3 - Stora Enso

STRATEGY
LETTER TO SHAREHOLDERS
Dear Shareholder,
Last year was an important year for
strengthening Stora Enso’s platform
for the future. The start-up
of the Veracel joint venture pulp mill in
Brazil in May and of Kvarnsveden’s new
uncoated magazine paper machine in
Sweden in early November will have a
large impact on the Group. We also
expanded our merchant business
through the acquisition of the
Schneidersöhne Group in Germany.
The year saw our North American
operations return to profi tability following
the virtual completion of the regional
Profi t Enhancement Programme, and
our assets there are again generating a
healthy operational cash fl ow. This positive
development enabled us to create
new global product divisions to meet the
needs of today’s business.
Profi tability across the Group in 2005
was poor. Stora Enso’s sales in 2005
totalled EUR 13 187.5 millon, and the
Group’s operating profi t, EUR 357.5 million
excluding non-recurring items. Profitability
was badly hit by an industrywide
labour dispute in Finland, which
halted the entire country’s pulp and
paper production for close to two
months.
Dividends and share repurchases
EUR million
EUR
800
12
700
600
10
500
8
400
6
300
200
4
100
2
0
2001 2002 2003 2004 2005
0
Shares repurchased
Dividend paid
— Average share price
6• STORA ENSO COMPANY 2005
We launched a profi tability improvement
programme, Profi t 2007, and an
Asset Performance Review (APR) during
2005 to improve the competitiveness of
our European production base. Profi t
2007 has targeted an improvement in
annual pre-tax profi t of EUR 300 million
by mid-2007.
The APR will involve a number of
far-reaching changes, including capacity
closures and the divestment of some
units that lack the potential to achieve
long-term profi tability or do not form
part of Stora Enso’s core businesses. We
have also placed four mills under scrutiny,
and will require them to improve
their profi tability considerably if they are
to continue operations. All these measures
will help Stora Enso move forward
more profi tably in today’s intense competitive
environment.
The combined impact of the measures
implemented under Profi t 2007
and APR will reduce our workforce.
These job losses will be unavoidable,
however, to improve Stora Enso’s competitiveness.
Although 2005 saw a long labour dispute
in Finland, two important achievements
resulted from this: the possibility
Shares outstanding
Million
920
900
880
860
840
820
800
2001 2002 2003 2004 2005
Stora Enso started to acquire Company shares
in 2000, and has returned over EUR 1.5 billion
to shareholders since then.
to continue production uninterrupted
over Christmas and Midsummer, and
new rules on outsourcing.
The full positive impact of these new
opportunities is still to come. The potential
for outsourcing will be implemented
later through mutual negotiations, hopefully
at the local mill level. The fact that
some local agreements have already been
made is a positive sign.
The start-up of our pulp joint venture
in Brazil, Veracel, took place ahead
of schedule, and production has already
exceeded the mill’s design capacity.
Veracel supports our new growth market
strategy of concentrating on low-cost,
high-quality raw material supply. Positive
experience with the new mill and
our joint venture partner, Aracruz
Celulose, has prompted us to investigate
the possibility of launching a Veracel II
project to double the mill’s pulping
capacity.
We have taken additional steps to
improve our long-term strategic position
in fi bre sourcing in South America, and
started purchasing land in southern
Brazil and Uruguay. Our target is to
establish approximately 100 000 hectares
of plantations in each country, capable
of supplying two fi bre lines.
In China, we are also prioritising
local fi bre supply as a means of securing
our expansion – and have increased our
holdings in Guangxi province, bringing
the Group’s land concession rights and
wholly owned plantations to 60 000 hectares.
In addition to plantations, we are
investigating various industrial alternatives
that large plantation assets would
make possible. Other projects linked to
the Chinese market are also under consideration.
In Russia, our corrugated packaging
business has developed very favourably,
and we are investigating the potential