Business News

Stora Enso moving ahead – will be ready for full Russian roundwood duties

Wednesday 10. September 2008 - Investments combined with capacity reductions to improve cost base and safeguard critical customer volumes and assets

– Plans for permanent closures of assets with poor profitability totalling 600 000 tonnes of paper and board and 170 000 cubic metres of sawn goods annual capacity, as well as local productivity improvements, irrespective of Russian duty threat
– Plans for significant reductions in Russian wood sourcing organisation, controlled curtailments at Sunila and Enocell stand-alone pulp mills, and investment at Imatra pulp mill complete Stora Enso’s plans for full Russian roundwood duty scenario
– Planned investments of about EUR 135 million and volume transfers to safeguard profitable customer accounts and to prepare for higher Russian roundwood duties
– About 1 700 employees in total affected by the permanent capacity reduction and restructuring plans, including 600 employees in Germany, 550 in Finland, 400 in Russian Wood Supply and 150 in other countries
– New specialised maintenance joint venture in Finland; about 1 450 employees
planned to be transferred
– Provisions and write-downs totalling about EUR 280 million, about half of which are cash costs
– Estimated annual operating profit improvement EUR 140 million to be realised by the end of 2010
– Future growth opportunities in emerging markets, fibre-based packaging and selected paper grades, and cost-competitive plantation-based pulp raw material

Jouko Karvinen, CEO of Stora Enso:

Two steps in one go – plan to close down poor profitability assets and completed
plan for full Russian duties
“In July we said that in the third quarter we would announce restructuring plans
to address profitability problems that are independent of the Russian wood
duties. Today we are not only doing that, but also saying that we will be ready
for the anticipated increases in duties on roundwood imported from Russia. We
will be able to operate without Russian roundwood in 2009, and we are doing this
in a way that gives us and Finnish forest owners time to increase domestic
volumes still further. Our earlier actions, together with today’s plans, have
transformed Stora Enso from the largest importer of Russian wood into Finland to
being ready to operate effectively without Russian roundwood, if needed.

“Had we not in the past 18 months undertaken the difficult but necessary
restructuring actions, and successfully increased domestic wood sourcing in
Finland early on, today’s news would be not only far harder for our employees,
but also much more drastic for the Group. As before, we are announcing today’s
plans to safeguard the future of the Group and most of its employees. I
understand that the plans we are announcing today will be difficult for the
employees affected. I want to assure them that we will do our utmost to help
them find a new future. I hope our track record from the programme announced in
autumn 2007 proves our commitment to achieving this.

Moving ahead
“We continue proactively to build the future of the Group. Whilst taking the
necessary steps to get through the ‘perfect storm’, it is increasingly clear
where the future growth opportunities for Stora Enso will come. We foresee a
more focused Group, with fewer product lines. We also see the need to have a
stronger asset base in growth markets. We have a strong starting position in
fibre-based packaging materials and are convinced that versatile fibre-based
packaging will compete successfully with plastics and other materials made from
fossil fuels. These factors provide sound growth and earnings potential.

“Another key to an exciting future is cost-competitive plantation-based pulp as
raw material for paper and board products, based on fibre growth rates up to ten
times higher than in traditional northern hemisphere forests. As an early
entrant into plantation-based eucalyptus pulp, Stora Enso is well positioned to
capture this growth potential, particularly in Latin America and China.

“The paper businesses, but possibly not all of them, will also remain part of
Stora Enso. We will continue to work actively on consolidation solutions to
create strong businesses within and outside Stora Enso that can create
sustainable returns. Whilst we are doing this, we will continue to actively
improve every business and every mill – as that will only enhance our value as a
potential partner.

“We are building a Group that will come out of this storm stronger than ever
before – and succeed in the businesses we are in. We are making our own good
times to come.”

Consumer Board

Moving ahead
Consumer Board will maintain and develop its global leadership position by
further strengthening the competitiveness of its existing production units and
seizing growth opportunities in new markets. The aim is to grow in core markets
by building on profitable customer segments and meaningful leadership positions.
Consumer Board will strongly promote packaging concepts based on renewable wood
fibre. The plan is to invest in healthy and strong units through productivity
improvements, streamlining and specialisation of mill operations.

Capacity closures to improve cost-competitiveness
Stora Enso plans to permanently close down the cartonboard machine at Baienfurt
in Germany with annual capacity 190 000 tonnes of folding boxboard by the end of
2008, subject to local consultation. The machine is planned to be closed due to
persistent profitability problems caused by European overcapacity in folding
boxboard, the strength of the euro and cost increases, especially for wood and
energy. The plan is to continue serving the mill’s customers from the Group’s
other board mills in Finland and Sweden. The sheeting service centre at
Baienfurt will remain in operation to continue providing an excellent service to
customers.

Stora Enso plans, subject to local consultation, to permanently shut down board
machine (BM) 1 at Imatra in Finland with annual capacity 170 000 tonnes of
cupstock and liquid packaging board by the end of 2009. The machine is
unprofitable due to the strong euro and high wood costs. Stora Enso also plans
to permanently shut down two polymer coating (PE) machines due to reduced
polymer coating needs (PE 2 at Imatra and PE 4 at Karhula). The plan also
includes an overall streamlining of operations at Imatra Mills.

Investing in profitable customer segments and to reduce dependence on Russian
roundwood
At the same time, Stora Enso plans to invest about EUR 135 million over the next
two years to develop the Group’s operations at Imatra, Fors and Ingerois mills.
At Imatra, investments in the pulp mill will reduce costs and the dependence on
Russian roundwood. The annual capacity of BM 4 will be increased to improve
product quality and to serve current customers of BM 1. Stora Enso will also
invest to improve the efficiency and quality of the remaining PE coating lines
and build one new sheeting line at Imatra. At Fors and Ingerois, the quality,
capacity and productivity of the board machines will be improved and the
sheeting capacity increased.

Additional planned permanent asset closures to improve cost-competitiveness

Stora Enso plans to permanently shut down paper machine (PM) 3 at Kabel in
Germany with annual capacity 140 000 tonnes of coated magazine paper by the end
of 2008 due to profitability problems caused by overcapacity in Europe and
increased wood and energy costs.

Stora Enso plans to permanently shut down by the end of 2008 Corenso’s coreboard
machine at Varkaus in Finland with an annual capacity of 100 000 tonnes, which
is part of the Industrial Packaging business area, due to persistent
profitability problems. Measures are also planned to be taken at Varkaus to
improve profitability by enhancing efficiency in fine paper and newsprint.

Stora Enso plans to permanently shut down the sawmill at Paikuse in Estonia with
an annual capacity of 170 000 cubic metres by the end of 2008 due to
profitability problems caused by overcapacity and escalating sawlog prices.

Planned permanent capacity reductions:

Machine
Products
Annual capacity
Cartonboard machine at Baienfurt in Germany
Folding boxboard
190 000 tonnes
BM 1 at Imatra in Finland
Cupstock and liquid packaging board
170 000 tonnes
PM 3 at Kabel Mill in Germany
Coated magazine paper
140 000 tonnes
Coreboard machine, Corenso at Varkaus in Finland
Coreboard
100 000 tonnes
Paikuse sawmill in Estonia
Sawn goods
170 000 cubic metres
Further productivity improvement measures in operations, maintenance and
administration are planned at Veitsiluoto Mill in Finland, Maxau Mill in Germany
and Hylte Mill in Sweden and will reduce the numbers of personnel employed
there.

Stora Enso is now prepared for full Russian roundwood duty increases

In good cooperation with the co-owner Myllykoski, Stora Enso will curtail pulp
production at Sunila, and at Stora Enso’s Enocell mill, if needed, when the full
Russian wood duties apply and based on the availability of low cost wood. In
addition, Stora Enso plans to curtail sawmill production in order to adjust to
the full Russian wood duties.

The above plans for curtailments, as well as the permanent closure of Kemijärvi,
Summa and Norrsundet mills, strengthening of the Finnish wood sourcing
organisation in early 2007 and investments at Imatra Mills to reduce dependence
on short-fibre pulp, will enable Stora Enso to be independent of Russian
roundwood export in 2009. This plan also gives Stora Enso and Finnish forest
owners time to continue increasing domestic wood supplies, and will enable
efficient adjustment to any compromise on duties, or even a later reversal of
the duties.

Stora Enso plans to downsize substantially its Wood Supply Russia unit to adjust
to the current and future level of wood procurement in Russia.

Joint venture with ABB to provide maintenance services for six Stora Enso mills
in Finland

To improve productivity and decrease costs, Stora Enso and ABB have signed a
letter of intent to establish a joint venture company to provide maintenance
services at Stora Enso’s Veitsiluoto, Oulu, Varkaus, Imatra, Enocell and Heinola
mills in Finland. Stora Enso will own 51% and ABB 49% of the shares in the joint
company. It is intended to transfer an estimated 1 450 Stora Enso employees to
the new joint venture company, which will be under ABB management and is planned
to be in operation at the beginning of 2009.

Mills at Kotka to remain part of the Group

In October 2007 Stora Enso announced its intention to sell the mills at Kotka in
Finland. Negotiations to divest the mills have now ceased, mainly due to the
turbulence in financial markets. There were interested buyers, but no
satisfactory agreement was reached.

As earlier announced, Stora Enso plans to outsource maintenance at Kotka to
Empower and transfer 90 Stora Enso employees to Empower. Other productivity
improvement measures to enhance the competitiveness of the mills and maintain
service to customers will continue.

Stora Enso plans to streamline its administration in line with its more focused
businesses

Stora Enso has been focusing its business portfolio for nearly a year and
continues to do so. The Group also plans to reduce its administration to suit
its more focussed business needs. The Group is already assessing its
administrative functions at all levels of the organisation to determine which
activities are needed to support the business. The results of the assessment
will be ready by the end of 2008.

Stora Enso’s personnel responsibility

Stora Enso is making every effort to help the affected personnel find new
employment opportunities as fast as possible. Possible job openings in other
Stora Enso units will be available to those affected. Stora Enso will also
actively work with labour authorities to find new jobs and training
opportunities for displaced employees outside the Group. There will be support
for those who have to move to another location.

Solutions have been found for some 800 employees affected by the restructuring
programme announced in October last year.

Estimated financial effects of the planned closures and personnel reductions on
the Stora Enso Group (excluding reductions in administrative staff)

The Group anticipates approximately EUR 280 million of provisions and fixed
asset write-downs as non-recurring items in the financial results for the third
quarter of 2008, about half of which are cash costs impacting over the
restructuring period.

Segment
Financial impact of fixed asset write-downs and provisions in Q3/2008
Newsprint and Book Paper
EUR 7 million
Magazine Paper
EUR 40 million
Fine Paper
EUR 3 million
Consumer Board
EUR 180 million
Industrial Packaging
EUR 15 million
Wood Products
EUR 8 million
Other (Wood Supply)
EUR 27 million
External sales reduction
EUR 440 million
Capital employed reduction
EUR 200 million
Annual operating profit improvement
EUR 140 million
Estimated total personnel reduction excluding personnel in administration
1 700
Personnel transferred to new maintenance joint venture
1 450
Once the full impact of the above actions is realised, by the end of 2010, the
estimated annual operating profit improvement will be about EUR 140 million.