Question and Answer Session - Stora Enso

Stora Enso 

Q1 Results 2009 

Keith Russell 

Senior Vice President IR 

Good. Thank you Hugh. Welcome everybody to today's webcast and conference call for the 

financial community. 

Earlier today we published our financial results for the first quarter of 2009, but also two other 

releases. One introducing a new EUR250m cost reduction programme plus some changes to our 

business area structure. And another relates to capacity reductions for our Wood Products business 

area plus the purchase of the remaining shareholding in the Sunila pulp mill in Finland. 

On today's call we'll be highlighting key points on these announcements and following these 

remarks, as Hugh said, of course we'll open it up for questions. Our CEO, Jouko Karvinen is 

leading the call and we're joined also by our CFO Markus Rauramo. 

As usual we'll try to keep the event to about one hour. So I therefore ask politely that those who 

would like to ask questions, at least initially, limit themselves to two each. And then of course if we 

have time at the end, we're more than happy to come back and take any additional questions then. 

If you're not listening by the webcast, the set of PowerPoint slides that we'll be referring to can be 

seen now in the Investor section of Storaenso.com where you can also find the full press releases 

issued earlier today. 

Finally, I'll just draw your attention to page number two of the PowerPoint presentation which is an 

important notice concerning forward looking statements. 

So I'll now turn the microphone over to Jouko Karvinen. Thank you. 

Jouko Karvinen 

Chief Executive Officer 

Thank you Keith. Hello everybody. Welcome back so to say. Good to have you on the call. We'll 

try to be brief. 

If you go straight to page three we'll cover the first quarter, a very short term market outlook and 

then I'll talk briefly about the next step on our journey to make this a more efficient, not only cost 

efficient, but faster decision making Company. 

We have a unique subject in a way where we talk about Finland, the operating environment in 

Finland with Stora Enso and many others, how do we deal with that in the short term as a company 

and how we have pretty clearly communicated to all the stakeholders what needs to change. And 

then we'll summarize.

Q1 Earnings Results 2009 Stora Enso 

We'll go to page five I believe, the overview. 

Cash flow from operations, EUR264m. Even after CapEx it was a pretty decent number. And yes, 

it was driven by a continued strong working capital management as we promised. And we do 

understand obviously that you can't multiply that by 4 or anything, but I think it was a strong start in 

an exceptional environment for the year for the second quarter in a row now. So we're very proud 

of that and the team who made that happen. 

Operating earnings, went down to EUR3m, an awful result. I even implied in the press release that 

the truth of the matter is that we actually made a, I'll call it a very material profit. I won't quantify it, 

so don't ask me about that in Stora Enso outside Finland total. And then we lost it all but EUR3m 

in Finland. And that obviously is not an acceptable situation. We'll talk about that a bit more. 

Trying to understand the market expectations from you, all the different thoughts, I believe that the 

earnings were, at least on a pure operational level, pretty much in line, maybe slightly better. But 

interesting enough the volume was clearly worse than the market seemed to expect. 

I want to turn it into a positive thing and say with the hard work we've done in the past years, even 

with this dramatic curtailment programme, we were able to keep at least our nose above the water. 

Why is it important? Because fixed cost is the enemy of anybody right now and I think the things 

we've done in the past two years, and we shall do now, are very important. And the EUR78m year 

on year gain on fixed cost I'm sure Markus will talk about that a bit more. 

Looking at the rear view mirror, in Newsprint, Magazine, Coated Fine and Consumer Board, we 

were able to reach and hold higher prices, which I believe is because we started pretty early and 

have been very clear with our customers what our priorities are and so far so good in that respect. 

Page six. Many of you have been a lot longer in the industry than I have, but I would assume that 

you haven't seen many slides like this in the past 10, 20 years, where effectively one-quarter of our 

total capacity was down. Again, I say it was a conscious decision and I believe it has been the right 

decision and that's how we continue. 

Let me then hand over to Markus who will review the financial results with you. 

Markus Rauramo 

Chief Financial Officer 

Okay, thanks Jouko. Moving on to page eight, to the summary financials. 

Looking at the results row, our result although positive, was a very weak EUR3m. This number is 

obviously unacceptably low. The positive thing was that all of our efforts to protect cash flow were 

successful. We did focus on inventory management, receivables and payables, paid provisions and 

CapEx. And all this work resulted in very strong cash flow from operations of EUR264m. So 

result EUR3m, cash flow from operations EUR264m. And even after CapEx, the cash flow was 

EUR160m positive. 

23 April 2009 2


The other item that makes me very happy is our debt to equity. Our net debt reduced by EUR175m 

and despite the fact that our equity reduced as well, our debt to equity actually improved by 1 point. 

I will come back to liquidity later because that is as or even more important. 

Moving on to page nine, to the waterfall of the operating profit. As you did see on the last page, the 

results came down almost EUR140m year on year. As we all know, the drop was of course mostly 

driven by the very sharp drop in demand causing a decrease of way over EUR200m of the result. 

Energy costs, as anticipated, were still higher in the first quarter of 2009 due to the fact that we have 

an average six month delay of oil price impact in natural gas prices and the negative effect of oil 

hedges. 

However, we were able to counter over EUR100m of this loss of profit with our own actions. If we 

had not taken the actions we took in 2007 and 2008 to reduce costs, we would have shown a loss in 

Q1. 

Moving on to CapEx and depreciation on page 10, you see the quarterly development of CapEx. 

And as the visibility is very poor and the assumptions for CapEx are very volatile, in order to 

protect our cash flow we decided to take down our CapEx to the level of EUR400m for 2009. The 

Q1 CapEx was EUR100m, well in line with this target. 

Although the reduction from last year is significant, we are still keeping the focus on our strategy 

and continue to invest in efficient energy solutions in Germany, Belgium and Poland as well as 

plantation projects in fast growth areas like China. 

If things would get even worse than they are today, I want to emphasise that we still have room to 

take our CapEx clearly lower without jeopardizing the runability of our machines, without 

jeopardizing the safety at workplaces. Of course it takes a bit of time, a few quarters to adjusting 

the strategic spending, but we have flexibility on that side as well. 

If we then turn to page 11 and look more specifically at the quarterly cash flow, we have said this 

before but I want to emphasise this again. We did take early action to protect our balance sheet and 

cash flow. When the first wave of the financial crisis hit the market back in the late summer of 

2007, we immediately started reducing our short term debts, which we have reduced by over 

EUR1b and deleveraging the balance sheet by the divestment of Stora Enso North America, of 

Papyrus and so on. We have reduced the CapEx from a level of EUR900m to EUR600m at the end 

of last year and now further to EUR400m for 2009. 

And even though the bars you can see here on the operating side include the cash out relating to our 

mill closures, we have managed to create between EUR200m and EUR300m per quarter cash flow 

and positive cash flow after the CapEx for the four last quarters. 

And this is really thanks to the very hard and diligent work of the whole Stora Enso team, which I'm 

very impressed of. And I really want to extend my personal thanks to our whole team for the great 

work they are doing with the cash flow. 

The cash flow from operations, to summarise in Q1, was a fantastic EUR260m. But it is very 

important to emphasise of course that we will not be able to replicate this every quarter since this 

very good cash flow is largely due to very efficient working capital management. 

23 April 2009 3


Then over to liquidity on page 12. The key point here is that our cash exceeds this year's debt 

maturities. We have put extra emphasis on the balance sheet and liquidity management since mid 

2007 as we think that a strong balance sheet and good liquidity are vital for the Company. We will 

of course survive this storm but we want to come out as winners. Survival is not enough. We want 

to win. 

The strong balance sheet and liquidity gives us strategic flexibility to continue the internal 

restructuring. As per the announcement also today, 2,000 people and we will have relating costs, 

will leave the Company. We want to implement that strategy organically and we want to be able to 

participate as an active player in the possible industry restructuring. 

As said, we have more cash than debt maturities in 2009. And in addition to that we focus on 

keeping our cash flow clearly positive in 2009. 

In addition to this we have very good access to committed liquidity without covenants, without 

restrictions for use. We are financially strong and we will win. 

Then over to the market outlook, moving on to page 14, you're probably familiar with the RISI 

forecasts. And you can see the development as RISI has also taken their assumption of demand 

development down. 

On our end we have been planning for a clearly weaker demand than what RISI has at any point 

forecasted. So early on, back late last year, we asked our businesses to plan for clearly weaker 

scenarios. And of course that has given us time to think and plan and manage our capacity in an 

orderly way. 

Needless to say, when we have seen what the deliveries are for the whole industry, we think RISI is 

still too optimistic and we plan for something different. We focus very much on the pricing quality. 

We focus very much on our inventory management. 

Moving on to page 15, in short, the outlook for Q2 is more of the same - weak demand, very untransparent 

situation, very poor visibility. The positive thing is that we have taken our forecast 

deflation down, excluding internal actions, to 4%. A large part of this is reduced fibre cost and then 

on top of this internal actions. You saw the impact on the first quarter which is substantial. 

Now I will hand over to Jouko who will talk about what we're planning for the future. 



Okay, thank you Markus. I'll be brief. I'm repeating myself. The 4 to 5 margin point gain through 

the mostly operation related restructuring I think is a critical mission right now. But given the fact 

that the world is tougher than any of us thought maybe six, seven months ago, or maybe even 

tougher than any of you thought, we can't stop. We have to take the next step as we call it. And 

now there are two sides to that story. 

23 April 2009 4


One, it is another 2 to 3 margin points of fixed costs out. But it is also because it is focused on 

management structures, simplifying them, speeding our decision making and administration. It's 

also a bit different because now we try to pretty much make sure that we don't burden our core 

businesses and try to empower them to make decisions even faster and even more business and 

customer driven. 

You may or may not remember, when I joined the Company two years ago, one of the first steps we 

did was that we actually took out one layer of the organization. And some of you may remember 

that we used to have a Publication division and a Packaging division. No, we're not going back. 

We're not adding a layer. And to be specific also which I think is interesting to you, is that we will 

not reduce our transparency. I.e. we will continue to report in Newsprint and Book, Magazine, so 

forth and so on even though we consolidate the organization. 

I believe that if you go then to page 18, you see the simplicity. Publication Paper which is the 

Newsprint, Book and Magazine, Packaging, Consumer Board and Industrial Packaging. Fine Paper 

and Wood Products, no structural change. 

There is also one more strategic thought and that is that when now I see that after the 10 years of 

talking of consolidation of the industry, I see that sooner or later the environment will force a 

change. I would like to have fairly strong, fairly independent businesses that can participate also in 

possible segment based consolidations. 

What I mean with that, and I have long experience myself in integrating things, is that it is difficult 

to do these structural changes if they're very deeply integrated into a Group level organization. And 

I also think that for the operational freedom of the businesses, now that they have more direct 

control of their fibre costs and so forth, logistics is important. 

We've said the majority of the cost savings will happen by the end of the year. Mathematically it 

means that the impact of this programme isn't significant for '09. It is significant for '10 and then 

'11. 

Markus you want to talk about the Sawn Wood business? 


Chief Financial Officer 

Yes. As Jouko said, we made three releases today and one of them was concerning reductions in 

Sawn Wood capacity and Sunila. 

On slide 19, we talk about the sawn goods part. We are facing an extended demand downturn and 

over capacity continues to be heavy in Europe. And also the raw material supply is challenging 

both in the Baltic Sea area and in Central Europe. But the severest challenge we still have in 

Finland. And today we'll start codetermination negotiations in Finland to reduce capacity in Kitee 

and Varkaus and also to restructure Puumerkki. These actions will reduce the annual capacity by a 

total of 120,000 cubic meters of sawn goods. 

23 April 2009 5


Also we are planning to take long term production curtailments in Poland and one sawing line in 

Austria. And this will reduce the annual capacity by 220,000 cubic meters and of course these 

measures as well are subject to local codetermination as required. 

These and previous actions that we have taken recently amount to long term reductions of annual 

capacity of 800,000 cubes which is actually 11% of our capacity a year earlier. 

Then if we go to page 20, we talk about Sunila. And we have announced today that we will acquire 

Myllykoski Paper's remaining 49% shareholding in Sunila Oy for EUR6m. And the expected net 

purchase price after balance sheet adjustment is then EUR3m. This transaction is subject to 

competition authority approval and we expect that the transaction closes by end of second quarter 

this year. 

We are striving proactively to improve our profitability and secure a better future for the whole 

Group. And the reason why we acquired this 49%, we think in the current very challenging 

operating environment it's easier for Stora Enso to optimize our own pulp production and be a 

supplier to Myllykoski Paper as the sole owner of Sunila Pulp Mill. We have also agreed to supply 

Myllykoski Paper with pulp for the next three years and Harvestia will continue wood deliveries to 

Stora Enso. 

And accounting wise, if we get the competition authority approval, we will consolidate Sunila after 

the closing of this transaction. 

We also mentioned in the beginning that we do have specific issues in Finland and I want to 

highlight a couple of issues on page 22. 

On this slide we have plotted our mills in one product segment. The bars in grey are Finnish mills 

and the bars in orange are mills outside of Finland. And if you assume that by product we have 

taken 20% to 30% curtailment due to lack of orders, to lack of profitability, being able to run 

profitable orders as we said, we curtailed the high cost units. We run the lower cost units. The 

country plays no role. The cost base is the determining factor. 

But what comes to Finnish mills, you can see also in this product segment where the highest cost 

mill is which gets curtailed first, unfortunately. And if we look at the whole forest industry and 

compare European countries and countries outside of Europe, unfortunately the Finnish cost level 

has developed in the wrong way. And Finland has some serious issues to solve to be back in the 

competition. This concerns the whole value chain from taxation to wood cost, to production cost, 

logistics, fuel taxes etc. 



Good. Thank you, Markus. One more slide and then it's for you people to ask questions. Page 24, 

the summary. 

Even if we sound boring, Q2 is more of the same. As tough, demanding as Q1, or for that matter, 

23 April 2009 6


Q4. Many people, especially the media, asked me today ‘well, but we've heard there's some good 

vibrations’. I think that was one wording. And then everybody obviously reads some of the 

politicians' hopes. And I said that the rule in Stora Enso is: ‘the good times are back when we see 

material improvement in order intake, actual’. 

If I look at the forecasting capability of anybody before the market went off the cliff, I don't see any 

reason to start planning the future of this Company on some hope. And therefore, we will continue 

to run the Company in the same manner we've run it since October, which is when we have our 

New Year's events. That's when we started this year. 

Curtail aggressively higher cost assets, focus on cash flow and margin quality and yes, control 

capital spending and expenses. That's the short term ride out of the storm concept I would say. 

And yes, we will reduce fixed costs by a further 2 to 3 margin points. It will not be easy. It will be 

very tough on our personnel. But I do hope that our track record from the past two years 

demonstrates to also you, that when we say we're going to do something, we mean business. We're 

going to get it done. 

We don't expect a short term recovery. And the important thing is, even with the issues in Finland 

and so forth, we believe we have both the balance sheet but also the management strength to ride 

out the storm and be one of the winners. Thank you. 

Lars Kjellberg – Credit Suisse 

Question and Answer Session 

Yes, hi. I have a couple of questions. Starting with costs, 4% cost deflation, excluding your own 

efforts, can you give us a number what you think you can achieve yourself? 

Jouko Karvinen – Stora Enso 

Okay. We've tried to be consistent in terms of how do we define the deflation before the actions. 

I'm talking this through, if you remember the two paths of more operations driven cost cutting 

programmes, I believe we have promised in the fall of '07, a EUR140m to EUR160m cost cut by 

the end of '08. And then the programme from last fall was about EUR150m again. 

What's interesting, that reflects pretty well, if you look at the first quarter, actual year on year. So 

you'd have to do that math in addition to yourself. Those are the two key programmes in that 

context. 

The program we announced today will, in a material way, start helping in 2010. Even if I get it, or 

we get it done by New Year's Eve, because of the legal and other requirement, the material impact 

will be in '10. 

And I would plea that I will not try to do the math for you. But that's what I think. 

23 April 2009 7


Lars Kjellberg 

Not to worry. If I were to look at the first quarter cost inflation or deflation, I would assume that 

you got a ramping up effect. I.e. that the second half is going to have a material impact on the cost 

position on a relative basis. So if you were to give us a split between the H1 and H2 in terms of 

cost deflation what would you give us? That 4%, how is it stacked up between the first and second 

half? 

Markus Rauramo – Stora Enso 

It's Markus here. We're not going to specify by quarter what the inflation is. But as I said in the 

beginning we have the energy costs still increasing. And we see the fiber prices coming down 

already. So there will be clearly more positive impact from the inflation development on the second 

half than there was in the first half. 

And we will have further impact from the personnel cost reduction also from the previous 

programmes. That will escalate towards the year end. But there will be escalating cost deflation 

over the year, that's quite obvious. 


Absolutely. And if I can add to Markus' comment which is not an answer to your question; we 

obviously understand how strong we’ve been on the pricing improvements we do fight for them. 

We run our curtailments and so forth. 

But I can assure you we will need all the deflation we can possibly get because the capacity supply 

demand situation is obviously, as we all know, not favourable right now. So don't add too many 

points to that deflation please. 


Sure. I had three more questions. You mentioned budgeted working capital. If you can give us a 

number. You had EUR164m in flow in Q1 which is a big number. A full year number would be 

appreciated. 

Restructuring payout in terms of cash flow, what you should expect for '09 and if you have any 

numbers for 2010, given the currently known programmes? 

And final point, 2,000 people out of the admin side. How much would that be in percentage of 

admin staff? 


I'll take the easy one as usual. The vast majority of the 2,000 people will be from the SG&A line so 

to say, which we don't disclose. And I appreciate the question because it is about one-third. To just 

show you the drama and the fact that these staff you cannot squeeze out. You have to change the 

way you work and you have to stop quite a few things, which you just don't do any more. But it's 

23 April 2009 8


about one-third relative cut. 

And Markus can you take the other ones? 


Yes. If I comment on the working capital question, we have budgeted a substantial, very substantial 

working capital decrease for the year, which will then also lead partly to the very strong cash flow 

even after CapEx. But a specific number we have not given out on that. 


If I remember correctly, we said a few months ago that the majority of our then EUR500m, now 

EUR400m CapEx programme, will have to be funded with further working capital improvement. 

So there you get the frame if I say it's the majority of EUR500m. 


Okay. Thank you. 


Great. 


And the restructuring pay out? 


The restructuring pay out, '09 and '10 was the question. 


Yes, yes, we have. Yes. So the full pay out for the year is EUR170m. And I think that's a very 

good number actually, to talk about and I'll pause here for a moment because I come back to the 

liquidity and the strength of the balance sheet. 

We are now doing the 2,000 people reduction. We need the financial strength to be able to do that. 

We need the financial strength to be able to close, also, the unprofitable units so we are not running 

them for cash. We only run for profitable orders and we have to be able to take these kinds of 

restructuring costs like EUR170m a year. 

But we have also paid more and more attention to how we pay the provisions out, also how we do 

the mill restructuring. So we're more and more focusing on making sure that we only do the 

necessary dismantling and changes at the closed mills if we find the right platform buyer, and then 

do the required work. So we don’t use all the money up front without knowing what the future use 

23 April 2009 9


is. 


Thank you. 


And maybe one final comment Lars on the restructuring. As it was relating to a lot of people 

layoffs and so on, it's also relatively higher in the beginning of the year than it is at the end of the 

year. 

So that is another factor contributing to the cash flow, but I'll also remind that we cannot, of course, 

indefinitely reduce inventory. So don't multiply the 264 by 4. 

Johan Sjoberg – Carnegie 

Yes. Hello. Johan Sjoberg at Carnegie here. My first question, looking at your cost deflation of 

minus 4% for this year, I mean in conjunction with the Q4 results, you talked about zero cost 

inflation. Would you just tell me what's happening during this quarter? And obviously you were 

too negative on the costs. My question is also do you have some cushion of what accounts for the 

minus 4% now, going forward? 


I can comment on that. The biggest change is on the fiber cost side. So it is wood costs. It is 

obviously pulp costs. It is recycled paper costs. And I think it's quite natural that we did not ... I 

mean we forecasted weak demand. But weakness overall probably has surprised and that's of course 

leading to just very, very little demand for the raw materials. And you can follow the pulp prices, 

of course, in the market. So that is easy to follow. But list prices, list prices in Sweden and paid 

prices, when I look back in the Finnish statistics, are coming down on the wood cost side. 

Johan Sjoberg 

Okay. 


When it comes to the cushion, we try to give the best estimate. So I can't say that we take any 

special views on the deflation as such. We use some best estimates. But on the other hand, if there 

then will be variations from our expectations on our business plan, as said, we do have flexibility in 

other measures. So we can definitely then continue to work on CapEx and so on if things would get 

even worse than they are today. 

23 April 2009 10


Johan Sjoberg 

But this cost deflation expectation, that is based upon the current prices, or do you foresee the wood 

prices come down even more? 


No, that's based on our current view of how things will develop. 

Johan Sjoberg 

Okay. Okay. 


And if I may add to Markus's comments? Before we get all too thrilled about the great improvement 

of the fibre costs, do you remember what I said a year ago about the fibre costs? We're looking at it 

against a peak. So I still think that the Nordic fiber cost is way too high. But that is my opinion. 

Johan Sjoberg 

Yes, I can agree upon that. My second question, your reorganisation of the Company, and now 

you're opening up for more independent units if I understand it correctly. We've been talking about 

consolidation for ages and I mean there's been talking about mega mergers and rumours have been 

circulating here. This latest action from you is that more that you were expecting to see 

consolidation taking place within different niches, would you say, rather than mega mergers? 


The short answer is no. And the slightly longer answer, and Keith told me to not give out more 

answers, but anyway, is this move has kind of three dimensions. One, you're right, it's been talked 

about for 10 years. I cannot wait not for mega mergers, not for mini mergers, not for anything. 

Look at the rate of change in the world. You're going to have to keep going, going and take costs 

out. 

One is that mini or mega mergers happen. If we've done it, it should make us more valuable as a 

partner. And, two, if there would be either or, this structure will serve us better. Because this will 

take nothing away from public segment mergers, but it does make also segment based mergers 

and/or other structures more possible. 

The big thing to me is that you get parity and accountability. Who is running the P&L? Well, it has 

to be the team who has the customers and the very material control on their total costs. That's 

called P&L and balance sheet focus. 

Okay. Great. Thank you very much. 

23 April 2009 11


Mathias Carlson 

Yes. Good afternoon gentlemen. I've got two questions. First, on the cost savings programme, 

what is the total cost for taking out these EUR250m? 


Okay. Hi, Mathias, first of all. It's Jouko. We have not made a provision yet as we don’t yet have 

an accurate number. Let's use the EUR50,000 per person number, then you can do the math better 

than I can do. And I should highlight that the EUR250m is not people costs only. It's consultants, 

it's travel, all the related infrastructure costs and as you well know, if you talk about management 

and administration structures, they tend to be a little bit more expensive per head too. So that gives 

you a flavour. 


No, no, yes, I made a calculation myself using EUR50,000 and then I come to EUR100m cost 

savings. So obviously at EUR250m you need to find the other EUR150m somewhere else. 


Yes. 


And the second --. 


I'm sorry, Mathias. 


Yes? 


I made it unclear. I thought you were asking what the ballpark figure of one time costs. 


Yes. 


That's what I meant. 

23 April 2009 12



Exactly, okay. Yes, that's fine. 


The EUR250m will come. 


Yes. Okay. But still EUR100m cost savings from the 2,000 people, I mean, I guess that's a fair 

assumption. And then on top of that, there will be more? 


Again, maybe I'm getting a little too far here, but I'm saying I believe that the costs per person is a 

different number than EUR50,000. But what I meant is that for the one time cost ballpark, you can 

use the EUR50,000. 


Yes. Yes. 


But we've done, just to finish this thought, we've obviously, before we come out, looked at function 

by function, location by location, the direct costs, indirect costs, all the related services and so forth. 

That's where the EUR250m comes from. 


Clear. Clear. Okay. My final question then is I'm a bit confused about the Sunila acquisition. 

Although it's a very small number, but I mean given that the mill is already curtailed, I don't 

understand how you can make your pulp production more efficient. I mean, the only way to 

actually get a gauge, isn't that just to close down, Sunila? 


Jouko again. Well, Sunila is one mill and we have got many and we look at them in a very 

consistent manner as you've heard. The reason why we believe it's for this EUR3m plus, the 

inventory adjustment is worth buying it is that now when we also become the supplier to 

Myllykoski, of the pulp, now we can produce it where it makes more sense for us. The point of the 

story is now we have better control on where do we produce to maximize the earnings for Stora 

Enso because as you well know, the intricate pulp mills pretty much have to run at a certain speed if 

you want to run the inter-press. So it's just a freedom to us and it obviously helps that we will 

continue to supply to Myllykoski also. 

23 April 2009 13



Does that mean that you could start up Sunila earlier? 


I would not expect that to be exact. 


And Markus here, if I may comment that we have to wait for the competition authority approval. 

And after we close the deal, then we will look at the situation, what is the need internally in Stora 

Enso? What is Myllykoski's needs? And then we will look at the market cost situation. And then 

look where does this amount of pulp get produced most efficiently. The same logic I used with the 

chart in one segment. We look at the whole portfolio and rather than running three or four pulp 

mills with lower speed, we focus the production into fewer units. 


And the final comment on that, to your original question, like we do with all the assets, in the short 

term visibility, or lack thereof situation, we take in heavy curtailments. Quarter of our capacity 

overall and it's true for pulp mills also. That's what we do in ourselves, Sunila is the JV now. And 

then we, in parallel, like I said in the press release, we're looking at where is the point where you 

close down assets. And that's not unique to Sunila, but includes all of our assets. 


Okay. Thank you very much. 


Thank you. 

Mikael Jafs – Cheuvreux 

A question on slide 22 there where you show the high cost mills and those are in Finland. And then 

I imagine that this is sort of an average picture of how it looks in various businesses. 

So then, as you are, in my opinion, gearing up towards more permanent closures, do you see any 

risk of political resistance since those closures seems to be aimed at Finland and this goes also into 

your initial comments there? 


Jouko is answering. Hi. And I agree now, that you don't take me as an arrogant guy. 

23 April 2009 14


Mikael Jafs 

No, no, no, no. I don't. 


(Multiple speakers) there will be media screaming. They will nickname me again. It doesn't matter. 

We have to, both, on a curtailment basis and a permanent closure basis, when I can show to my 

Board, very specifically that an action, an investment called permanent closure pays off, I will do it 

and there is no national thinking in that. Whether it's Finland, Sweden or anything else. 

I have said today in the media conference that because of this energy tax and a few other issues in 

Finland, that quote, the Finnish manufacturing base is at a disadvantage, clear disadvantage, versus, 

for example, Sweden. My forecast, for what it's worth, is that in, within the best scenario, the 

Finnish forest industry will be significantly smaller in years to come. 

So at least this is resistance. Now they have heard what I think. Alright? 

Mikael Jafs 

Yes. The question is if they are listening or not. 

Then my second question is now you as a Group, together with many of your competitors, have 

done a very good job at holding back production and not trying to sort of run for cash and steady 

market shares, etc. Do you see any risk of such, let's say, an old fashioned negative behaviour 

popping up somewhere? 


The short answer is, yes, I see a risk. And it's not driven by anything else except that when some of 

the industry players are running out of cash, in their last desperate breath, they will try to run for 

cash. But to be honest, when I look at the European overall cost situation, I can only speak for 

Stora Enso. 

We will continue to stick to our guns. And if we cannot get profitable capacity, or profitable 

volumes to fill up capacity, then we will find a way not to have the capacity either temporarily or 

permanently. And that's all I can say. 

Michael Sheridan – [Cobill] Capital 

Good morning, guys. How are you? 


Very good. 

23 April 2009 15



Very well. 

Keith Russell – Stora Enso 

Good. 

Michael Sheridan 

I had a couple of quick questions. Could you just tell us what the normal tax rate for the year 

should be? 

Keith Russell 

I think we've guided already. Keith here, we've guided already about 20% now for 2009 given the 

generally lower level of profitability. 


Okay. And what drove the tax rate to such a high level this quarter? 


We would have to get back on that. It's with this low profitability, it swings. It really does swing 

quite a lot because it depends on the country, country based tax rates. 


Okay. 


But if you want to hear it again, we can get back to you on that issue. 


No. I guess I should really be looking at your deferred taxes, which is a use rather than a source, 

correct? That's the right way to look at it? 


Yes. 

23 April 2009 16



Okay. Affiliate income was a lot higher than I had been modelling. Could you help me understand 

that? That looks a little odd. 


You mean the associated companies? 


Correct. 


It was EUR13.3m. 


Okay. 


What part? 


Okay. 

Where do you think it was that high? 


But isn't it generally about EUR4m a year? 

Keith Russell 

No. No. 


Okay. I'll check into that again. And I'm sorry, one last question. When you talk about permanent 

versus temporary or extended temporary down time, aside from headcount reductions, what would 

be the cash cost of just facility closures in Finland, for example? 

23 April 2009 17



Yes. That's a good question because we have been closing mills in The Netherlands, Germany, 

Sweden, Finland, Russia, etc, etc. 


Okay. 


And what we learn is that even if we have the same legislation, it is very much dependent on what 

is the community's approach to close those. 


Yes. 


Do they want what's the industrial policy? Do they want heavy industry continuing on these sites? 


Yes. 


It drives the, let's say, the environmental demand on clean up and so on. And we have now, as I 

said earlier, we have taken the approach that if we close a mill, we do the minimum. 


Yes. 


We empty the tanks, empty the pipes, make it safe. 


Yes. 


And then leave it as it is until we have definitive future use for it. 

23 April 2009 18



So that might be a quarter or 20% of the headcount reduction capital? You know, if you're 

spending EUR100m to truncate employees, you might spend another EUR20m to close the facility 

and wind down operations? 


Well, that's a lot of volatility in the personnel costs. So that is very country specific and I'd say you 

take the Western European countries, Germany, France, the Netherlands, we talk, for the bulk of 

our workers, we talk about the multiple of annual salary because you don't have the same kind of 

unemployment benefit system as you have for example, in Finland where the termination cost is 

practically very low. But then you go on a fairly appropriate benefit for an extended period of time. 


And if I may just quickly add, there is obviously a structural difference in the programme we 

announced today. 


Yes. 


Because the administration people, they are not operating very large capital, big mills. 


Yes. 


Offices you can typically, nothing is easy, but it's a better pay back context in that sense because the 

people are not running pulp mills or paper mills, they're writing PowerPoints. 


Very good. Very helpful. Thank you very much. 

Keith Russell 

Thank you. 

23 April 2009 19


Linus Larsson – Enskilda 

Thank you very much. Good afternoon. You say that you would like to win, not only survive, and 

you say you want to actively take part in consolidation. I just wondered do you find that you have 

the financial strength, as your balance sheet looks right now, or is there potential need for an equity 

injection? That's my first question. 


Yes. Markus here. I'll answer that question. So going back to what I said earlier, what we have 

wanted to make absolutely sure is that we do have the financial flexibility, both to, let's say, ride 

this storm and do the internal restructuring we need to do, then implement our strategy organically 

and participate as an industry player. And we have EUR490m of cash. We have EUR1.4b of 

undrawn, committed, non-covenant facility, EUR600m available in Finnish pension loans. So I 

think that gives you a magnitude of what is our firepower that we can do. 

And back in history or forward to the future, of course one has to always look at what is the then the 

appropriate funding for any kind of action. But I hope this gives you a flavour that we take the 

liquidity very seriously and we have made sure that the Company can go and implement this 

strategy without concern of financial resources. 


Yes, and this is Jouko. I think let me just kind of add to that. I don't see that industry consolidation 

is going to be a sort of huge cash thing. I think it's going to be different investors than that. But we 

have to be honest, I think, amongst us that adding the present European capacity in any manner 

whatsoever together isn't the answer. There's always going to be a significant material restructuring 

need, which will cost money. 

Linus Larsson 

Yes. 


So in that context, you do need to think through both your what Markus calls firepower. But I think 

we feel, right now, that we're in pretty good shape there. 

Without you asking, you know that we have, we think, very exciting programmes in Brazil, 

Uruguay, China. We've delayed some of them and Russia, which we've delayed even more. 

Obviously I said you don't change strategy with the cycles. But with this type of a cycle, I've said 

you do reschedule your strategy a bit. 

Linus Larsson 

Yes. 

23 April 2009 20



So we're trying to be very responsible. Safeguard the present company and its future while not 

giving up on some of our strategic initiatives. Sorry for the long answer, again. 

Linus Larsson 

No, that's great and just continuing on the consolidation track. I noted that the current market 

environment has sparked some thoughts among Ministers and industry observers. Would you say 

that the recent market developments have triggered any change in your discussions with potential 

M&A partners? Is there any different tone or sense of urgency or increased progress in these 

discussions? 


Okay. I'll take the liberty to answer your question and you're going to maybe laugh at me. This 

storm is really so bad that the talking show is over. I was asked today by one of the Finnish TV 

channels will everybody make it and I said, absolutely not. 

So my look at this is there will be a structural change in Europe which will lead, whether the 

industry likes it or not, talks about it or not, to a capacity reduction with one footnote, and I've been 

fairly vocal about this too, especially when governments and political leaders talk about bailing out 

industries. I made it fairly publicly that no government, nowhere in Europe, should even think 

about bailing out anything in our industry because that would be really miserable. We need to get 

weak assets out of the market. 

So I think there will be a change. Business in Europe will not come out of the storm in the same 

shape as we went in. That's the urgency and maybe the good thing about it. 

Linus Larsson 

Yes. But do you know if the discussions are any different now compared to six or 12 months ago 

among industry players? 


Yes. 

Linus Larsson 

In what way? 


That I believe that in every context, I mean in every dimension, I think the industry understands that 

the option of talking for another eight years isn't there. 

23 April 2009 21


Linus Larsson 

Yes. 


When was the last time when this demand went down this sharply? Look at CEPI. I think the 

record was 26% year on year. I've been only two years here, but you guys tell me, when did that 

happen last time ever? 

Linus Larsson 

Yes. 


So that's the good thing about the storm. 

Linus Larsson 

Great. Thank you very much. 


Thank you. 

Claudia Hueston – JP Morgan 

Hi. Thanks very much. Just two questions. Can you remind me of your split between reels and 

sheets in Coated Fine Paper? And then if you could just secondly provide a little bit more colour on 

the working capital improvement in the quarter? And what's really going to be the big drivers of 

further improvement over the year? Thanks. 


We'll get back to the reels and sheets later. But the working capital improvement, we're focusing on 

it from all angles. It's receivables, payables, inventory and as said, we can't expect that inventory 

reduction will continue quarter after quarter. 

When it comes to the receivable/payable balance, today our receivables turnover is close to 50 days, 

payables 30 days. So we have a 20 day gap. 

We have of course worked hard now for a couple of quarters to get this in order. What we 

fundamentally have to do is actually close this 20 day gap as much as we can. And we have, for 

that, initiated discussions with our suppliers, basically starting to negotiate the different payment 

terms and have actually succeeded in a number of cases in getting better payment terms. But this is 

a fundamental change then in behaviour and the whole supply chain management. 

23 April 2009 22


Also, what we will be doing, and I do think actually that there is clear further potential, is the whole 

approach to the value chain. So learning to live and work with less, operating closer to the margins. 

Looking really at things from the customer point of view rather than making sure that everyone 

inside the Company stays happy. 

So the driver for us going forward will be customer satisfaction and doing that with as little capital 

as possible. 

Claudia Hueston 

Okay. Thank you. And then do you have the split on the reels and sheets? 

Keith Russell 

Claudia, let me come back to you after the call, please, so we could give you a more accurate 

answer. 

Claudia Hueston 

Okay. Thanks. 

Keith Russell 

Thanks. 

Myles Allsop – UBS 

Hi there. The first question is on demand. When you say that you believe it's increasingly clear the 

sharp volume decline is driven by underlying demand rather than customer destocking, I mean, in 

January and February, demand was down sort of 20%. What do you think the actual underlying 

picture is? And is that cyclical or structural? Or can you give us a sense of what you're feeling is 

there? 


I don't understand. Do you mind repeating the question? I didn't quite understand it. 

Myles Allsop 

Yes, what do you think the underlying demand is? You say it's increasingly looking like it's not 

customer destocking. We had minus 20% in January, February. What's your sense of the 

underlying picture in terms of demand in Europe for graphic paper? 


I would suggest that and I know this not going to be a very good or accurate answer, but it is 

23 April 2009 23


clearly, in my opinion, I'm more pessimistic than if you look at the RISI forecasts on the year on 

year demand change. I do think it's not going to be as horrible as the first quarter. So it's 

somewhere in between, I would say and I can't give you an exact number. 

Myles Allsop 

Okay. And with demand looking so bad, why haven't you announced capacity closures at this 

juncture? I mean, what are you waiting for now? 


We're not waiting for anything. We are probably in the faster changing environment than, again, in 

a million years, trying to understand which capacities do have a recovery possibility. I mean, in 

terms of recovery, i.e. running it or not. And given the fact that specifically in Finland, there is a 

relatively unique possibility through temporary lay offs to have a significant cost cut possibility and 

a temporary long term basis. So we have waited in the past years. We're waiting now, I specifically 

said today, when we get clarity on what's for real on the demand side, and it's not totally clear yet, 

in my opinion, and what we can see in the variable costs and our own fixed cost side, that's when 

the plant gets announced. We're reviewing it every week. Every month. 


Yes. And I have to add here that, of course, just emphasising what Jouko said, that of course if we 

see permanent changes or permanent loss of competitiveness, of course then we take action. We 

have, I think it is the second worst thing to do compared to permanently laying off people is 

actually laying them temporarily off. And we definitely do not want to keep people in uncertainty. 

That is fundamentally important to us. 

So if we had clarity, we would act immediately, without any hesitation. But now the visibility is so 

poor, market so volatile and we know what the drivers are. We look at the consumer behaviour, at 

the advertising behavior and we have this historical volatility in these drivers. Then of course we're 

not going to take permanent action before we think that things have permanently changed. 

And we're not going to either run the business so that if and when certain businesses pick up that we 

couldn't satisfy our long term customers' needs. We're not going to be in a situation where our 

customers come to us and say they want paper and we can't deliver it, even if we make money with 

it. 

Myles Allsop 

Yes. Do you think you'll have better visibility by the summer time? Is that kind of a time line we 

can look along? 


Every quarter, every month, we have more clarity. I dare to say, respectfully, that when I remember 

what we said three months ago, and what we discussed internally, interestingly enough it seems we 

23 April 2009 24


have better visibility than RISI. 

Myles Allsop 

Yes. That's not so hard. 

With the pricing as well, could you give us a sense of how much you got newsprint prices up at the 

beginning of the year? And just looking at the more recent pricing data coming out in magazine 

paper, coated fine paper, paperboard prices, all seem to be slipping a little bit, at least according to 

PPI. Could you just give us a kind of a bit more clarity on what you're seeing today in terms of 

prices? 


Well, the principal answer is, we see the prices we agreed upon in the late part and the early part of 

the year. And if I remember correctly, I'm looking at my team here, in Newsprint we were in the 

high single digits. Slightly less on SC and slightly less on coated magazine paper. 

The majority of our customers seem to respect the annual type of agreements very well, which is 

more newsprint. The test will be more in the magazine side because quite a bit of those contracts 

run actually on a six month basis. So here's the task for us to make them understand that the 

pricings will have to stay up. The only good thing is, it wasn't that easy in the fourth quarter either, 

if you remember the demand situation. That's all I can say. 

Myles Allsop 

Yes. But you haven't seen any price erosion in April time in either Magazine or Fine Paper or 

Paperboard? 


No, it's like this. Anecdotal stories, how one competitor's salesman says break the deal, I'll give you 

a discount. And he's over somebody else's sales cut. Never mind. But I think it's all anecdotal both 

ways. If I look at the numbers, I think it's more important that we haven't seen anything material 

yet. 

Myles Allsop 

Okay. Thanks. 

Ross Gilardi – Merrill Lynch 

Hi. Good afternoon. I just had a couple of questions just following up on what Myles was asking. 

If you're not seeing much improvement in demand or any improvement it sounds like, right now, 

can the industry keep pricing steady in magazine paper and coated fine paper if we see another three 

to four months of these same types of demand declines? 

23 April 2009 25



Well, I think the generic answer is always is that if there's a long term demand/supply imbalance 

that does increase the pricing pressures from the customers. And the only action we can take is what 

we've done in the past six months. Keep being selective customer by customer. That's all I can say. 

Ross Gilardi 

Okay. And then congratulations on your free cash flow generation. Given that you're generating 

positive free cash flow, you seem to have a lot of liquidity and a much focused strategy. I mean, do 

you have increased confidence to do a cash funded acquisition right now of any size? 


Yes. Markus here. Let's say the situation is very difficult of course. And in absolute terms we 

have gotten weaker. But the window of opportunity to compare us to our competition has, suddenly 

this window has really opened. And we want to be in top shape relatively, to be able to do 

something. That can be whatever. But we do not want the financing to be a bottleneck. That's why 

we would rather keep cash. Plus, to have the comfort that we don't know when the financing 

market is open and when it is closed. We have good access to liquidity, but we also would rather 

use cash that we have available. This and organic steps, investments, CapEx for the restructuring. 

We need the cash for that as well. 


And just to make sure that we don't leave you here at the end, as a team, thinking that we're getting 

overconfident, no we're. Two quarters doesn't make and change the world. We understand the 

world is very difficult and our first priority is to safeguard the Company. So don't worry about that 

please. 

Ross Gilardi 

Okay. I'm sorry, I had just a final follow up to that. I mean, would you be willing to potentially 

increase your exposure to Finland if you make an acquisition if you see synergies with the rest of 

your portfolio? And the target is, or the business and the target are consistent with your long term 

strategy? 


I know I'm not answering your question, but believe it or not, maybe that's [the situation] of 

Finland. But if curtailment, permanent closures, acquisitions, I don't care what the country name is. 

The critical factors are the asset quality, the fiber based quality, infrastructure, taxations and 

whatever and I guess you got a flavour from me today. I think my dear Motherland has a cost 

problem. 

If you look at RISI data from fourth quarter, Finland, the biggest headache here for this industry and 

the best technology for us in this industry and whatever, RISI said on the fourth quarter of 2008, out 

23 April 2009 26


of 14 countries, Finland was the most expensive to produce. That's public data. 

Ross Gilardi 

Okay. Hey, thanks very much. 


Thank you. 

Keith Russell 

I'm afraid that's all we have time for now. And if there are more people that were queued for a 

question, we'll get your names through the system and I promise we will call you back very soon to 

address your questions that way. Apologies if you didn't have the chance to get on the line this 

time. 

Jouko, do you have a final comment? 


Yes, but it's so boring. Every time I say perfect storm, some of the environment has gotten worse, 

so maybe I should change this theme. But I think the underlying piece is here I'm very proud of the 

teams. They do what they say. We don't plan for quarters and years. We get things done and I 

think today in today's world, that's probably a very important feature. So we have to keep it that 

way at Stora Enso. 

Thank you for your interest. 

[End] 

23 April 2009 27

Question and Answer Session - Stora Enso

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