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Nordea Forestry Industry Seminar

Nordea Forestry Industry Seminar. Bj ö rn H ä gglund, Deputy CEO Helsinki 5 June 2003.

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Nordea Forestry Industry Seminar

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  1. Nordea Forestry Industry Seminar Björn Hägglund, Deputy CEO Helsinki 5 June 2003

  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 Group’s 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 Group’s 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 Group’s 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 Group’s principal geographic markets or fluctuations in exchange and interest rates.

  3. Company Overview

  4. Stora Enso In Brief • 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 8 billion • Shares listed on Helsinki, Stockholm and New York stock exchanges • Senior debt rating BBB+ (Standard & Poor’s) Paper Packaging Forest Products

  5. Leading ProducersPaper and Board, II/2003 Capacity in 1 000 tonnes Source: Jaakko Pöyry Consulting

  6. Leading ProducersSawn timber, II/2003 Capacity in 1 000 m3 Source: Company reports

  7. Other 5% Timber 10% Publication Paper 37% Packaging 21% Fine Paper, 27% 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

  8. Group Strategy Key principles and targets: • Grow profits, mainly through M&As, asset restructuring and continual 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: stable payout of at least one­third of net profit over the cycle • Strive to achieve top­quartile asset quality

  9. New Organisation Chart- 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 Pulpcompetence Asia Pacific Latin America

  10. First Quarter 2003 Results

  11. Highlights IV/2002 I/2003 Sales, EUR million 3 212 3 099 Operating Profit1), EUR million 206.9 211.1 EPS, EUR 0.54 0.10 EPS1), EUR 0.12 0.10 Cash EPS1), EUR 0.44 0.43 Debt/Equity 0.37 0.46 • Operating profit increased to EUR 211.1 (EUR 206.9) million • Cash flow remained strong; cash EPS EUR 0.43 (0.44) • EPS EUR 0.10 (0.12) • Geopolitical situation affected advertising-driven paper grades • Consumer-driven products performed well 1) excluding non-recurring items

  12. Net Financial Items EUR million I/02 II/02 III/02 IV/02 I/03 Net interest -72.5 -54.8 -53.0 -49.3 -34.6 Foreign exchange profit/loss 20.4 10.9 13.2 0.4 2.9 Valuation of financial instruments (non cash) -1.3 -16.1 -20.0 -11.0 -44.1 Other financing items 8.2 16.0 3.6 -0.9 -5.5 Total -45.2 -44.0 -56.2 -60.8 -81.3

  13. Change in EPS IV/2002 vs I/2003 EUR 0.12 -0.06 0.05 -0.01 0.10 0.01 -0.01

  14. Operating Profit by Quarter EUR million excluding non-recurring items

  15. ROCE by Quarter % WACC 9.5%before tax Target > 13% over the cycle excluding non-recurring items

  16. Debt/Equity Target < 0.8

  17. Capital Expenditure and Depreciation Capital expenditure Goodwill amortisation EUR million Depreciation Capital expenditure as % of sales

  18. Currency Effect RiskMillion Euro* USD GBP Net operating cash flow after hedges 480 349 Depreciation and amortisation 270 5 After depreciation and amortisation 210 344 ± 5% change in currency value - Cash flow impact ± 24 ± 17 - EBIT impact ± 10 ± 17 * Calculated using 2002 currency flows

  19. Market Outlook

  20. Market-related Production Curtailments Tonnes 2002 I/2002 II/2002 III/2002 IV/2002 I/2003 Magazine Paper Europe 416 000 110 000 107 000 121 000 78 000 69 000 North America 153 000 62 000 75 000 13 000 3 000 7 000 Newsprint Europe 298 000 77 000 61 000 54 000 106 000 47 000 North America 7 000 7 000 Fine Paper Europe 190 000 20 000 30 000 60 000 80 000 57 000 North America 60 000 24 000 26 000 10 000 Packaging Boards 133 000 42 000 20 000 13 000 58 000 22 000 Total 1 257 000 335 000 326 000271 000 325 000 202 000

  21. Near-term Market OutlookWestern Europe Price Demand Comments Magazine Paper SC CMR Newsprint Fine Papers WFC WFU Packaging Boards Timber SC is expected to be stable at the best. Increased inventories. Demand improving; D/S ratio imbalance puts pressure on prices No strong sign of improvement in demand; inventories increased. Order books short, price pressure; producer stock will remain high Demand will seasonally be slow; order books good Stable order block; minor market related downtime in some grades Oversupply, limited price and volume increases in some areas

  22. Near-term Market OutlookNorth America Price Demand Comments Magazine Paper SC CMR Newsprint Fine Papers WFC Timber Price increases expected in July Price increases expected in July Some signs of improvement in demand, $50 price increase partially implemented Demand leveling off, price increases achieved last year Housing activity continues, prices stable

  23. Fibre Strategy in Process

  24. Veracel Overview (1) • Stora Enso and Aracruz Celulose S.A. are joint shareholders, each with a 50 % stake • New eucalyptus pulp mill in Bahia, Brazil with a production capacity of 900 000 tonnes per annum • Construction budget: USD 870 million, plus USD 70 million for infrastructure • USD 300 millionhas been invested to date in forestry operations and infrastructure

  25. Veracel Overview (2) • Financing: 45% equity and 55% loans provided by the Brazilian Development Bank, European Investment Bank and Nordic Investment Bank, guarantees pro-rata by the owners • Construction to start immediately; first pulp prod. in mid 2005 • Veracel has 70 000 hectares of privately owned eucalyptus plantations • The yield per hectare in Veracel is 50 cubic metres per annum. (Finnish forests in economic use, yield approx. 3-4 cubic metres)

  26. Location of Veracel BRAZIL Veracel Aracruz Rio de Janeiro Sao Paolo

  27. Rationale for Stora Enso’s involvement • The plantations provide: • wood at an extremelycompetitive cost • suitable land structure, and • superior logistic position • Improve cost competitiveness and quality of Stora Enso’s pulping assets • Reduce fibre costs in Fine Paper Division • Stora Enso’s share of pulp; captive • Secure access to high-growth wood fibre

  28. Stora Enso’sAcquisition of Sylvester • Stora Enso Timber acquired 66% of the sawmilling operations and 100% of the wood procurement operations of AS Sylvester, the largest sawmilling and wood procurement company in the Baltic Countries • Rationale for the acquisition: • Profitable modern assets • Supports the expansion of Stora Enso’s wood procurement in the Baltic Countries • Strengthens Stora Enso Timber’s position in wood products market • Earnings accretive to the Group from 2003 onwards • Significant cost advantages and synergies • Platform for further expansion in the region • Transaction completed, with effect from 1 March, 2003

  29. 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 Group’s fibre access • paving way for the Group’s expansion - Nordic & Central Europe = 100 - 100 Nordic &Central Europe 80 Baltic Countries Russia 60 40 20 0 Raw Material Cost Production Cost

  30. Stora Enso’s Sawmills Including 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

  31. Pitkäranta, Karelia Nebolchi, Novgorod Sawn wood capacity, 1 000 m3 Investment, € million Planned start-up 100 8.0 Q3 2003 100 4.5 Q1 2004 Stora Enso’s Russian Sawmill Investments • Objectives • Secure strategic position in Russia - competitive sawmilling and wood procurement • Support the Group’s 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

  32. Mergers & Acquisitions

  33. Creating value through divestment and acquisition 2002Sylvester acquisition, Timber 2002Divestment of Northern forests 2002Divestment of Mölndal Mill 2001Dissolving Pulp division 2000 Close down of Newton Kyme mill, packaging 2000Gruvön mill Billerud 2000Consolidated Papers Inc. acquisition 2000 Sale of power assets outside mill 1999 Sale of various non-core assets;office 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 30 % 1987 Papyrusacquisition 1993 TampellaForest acquisition 1990 Sale of Veneerindustry 1990 Soustre,acquisition 1986 Kopparkraftsales and leaseback 13 % 10 % 1986 Tervakoski,Kitee acquisition 1987 Ahlström,Varkaus Mills 1984 Billerud acquisition

  34. Merger & Acquisition Criteria • Support group financial targets; EPS + CEPS accretive • Focus on core products - globally • Strive for top­quartile assets • Strengthen Stora Enso’s market position • Account for asset restructuring opportunities, customer relationships and synergies • Proceed with discipline and patience

  35. Enhancing Shareholder Value

  36. 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 02 June 2003: Number of Average % of Shares shares purchased: purchase price: authorisation A shares 3 300 EUR 9.14 0 R shares 14 628 300 EUR 9.21 43.0 2001 2002 31 March, 2003 Total shares in issue: 906 753 299 899 778 299 864 187 499

  37. Earnings Per Share and Dividend EUR EPS, excluding non-recurring items Dividend Payout ratio % * *

  38. Cost Efficiency Drive Continues Existing programmes are realising results and being further intensified • Asset Restructuring Programme • “Excellence 2005” – the Stora Enso version of Total Quality Management • Profit Enhancement Programme for North America • Mill-by-mill continuous productivity improvements

  39. Summary

  40. Stora Enso – a long-term performer • A balanced forest products portfolio with high market shares • Cash flow remains strong despite difficult market conditions • Balance sheet is strongest in the industry • Senior debt rating BBB+ • 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 M&A’s will continue as strategic tools

  41. Appendix

  42. Summary Financials EUR million 2002 I/02 IV/02 I/03 Sales 12 783 3 229 3 212 3 099 EBITDA 1) 2 172 603 474 501 Operating profit 1) 926 274 207 211 Profit before tax -343 241 243 129 Net profit -222 161 478 85 EPS, EUR1) 0.57 0.18 0.12 0.10 EPS, basic, EUR -0.25 0.18 0.54 0.10 CEPS, EUR1) 1.97 0.55 0.44 0.43 ROCE, % 1) 7.1 7.8 7.1 7.1 Debt/Equity 0.37 0.59 0.37 0.46 1) excluding non-recurring items

  43. Sustainability Indices • Listed fourth year in a row • Ranked as leading forest products industry company • Listed continuously since inception in 2001

  44. Paper and Board Capacity by Country Finland 37% Sweden 21% North America 18% Germany 15% Other European countries8% Asia 1% Capacity 15million tonnes

  45. Breakdown by Segments for Q1–pro forma figures according to reorganised reporting structure effective 1 May 2003 Sales EUR 3 099 million Operating profit EUR 211 million 3% 11% 17% 42% 36% 24% 38% 29% Publication Paper Fine Paper Packaging Boards Timber Products

  46. Operating Profit of Main Business Areas EUR million I/02 II/02 III/02 IV/02 I/03 Magazine Paper 32 2 20 26 9 % sales 4 0 3 3 1 Newsprint 73 61 65 42 28 % sales 18 15 16 10 8 Fine Paper 93 73 70 56 80 % sales 11 9 9 8 11 Packaging Boards 101 71 116 78 92 % sales 13 9 15 11 12 Timber Products 11 14 10 12 7 % sales 4 4 3 4 2 excluding non-recurring items

  47. Change in EPS I/2003 vs I/2002 EUR 0.18 -0.10 0.04 -0.01 -0.01 0.04 0.10 -0.04

  48. ROCE % Target > 13% over the cycle excluding non-recurring items

  49. Adoption Effects of IAS 41 • Stora Enso has adopted IAS 41 for the evaluation of its biological assets • This resulted an initial adjustment as of 1 January 2003: • Assets increased by EUR 866.2 million • Equity increased by EUR 622.9 million • The effect on January - March figures is as follows: • Operating profit increased by EUR 6.5 million (non cash)

  50. Uncoated magazine (SC) paper - Europe • Stora Enso’s 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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