Discipline, Performance

1
Discipline, Performance Strategic Growth

• Björn Hägglund, Deputy CEO
• 5 December 2002

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
Stora Enso In Brief
Timber News- Magazine
Fine Packaging Products
print Paper Paper
Boards

• One of the top two forest products companies in
  the world, by capacity
• 15 million tonnes of paper and board
• 5.8 million m3 of sawn products
• Sales EUR 13.5 billion five core business areas
  (above)
• 43 000 employees in 40 countries
• Market capitalisation EUR 11 billion
• Shares listed on Helsinki, Stockholm and New York
  stock exchanges

4
Leading Market Positions

• World Europe
• Magazine paper
• Coated 2 2
• Uncoated 2 2
• Newsprint 4 1
• Fine paper
• Coated 2 3
• Uncoated 5 1
• Packaging boards
• Carton boards 1 1
• Timber products 3 1

Source Company data
5
Core Business Drivers
Stora Enso, Sales 2001
Core Business Drivers
Other 4
Construction 9
Industrial Production 5/ Non-durable Goods 15
Advertising 53
GDP / Office IT 14
EUR 13.5 billion
6
Key Principles

• Grow mainly through MAs and organically via
  asset restructuring
• ROCE target 13 over the cycle current WACC
  9.5
• D/E ratio 0.8 temporarily can go up to 1.1 -
  1.2 for strategic acquisitions
• Capex annual depreciation over the cycle
• Dividend policy distribute on avgerage onethird
  of net profit over the cycle
• Achieve topquartile asset quality

7
Financial Figures
8
Highlights Q3 2002

• I/2002 II/2002 III/2002
• Operating Profit1) EUR 274.0 million EUR 190.2
  million EUR 255.4 million
• EPS EUR 0.18 EUR 0.15 EUR -1.12
• EPS1) EUR 0.18 EUR 0.12 EUR 0.15
• Cash EPS1) EUR 0.55 EUR 0.48 EUR 0.51

• Improved operating profit before non-recurring
  items
• Strong cash flow
• Non-recurring items (totalling EUR -1 230
  million) affected reported earnings

1) excluding non-recurring items
9
EPS by Quarter
EUR
excluding non-recurring items
10
ROCE by Quarter

WACC 10before tax
Target gt 13 over the cycle
excluding non-recurring items
11
Capital Expenditure and Depreciation
Capital expenditure
Goodwill depreciation
Capital expenditure as of sales
EUR million
Depreciation

12
Debt/Equity
Target lt 0.8
13
Group Strategy
14
Corporate Development Options for Growing Profits

• Excellence 2005 Asset MAs Organic
• Continuous Restructuring Growth Improvements Pr
  ogramme
• Lower cost/unit X X X
• More valuable
• products (X) X
• Additional volume (X) X X

15
Asset Restructuring Programme

• Premises
• A programme to gradually improve the quality of
  the Group's production assets and their cost
  competitiveness
• Investments must support the Groups
  financial targets, which are unchanged and
  uniformly applied
• Investments are concentrated on the best of the
  Groups existing mills
• Rigorous and competitive top-down process to
  allocate capex
• New capacity will always be introduced
  responsibly

16
Merger Acquisition Criteria

• Support Group financial targets and be EPS
  accretive
• 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

17
Stora Enso Growth Options ThroughMergers and
Acquisitions

• Europe
• Due to high market shares, limited expansion
  opportunities in newsprint, magazine and consumer
  boards
• Room for expansion in fine papers and industrial
  packaging boards
• North America
• High asset valuations, lack of motivated sellers
  and poor average asset quality makes near-term
  situation demanding
• South America
• Attractive source of fibre (Veracel project) few
  company targets
• Asia/China
• Few potential targets governance and
  country-specific issues limit opportunities
  greenfield investments preferred

18
Summary North America Profit Enhancement
Programme

• A decisive plan to improve Stora Enso North
  America
• Increased asset quality
• Increased cost competitiveness
• Improved product profile and quality
• Impairment charges and other provisions of EUR 1
  230 million (USD 1 156 million)
• EPS improvement of EUR 0.08 due to the decreased
  amortisations and depreciations
• An additional EUR 0.05 increase in EPS from 2005
  onwards due to the enhancement plan
• Groups strategy for development in North America
  remains unchanged

19
Magazine Paper Asset Restructuring
Announced 25 October 2002
20
Magazine Paper Division
Biron, Wisconsin Kimberly, Wisconsin Niagara,
Wisconsin Whiting, Wisconsin
Veitsiluoto
Norrsundet
Anjala
Kvarnsveden
Duluth, Minnesota
Kotka
Port Hawkesbury
Summa
Langerbrugge
Kabel
Corbehem
Reisholz
Maxau-Wolfsheck
Coated Magazine Paper 2 945 000
Uncoated Magazine Paper 1 625 000
Wallpaper base 65 000
Pulp mill
Total capacity 4.6 million tonnes
21
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

22
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

23
SC Market Development Europe

SC-A
Source Cepiprint / SE estimates
including Improved Newsprint
24
CompetitivenessDelivered Cash Cost in
Frankfurt/M.
- EUR/t -
Cost level 2001/II
700
SC-A
SC-B
Delivery
X
600
Other manuf. costs
Personnel
500
X
Energy
400
Chemicals
Purchased pulp
300
Wood
200
Stora Enso paper machines
100
Operating After rebuild New Before
rebuild Shut-down
0
Maxau 8
Maxau 6
Maxau 6
X
Rauma 2
Kajaani 2
Reisholz 1
Reisholz 2
Ettringen 5
Schongau 9
Wolfsheck 5
Saugbrugs 6
Laakirchen 11
Steyrermühl 3
Jämsänkoski 6
Kvarnsveden 8
Kvarnsveden 12
Langerbrugge 3
Langerbrugge 3
X
Source Jaakko Pöyry, Stora Enso estimate
25
Fine PaperAsset RestructuringAnnounced 25
October 2002
26
Stora Enso Fine Paper Mills
Veitsiluoto
Oulu
Varkaus
Imatra
Kimberly
Wisconsin Rapids
Suzhou
Skutskär
Grycksbo
Nymölla
Uetersen
Berghuizer
Total WFC Capacity 2500 kilo tonnes Total WFU
Capacity 1500 kilo tonnes
Celbi
Fine paper Pulp in bales
27
Stora Enso Fine Paper Office Paper Mills
Specialisation Programme 2003-2005

• Main purpose of proposed capital investments
• Improved competitiveness and asset quality
• Maintain position as the leading office paper
  supplier in Europe
• Give scope for mill specialisation

28
Office Paper Mill Specialisation
29
Other Issues
30
Forestland Sales

• Background
• In May 2002, Stora Enso announced the
  restructuring of its 700 000 hectares of
  forestland in Finland and the USA
• The rationale is to free up capital and increase
  financial flexibility to develop core businesses
• Stora Enso is considering options for its Swedish
  forests
• Financial impact of Finnish and USA divestments
• Gearing will be reduced by 0.08 (0.53 at end of
  Q3 2002)
• Capital employed reduced by about 500 million
• ROCE will increase slightly

31
Share Buy-back Programme

• New buy-back programme approved by March 2002 AGM
  to repurchase up to
• A shares 9 100 000
• R shares 35 500 000
• Status through 27 November 2002
• Number of shares Average purchase of
  Shares purchased price authorisation
• A shares 73 700 EUR 12.03 0.8
• R shares 21 221 434 EUR 11.14 59.8

32
Market Outlook
33
Near-term Market OutlookNorth America

• Price Demand Comments
• Magazine Paper
• SC
• CMR
• Newsprint
• Fine Papers
• WFC
• WFU
• Timber

A modest recovery forecasted, capacity increases
put pressure on operating rates
A modest recovery forecasted
Some signs of improvement in demand, 35 price
increase implemented
Demand seasonally strong, price increases
achieved
Demand stable, price increases achieved
Housing activity wood consumption continue on
good level, oversupply brings prices down
34
Near-term Market OutlookWestern Europe

• Price Demand Comments
• Magazine Paper
• SC
• CMR
• Newsprint
• Fine Papers
• WFC
• WFU
• Packaging Boards
• Timber

Although positive growth in Sept., a neg growth
of -1.1 at year-to-date base
Demand further improved D/S ratio imbalance puts
pressure on prices
No sign of improvement in demand inventories low.
Seasonal demand up mill stocks high some
pressure on prices
Demand slackening after seasonal strength mill
stocks high
Stable order block market related downtime in
some grades
Stock levels low, short term volume and price
prospects good
35
Summary
36
Summary

• The Groups financial targets and growth
  strategies remain unchanged
• Asset restructuring and MAs will continue as
  strategic tools
• Cash flow and balance sheet remain strong
• Markets in the third quarter remained demanding
  some improvement in demand now evident in
  publication grades N.A. prices increasing
• We will maintain both supply and pricing
  discipline
• Stora Enso is a longterm performer

37
Questions Discussion