  stock exchanges
• Senior debt ratings BBB /Baa1

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Leading ProducersPaper and Board, II/2003
Capacity in 1 000 tonnes
Source Jaakko Pöyry Consulting
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Leading ProducersSawn Timber, II/2003
Capacity in 1 000 m3
Source Company reports
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Strategic Goals and Financial Targets

• Key principles
• Grow profits, mainly through MAs, asset
  restructuring and continuous improvement
  programmes
• ROCE target 13 over the cycle (current WACC
  9.5)
• Debt/Equity ratio 0.8
• Capex annual depreciation over the cycle
• Dividend policy distribute on average one-third
  of net profit over the cycle
• Strive to achieve topquartile asset quality

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The Forest Products Sector

• Highly cyclical
• Paper and wood demand driven by economic cycles
• Increasingly global companies
• Consolidation occurring, albeit at a modest pace
• Mature and emerging geographic markets
• Supply often exceeds demand

• Asset quality often differentiates competing
  companies
• Technology advances leading to improved
  efficiencies and lower production costs
• Nominal prices flat real prices at historic
  lows, particularly in some paper grades
• Investors and analysts skittish over new capacity
  additions without capacity closures

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Our Competitive Edge

1. Diversification
2. Growth and Continuous Improvement
3. Financial Performance

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Our Competitive Edge

• Diversification

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Core Business Drivers
Stora Enso, Sales 2002
Core Business Drivers
Other 4
Construction 9
Industrial Production 5/ Non-durable Goods 15
Advertising 53
GDP / Office IT 14
EUR 12.8 billion
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New Organisation - effective 1st May 2003
CEO
Finance Strategy Investments Market
Services Communications Investor Relations
Corporate Support Human Resources Energy IT
DCEO

Paper Publication Papers Fine Paper North
America Merchants
Packaging Consumer Boards Corrugated
Packaging Industrial Papers Cores and Coreboards
Forest Products Timber Forest Pulp competence
Asia Pacific Latin America
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Geographic Diversification
Magazine Paper Newsprint Fine Paper Packaging
Boards Timber Products Pulp in bales
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Paper and Board Capacity by Country
Finland 37
Sweden 21
North America 18
Germany 15
Other European countries 8
Asia 1
Capacity 15 million tonnes
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Sales by Destination
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Balancing Mature Emerging Markets 2003-2015
- Market growth, /a -
China
Asia excl. Japan China
Demand growth /a 2000-2005 2.9 2005-2010
2.6 2010-2015 2.3
Latin America
Africa
CIS Eastern Europe
Average 2.6/a
Oceania
Western Europe
Japan
North America
0 20 40 60 80 100
- Share of consumption 2000 (324 million tonnes),
-
Source Jaakko Pöyry Consulting
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Summary Value of Diversification

• Product diversity provides
• Complete product pallet for global and regional
  customers
• A natural hedge, as our diverse product portfolio
  is not reliant on a single dominant business
  driver
• Cross-product purchasing leverage with suppliers,
  manufacturing and sales synergies, and shared
  intellectual capital
• Geographic diversity provides
• The ability to serve a customer base with global
  interests
• Access to global raw material and manufacturing
  resources
• A natural hedge to fluctuations of currencies and
  in regional/ country economies

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Our Competitive Edge

• Growth and Continuous Improvement

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Growth Strategy Mergers Acquisitions

• The Value of Mergers Acquisitions
• Enables rapid change of Group structure and
  market penetration (i.e. diversification)
• Generates value through synergies
• Consolidates industry structure

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Merger Acquisition Criteria

• Support group financial targets EPS CEPS
  accretive within one year
• Focus on core products - globally
• Strive for topquartile assets
• Strengthen Stora Ensos market position
• Account for asset restructuring opportunities,
  customer relationships and synergies
• Proceed with discipline and patience

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Creating Value Through MA and Divestments
2002 Sylvester acquisition, Timber
2002 Divestment of Northern forests
2002 Divestment of Mölndal Mill
2001 Dissolving Pulp division
2000 Close down of Newton Kyme mill, packaging
2000 Gruvön mill Billerud
2000 Consolidated Papers Inc. acquisition
2000 Sale of power assets outside mill
1999 Sale of various non-core assetsoffice
buildings, shipping line etc.
1999 Sale of Dalum mill, fine papers
1999 Sale of Tervakoski mill, speciality papers
1999 Sale of technical office papers
1998 Stora Enso merger
1998 Schweighofer acquisition
1997 Holtzmann acquisition
1998 Suzhou acquisition
1995-6 Veitsiluoto acquisition
1990 Feldmühle acquisition
1993 Sale of Eurocan
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1987 Papyrusacquisition
1993 TampellaForest acquisition
1990 Sale of Veneerindustry
1990 Soustre,acquisition
1986 Kopparkraftsales and leaseback
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1986 Tervakoski,Kitee acquisition
1987 Ahlström,Varkaus Mills
1984 Billerud acquisition
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Growth Strategy Organic Growth Continuous
Improvement

• The Value of Organic Growth Continuous
  Improvement
• Facilitated through the Groups Asset
  Restructuring programme
• Improves asset quality by implementation of new
  technology
• Improves financial performance of existing
  assets
• Takes into account forecast supply/demand balance

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Asset Restructuring Model

• Stora Enso Vision
• Sustain market shares
• Improve asset quality

tonnes
New Machines
Modernisations
Shutdowns
Time
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Case Study Uncoated Magazine (SC) Paper - Europe

• Stora Ensos SC business
• Strong market position in a highly consolidated
  business
• Restructuring programme
• To improve competitiveness and sustain market
  position
• Projects
• High-quality SC papers
• New paper machine in Kvarnsveden
• Shut down of Langerbrugge PM 2
• Divestiture of Wolfsheck
• SC-B / Improved News
• Conversion of Langerbrugge PM 3 to SC-B
• Rebuild of Maxau PM 6
• Shut-down of Kvarnsveden PM 9

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Net Capacity Change

• Mill Machine Time frame High-quality SC-B and
• SC improved news
• Langerbrugge PM2 2003 -115 000
• Langerbrugge PM3 2002 165 000
• Kvarnsveden PM12 2005-2010 400 000
• Kvarnsveden PM9 2005 -135 000
• Maxau PM6 2004 120 000
• Wolfsheck PM4-5 2005 -90 000
• Langerbrugge PM3 2006-2008 -165 000 165 000
• NET CHANGE 195 000 150 000

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Case Study Veracel

• Stora Enso and Aracruz Celulose S.A. 50/50 joint
  shareholders
• New eucalyptus pulp mill to be constructed in
  Bahia, Brazil
• 900 000 tonnes per annum capacity
• Budget USD 870 million, plus USD 70 million for
  infrastructure construction to start
  immediately first pulp production in mid 2005
• Financing 45 equity and 55 loans from
  development banks equity fits within Capex plans

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Location of Veracel
BRAZIL
Veracel
Aracruz
Rio de Janeiro
Sao Paolo
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Rationale for Stora Ensos Involvement

• The plantations provide
• wood at an exceptionally competitive cost
• suitable land structure, and
• superior logistic position
• Improve cost competitiveness and quality of Stora
  Ensos pulping assets
• Reduce fibre costs in Fine Paper Division
• Stora Ensos share of pulp for captive use
• Secure access to high-growth wood fibre

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Our Competitive Edge

• Financial Performance

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Operating Profit by Year
EUR million
excluding non-recurring items
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EPS and CEPS by Year
EUR
excluding non-recurring items
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ROCE by Year

WACC 9.5before tax
Target gt 13 over the cycle
excluding non-recurring items
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Debt/Equity Discipline
Target lt 0.8
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Targeted Capital Expenditures
Capital expenditure
Capital expenditure as of sales
EUR million
Depreciation
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Earnings Per Share and Dividend
EPS, excluding non-recurring items
EUR
Payout ratio
Dividend
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Share Buy-back Programme

• Current programme approved by 2003 AGM to
  continue through 19 March 2004. Allows
  repurchase up to
• A shares 9 100 000
• R shares 34 000 000
• Status through 13 June 2003
• Number of Average of Shares shares
  purchased purchase price authorisation
• A shares 3 300 EUR 9.14 0.04
• R shares 15 286 600 EUR 9.22 45.0
• 2001 2002 31 March 2003
• Total shares in issue 906 753 299 899 778
  299 864 187 499

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Total Returns
Note Total return assumes 100
reinvestment of dividends (normal and special
dividends) at the time of the dividend payment
and cash-neutral
participation in any rights issues. In the case
of multiple share classes, investment assumed to
be in the more liquid, lower voting right share
class. Source Bloomberg, company
reports, Datastream.
1
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Summary Financial Performance

• The strongest balance sheet in the industry
• Disciplined and consistent financial targets
• Targeted capital expenditures to achieve high
  asset quality
• Debt-to-equity discipline
• Strong cash earnings per share
• Profitability at the bottom of the cycle

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Sustainability Indices

• Listed fourth year in a row
• Ranked as leading forest products industry company

• Listed continuously since inception in 2001

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Summary
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Stora Enso A Long-term Performer

• A balanced forest products portfolio with strong
  market shares
• Cash flow remains strong despite difficult market
  conditions
• Balance sheet is strongest in the industry
• Senior debt ratings BBB/Baa1
• Active share repurchase programme to boost EPS
• Robust and stable dividend policy
• Exposure to North America offers early recovery
• Committed to both supply and pricing discipline
• Asset restructuring and MAs will continue as
  strategic tools

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Appendix
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ROCE by Quarter

WACC 9.5before tax
Target gt 13 over the cycle
excluding non-recurring items
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Significant Cost Advantages Through a Competitive
Manufacturing Base
Baltic Countries and Russia provide one of the
most cost competitive sawmilling platforms
globally

• Key opportunities
• low raw material costs
• low manufacturing costs
• securing the Groups fibre access
• paving way for the Groups expansion

- Nordic Central Europe 100 -
100
Nordic Central Europe
80
Baltic Countries
Russia
60
40
20
0
Raw Material Cost
Production Cost
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Stora Ensos Sawmills Includingthe Baltics

• The largest solid wood products company in
  Europe, among the top three globally
• The leading sawmill company in the Baltic
  countries
• Competitive and comprehensive product portfolio
  for construction and joinery industries and wood
  products trade
• Global market presence

Central Europe Production Group Nordic Production
Group Stand-alone further-processing
sites Baltic sawmills
Planned Baltic sawmills
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Stora Ensos Russian Sawmill Investments

• Objectives
• Secure strategic position in Russia - competitive
  sawmilling and wood procurement
• Support the Groups wood procurement to the
  Finnish mills in preparation for the decreasing
  wood availability after 2005
• Create conditions for further expansion
• Concept and Timetable
• Start-up with flexible, small-log mobile saw
  concepts
• Expansion to full-scale sawmilling when feasible
• Further expansion possibilities in Russia
  investigated

Pitkäranta
Nebolchi
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Visit www.storaenso.com for more information.