UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 2
To
FORM U-1
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APPLICATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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Stora Enso Oyj
Kanavaranta 1, P.O. Box 309
FIN- 00101
Helsinki, Finland
(Name of company filing this statement and address
of principal executive offices)
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None
(Name of top registered holding company
parent of each applicant or declarant)
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Jyrki Kurkinen
Stora Enso Oyj
Senior Vice President, Legal Affairs
Kanavaranta 1, P.O. Box 309
FIN- 00101
Helsinki, Finland
(Name and address of agent for service)
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The Commission is also requested to send copies
of any communications in connection with this
matter to:
Sara D. Schotland William A. Groll
Cleary, Gottlieb, Steen & Hamilton Cleary, Gottlieb, Steen & Hamilton
2000 Pennsylvania Avenue, N.W. One Liberty Plaza
Washin7gton, D.C. 20006-1801 New York, N.Y. 10006-1470
<PAGE>
This Amendment No. 2 to the Form U-1 of Stora Enso Oyj is being filed
to amend Item 6 by adding the exhibits listed below.
ITEM 6: EXHIBITS AND FINANCIAL STATEMENTS
A. Exhibits
A-1 Articles of Association of Stora Enso (as amended)(filed herewith)
E-1 Stora Enso organization chart (filed herewith)
E-2 Consolidated Papers organization chart (filed herewith)
E-3 Combined company organization chart after the consummation of the
Merger (filed herewith)
G-1 Stora Enso's Annual Report to the Finnish National Board of Patents
and Registration for the fiscal year ended December 31, 1999 (filed
herewith) G-2 Consolidated Papers' Annual Report on Form 10-K for
the fiscal year ended December 31, 1999 (File No. 001-11359, filed
on March 24, 2000 and incorporated herein by reference)
G-3 Stora Enso's Annual Report to the Finnish National Board of Patents
and Registration for the fiscal year ended December 31, 1998 (filed
herewith)
K-1 Stora Enso's Subsidiaries (filed herewith)
K-4 Stora Enso press release of April 17, 2000 announcing the signing of
a definitive agreement to sell Stora Enso's off-mill site energy
assets to Fortum Corporation (filed herewith)
SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned company has duly caused this Amendment No.
2 to be signed on its behalf by the undersigned thereunto duly authorized.
STORA ENSO OYJ
By: /s/ Johan Feldreich
-------------------------------
Name: Johan Feldreich
Title: Deputy General Counsel
By: /s/ Erkki Autio
-------------------------------
Name: Erkki Autio
Title: Legal Counsel
Date: May 9, 2000
Exhibit A-1
ARTICLES OF ASSOCIATION OF STORA ENSO OYJ (as amended)
I. NAME AND DOMICILE OF THE COMPANY AND ITS FIELD OF OPERATIONS
ss.1.The name of the Company is Stora Enso Oyj, and its domicile the City of
Helsinki.
ss.2.The Company operates directly or through subsidiaries and associated
companies in the forest, engineering and chemical industries and other
manufacturing industries; engages in agriculture, forestry and merchant
shipping, as well as in mining industry, supply of hydro-power, building of
hydro-electric facilities and financing. The Company may also engage in the
sale of know-how and services in its own field of operations and carry out
construction, operational, marketing and other corresponding assignments
both in Finland and abroad.
II. SHARE CAPITAL AND SHARES
ss.3.The minimum share capital of the Company is eight hundred fifty million
(850,000,000) euros and the maximum three thousand four hundred million
(3,400,000,000) euros, within the limits of which the share capital may be
increased or reduced without amending the Articles of Association.
The minimum number of shares may not be less than five hundred million
(500,000,000) and the maximum not more than two thousand million
(2,000,000,000) shares.
The shares shall be divided into class A shares and class R shares.
The number of class A shares may not be more than five hundred million
(500,000,000) and class R shares not more than one thousand six hundred
million (1,600,000,000) shares, provided, however, that the total number of
shares may not be more than two thousand million (2,000,000,000) shares.
The shares of the Company shall be incorporated in the book-entry system.
The right to receive funds distributed by the Company and to subscribe for
shares when increasing the share capital shall be restricted to persons:
1. who have been registered as shareholders in the Shareholders' Register
on the record date;
2. whose right to payment has been registered on the record date on the
book-entry account of a registered shareholder and entered into the
Shareholders' Register; or
3. in case a share is nominee registered, on whose book-entry account the
share has been registered on the record date and whose nominee has
been registered in the Shareholders' Register of the Company on the
record date as the nominee of the shares.
III. MANAGEMENT OF THE COMPANY
ss.4.The Board of Directors and the Chief Executive Officer shall be
responsible for the management of the Company. The duties of the
various bodies of the Company shall be determined by the laws of
Finland and by a separate Corporate Governance Policy determined by
the Board of Directors.
ss.5.The Board of Directors shall consist of not less than six (6) and
not more than ten (10) ordinary members.
The Board of Directors shall elect one of its members chairman and one
of its members vice chairman.
The term of office of a member of the Board of Directors shall expire
at the end of the following Annual General Meeting of Shareholders.
The Board of Directors shall appoint the Chief Executive Officer and
the Executive Vice President, who shall also act as Deputy Chief
Executive Officer of the Company, as well as other senior managers.
ss.6.Authorised to sign for the Company are: - The Chairman of the Board
of Director, CEO, and Deputy CEO each alone - the ordinary members of
the Board of Directors, two jointly - persons heretofore authorised to
sign alone by the Board of Directors - each of the persons heretofore
authorised by the Board of Directors, two jointly with each other or
with a member of the Board of Directors.
The Board of Directors shall decide on authorising persons to sign for
the Company per procuram.
IV. CLOSING OF ACCOUNTS AND ANNUAL AUDIT
ss.7.The financial year of the Company shall be the calendar year. The
annual accounts shall be prepared in good time and handed over to the
Auditors for annual audit at least one month before the Annual General
Meeting of Shareholders.
ss.8.The Company shall have one (1) or two (2) Auditors, who shall be
entities of Certified Public Accountants or individuals approved by
the Finnish Central Chamber of Commerce.
The Auditors shall be appointed by a General Meeting of Shareholders
for a term of office expiring at the close of the following Annual
General Meeting of Shareholders.
The Auditors shall submit a report of their audit to the Board of
Directors two (2) weeks before the Annual General Meeting of
Shareholders, at the latest.
V. ANNUAL GENERAL MEETING
ss.9.Shareholders present at a General Meeting of Shareholders or their
legally qualified representatives or their legally qualified proxies
shall have the right to exercise their power to decide on matters
pertaining to the Company.
A shareholder wishing to attend a General Meeting of Shareholders
shall notify the Company by the date mentioned in the notice to the
meeting, which may not be more than five days before the meeting.
Since the shares of the Company are incorporated in the book-entry
system, the provisions of the Finnish Companies Act regarding the
right to participate in a General Meeting of Shareholders must also be
taken into account.
ss.10. At votings and elections, each class A share and each ten class R
shares entitle the holder to one vote. Each shareholder shall,
however, have at least one vote.
ss.11. The Board of Directors shall convene a General Meeting of
Shareholders by publishing a notice to the meeting in newspapers, as
determined by the Board of Directors, but at least in two Finnish and
two Swedish newspapers, not more than two (2) months and not less than
fourteen (14) days before the last day for advance notice of
attendance mentioned in the notice to the meeting.
Other notices to the shareholders shall be delivered in the same way.
ss.12. The General Meeting of Shareholders shall be held in Helsinki.
ss.13. The Annual General Meeting of Shareholders shall be held within
six (6) months from the end of the financial year.
An Extraordinary General Meeting of Shareholders shall be convened
when considered necessary by the Board of Directors or when requested
in writing by an Auditor or shareholders holding together a minimum of
one tenth of all the shares to discuss a specified matter which they
have indicated.
ss.14. At the Annual General Meeting of Shareholders shall be:
presented
1. the annual accounts, which shall comprise the income statement,
the balance sheet and the report of operations;
2. the Auditors' report;
decided
3. the adoption of the income statement and the balance sheet;
4. the measures to which the profit or loss of the adopted balance
sheet may give cause, and upon the date and manner for a possible
distribution of dividend;,
5. the granting of discharge from responsibility to the members of
the Board of Directors, and the Chief Executive Officer;
6. the number of the members of the Board of Directors;
7. the number of Auditors;
8. the remuneration of the members of the Board of Directors and the
Auditors;
elected
9. the members of the Board of Directors; and
10. the Auditors; and
dealt with
11. any other matters notified separately in the notice to the
meeting.
VI. CONVERSION OF SHARES
ss.15. The Company's A shares can be converted into R shares subject to
the stipulations of this Section.
The conversion shall always take place within the maximum limits for
each share class as stipulated in the Articles of Association. No
monetary consideration shall be payable for the conversion.
An A share may be converted into an R share at the request of a
shareholder, or, in case the shares are registered in the name of a
nominee, at the request of the nominee indicated in the book-entry
register. The Board of Directors of the Company shall each year
determine a period not exceeding one (1) month, during which the
conversion request may be presented to the Company. The Board of
Directors shall inform the shareholders of the conversion possibility
eight (8) days before the beginning of the conversion period, at the
latest, by a notice given in the manner prescribed at the time for
notices to General Meetings of Shareholders.
A shareholder's request for conversion of shares shall be presented to
the Company in writing. The request shall mention the number of shares
to be converted as well as the book-entry account on which the
book-entries corresponding to the shares are recorded.
The Company may request that an entry be made on the shareholder's
book-entry account restricting the shareholder's right of transfer
during the conversion procedure. The Company shall without delay
notify the Trade Register of the changes in the numbers of shares
following the conversion.
A request for conversion of shares may be cancelled before the change
has been notified to the Trade Register. Upon cancellation, the
Company shall request that any entry restricting the shareholder's
right of transfer shall be removed from the shareholder's book-entry
account.
The conversion of A shares into R shares shall become effective upon
registration in the Trade Register. The party who requested the
conversion and the book-entry registrar shall be notified of the
registration.
In the event a General Meeting of Shareholders is convened during a
period of conversion determined by the Board of Directors, any
conversion requests made during such conversion period shall be deemed
to be received after the General Meeting of Shareholders. In such a
case, the Board of Directors may decide upon extension of the
conversion period to end after the General Meeting of Shareholders,
when necessary.
The Board of Directors shall, when necessary, decide on more detailed
procedures for the conversion of shares based on a request of a
shareholder or, in case of shares registered in the name of a nominee,
on the request of the nominee indicated in the book-entry register.
Exhibit E-1
Stora Enso Organization Chart As of January 1, 2000
(excluding minority interests)
Stora Enso Oyj
I
I--------I
I--------Sixteen Magazine Paper Companies
I Owned Directly or Indirectly
I
I--------Fifteen Newsprint Companies
I Owned Directly or Indirectly
I
I--------Twenty Three Fine Paper Companies
I Owned Directly or Indirectly
I
I--------Forty Three Packaging Boards Companies
I Owned Directly or Indirectly
I
I--------Forty Six Sawn Products Companies
I Owned Directly or Indirectly
I
I--------Twenty One Merchants Companies
I Owned Indirectly
I
I--------Twenty Market Pulp Companies
I Owned Directly or Indirectly
I
I--------Twenty Seven Forest Companies
I Owned Directly or Indirectly
I
I--------Thirteen Energy Companies
I Owned Directly or Indirectly(1)
I
I--------Forty Seven Sales Companies
I Owned Directly or Indirectly
I
I--------Thirteen Group Treasury Companies
I Owned Directly or Indirectly
I
I--------Ten Transport and Distribution Companies
I Owned Directly or Indirectly
I
I--------Stora Enso Acquisition, Inc.
- - Stora Enso has approximately 100 additional foreign companies used as
holding companies, development companies and for other Purposes.
- --------------------
1 All Energy Subsidiaries of Stora Enso will be sold to Fortum, a Finnish Energy
group, pursuant to the definitive agreement signed on April 17, 2000. Stora Enso
and Fortum intend to finalize the sale in the first half of 2000 after receiving
necessary approvals from the competition authorities in Finland and Sweden.
<PAGE>
Exhibit E-2
Consolidated Papers, Inc. Organization Chart As of January 1, 2000
(excluding minority interests)
Consolidated Papers, Inc.
I
I----I
I---------LSPI Paper Corporation
I
I---------Superior Recycled Fiber Corporation
I
I---------Consolidated Water Power Company
I
I---------Consolidated Papers International Leasing, L.L.C.
I
I---------Newaygo Forest Products, Ltd.
I
I---------Consolidated Papers Foreign Sales Corporation
I
I---------Condepco, Inc.
I
I---------Consolidated Papers (Canada), Inc.
<PAGE>
Exhibit E-3
Combined Company Organization Chart After Transaction
(excluding minority interests)
Stora Enso Oyj
I
I--------I
I--------Sixteen Magazine Paper Companies
I Owned Directly or Indirectly
I
I--------Fifteen Newsprint Companies
I Owned Directly or Indirectly
I
I--------Twenty Three Fine Paper Companies
I Owned Directly or Indirectly
I
I--------Forty Three Packaging Boards Companies
I Owned Directly or Indirectly
I
I--------Forty Six Sawn Products Companies
I Owned Directly or Indirectly
I
I--------Twenty One Merchants Companies
I Owned Indirectly
I
I--------Twenty Market Pulp Companies
I Owned Directly or Indirectly
I
I--------Twenty Seven Forest Companies
I Owned Directly or Indirectly
I
I--------Thirteen Energy Companies
I Owned Directly or Indirectly(2)
I
I--------Forty Seven Sales Companies
I Owned Directly or Indirectly
I
I--------Thirteen Group Treasury Companies
I Owned Directly or Indirectly
I
I--------Ten Transport and Distribution Companies
I Owned Directly or Indirectly
I
I--------Stora Enso Consolidated Papers, Inc.
I
I---------LSPI Paper Corporation
I
I---------Superior Recycled Fiber Corporation
I
I---------Consolidated Water Power Company
I
I---------Consolidated Papers International
Leasing, L.L.C.
I
I---------Newaygo Forest Products, Ltd.
I
I---------Consolidated Papers Foreign
Sales Corporation
I
I---------Condepco, Inc.
I
I---------Consolidated Papers (Canada), Inc.
- - Stora Enso Oyj has approximately 100 additional foreign companies used
as holding companies, development companies and for other purposes.
- --------------------
2 All Energy Subsidiaries of Stora Enso will be sold to Fortum, a Finnish Energy
group, pursuant to the definitive agreement signed between Stora Enso and Fortum
on April 17, 2000. Stora Enso and Fortum intend to finalize the sale in the
first half of 2000 after receiving necessary approvals from the competition
authorities in Finland and Sweden.
Exhibit G-1
Annual Report 1999
Contents
Year 1999 in brief
Company presentation
Mission, vision and values
Values dictate a common direction
Chairman's letter
CEO's letter
Financial review
Magazine paper
Newsprint
Fine paper
Packaging boards
Timber products
Merchants
Market pulp
Forest
Energy
Marketing and sales network
Research and development
Environmental management
Human resources
Report on operations
Consolidated income statement
Consolidated balance sheet
Consolidated cash flow statement
Parent company income statement
Parent company balance sheet
Parent company cash flow statement
Notes to the financial statements
Proposal for the distribution of dividend
Auditors' report
Shares and shareholders
Board of Directors
Management Group
Group profile and structure
Corporate governance
Capacity specification
Glossary of technical terms
Calculation of key figures
Information to shareholders
Financial reports in 2000:
May 4 Interim Review - January-March 2000
August 3 Interim Review - January-June 2000
November 2 Interim Review - January-September 2000
The Annual Report and Interim Reviews are available in English, Finnish and
Swedish. The Annual Report is also available in German. The company's
Environmental Report is available in English, Finnish, German and Swedish.
The Annual and Environmental Reports will be distributed to all shareholders.
The printed Interim Review is available from the addresses listed on outside
flap. The Financial Reports are also published on the Investors pages of the
company's Internet website: www.storaenso.com
Year 1999 in brief
Good market
Paper and board demand remained strong in 1999. The year began weakly but both
demand and prices strengthened gradually from April to the end of the year.
However, prices remained fairly low in fine paper, packaging boards and redwood
timber. Pulp performed strongly. The outlook for year 2000 is favourable due to
continuing economic growth which will have a favourable impact on demand for
forest products.
Improved profits
Sales rose by 1.4% to EUR 10,636 million due to improved prices and higher
deliveries. The full year profit improved clearly compared to 1998. Operating
profit was EUR 1,418 million, 13.3% of sales and the profit before tax and
minority interests amounted to EUR 1,151 million. Operating profit includes EUR
103 million of non-recurring items. Earnings per share was EUR 0.99 and the
proposed dividend is EUR 0.40 per share; payout ratio 40%.
<PAGE>
Targeted 1999 synergies more than doubled
The synergy benefits amounted to EUR 113 million, exceeding by over 100% the
targeted EUR 50 million for 1999. Synergies were the greatest in magazine paper,
fine paper and timber products. The biggest sources of synergies were
purchasing, logistics and internal benchmarking.
Approximately EUR 30 million of the efficiency programme was realised during
the year.
Key ratios well in line with financial targets
Return on capital employed (ROCE) was 12.3%, the target being 13% over the
cycle. The debt/equity ratio was 0.90, the target being below 1.0. Stora Enso
has also set itself the objective that the capital expenditure should not exceed
the level of depreciation. Capital expenditure amounted to EUR 740 million, 16%
below the depreciation figure of EUR 885 million.
Financial highlights
1999 1998
Sales, EUR million 10,636 10,490
Operating profit, EUR million 1,418 719
Operating profit, % of sales 13.3 6.9
Profit before tax and minority interests, EUR million 1,151 339
Profit for the period, EUR million 752 191
Capital expenditure, EUR million 740 896
Capital expenditure, % of sales 7.0 8.5
Interest-bearing net liabilities, EUR million 5,524 5,820
Capital employed, EUR million 11,679 11,365
Return on capital employed (ROCE), % 12.3 6.2
Debt/equity ratio 0.90 1.05
Earnings per share, EUR 0.99 0.25
Dividend per share, EUR 0.40* 0.35
Equity per share, EUR 7.84 6.93
Market capitalisation, EUR million 13,209 5,801
Deliveries of paper and board, million tonnes 12.0 11.8
Deliveries of timber products, million m3 4.6 2.8
Average number of employees 40,226 40,987
* proposed dividend
Leading global positions
Magazine paper
Products
Uncoated supercalendered (SC), uncoated machine-finished (MF) papers,
light-weight coated (LWC), medium-weight coated (MWC), heavy-weight coated (HWC)
and machine-finished coated (MFC) papers. Used for magazines, printed products
for advertising, catalogues, and direct marketing products.
Market position
World's second largest producer of magazine paper Main markets Europe and North
America Market share some 25% in Europe and 15% globally Total production
capacity 3.2 million tonnes
Resources
Altogether 12 mills located in Finland (4), Sweden (1), Germany (4), Belgium
(1), Canada (1) and France (1)
Newsprint
Products
Standard newsprint and newsprint specialities.
Used for newspapers, newspaper supplements, advertising leaflets and telephone
directories.
Market position
World's second largest producer of newsprint and newsprint specialities Main
market Europe Market share approx. 25% in Europe and 7% globally Total
production capacity 3.3 million tonnes
Resources
Altogether 9 mills located in Finland (3), Sweden (2), Germany (2), Belgium (1)
and Canada (1) 35% of raw material is recycled fibre
Fine paper
Products
Coated fine paper (graphic paper) and uncoated fine paper (office paper). Used
for high-quality books, document printing papers and advertising materials.
Market position
World's third largest fine paper producer Main market Europe and Asia Market
share 13% in Europe and 4% globally Total production capacity 3.2 million tonnes
Resources
6 graphic paper mills located in Finland (2), Sweden (2), Germany (1) and China
(1) 4 office paper mills located in Finland (2), Sweden (1) and the Netherlands
(1) 19.9% share of Advance Agro and an agreement to market its production
Packaging boards
Products
Consumer packaging boards, containerboards, corrugated boards, coreboards and
cores, kraft- and laminating papers.
Market position
One of the world's leading producers of consumer packaging boards Stora Enso
board used in over 40% of the aseptic liquid containers in the world Most
important market area Europe and Asia Packaging boards and papers capacity total
3.6 million tonnes.
Resources
33 packaging board production facilities located in Finland (12), Sweden (7),
Germany (2), Barbados (1), Estonia (1), France (1), Latvia (1), Lithuania (1),
Malaysia (1), Poland (1), Russia (1), Spain (2) and the UK (2)
Timber Products
Products
Sawn timber and its further-processed products. Used for the joinery, furniture
and construction industry.
Market position
World's second largest producer of sawn softwood Main markets Europe, North
Africa, North America and Asia
Sawn timber capacity 5.3 million m3
Resources
19 sawmills and 10 further-processing sites
Nordic redwood and whitewood production sites located in Finland (8) and Sweden
(4) Central European production in Austria (4) and the Czech Republic (2) One
further-processing plant in the Netherlands 33.4% share of one sawmill in
Estonia
Market pulp
Products
Northern bleached softwood kraft (NBSK), Northern bleached hardwood kraft
(NBHK), bleached eucalyptus kraft (BEKP), deinked pulp, fluff pulp. Used for
various kinds of papers and boards, fluff pulp for hygienic products.
Market position
Stora Enso's market pulp covers all major grades Main market Europe The net pulp
balance amounts to 0.5 million tonnes
Resources
Altogether 11 mills located in Finland (5), Sweden (4), Germany (1), and
Portugal (1)
Mission, vision and values
Mission
We promote communication and well-being of people by turning renewable fibre
into paper, packaging and processed wood products.
Vision
We will be the leading forest products company in the world
o We take the lead in developing the industry
o Customers choose us for the value we create for them
o We attract investors for the value we create
o Our employees are proud to work with us
o We are an attractive partner for our suppliers.
Values
Customer focus
"We are the customers' first choice"
Performance
"We deliver results"
Responsibility
"We comply with principles of sustainable development"
Emphasis on people
"Motivated people create success"
Focus on future
"We take the first step"
Financial targets
Return on capital employed > 13 % over the cycle Debt/equity
ratio ~ 0.8 in year 2000
Dividend policy
One third of the net profit
o the dividend is based on long-term profit from business operations and not on
year-to year fluctuations resulting from the nature of the forest industry's
business cycle.
Strategy
o to be the world's leading forest products company
o the company focuses on three core product areas: publication papers
(magazine paper and newsprint), fine paper and packaging boards
o the target is to secure the generation of shareholder value and profitability
from ongoing business through synergies, productivity improvement programmes and
carefully selected investments
o future growth will take place primarily through mergers and acquisitions
Values dictate a common direction
Stora Enso's activities are governed by its corporate mission, vision and
values. The foundation these create ensures a common direction and the emergence
of a new corporate culture. The mission and the vision form the background to
the company's strategy.
It is Stora Enso's wish to be the world's leading company in its field. The
vision will be implemented in all its dimensions, not merely in terms of
financial norms.
We aim to be the first choice for all stakeholder groups, customers,
shareholders, employees and suppliers alike.
The implementation of our vision is monitored constantly. It is measured by
customer and employee satisfaction. Shareholder satisfaction is reflected in
share price and trading volumes.
Involvement of all dimensions
Stora Enso's values embrace all its business areas. Values are not directives;
they are an umbrella which covers a diversity of applications dependent on
country, culture and business unit. Each Stora Enso employee can assess his or
her own performance in relation to corporate values and targets.
Identification with the company's values is a multi-stage process for which the
executive management is widely responsible. Through its decision-making and
conduct the management shows its commitment to these values. It is Stora Enso's
aim that by summer 2000 all 40,000 employees will have taken part in the values
discussion and implementation process.
Customer focus and performance
Customer focus means that through its know-how Stora Enso aims to be the first
choice partner for its customers in its product and business areas.
Performance means the achievement of targets at both Group and individual level.
Group and business units have financial targets such as return on capital
employed, debt/equity ratio and dividend payout. Targets have also been set for
operating efficiency, response to customer needs and employee satisfaction.
Achievement of targets is rewarded at all levels.
Responsibility and emphasis on people
Within Stora Enso responsibility is viewed from three perspectives; the
environment, the shareholder and the employee.
Environmental responsibility means that in all our operations we comply with
principles of sustainable development.
Responsibility to shareholders infers the generation of additional value for
capital invested by the shareholder in the company.
As a responsible employer Stora Enso offers employees opportunities for
development and success. Likewise, each employee is responsible for developing
his or her own professional skills.
Motivated employees produce results and enjoy their work. Motivation is
influenced by a number of factors, the most important being openness,
inter-activeness and respect for the individual. The working atmosphere is
subject to constant appraisal and development.
Eyes on the future
Stora Enso wishes to be the first in its field and an innovator in development.
Innovation is served within the company by an open approach, encouragement of
new ideas and a willingness to question established habits and procedures.
Chairman's letter
1999 was the first year for the new Stora Enso. The start of the new company
could hardly have been more successful. The difficult merger process went quite
smoothly, the productivity programmes continued successfully and the expected
synergies were greatly surpassed. In addition strong market conditions
contributed to a very strong result for Stora Enso in its first year as a
unified company.
It is very gratifying that the strong result has also been reflected in a sharp
increase in the Stora Enso share price. Our ambition that Stora Enso should be
the first choice among investors for an investment in the forest products
industry could not have got a better start.
During the year the Board of Directors made some important decisions on the
strategic direction of Stora Enso:
o The company will focus on three core business areas in the future; publication
papers, fine paper and packaging boards - supported by sawn timber and pulp.
o Capital expenditure should be focused and selective.
o Non-core assets should either be divested or run for cash and then closed.
o Stora Enso will continue to participate in the expected future consolidation
of the forest products industry worldwide.
For the future development of Stora Enso it is imperative that the company can
attract young people as employees for our activities worldwide.
Thus, we have to ensure that they are not only offered exciting career
opportunities but also competitive remuneration.
For around 200 top managers at Stora Enso a remuneration package was introduced
in 1999 consisting of a base salary, a short-term cash bonus and a long-term
forward looking option scheme. The programme was implemented after careful
considerations to conform with best international practices. However, the
presentation of the scheme was made in a less thoughtful way which caused
misunderstandings and negative sentiments outside the company. We regret this
and information on the remuneration policy of the company will be improved.
For the successful first year of operations for the merged company I would, on
behalf of the Board, like to express warm gratitude to CEO Jukka Harmala and
deputy CEO Bjorn Hagglund for their excellent contributions.
The Board also wishes to extend its thanks to all employees and the management
of Stora Enso for their successful efforts to create one unified company despite
cultural differences in connection with the cross-border merger.
Finally, I would like to thank my fellow members of the Board of Stora Enso for
their great contributions and support during the year.
Helsinki, 10 February 2000
Claes Dahlback
CEO's letter
Stora Enso is, by capacity, the world's second largest forest products company,
holding a leading position, in many of its core businesses. More important than
the size of the company, however, are our strategic objectives. We intend to
focus on publication papers, fine paper and packaging boards strengthened by
sawn timber and pulp. We will build a financially strong company by divesting
non-core assets, reducing debt and achieving significant synergies. Our
objective is to grow profitably. The growth process is continuous and targeted
to deals that create true value. We will continue to invest capital in our fixed
assets, but at a level not exceeding depreciation.
During the first year the organisation performed well, delivering good earnings
quarter by quarter. We suffered no major customer losses. We doubled the amount
of synergy benefits estimated for 1999. This despite the fact that initially
synergies tend to accumulate somewhat more slowly. We have, of course, been
helped by the improving market situation. The efficiency programme continues to
run according to plan. During 1999 EUR 30 million of the programme was realised.
Since autumn we have been implementing our redefined strategy. As outlined in
the strategy, we have continued to sell non-core assets. In 1999 we released
capital in total more than EUR 200 million. In addition in January 2000 a letter
of intent was signed to sell the main part of the Group's power assets outside
mills for EUR 1,850 million. Approximately half of these proceeds will be used
to reduce debt, which will bring the debt/equity ratio clearly below the
targeted 1.0 level.
During the year we began the implementation of our vision and values process.
This is a continuous process and a way to create a common way of thinking in a
global company. Sharing the same values worldwide is of great importance when
realising our vision of becoming the world's leading forest product company.
The vision requires innovative management practices. To emphasise and support
this we will continue the Excellence 2005 TQM-programme. The key in this process
is self-assessment, where business units identify their present situation,
strengths and areas of improvement. I am a strong believer in this form of
internal thinking and continuous improvement since the results come from
ourselves and from the way we behave. In return our objective is to provide
proper incentive and development programmes for employees.
Looking ahead we have a firm set of operating priorities on which to build
shareholder value. We will remain a customer-focused company, delivering good
quality service and enhancing performance by optimising existing assets,
achieving synergies and reducing costs. Opportunities for growth will be
exploited through acquisitions, by seeking simultaneously financial strength and
flexibility.
The future success of the forest products industry is to a great extent
dependent on its own behaviour; can the main players make the industry less
volatile through more disciplined pricing policies and capital expenditure. The
ongoing consolidation forms an excellent platform for such development.
During the first year of Stora Enso as a united entity, we achieved much more
than we initially anticipated. I am convinced that we are well on the way
towards our vision.
Helsinki, 10 February 2000
Jukka Harmala
CEO
<PAGE>
Financial review
Extract of the strategy statement on 20 August 1999
To fulfil its vision, to be the leading forest products company in the world in
serving customer needs in an environmentally sustainable way and creating
shareholder value, Stora Enso has developed a strategy to achieve this
objective.
Stora Enso's primary task is to secure shareholder value generation and
profitability from its ongoing business through synergies, productivity
improvement programmes and carefully selected investments. The high technical
level of existing and prioritised assets in core businesses must be maintained,
while non-core assets will be either divested, if opportunities occur, or run
for cash and then closed. With growth in shareholder value as the key criterion,
the company will increase its market presence through profitable expansion in
selected areas.
Stora Enso's annual growth in sales must exceed the market growth and match
the growth achieved by other major forest products companies. Growth will
require continuous improvement in financial results and a positive cash flow.
The purpose is to achieve lower unit costs, synergy benefits and thus
shareholder value. Growth will be achieved largely through mergers and
acquisitions, and financed mainly through cash flow and divestitures.
Safeguarding future growth and profitability demands a restructuring of
assets. The company will accordingly focus on three core product areas:
publication papers (magazine paper and newsprint), fine paper and packaging
boards.
The company owns state of the art machines in most of the paper and board
grades and there is no immediate need to build new capacity to serve European
markets with existing products. The required return on investments, including
rebuilds, is over 13%, although some projects such as environmental investments
do not necessarily meet this criterion. Stora Enso's capital expenditure should
not exceed the level of depreciation. Slightly more than half of the annual
capital expenditure will be focused on a few projects to secure cost and quality
competitiveness. The rest will be used in investments to keep up capacity.
The company's growth and globalisation strategy will be implemented gradually
and opportunities will be taken as they arise with the following view to
different markets and product areas.
Stora Enso's focus in magazine paper and newsprint is mainly in Europe.
However, North America is the largest market for these products and the
consolidation process there is expected to accelerate. Through the Port
Hawkesbury mill in Canada, Stora Enso already has a presence in North America,
providing an opportunity to follow developments closely and possibly also to
participate in the consolidation process.
In fine paper the need for further business consolidation is particularly
great, and European restructuring is therefore expected to continue. However,
the greatest growth in fine paper consumption will take place in Asia, as the
continent benefits from rapid economic and population growth and reasonably
priced and fast-growing wood raw material. Stora Enso is already present in Asia
through its majority-owned Suzhou Papyrus fine paper mill in China and its
minority interest in Advance Agro in Thailand. Stora Enso is studying
opportunities for participation in the consolidation process in both Europe and
Asia.
Stora Enso's packaging board business will grow within its existing product
portfolio. Consumer packaging boards will remain the key business area. In
corrugated boards and boxes the company will continue with its Baltic Rim
strategy and increase its presence in Russia. In cartonboard Stora Enso will
actively participate in the ongoing consolidation process in Europe, and in
kraft paper continue its existing divestment strategy.
Stora Enso will intensify its R & D aimed at improving paper and board
qualities and applied research and leave most of the basic research and
technology development to be done by outside forest research institutes and
suppliers.
Stora Enso uses traditional Nordic short and long fibres, short-fibre from
rapidly growing and sustainable sub-tropical plantations, and recovered fibres.
Modern and efficiently operated pulp and sawn timber businesses will support the
company's fibre strategy. The sawn timber business will strengthen Stora Enso's
fibre sourcing in mainland Europe, Russia and the Baltic Countries. The task of
the pulp business is to serve partner customers and captive users. The company
will swich some of the Nordic pulp production for its own use. The aim of the
Veracel project is to integrate competitive southern eucalyptus pulps into the
company's fibre sourcing. The Veracel project will be further developed. The
mill construction project will not be started before the project has been
restructured. The Indonesian forestation project is on hold.
Implementation of strategy on its way
Stora Enso has implemented the announced strategy gradually throughout 1999. At
the beginning of the year it sold the assets and business operations of
Tervakoski Oy in Finland and the Danish Dalum mill. It has also sold its share
in Teollisuuden Sahkonmyynti and C shares in Pohjolan Voima (PVO) as well as its
participation in a Finnish shipping company Transfennica. The sale of the head
office building in Stockholm took place in January 2000. In January 2000 the
company signed a letter of intent to sell the main part of its power assets
outside the mills. The closing of this deal is expected to take place this
spring after approval by the competition authorities. The amount of capital
released through these transactions is approximately EUR 2.2 billion. In
accordance with earlier announcements the company still has its remaining plan
to sell its PVO shares and the Gruvon mill in Sweden.
Market
Western Europe is Stora Enso's principal market but most forest products are
global and are in demand in all parts of the world. The table below shows total
consumption of paper and board products per market area. Population growth is
one of the key elements which will affect future sales and the level of
consumption in the various areas. The Gross Domestic Product (GDP) trend has
traditionally been one of the leading indicators of the demand trend for paper
and board.
The market will also be influenced by the restructuring process taking place
within the customer base, creating global customers. This will increase the need
for cost competitiveness and an increased service level.
Consumption of paper and boards
West North Latin Asia
1000 tonnes Europe America America Africa (inc. Ocenia)
Newsprint 9.5 12.8 2.0 0.5 10
SC 2.8 2.5 0.1 0.1 0.5
Coated magazine paper 5.8 5.3 0.4 0.1 2.6
Coated fine paper 6.5 5.0 0.7 0.2 6.4
Uncoated fine paper 9.1 14.0 2.5 0.8 14.9
Containerboards 18.1 31.3 5.8 1.1 30.7
Cartonboards 7.6 9.6 1.5 0.4 10.3
World population, millions 729 305 504 749 3,615
Per capita consumption, kg 190.9 326.5 34.5 5.5 26.3
Sources: EMGE, Fact and Price Book 2000, Jaakko Poyry, PPI's Int. and RISI
Stora Enso's deliveries
Stora Enso's home market, Europe, accounts for 83% of sales. The distribution of
sales by market is shown in the section "Marketing and sales network," on page
34.
Demand for forest industry products improved gradually during the year. Fine
papers, in particular, reported good growth figures.
Stora Enso's total deliveries of paper and board products rose by
approximately 2%. A large part of the change was attributable to the increased
production of magazine paper in Port Hawkesbury and of fine papers in Oulu.
Deliveries of market pulp rose by approximately 2%. Shipments of sawn timber
were substantially higher as a result of the Holzindustrie Schweighofer
acquisition in 1998.
Stora Enso deliveries by product area
%
1000 tonnes 1997 1998 1999 change
Magazine paper 2,230 2,560 2,756 +8
Newsprint 3,022 3,086 3,122 +1
Fine paper 2,524 2,743 2,912 +6
Packaging boards 3,281 3,130 3,196 +2
Specialty papers 234 239 10
Total paper and board 11,292 11,758 11,995 +2
Sawn timber, 1000 m3 2,520 2,764 4,637 +68
Market pulp, 1000 tonnes 2,127 1,964 2,001 +2
Corrugated board, millions m2 343 339 355 +5
Sales and financial result
Sales rose by 1.4%, to EUR 10,636 million (10,490). Excluding divested
operations, the increase was 5.2%. Divested operations were the fine paper unit
in Dalum, Denmark and Tervakoski, Finland in 1999 and the Technical Office
Papers operations in 1998.
The impact of foreign exchange movements was limited since most countries in
Europe had locked their currencies to the euro.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales and operating profit by product area
Sales Operating profit/loss Return on operating capital
EUR million 1999 1998 1997 1999 1998 1997 1999 1998 1997
Magazine paper 1,950.4 1,851.8 1,475.8 287.7 276.3 85.9 13.9 14.2 4.6
Newsprint 1,641.8 1,693.7 1,534.1 299.1 302.9 192.0 19.9 19.4 12.2
Fine paper 2,163.2 2,003.8 1,813.5 195.2 191.6 144.0 8.6 8.6 6.5
Packaging boards 2,341.5 2,396.9 2,485.5 187.9 209.3 234.9 8.0 8.8 9.4
Merchants 787.2 830.3 800.4 1.1 2.0 5.4 0.6 1.0 2.6
Timber products 1,140.0 733.9 722.2 40.2 11.1 51.0 9.3 3.3 18.6
Market pulp 957.8 846.6 958.7 94.9 9.7 29.4 8.1 0.8 2.2
Forest 1,630.3 1,645.8 1,616.8 141.1 111.0 111.2 10.2 7.9 8.0
Other - 2,153.9 - 2,104.7 - 2,081.6 - 32.8 - 32.4 - 13.9
Continuing
operations
total 10,458.3 9,898.1 9,325.4 1,214.4 1,081.5 839.9 10.4 9.4 7.3
Divested units 24.7 399.4 415.8 - 1.6 - 6.4 4.7
Discontinuing
operations,
Energy 506.0 481.2 530.3 102.7 114.5 123.8 7.3 8.2 8.6
Internal sales,
Energy - 353.3 - 289.1 - 273.4
Merger costs
and restructuring
provisions - 447.0
Items affecting
comparability 102.6 - 24.0 - 52.0
Total 10,635.7 10,489.6 9,998.1 1,418.1 718.6 916.4 10.8 5.5 7.1
</TABLE>
Sales and operating profit
[Bar Graph appears with horizontal axis indicating calendar years 1995, 1996,
1997, 1998 and 1999, left vertical axis indicating amount of sales and operating
profits (in millions of euros) and right vertical axis indicating percentages.
The bar for each year indicates sales for such year, and a line connecting the
bars indicates operating profits as % of sales.]
Return on capital employed (ROCE)
[Bar Graph appears with horizontal axis indicating calendar years 1995, 1996,
1997, 1998 and 1999 and vertical axis indicating percentages. The bar for each
year indicates percentage of return on capital employed for such year.]
Target >13% over the cycle.
Profit before tax and minority interest
[Bar Graph appears with horizontal axis indicating calendar years 1995, 1996,
1997, 1998 and 1999, left vertical axis indicating amount of profits (in
millions of euros) and right vertical axis indicating percentages. The bar for
each year indicates profit before taxes and minority interests for such year.
Line connecting the bars indicates profit before tax and minority interests as
percentage of sales.]
Net interest expenses for the period were EUR 302 million, 2.8% of sales. This
was EUR 49 million less than in the previous year as a result of the drop in
interest rates and decline in net-liabilities. Exchange rate gains for the year
were EUR 32 million, EUR 30 million losses in year 1998. Dividend income was EUR
4 million.
Profit before tax and minority interests was EUR 1,151 million, EUR 812
million more than in the previous year. Profit before taxes and minority
interests is EUR 329 million higher than the 1998 adjusted profit before tax and
minority interests.
If the income statement for 1999 were prepared excluding discontinuing
operations, sales would amount to EUR 10,130 million; less EUR 506 million.
Operating profit would amount to EUR 1,267 million and net financial expenses
would improve by EUR 56 million to EUR 211 million.
Income statement in brief
EUR million 1999 1999 1998 1998
Group as excluding Group as excluding
a whole Energy a whole Energy
Sales 10,636 10,130 10,490 10,018
Operating expenses - 8,333 - 7,993 - 8,620 - 8,263
Depreciation
according to plan - 885 - 870 - 1,151 - 1,146
Operating profit 1,418 1,267 719 609
Net financial items - 267 - 211 - 379 - 324
Profit before taxes
and minority interests 1,151 1,056 339 285
Taxes - 395 - 368 - 148 - 133
Minority interest - 4 - 4 0 0
Profit for the period 752 684 191 152
Earnings per share 0.99 -- 0.25 --
Synergy benefits during 1999 totalled EUR 113 million which is more than double
the estimate for the year and means that we have been able to accelerate the
synergy realisation process to reach total synergies of EUR 300 million.
Synergies were greatest in magazine paper, fine paper and timber products. The
main synergy sources were purchasing and logistics, sales and administration as
well as production streamlining.
The table below shows how synergies are expected to affect profit in future
years.
Synergies, EBIT impact
EUR million 1999 2000 2001 2002
Estimate, June 1998 -- 72 145 217
Forecast, January 1999 50 170 240 300
Actual 113
The source of synergy benefits were as follows:
Actual Estimated
EUR million 1999 1998
o Streamlining of production 26 6
o Purchasing and logistics 19 13
o Capital expenditure
and capacity control 51 13
o Sales and administration 1 5
o Sharing of best practice 16 13
113 50
Efficiency programme proceeded as planned, and about EUR 30 million was realised
during the year.
Key ratios well in line with financial targets
Return on capital employed (ROCE) was 12.3%, the target being 13% over the
cycle. The debt/equity ratio was 0.90, the target being below 1.0. Stora Enso
has also set itself the objective that the capital expenditure should not exceed
the level of depreciation. Capital expenditure amounted to EUR 740 million, 16%
below the depreciation figure of EUR 885 million.
Financial targets
1996 1997 1998 1999 Target
Return on capital
employed, % 7.8 8.0 6.2* 12.3 13.0
Debt/equity ratio 1.01 1.05 1.05 0.90 <1.0
* Adjusted return was 10.2%.
Weighted average cost of capital (WACC)
WACC varies over time as a result of changes in market and company-related
factors. Market-related factors include interest rates and general perception of
risk and its price. Company-related factors include business risk and capital
structure. Since every investor has a personal perception of risk and its price,
it is essential to remember that there is no single opinion of the right share
price or WACC. This is one way of calculating WACC and suitable for evaluating
the performance of Stora Enso.
The cost of equity can be determined by adding 4% risk premium to the
long-term risk-free rate that is approximately 5%, giving 9% cost of equity
after tax. With a tax rate of around 30% this will give 13% pre-tax cost of
equity. The cost of debt can be determined by taking the average of Stora Enso's
current loan portfolio, giving us 5.5%.
It has been estimated that after the sale of power assets, distribution of the
proposed dividend and the possible buy-back of 5% of own shares, the debt/equity
ratio will be approximately 0.8. This equals 55% weight for equity and minority
and 45% weight for interest-bearing net liabilities of total capital employed.
Using these weights, the WACC approximatley is 9%. This may be compared to ROCE
(return on capital employed). Stora Enso has set the ROCE target at 13%, clearly
above the WACC. This reflects the company's target to create value for
shareholders.
Capital expenditure and depreciation
[Bar Graph appears with horizontal axis indicating calendar years 1995, 1996,
1997, 1998 and 1999, left vertical axis indicating amount of capital expenditure
and depreciation (in millions of euros) and right vertical axis indicating
percentages. Two bars, indicated by different colors, appear side by side for
each year. One bar indicates capital expenditure and the other indicates
depreciation. The bars indicating capital expenditure are connected with a line
indicating capital expenditure as percentage of sales. The bars for 1998 exclude
EUR 260 million of non-recurring write-downs.]
[Bar Graph appears with horizontal axis indicating calendar years 1995, 1996,
1997, 1998 and 1999, left vertical axis indicating the amount of
interest-bearing net liabilities (in millions of euros) and right vertical axis
indicating percentages. The bar for each year indicates the amount of
Interest-bearing net liabilities for such year. The bars are connected with a
line indicating interest-bearing net liabilities as percentage of sales.]
Equity/share
[Bar Graph appears with horizontal axis indicating calendar years 1995, 1996,
1997, 1998 and 1999 and vertical axis indicating amounts (in euros). The bar for
each year indicates the equity per share for such year.]
Capital employed
[Bar Graph appears with horizontal axis indicating calendar years 1995, 1996,
1997, 1998 and 1999 and vertical axis indicating amounts (in millions of euros).
The bar for each year indicates the amount of capital employed for such year.]
Return on equity (ROE)
[Bar Graph appears with horizontal axis indicating calendar years 1995, 1996,
1997, 1998 and 1999 and vertical axis indicating percentages. The bar for each
year indicates percentage of return on equity for such year.]
Equity ratio
[Bar Graph appears with horizontal axis indicating calendar years 1995, 1996,
1997, 1998 and 1999 and vertical axis indicating percentages. The bar for each
year indicates equity ratio for such year.]
[Bar Graph appears with horizontal axis indicating calendar years 1995, 1996,
1997, 1998 and 1999 and vertical axis indicating percentages. The bar for each
year indicates the debt/equity ratio percentage for such year.]
Capital structure
EUR million 31 Dec. 1999 31 Dec. 1999 31 Dec. 1998 31 Dec. 1997
Group as excluding Group as excluding
a whole Energy a whole Energy
Fixed assets 11,779 10,319 11,549 10,172
Working capital 1,575 1,561 1,317 1,327
Operating capital 13,354 11,880 12,866 11,499
Tax liabilities - 1,675 - 1,594 - 1,501 - 1,412
Capital employed 11,679 10,286 11,365 10,087
Shareholders' equity 5,953 5,589 5,266 4,944
Minority interests 202 196 279 273
Interest-bearing net
liabilities 5,524 4,501 5,820 4,870
Financing 11,679 10,286 11,365 10,087
Debt/equity ratio 0.90 -- 1.05 --
Shareholders' equity amounted to EUR 5,953 million (5,266) corresponding to EUR
7.84 (6.93) per share.
Interest-bearing net liabilities totalled EUR 5,524 million (5,820) including
pension liabilities of EUR 576 million (570). Net debt was affected during the
year by reduced capital expenditure and increased working capital requirements
due to higher sales at the end of the year and the appreciation of the Swedish
crown against the Euro. At the year-end the Group had unutilised credit
facilities amounting to EUR 2,616 million.
The cash flow from operations during the year under review was EUR 2,027
million, compared with EUR 2,152 million in 1998. Cash flow less investing
activities was EUR 1,425 million, up EUR 516 million on the previous year.
Capital employed
Operating capital Net tax liabilities Capital employed
EUR million % EUR million % EUR million %
Finland 4,630.5 34.7 338.7 20.2 4,291.8 36.7
Sweden 4,877.4 36.5 918.8 54.9 3,958.6 33.9
Germany 1,583,3 11.9 377.5 22.5 1,205.8 10.3
Canada 659.1 4.9 4.5 0.3 654.6 5.6
France 336.3 2.5 2.7 0.2 333.6 2.9
Portugal 232.9 1.7 23.3 1.4 209.6 1.8
China 205.3 1.5 0 0.0 205.3 1.8
Austria 168.4 1.3 8.5 0.5 159.9 1.4
Other 660.2 4.9 0.7 0.0 659.5 5.6
Total 13,353.4 100.0 1,674.7 100.0 11,678.7 100.0
Changes in interest-bearing net liabilities
Translation of Impact on
Group excluding Group foreign balance
EUR million energy Energy cash flow companies sheet
Operating profit/loss 1,267 151 1,418 1,418
Adjustments 811 - 33 778 778
Change in working capital - 87 - 82 - 169 - 49 - 218
Cash flow from operations 1,991 36 2,027 -49 1,978
Capital expenditure - 717 - 23 - 740 - 740
Acquisitions - 113 - 113 - 113
Sale of fixed assets 179 72 251 251
Other changes in Fixed assets -512 - 512
Operating cash flow 1,340 85 1,425 - 561 864
Net financing items - 208 - 56 - 264 - 264
Taxes paid - 269 - 42 - 311 91 - 220
Dividends - 269 - 269 - 269
Other changes in
shareholders' equity 2 2 183 185
Change in interest-bearing
net liabilities 596 - 13 583 - 287 296
Risks and factors affecting earnings
The overall economic trend in the world and its impact on individual markets is
the factor with the greatest impact on all business operations. The components
of the general economic trend are not described in detail here; instead, a
summary is provided of certain variables that can be quantified and which have a
direct effect on Stora Enso's earnings trend.
Price and volume effects
Group profitability is sensitive to changes in sales prices and delivery
volumes. Supply and demand affect competition and create fluctuations in both
prices and volumes.
The sensitivity analysis in the accompanying table shows how the operating
profit of the larger product areas can be affected by a 5% change in sales
prices and volumes. Price changes have the greatest impact on earnings.
Effect of various cost components
Profit is affected by price and volume for the different cost components in the
Group. The larger variable cost components relate to transport and sales
commissions, amounting to approximately 10% of sales; wood and timber,
accounting for 12% of sales; chemicals and filler, accounting for about 10% and
energy for around 7%.
Among fixed-cost components, personnel costs account for about 17% of sales.
Depreciation amounts to about 8%. A 3% increase in payroll costs would increase
the Group's total costs by about EUR 50 million.
Currency effects
A large percentage of the Group's products are sold in markets other than those
in which they are produced, resulting in a currency risk. The distribution of
sales and operating costs, by currency, is shown in the table below.
Sensitivity analysis, EBIT impact
Change +/- 5%
EUR million Price Volume
Magazine paper 100 50
Newsprint 80 40
Fine paper 120 50
Packaging boards 130 60
Sawn timber 60 10
Currency effects
Sales Operating costs
EUR million Amount % Amount %
EUR 5,800 55 2,800 58
SEK 900 8 900 19
GBP 1,300 12 100 2
USD 1,700 16 700 14
CAD 100 1 200 4
Other 800 8 100 3
Transaction risk is the risk that Stora Enso's profit could be affected as a
result of foreign exchange movements. Stora Enso hedges up to six months of its
currency flows outside the Euro area, with the exceptions of the British pound
and the U.S. dollar. These exceptions constitute a substantial exposure for the
Group and may accordingly be hedged for a period covering up to 12 months of
flows. The table below shows the hedges in effect at year-end 1999 and how they
apply over time.
Currency hedges as of 31 December 1999
Amount hedged
Less than
Currency Total 6 months 6-12 months
EUR 9.8 9.8 0.0
SEK 1.2 1.0 0.2
GBP 453.4 317.4 136.0
USD 519.8 293.8 226.0
CAD 3.7 2.1 1.6
AUD 9.3 7.7 1.6
CHF 3.8 1.9 1.9
DKK 4.8 4.4 0.4
JPY 15.6 8.2 7.4
NOK 4.8 4.8 0.0
Total 1,026.2 651.1 375.1
Breakdown of operating capital
Operating Net interest-
capital bearing liabilities
EUR million 1999 1998 1999 1998
EUR 7,327.6 7,387.2 1,896.5 2,757.2
SEK 4,877.4 4,259.6 2,660.7 2,358.6
USD/CAD 689.6 545.0 810.2 687.6
CNY 205.3 159.7 0.0 0.0
GBP 98.4 119.5 14.1 - 42.0
Other 155.2 395.6 142.1 21.2
Total 13,353.4 12,866.5 5,523.6 5,782.6
Translation risk is the risk that the value of Stora Enso's net assets
(shareholders' equity) will change as a result of changes in foreign exchange
rates.
To minimise this risk, borrowing in each Group subsidiary is conducted,
whenever possible, in the pertinent local currency. Net assets are not hedged
since the greater part of these is within the euro area.
Euro - a new currency
The Group's accounting and reporting have been denominated in euros since 1
January 1999. Among Stora Enso's customers, the euro is being used as a trading
currency mainly by large multinational companies.
The cost of the changeover to the euro has been limited.
Other risks
Fire, accident, plant failure, transport problems, etc. can lead to disruptions
and losses. Routines to identify risks and measures to minimise or avoid them
have been drawn up within the risk-management area.
Most of the Group's operating capital consists of fixed assets. Future
technological development can affect the future value of such plants. Trends
which affect the consumption of paper and board are also of major importance.
The Group has substantial research and development resources with which to
monitor and study such trends.
The Group's customer credits are self-financed and, consequently, non-payments
result in losses. To minimise this risk, credit controls are applied and
customers' financial positions are monitored on an ongoing basis. Internal
credit ratings are drawn up for all customers.
The ability of suppliers to fulfil their quality, environmental compatibility
and delivery time commitments is of major importance to the efficiency of the
Group's production and its investments. To ensure compliance with these
requirements, checks and evaluations of suppliers, their products,
transportation methods and other services are conducted on an ongoing basis.
IT systems are crucial to most of the Group's routines and processes. Major
security programmes are conducted on a continuous basis throughout the Group in
order to assure optimal IT support. Advanced technology and methods are used to
adapt to the latest developments within the IT area. The roll-out of a new
order-handling system, one of whose objectives is to simplify sales management,
is currently under way. Projects designed to further adapt Stora Enso's routines
to electronic trading have been initiated.
The Group project involving adaptation to the new millennium was successful.
No problems arose at the turn of the year. Certain plans remain in effect to
correctany delayed consequences of the changeover.
Information technology can also affect the trend in sales of Group products.
For example, electronic trading via the Internet can involve changes in the
consumption of certain types of paper. The new technology is being monitored by
project groups established specifically for such matters.
Financing and financing costs
To minimise the risk of refinancing the loan portfolio and to be able to raise
new loans at reasonable interest rates, Stora Enso has contractual credit
commitments. These credits cover planned requirements as well as borrowing via
all outstanding commercial paper.
The average term of outstanding loans and credit commitments should be at
least three to five years. The Group's objective is to extend these terms to
between seven and ten years. Another objective is to diversify the sources of
borrowing and to use the debt capital market to a greater extent for financing.
At the present time the average term of loans in Stora Enso's portfolio is
approximately four years.
To reduce the risk that reduced the return on capital employed cannot be
offset by reduced interest expense to finance the capital, the Group strives to
have short fixed-interest-rate periods. Interest rate trends tend to follow the
economic cycle. The objective is to have between 60% and 80% of the loan
portfolio with fixed-interest-rate periods shorter than one year. At present,
29% of Stora Enso's loan portfolio has short fixed-interest-rate periods.
Credit-rating institutions issue ratings that support and facilitate
evaluation of the company by external lenders. On 4 February 1999 Moody's
Investors Services awarded Stora Enso a rating of Baa1 for long-term borrowing,
and P-2 for short-term borrowing. On 4 March 1999, Standard & Poor's rated Stora
Enso BBB+ for long-term borrowing and A-2/K-2 for short-term borrowing by the
Group's internal finance company. The outlook for the continuation of the
ratings from both credit institutions was judged to be stable.
Capital expenditure
The Group's objective to keep capital expenditure below the level of
depreciation, was met during the year. Capital expenditure amounted to EUR 740
million (depreciation 885). The distribution of investments by product area in
recent years is shown in the table below.
The largest individual investments - and growth projects - in recent years
have involved new paper machines in Oulu, Finland, and Port Hawkesbury, Canada,
and a new board machine in Skoghall, Sweden. The greater part pertain to
projects designed to increase productivity and improve quality. The major
capital expenditure projects are explained in the divisional descriptions.
Capital expenditure by product area
EUR million 1997 1998 1999
Magazine paper 323 220 102
Newsprint 98 104 72
Fine paper 282 130 113
Packaging boards 215 212 233
Merchants 10 12 7
Timber products 20 34 51
Market pulp 108 96 103
Forest 21 22 14
Energy 20 19 11
Other 37 47 34
Total 1,134 896 740
Depreciation according to plan 816 891* 885
* Excluding EUR 260 million non-recurring write-downs.
Key Figures 1995-1999
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
EUR million 1999 1998 1997 1996 1995
Sales 10,636 10,490 9,998 9,510 10,583
Change on previous year % 1.4 4.9 5.1 - 10.1 10.8
Exports and foreign operations % 93.1 93.3 92.8 92.4 92.6
Wages, salaries and statutory
employer's contributions 1,754 1,805 1,737 1,688 1,660
as % of sales % 16.5 17.2 17.4 17.8 15.7
Depreciation and value adjustments 885 1,151 830 767 721
Operating profit 1,418 719 916 843 1,796
as % of sales % 13.3 6.9 9.2 8.9 17.0
Operating profit before
non-recurring items 1,315 1,190 968 847 1,765
as % of sales % 12.4 11.3 9.7 8.9 16.7
Financial income and expenses 267 379 280 280 395
as % of sales % 2.5 3.6 2.8 2.9 3.7
Exchange rate differences 32 - 30 23 - 2 - 20
Profit after financial items 1,151 339 636 563 1,401
as % of sales % 10.8 3.2 6.4 5.9 13.2
Taxes 394 148 206 183 361
Profit for the period 752 191 409 369 1,007
Distribution of dividend * 304 268 254 231 176
Capital expenditure 740 896 1,134 1,364 894
as % of sales % 7.0 8.5 11.3 14.3 8.4
R&D expenditure 84 80 79 72 68
as % of sales % 0.8 0.8 0.8 0.8 0.6
Fixed assets 11,901 11,695 11,864 11,034 10,634
Current assets 4,133 3,718 3,690 3,535 4,030
Assets total 16,034 15,413 15,554 14,569 14,664
Shareholders' equity 5,953 5,226 5,513 5,285 5,058
Minority interests 202 279 272 196 190
EUR million 1999 1998 1997 1996 1995
Interest-bearing liabilities 6,345 6,557 6,565 6,166 6,266
Operating liabilities 1,781 1,799 1,691 1,538 1,644
Tax liabilities 1,753 1,523 1,512 1,384 1,506
Equity and liabilities total 16,034 15,413 15,554 14,569 14,664
Capital employed at year-end 11,679 11,365 11,875 11,015 10,667
Operating capital at year-end 13,353 12,866 13,375 12,384 12,156
Interest-bearing net liabilities 5,524 5,820 6,090 5,534 5,419
Return on capital employed (ROCE) % 12.3 6.2 8.0 7.8 17.2
Return on capital employed (ROCE)
before non-recurring items % 11.4 10.2 8.5 7.8 16.9
Return on equity (ROE) % 12.9 **3.4 7.6 7.1 22.1
Equity ratio % 38.4 36.0 37.2 37.6 35.8
Debt/equity ratio 0.90 1.05 1.05 1.01 1.03
Average number of employees 40,226 40,987 40,301 41,810 44,917
*Year 1999 dividend is the Board of Directors' proposal to the Annual General Meeting
Year 1997, 1996 and 1995 figures are total sums of Enso Oyj's and Stora
Kopparbergs Bergslags AB's dividends ** 1998 adjusted 10.6
Sales by product area, per quarter
Sales 1998, EUR million I /98 II/ 98 III/ 98 IV/ 98 1998
Magazine paper 420.8 448.1 474.4 508.5 1,851.8
Newsprint 409.7 411.4 439.0 433.6 1,693.7
Fine paper 549.0 494.7 478.3 481.8 2,003.8
Packaging boards 638.3 642.8 576.6 539.2 2,396.9
Merchants 227.3 208.5 190.6 203.9 830.3
Timber products 167.3 183.7 169.6 213.3 733.9
Market pulp 238.3 230.6 202.2 175.5 846.6
Forest 443.2 414.7 386.9 401.0 1,645.8
Other - 568.1 - 530.2 - 518.2 - 488.2 - 2,104.7
Continuing operations total 2,525.8 2,504.3 2,399.4 2,468.6 9,898.1
Divested units 107.4 100.1 94.7 97.2 399.4
Discontinuing operations, Energy 145.5 113.6 106.1 116.0 481.2
Internal sales, Energy - 85.5 - 69.7 - 62.4 - 71.5 - 289.1
Total 2,693.2 2,648.3 2,537.8 2,610.3 10,489.6
Magazine paper 436.5 482.0 493.6 538.3 1,950.4
Newsprint 410.6 389.1 410.5 431.6 1,641.8
Fine paper 525.8 518.5 522.5 596.4 2,163.2
Packaging boards 564.8 595.4 576.9 604.4 2,341.5
Merchants 205.7 192.8 181.7 207.0 787.2
Timber products 247.8 306.3 294.6 291.3 1,140.0
Market pulp 208.3 223.8 253.2 272.5 957.8
Forest 423.1 407.3 372.7 427.2 1,630.3
Other - 482.5 - 448.3 - 503.6 - 719.5 - 2,153.9
Continuing operations total 2,540.1 2,666.9 2,602.1 2,649.2 10,458.3
Divested units 24.7 24.7
Discontinuing operations, Energy 150.5 117.9 100.9 136.7 506.0
Internal sales, Energy - 100.6 - 79.3 - 78.7 - 94.7 - 353.3
Total 2,614.7 2,705.5 2,624.3 2,691.2 10,635.7
Operating profit by product area, per quarter
Operating profit 1998, EUR million I/ 98 II/ 98 III/ 98 IV/ 98 1998
Magazine paper 63.9 51.2 80.7 80.5 276.3
Newsprint 63.6 67.2 97.0 75.1 302.9
Fine paper 70.5 52.1 38.5 30.5 191.6
Packaging boards 74.5 61.7 65.0 8.1 209.3
Merchants 3.3 - 0.7 0.0 -0.6 2.0
Timber products - 2.2 2.5 5.4 5.4 11.1
Market pulp 8.8 14.2 7.4 - 20.7 9.7
Forest 28.8 27.4 23.6 31.2 111.0
Other - 10.7 - 3.8 - 7.8 - 10.1 - 32.4
Continuing operations total 300.5 271.8 309.8 199.4 1,081.5
Divested units 3.9 0.2 - 7.2 - 3.3 - 6.4
Discontinuing operations, Energy 37.4 26.5 19.9 30.7 114.5
Merger costs and restructuring provisions - 447.0 - 447.0
Items affecting comparability 17.4 - 41.4 - 24.0
Total 341.8 315.9 322.5 - 261.6 718.6
Operating profit 1999, EUR million I/ 99 II/ 99 III/ 99 IV/ 99 1999
Magazine paper 59.3 73.4 78.7 76.3 287.7
Newsprint 73.6 62.0 86.6 76.9 299.1
Fine paper 41.6 40.9 44.0 68.7 195.2
Packaging boards 46.8 42.4 54.7 44.0 187.9
Merchants 0.5 - 0.9 0.5 1.0 1.1
Timber products 5.0 14.5 10.4 10.3 40.2
Market pulp - 4.1 12.5 36.8 49.7 94.9
Forest 25.8 35.9 33.6 45.8 141.1
Other - 6.0 - 3.4 - 22.1 - 1.3 - 32.8
Continuing operations total 242.5 277.3 323.2 371.4 1,214.4
Divested units - 1.6 - 1.6
Discontinuing operations, Energy 40.0 22.1 12.3 28.3 102.7
Merger costs and restructuring provisions
Items affecting comparability 24.5 0.0 0.0 78.1 102.6
Total 305.4 299.4 335.5 477.8 1418.1
Deliveries by product area, per quarter
Deliveries 1998, 1000 tn I/ 98 II/ 98 III/ 98 IV/ 98 1998
Magazine paper 579 615 659 708 2,560
Newsprint 755 743 802 786 3,086
Fine paper 701 684 647 710 2,743
Packaging boards 808 824 755 743 3,130
Specialty papers 60 59 60 61 239
Total 2,902 2,925 2,923 3,008 11,758
Timber products, 1000 m3 622 688 580 874 2,764
Market pulp, 1000 tonnes 517 480 495 472 1,964
Corrugated board, mill. m2 86 90 81 82 339
Deliveries 1999, 1000 tn I/ 99 II/ 99 III/ 99 IV/ 99 1999
Magazine paper 616 674 702 765 2,756
Newsprint 779 744 787 812 3,122
Fine paper 740 719 693 760 2,912
Packaging boards 782 824 804 787 3,196
Specialty papers 10 10
Total 2,927 2,961 2,985 3,123 11,995
Timber products, 1000 m3 1,035 1,240 1,131 1,231 4,637
Market pulp, 1000 tonnes 531 487 505 479 2,001
Corrugated board, mill. m2 87 80 87 102 355
</TABLE>
<PAGE>
Magazine paper
Stora Enso's strategy is to focus on present paper grades and to develop the
value-added products on its main markets in Europe and North America. The key
strategic approach is to be the preferred supplier for customers by offering
best product quality and optimum service. The objective is to enhance cost
competitiveness and to further optimise the asset structure. Growth
opportunities are seen mainly in Europe and North America.
Key factors in 1999
o A single well performing new organisation was established
o Productivity and quality improved at Port Hawkesbury
o Rebuilds in Maxau and Kabel strengthened competitiveness
Market
Due to advantageous general economic conditions in Western Europe and North
America, demand for printed advertising and thus for magazine paper grades was
quite good in the period under review. The SC paper market developed very
favourably throughout the year. Demand increased by 5% in Europe and North
America. Whereas prices remained stable in Europe, a slight drop was experienced
in North America. Demand for LWC was weak in the first half of year but
recovered after the summer and was particularly strong in the fourth quarter.
Market growth amounted to 2% in Europe and was unchanged in North America
compared to the previous year. Prices declined 4% and 7% respectively. LWC
sector suffered somewhat from the narrow price difference between LWC, SC and
fine paper.
In 1999 some 400,000 tonnes of new uncoated/coated capacity came on stream,
mainly through the upgrading of production.
Performance and synergies
Sales rose by 5% to EUR 1,950.4 million, due to higher deliveries especially
from Port Hawkesbury. Operating profit was EUR 287.7 million, 4% higher than in
the previous year. Return on operating capital (ROOC) was 13.9%.
Port Hawkesbury's SC paper machine produced SC A quality for the North
American market. In August there was a rebuild of supercalenders and the TMP
line which further stabilised and improved the product quality.
The cost structure remained almost unchanged from the previous year. The
increase in the price of pulp affected operating profit by 5% including currency
effects but was partly compensated by cost reductions in other areas.
Synergies exceeded expectations and amounted to EUR 19 million. Magazine paper
synergies accounted for 17% of total synergies and consisted mainly of economies
of scale in purchasing and applying best practises at the mills.
Deliveries
Coated magazine paper deliveries amounted to 1,540,000 tonnes, up 3% on the
previous year. Uncoated magazine paper deliveries were 1,116,000 tonnes, up 15%.
The European mills operated at 94% of capacity.
New projects and structural changes
Capital expenditure totalled EUR 102 million. During 1999 major items included
rebuilds at Maxau's paper machine no. 8 (EUR 34 million) and Kabel's paper
machine no. 5 (EUR 15 million) in order to improve productivity and quality.
Outlook for 2000
The market environment is expected to remain healthy due to the current good
economic climate. Consequently, demand will remain high and prices are expected
to stay more or less stable at fourth quarter 1999 levels. New capacities in the
SC and LWC segments are not expected to have a significant impact on the market
balance in 2000.
Magazine paper - facts and figures
Key figures 1998 1999
Sales, EUR million 1,851.8 1,950.4
Operating profit, EUR million 276.3 287.7
Operating profit, % 14.9 14.8
Operating capital, EUR million 2,025.2 2,125.5
Return on operating capital, % 14.2 13.9
Capital expenditure, EUR million 219.9 102.2
Average number of employees 4,887 4,745
Deliveries Capacity
1 000 tonnes 1998 1999 2000
SC, MF 919 1,116 1,320
LWC, MWC, HWC, MFC 1,594 1,593 1,805
Wallpaper base 47 48 50
Total 2,560 2,756 3,175
Magazine paper price trend in Germany
[Graph appears with horizontal axis indicating calendar years 1995, 1996, 1997,
1998 and 1999 and vertical axis indicating amounts (in German marks). Two lines,
indicated by different colors, appear on the graph. One line indicates trend for
LWC Offset 60g and the other indicates trend for SC roto 60g.]
Source: PPI
World's largest magazine paper producers, coated
[Bar Graph appears containing coated paper production capacity information (in
tonnes) for the following companies: UPM-Kymmene, Stora Enso, Consolidated
Papers, Burgo, Champion International, Oji Paper, Myllykoski, Haindl, Norske
Skog andAbitibi Consolidated.]
Source: Jaakko Poyry
World's largest magazine paper producers, uncoated
[Bar Graph appears containing uncoated paper production capacity information (in
tonnes) for the following companies: Stora Enso, UPM-Kymmene, Abitibi
Consolidated, Myllykoski, Norske Skog, Haindl Paper, Consolidated Papers, Oji
Paper, Burgo and Champion International.]
Source: Jaakko Poyry
Share of Group's sales
[Pie Chart appears indicating that share of Group's sales is 17%.]
Share of Group's
operating profit
[Pie Chart appears indicating that share of Group's operating profit is 21%.]
Sales by market
[Pie Chart appears containing the following information:
Northern Europe 16%
Continental Europe 65%
North America 14%
Others 5%]
Newsprint
Stora Enso's strategy is to optimise the utilisation of natural characteristics
of the fibre raw materials - to use virgin fibre for products where this creates
more value through its special properties and recovered fibre for standard
newsprint. The market trend is towards more customised, various types of
newsprint speciality grades. Growth opportunities are seen in Europe and North
America.
Key factors in 1999
o Improved productivity offset the slight decline in prices
o An increase was seen in speciality grade volumes
Market
The European newsprint market in 1999 was characterised by good demand and
fairly stable prices. Demand in Europe rose by approximately 4%. Prices dropped
slightly at the beginning of year but remained stable thereafter. Canadian
exports to Europe amounted to 750,000 tonnes, 24% above the 1998 level.
The North American market was more volatile. Over-supply caused prices to
weaken gradually until summer after which the market began to strengthen. Demand
grew by 2% thanks to the increased volume of advertising.
In Asia consumption growth was particularly strong in countries which had been
the most severely hit by the 1997-1998 recession. In consequence exports from
Asia decreased and imports increased towards the end of the year.
Capacity increased only marginally during the year. In Europe two newsprint
machines were started up and at the same time capacity was upgraded into more
value-added products.
Performance and synergies
Sales fell by 3% to EUR 1,641.8 million due to small price decreases at the
beginning of the year. Operating profit was EUR 299.1 million, being on the same
level as in 1998. Improved productivity compensated the decline in prices. The
return on operating capital (ROOC) was 19.9%.
The cost structure remained unchanged from the previous year except for
recycled paper, the average market price of which rose by over 20% compared to
1998. The deregulation of the electricity market reduced prices in continental
Europe, particularly in Germany.
Synergies accrued as planned and amounted to EUR 10 million after the first
year. Newsprint synergies accounted for 9% of total synergies and consisted
mainly of switching production between mills. Synergies are being realised
according to plan.
Deliveries
As a result of healthy demand in Europe newsprint deliveries were approximately
the same as in the previous year, amounting to 3,122,000 tonnes. Mills operated
at 95% of capacity.
New projects and structural changes
Capital expenditure totalled EUR 72 million. Major projects included a new soft
calander at the Varkaus paper machine no. 2 which improved directory paper
quality. Investments in Hylte and Kvarnsveden (EUR 10 million) will start to
rationalise the logistic chain later this year. During 1999 major projects
decided included the Anjala mechanical pulp bleaching project (EUR 8 million),
the de-bottlenecking of the Anjala paper machine no. 1 and Langerbrugge paper
machine no. 3 (altogether EUR 15 million) which will enhance production by
almost 30,000 t/a. In addition, a decision was taken to improve wastewater
treatment at Hylte mill (EUR 28 million).
Outlook for 2000
The good demand/supply balance in Europe is expected to continue. Some new
newsprint capacity will come on stream but at the same time switches to more
value-added grades will take place. In consequence newsprint capacity in Europe
is expected to rise by approximately 1%. Driven by economic growth and the
growth of advertising, newsprint consumption is expected to increase by some 2%.
Growing local consumption in Asia will increase domestic deliveries and offer
export possibilities for other producers. Additionally, in North America machine
closures will improve the demand/supply balance.
Newsprint - facts and figures
Key figures 1998 1999
Sales, EUR million 1,693.7 1,641.8
Operating profit, EUR million 302.9 299.1
Operating profit, % 17.9 18.2
Operating capital, EUR million 1,547.2 1,454.8
Return on operating capital, % 19.4 19.9
Capital expenditure, EUR million 103.8 72.3
Average number of employees 5,651 5,564
Deliveries Capacity
1 000 tonnes 1998 1999 2000
Newsprint 3,086 3,122 3,295
Newsprint price trend in Germany
[Graph appears with horizontal axis indicating calendar years 1995, 1996, 1997,
1998 and 1999 and vertical axis indicating amounts (in German marks). The line
on the graph indicates price trend for Newsprint 45g.]
Source: PPI
World's largest newsprint producers
[Bar Graph appears containing production capacity information (in tonnes) for
newsprint for the following companies: Abitibi Consolidated, Stora Enso,
Bowater, Donohue, Norske Skog, Fletcher Challenge, UPM-Kymmene, Nippon Paper
Industries, Haindl Paper and Oji Paper.]
Source: Jaakko Poyry
[Graph appears with horizontal axis indicating calendar years 1995, 1996, 1997,
1998 and 1999 and vertical axis indicating amounts (in German marks per ton).
The line on the graph indicates waste paper price trend.]
Source: CEPI
Share of Group's sales
[Pie Chart appears indicating that share of Group's sales is 14%.]
Share of Group's
operating profit
[Pie Chart appears indicating that share of Group's operating is 22%.]
Sales by market
[Pie Chart appears containing the following information:
Northern Europe 37%
Continental Europe 51%
North America 5%
Others 7%]
Fine paper
Stora Enso's strategy is the profitable manufacture of fine paper for the
graphic industry and for office product distribution chains, using
environmentally accepted primary fibre as a raw material. Growth opportunities
are seen in Europe and in Asia, where Stora Enso is already present in China and
Thailand.
Key factors in 1999
o Developed into strategic fine paper partner
o Growing consumption in Asia
o Strong demand for coated fine paper
Market
The overall market for fine paper was difficult. During the first quarter both
demand and prices were weak. In April demand began to pick up, improving clearly
towards the end of the year with coated fine paper performing better than
uncoated. Prices, however, remained low despite two increases during the autumn.
In Europe, fine paper demand was up by about 6%, in North America by about 3%
and in Asia by 7%. At the year-end, average prices were 8% higher than at the
beginning of the year. Despite the strengthening in demand, prices rose more
slowly in Europe than in Asia and the USA. The positive economic development in
Asia has increased demand, stimulating paper imports and reducing exports to
Europe. In 1999 imports of fine paper, mainly office papers, from Asia to Europe
totalled 250,000 tonnes.
The year saw the start up of 7 new fine paper machines in Asia. In 2000, one
new machine is scheduled to start up in Europe.
Performance and synergies
Sales remained at the previous year's level, totalling EUR 2,163.2 million.
Sales were affected by the disposal of Dalum and Tervakoski assets (EUR 157
million). Operating profit was EUR 195.2 million, 2% higher than in the previous
year due to low prices. Return on operating capital (ROOC) was 8.6%.
The cost structure remained unchanged from the previous year.
Synergies accrued as planned and amounted to EUR 30 million. Fine paper
synergies accounted for 27% of total synergies and consisted mainly of
production streamlining, purchasing and logistics. Synergies are expected to
accelerate provided the favourable market situation continues.
Deliveries
Good demand led to a 6% growth in fine paper deliveries which totalled 2,912,000
tonnes. In accordance with a marketing agreement, Stora Enso sold 110,000 tonnes
of paper from Advance Agro pcl. of Thailand. Mills operated at 95% of capacity.
New projects and structural changes
Capital expenditure totalled EUR 113 million. Major items included rebuilds of
Veitsiluoto paper machine no. 2 (EUR 20 million) and Grycksbo paper machine no.
10 (EUR 24 million) designed to improve quality and increase efficiency.
During the first quarter of 1999 the Dalum mill in Denmark and the Finnish
Tervakoski Oy paper mill were sold resulting in a total capital gain of EUR 25
million.
For more than a year the Chinese Suzhou Papyrus Paper Co. Ltd has been part of
the Group. Due to the intensified transfer of expertise and knowhow production
capacity has risen to 120,000 tonnes. The performance of Advance Agro in
Thailand is gradually improving as a result of the good economic development in
Asia.
Outlook for 2000
In January-February 2000 prices rose by 5-8%. The good performance of fine paper
industry is anticipated to continue.
Fine paper - facts and figures
Key figures 1998 1999
Sales, EUR million 2,003.8 2,163.2
Operating profit, EUR million 191.6 195.2
Operating profit, % 9.6 9.0
Operating capital, EUR million 2,260.0 2,301.0
Return on operating capital, % 8.6 8.6
Capital expenditure, EUR million 127.0 112.9
Average number of employees 7,310 7,565
Deliveries Capacity
1,000 tonnes 1998 1999 2000
Graphic (coated) papers 1,493 1,560 1,815
Office (uncoated) papers 1,250 1,352 1,400
Total 2,743 2,912 3,215
Fine paper price trend in Germany
[GRAPHIC OMITTED]
World's largest fine paper producers, coated
[Bar Graph appears containing fine paper production capacity information (in
tonnes) for coated paper for the following companies: Sappi, Stora Enso, Asian
Pulp & Paper, Oji Paper, Metsaliitto, Lecta Europe, UPM-Kymmene, Consolidated
Papers and Burgo.]
World's largest fine paper producers, uncoated
[Bar Graph appears containing fine paper production capacity information (in
tonnes) for uncoated paper for the following companies: International Paper,
Georgia-Pacific, Champion International, Stora Enso, Nippon Paper Industries,
UPM-Kymmene, Boise Cascade, Willamette Industries and Weyerhaeuser.]
Share of Group's sales
[Pie Chart appears indicating that share of Group's sales is 19%.]
Share of Group's
operating profit
[Pie Chart appears indicating that share of Group's operating is 14%.]
Sales by market
[Pie Chart appears containing the following information:
Northern Europe 27%
Continental Europe 53%
North America 4%
Others 16%]
Packaging boards
Stora Enso's strategy is to reach a high market share (over 30%) in selected
markets and product segments. Our objective is to reduce the real price for
customers through source reduction and improved productivity. Environmentally
sound processes are a key element in this. Growth will take place mainly within
the existing product portfolio.
Key factors in 1999
o Improved demand and prices
o Growth in Asian consumption
o Introduction of a new customer-oriented organisation
Market
The packaging board market was again difficult since it continued to suffer from
the economic problems in Asia and Russia. Demand for and prices of liquid
packaging board remained stable but demand for folding boxboard (FBB), whiteline
chipboard (WLC) and cupstock was weak as were prices. However, the market began
to pick up towards the year end and price increases were implemented after the
summer.
Demand for corrugated board in Finland and Sweden was good and markets in the
Baltic countries and Russia stabilised. Demand for containerboards was very
strong from summer on and prices were raised. Kraftpaper and coreboard prices
bottomed out and demand was better than during the first half of the year.
Demand and prices for laminating papers remained stable.
Performance and synergies
Weak demand and low prices caused sales to fall by 2% to EUR 2,341.5 million.
Operating profit was EUR 187.9 million, 10% down on the previous year. Return on
operating capital (ROOC) was 8.0%.
The strengthening of Swedish crown somewhat weakened the competitiveness of
the Swedish mills. Synergies amounted to EUR 11 million, 10% of total synergies
and were as planned. The improving market will accelerate synergies in the
coming years.
Deliveries
Board and paper deliveries amounted to 3,196,000 tonnes. Corrugated board
deliveries totalled 355 million m2. The board mills operated at 89% of capacity.
New projects and structural changes
Capital expenditure totalled EUR 233 million. During the year two major
rebuilds were completed: the Fors board machine no. 3 and the Imatra board
machine no. 1. The Gruvon investment in a new recovery boiler proceeded as
planned. In accordance with the Gruvon development plan investments in a new
evaporation plant and the increase of delignification in the pulp mill were
started.
On 26 May the Board of Directors approved the construction of a new fibre line
at the Imatra mill to secure the quality of integrated pulp and board
production. The new line will replace the old fibre line no. 1 built during the
1950s which no longer meets current environmental norms. The investment totals
EUR 365 million.
During the year two other major projects were started: the rebuild of the
board machine no. 4 at Imatra and of the new boiler for the Corenso Varkaus
boardmill. The Varkaus investment will significantly improve the economy of
liquid carton recycling.
In order to increase vertical integration, 72.3% of the Mandriladora Tolosana
S.A core mill in Spain was purchased. In addition, two corrugated board
packaging plants were started up, one in Poland and one in Lithuania. In
October, the pulp line at Baienfurt mill in Germany was shut down. At the year
end Stora Enso Packaging (previously Pakenso) sold its moulded pulp packaging
unit in Varkaus in order to concentrate on corrugated board. According to a
decision taken in January Stora Enso will close down board production (45,000
tonnes) at its Molndal mill in Sweden.
Outlook for 2000
The outlook for the packaging board market is improving thanks to the positive
economic situation. Demand and prices are likely to strengthen in most board
grades.
Packaging boards - facts and figures
Key figures 1998 1999
Sales, EUR million 2,396.9 2,341.5
Operating profit, EUR million 209.3 187.9
Operating profit, % 8.7 8.0
Operating capital, EUR million 2,272.7 2,438.9
Return on operating capital, % 8.8 8.0
Capital expenditure, EUR million 211.7 232.7
Average number of employees 10,189 10,114
Deliveries Capacity
1 000 tonnes 1998 1999 2000
Packaging boards and papers 3,130 3,196 3,585
Packaging boards price trend in Germany
[GRAPHIC OMITTED]
World's largest consumer packaging board producers
[Bar Graph appears containing production capacity information (in tonnes) for
packaging board for the following companies: International Paper, Stora Enso,
Riverwood International, Mayer-Melnhof, Westwaco, Reno De Medici, Asian Pulp &
Paper, Mead, Cascade and Temple-Inland.]
Source: Jaakko Poyry
Share of Group's sales
[Pie Chart appears indicating that share of Group's sales is 21%.]
Share of Group's operating profit
[Pie Chart appears indicating that share of Group's operating is 14%.]
Sales by market
[Pie Chart appears containing the following information:
Northern Europe 33%
Continental Europe 46%
North America 1%
Others 20%]
Timber products
The strategy of Stora Enso's sawn timber business is to profitably support the
Group's fibre strategy and serve customers in selected construction and interior
decoration market segments worldwide. The focus is on economies of scale and
mill-wise specialisation. Growth opportunities are seen mainly in product
specialisation and a higher service level to suit chosen market segments.
Geographically, growth opportunities are in the operating area of Stora Enso's
core divisions and wood procurement.
Key factors in 1999
o Improved world market in the construction industry
o Successful sawmill start-ups and effective capacity utilisation
o Decision to modernise three sawmills in Sweden in 2000-2002
Market
The market was mixed. In Europe demand was relatively good. In the US and Japan
the sawn timber markets were strong throughout the year. Demand for whitewood
and Central European Timber in particular benefited from an active construction
market. Most redwood markets continued to suffer from over-supply and prices
were weak.
Due to improving overseas markets, whitewood prices were 13% and Central
European Timber prices 9% higher than in 1998. Redwood prices were 5% lower.
Redwood prices are expected to recover only slowly.
Performance and synergies
Sales rose by 55% to EUR 1,140.0 million due to strong deliveries and the
acquisition of Holzindustrie Schweighofer. Operating profit was EUR 40.2
million, significantly higher than in the previous year. The return on operating
capital (ROOC) was 9.3%. The result was adversely affected by the weak redwood
market and lower profitability at the Swedish sawmills. Costs rose as a result
of higher wood prices in Finland and Sweden.
Synergy accrual was better than planned, amounting to EUR 23 million after the
first year. Timber synergies accounted for 20% of total synergies and consisted
mainly of streamlining and more efficient utilisation of production capacity,
savings in sales channel costs and improved logistics.
Deliveries
Sawn timber deliveries amounted to 4,637,000 m3, up 68% on the previous year.
Growth was mainly attributable to Holzindustrie Schweighofer's capacity.
New projects and structural changes
Capital expenditure totalled EUR 51 million. Major items included the second
phase of the Tolkkinen sawmill modernisation project (EUR 4 million) and the
finalising of a green-field sawmill investment at Plana in the Czech Republic
(EUR 27 million). In October a decision was taken to modernise the Ala,
Kopparfors and Gruvon sawmills in Sweden (EUR 49 million) in order to improve
productivity and profitability. Modernisation of the Kopparfors and Gruvon mills
is scheduled to take place by the middle of 2001 and of the Ala mill by the end
of 2002.
Outlook for 2000
The favourable economic growth is expected to lead to a worldwide increase in
construction and repair and remodelling activities. This will further strengthen
the outlook for the whitewood and Central European Timber business. The redwood
markets and prices have bottomed out and we expect these to strengthen gradually
during the year.
Timber products - facts and figures
Key figures 1998 1999
Sales, EUR million 733.9 1,140.0
Operating profit, EUR million 11.1 40.2
Operating profit, % 1.5 3.5
Operating capital, EUR million 401.1 460.6
Return on operating capital, % 3.3 9.3
Capital expenditure, EUR million 33.8 51.3
Average number of employees 2,188 3,605
Deliveries Capacity
1,000 m3 1998 1999 2000
Nordic Whitewood 1,392 1,451 1,850
Nordic Redwood 1,292 1,386 1,515
Central European Timber 81 1,800 1,950
Total 2,764 4,637 5,315
World's largest sawn timber producers
[Bar Graph appears containing production capacity information (in cubic meters)
for sawn timber for the following companies: Weyerhaeuser (+MacMillian Bloedel),
Stora Enso, International Paper, Georgia-Pacific, West Frazer Timber, Slocan
Forest Products, Donohue, Finnforest and Sierra Pacific Industries.]
Source: Jaakko Poyry
Price trend of sawn products in Finland
[Graph appears with horizontal axis indicating calendar years 1995, 1996, 1997,
1998 and 1999 and vertical axis indicating amounts (in Finnish markkas, Index
1988=100). Two lines, indicated by different colors, appear on the graph. One
line indicates price trend for Redwood, and the other indicates the price trend
for Whitewood.]
Source: Finnish Forest Industries Federation
Price trend of sawn products in Sweden
[Graph appears with horizontal axis indicating calendar years 1995, 1996, 1997,
1998 and 1999 and vertical axis indicating amounts (in Finnish markkas, Index
1988=100). Two lines, indicated by different colors, appear on the graph. One
line indicates price trend for Redwood, and the other indicates the price trend
for Whitewood.]
Source: Swedish Forest Industries Federation
Share of Group's sales
[Pie Chart appears indicating that share of Group's sales is 10%.]
Share of Group's operating profit
[Pie Chart appears indicating that share of Group's operating is 3%.]
Sales by market
[Pie Chart appears containing the following information:
Northern Europe 28%
Continental Europe 39%
North America 6%
Others 27%]
Merchants
Papyrus' first objective is to establish a market leader position in the Nordic
countries. From this platform, with a common European brand and a market leading
postion in e-commerce, Papyrus will become one of the leading paper merchants in
Europe.
Market and outlook
The European paper merchanting industry recorded a 5% volume growth for the year
under review, recovering strongly during the autumn from a slow start in the
first half of 1999. The markets in Belgium, Denmark and France recorded higher
growth. Development was slower in Sweden and the UK. In Eastern Europe the
situation has improved.
Prices in Europe bottomed in July and increased during the second half of the
year. During 2000 the paper merchanting industry will be fairly strong. The
Central and Eastern European countries are expected to recover and develop
positively.
Prices are expected to be higher during 2000 than during 1999 because of a
more balanced supply and demand situation.
The present consolidation trend will continue. Paper merchants, printer groups
and fine paper producers are all expected to consolidate further.
During 2000 e-commerce sales will start to have an impact on paper merchants,
both as an opportunity for those that are able to trade over the Internet and a
threat from new actors not currently in the business but knowledgeable in
e-commerce or active in related businesses.
Performance and synergies
Sales in 1999 were EUR 787.2 million, down 5%. Operating profit decreased to EUR
1.1 million.
Total synergy benefits for 1999 amounted to EUR 1 million and accrued mainly
from the merging of dual merchant operations in the UK, France and Denmark. The
full synergy benefits of this and the new branding strategy in terms of improved
market response will become apparent during the next three years.
New projects and structural changes
During 1999 Stora Enso Merchants decided to change the name of all its
subsidiaries in Europe and its brand name to Papyrus. The change will be
completed during the first quarter of the year 2000.
At the end of January 2000 Papyrus signed an agreement to acquire Finnish
paper merchant Paperi-Dahlberg Oy and Norwegian paper merchant, Carl Emil A/S.
With the acquisition Papyrus reaches leading position in the Nordic countries.
During the year 2000 all Papyrus Merchants will launch an e-commerce solution
in their respective market, giving Papyrus the market leader position in
e-commerce.
E-commerce in its full extension not only broadens the market presence, making
it easier for the customer to get in contact, but also streamlines the
procurement and distribution processes to a more cost-effective whole. At the
same time it enables Papyrus to start working with its customers on a
person-to-person level instead of through broad scope standardised marketing
activities.
Merchants - facts and figures
Key figures 1998 1999
Sales, EUR million 830.3 787.2
Operating profit, EUR million 2.0 1.1
Operating profit, % 0.2 0.1
Operating capital, EUR million 212.4 187.3
Return on operating capital, % 1.0 0.6
Capital expenditure, EUR million 12.0 6.6
Average number of employees 1,680 1,577
Number of customers buying over
the net from Papyrus Sweden
Number of customers buying over the net from Papyrus Sweden
[Bar Graph appears with the horizontal axis indicating calendar years 1995,
1996, 1997, 1998 and 1999 and vertical axis indicating numbers from 200 to
1,400. The bars indicate number of customers buying over the net from Papyrus
Sweden for each year on the graph.]
Major paper merchants in Europe
[Bar Graph appears containing sales information (in tonnes) for the following
companies: Buhrman, Antalis, MoDo, Igepa, Schneider, Stora Enso, Inapa,
Metsa-Serla, Classens and Papir Union.]
Source: Eugropa and Papyrus
With a total sales volume of 700,000 tonnes in 11 different markets Papyrus is
the sixth biggest group of paper merchants in Europe. The product range consists
to 38% of Stora Enso products.
Market pulp
Stora Enso's strategy is to conduct efficient market pulp business and support
the Group's fibre strategy. The objective is to serve partner customers and
captive users.
Key factors in 1999
o Pulp prices strengthened
o Norscan inventories fell to a low level
o A number of closures of capacity
Market
Norscan inventories at the year-end were 1.2 million tonnes. Inventories were at
a low level due to good paper and board demand and capacity closures of more
than half a million tonnes, mainly in North America. During the year the price
of long-fibre pulp rose by 30% in USD terms and that of short-fibre pulp in
Euros by 61%. Over the year no new mills were started up in the world but major
rebuilds raised long-fibre capacity by 300,000 tonnes late in the year. In 2000,
about 800,000 tonnes of new capacity will come on stream, mainly in Asia.
Performance and synergies
Sales rose by 13% to EUR 957.8 million and operating profit significantly to EUR
94.9 million. The improvement was due to an increase in both prices and
deliveries. Return on operating capital (ROOC) was 8.1%.
Synergies accrued as planned amounting to EUR 9 million and accounting for 8%
of total Group synergies. Synergies consisted mainly of benchmarking and
operational efficiency.
Deliveries
Increased demand led to a 13% increase in market pulp deliveries which totalled
1,251,000 tonnes outside the Group.
New projects and structural changes
Negotiations are continuing to find new industrial partners for the Veracel
project in Brazil. The Indonesian forestation project is on hold due to
political unrest and the search for a new partner has been initiated since the
Indonesian partner Gudang Garam has indicated its willingness to withdraw from
the project.
Outlook for 2000
The current list price for long-fibre pulp is USD 630. The current short-fibre
price is EUR 580. Prices are expected to strengthen during the year due to good
demand.
Market pulp - facts and figures
Key figures 1998 1999
Sales, EUR million 846.6 957.8
Operating profit, EUR million 9.7 94.9
Operating profit, % 1.1 9.9
Operating capital, EUR million 1,153.3 1,178.0
Return on operating capital, % 0.8 8.1
Capital expenditure, EUR million 96.3 103.3
Average number of employees 2,474 2,383
Pulp balance Long Short
1 000 tonnes fiber fiber Fluff Total
Production
Own mills 2,227 1,900 191 4,318
Associated mills (Sunila) 122 0 0 122
Total 2,349 1,900 191 4,440
Deliveries to own mills 1,722 1,467 0 3,189
Deliveries externally 627 433 191 1,251
Purchases 490 260 0 750
Pulp Balance 137 173 191 501
Deliveries Capacity
1 000 tonnes 1998 1999 2000
Short-fibre pulp 791 826 880
Long-fibre pulp 999 983 1,215
Fluff pulp 174 191 180
Total 1,964 2,001 2,410
Forest
Stora Enso Forest is responsible for procuring wood for the Group's Nordic
mills. The aim is the competitive securement of an undisturbed wood supply using
sustainable methods. In future co-ordination in wood procurement practices in
Central-Europe and Nordic countries will be intensified.
o Key factors in 1999
o Wood mill prices fell by 2% on an average
o Wood deliveries remained at the previous year's level
o Felling in the Group's forests increased by 2%
Wood market
The Finnish market
The permit for wood trade negotiations given by The Finnish Competition
Authority expired in spring 1999 and since then wood prices have developed
market-based. The price of pulpwood from privately-owned forests decreased by an
average of 5% over the year. The price of birch pulpwood imported from Russia
fell by 10% at the beginning of March. Supply from privately-owned forests was
weaker than in previous years until October. The deficit was offset by larger
than planned import volumes. Purchases from privately-owned forests reached the
target level in October. Prices remained stable at a lower level towards the end
of the year apart from Finnish spruce sawlogs, the price of which rose by 5%.
The Swedish market
The drop in market prices of some pulpwood assortments, which began in late
1998, continued for spruce mechanical pulpwood and sawmill chips in early 1999.
After the adjustments the price level remained stable throughout the year. For
sawlogs the beginning of 1999 was characterised by a shortage and rising prices.
During the second quarter heavy imports of sawlogs reversed the situation to a
surplus and prices came under pressure. During the second half of the year the
improved market situation stimulated considerable interest in sawlogs, pushing
stumpage prices up.
Performance and synergies
Lower prices caused sales to shrink to EUR 1,630 million. Operating profit
increased by 27% to EUR 141 million. Total forest synergies were EUR 8 million.
Wood deliveries
Total deliveries to mills in Nordic countries were 35.7 million m3 (solid wood
under bark), remaining on the 1998 level. Deliveries of imported wood decreased
by 4% to 8.5 million m3. Felling in Group forests increased by 2% totalling 4.8
million m3. Supply from privately-owned forests was 9.8 million m3, down 5%.
Structural changes
Procurement organisations in the Baltic countries were merged during the year.
Stora Enso Skog AB acquired the majority of shares in Sydved AB in December.
Restructured Finnish regional procurement organisation took place from the
beginning of the year 2000.
Outlook for 2000
Wood resources for the beginning of 2000 are good. Balancing different wood
sources according to market conditions is expected to double synergy benefits on
1999.
Forest - facts and figures
Key figures 1998 1999
Sales, EUR million 1,645.8 1,630.3
Operating profit, EUR million 111.0 141.1
Operating profit, % 6.7 8.7
Operating capital, EUR million 1,408.1 1,346.2
Return on operating capital, % 7.9 10.2
Capital expenditure, EUR million 22.3 13.8
Average number of employees 2,212 2,134
Harvesting/growth in Stora Enso's Nordic forest
m3 fo million 1998 1999
Opening growing stock 231.0 236.0
Net growth 9.7 9.5
Final felling - 4.3 - 4.3
Thinning - 1.5 - 1.5
Tax reassessment/change in land holdings 1.1 - 0.8
Closing growing stock 236.0 238.9
Energy
The strategy is to procure cheap electricity and fuel for the Stora Enso mills
and to maintain and develop environmental and quality activities in energy by
securing a continuous improvement process.
Key factors in 1999
o New deregulated electricity markets in Central Europe
o High volatility in energy prices
o Ongoing divestment of energy production
Market
Stora Enso's electricity consumption during the year under review totalled 20.3
TWh. Furthermore 5.3 TWh of electricity was sold externally. This represented
21% of the total electricity procurement, 25.7 TWh. Electricity consumption
increased by 5.5% from the previous year's level. CHP (combined heat and power)
production of electricity at the plants totalled 7.1 TWh, hydro and nuclear
power production 8.3 TWh. CHP self-sufficiency for the year was 35%. The
self-sufficiency of total power procurement within the company was 85%
(including CHP, hydropower and nuclear).
The Nordic hydropower situation led to higher production than during a normal
year. In the early part of the year exchange prices of electricity were below
the 1998 level but rose during the latter part of the year. The average for the
year as a whole remained below the previous year's level. In Central Europe,
Germany particularly, deregulation of the electricity market led to a
substantial drop in electricity prices for industry. Differences in industrial
electricity prices of Nordic and Central European plants have narrowed
significantly.
Stora Enso's total fuel consumption was 205,943 TJ = 57 TWh, of which bio fuel
accounted for 64%.
During the latter half of the year the price of heavy fuel oil rose sharply
from about USD 10 to USD 25. The increase was reflected in the price of natural
gas which weakened its competitiveness in electricity production particularly in
Central Europe.
Performance and synergies
Sales totalled EUR 506 million, up 5% on the previous year. Operating profit was
EUR 103 million, 10% less than in 1998. This was primarily attributable to the
drop in energy market prices. Synergy benefits totalled EUR 1.8 million and were
according to plan.
New projects and structural changes
During the year a new bio-fuel boiler was taken into use in Pankakoski and the
CHP plant and sludge-drying projects continued in Anjalankoski. The recovery
boiler in Gruvon will come on stream in April 2000. A decision was made to
invest in a multi-fuel boiler in Kvarnsveden. In line with the new company
strategy 150 MW of coal condensing power capacity and the main part of external
electricity sales were sold in Finland with a profit of EUR 48 million. In
January 2000 Stora Enso signed the letter of intent to sell the main part of its
power assets outside mills in Sweden and Finland for EUR 1,850 million. The
closing of the deal is intended to take place this spring after the approval of
the competition authorities.
Energy - facts and figures
Key figures 1998 1999
Sales, EUR million 481.2 506.0
Operating profit, EUR million 114.5 102.7
Operating profit, % 23.8 20.3
Operating capital, EUR million 1,367.6 1,473.3
Return on operating capital, % 8.2 7.3
Capital expenditure, EUR million 19.6 11.4
Average number of employees 209 208
Electricity procurement and consumption in the Group
(TWh) Finland Sweden Other Total
CHP 3.7 1.2 2.2 7.1
Hydropower 1.0 4.0 5.0
Nuclear 1.3 2.0 3.3
Other resources 1.9 (0) 1.9
Total production 7.9 7.2 2.2 17.3
Purchases 1.7 2.8 3.8 8.4
Total procurement 9.6 10.0 6.1 25.7
Stora Enso mill consumption 8.0 6.7 5.6 20.3
External sales 1.6 3.3 0.4 5.3
<PAGE>
Marketing and sales network
The strategy of Stora Enso's marketing and sales network is to secure the
company's leading position as a paper supplier. Stora Enso's most important
market is Europe. Expansion will be concentrated on North America and Asia
Pacific. Stora Enso is a majority owner of a sales force in China, which is
strengthening its presence in Asia.
Stora Enso's global marketing and sales network has an established presence in
all continents with more than 30 sales companies and an additional 15 local
branch offices as well as a number of external agents. Product specialists are
located at the mills to facilitate contacts with customers. Sales companies are
based on commission units representing the product areas of all divisions. To
some degree pulp and sawn timber have their own sales channels.
The total sales volume channelled via sales companies and agents amounts to
around 12 million tonnes. The marketing and sales network is an important Group
asset.
Integration and synergies
Restructuring costs have been lower than estimated and total synergies will be
around EUR 25 million, of which EUR 10 million accrued in 1999. Total synergies
will be reached during the year 2000. Today Stora Enso has 1,000 employees in
the sales network, a reduction of 20% since the end of 1998. The company has
succeeded in retaining its market shares.
Future
The marketing and sales network is responsible for day-today service contacts
with the Group's customers worldwide in all product areas. The marketing and
sales organisation gives the company a strong identity with local market
presence. Stora Enso's objective is to become the preferred supplier and our
customers' first choice. To achieve this Stora Enso will further develop
customer relations. In order to improve customer service logistics, R&D and
technical service will actively work closer together with the market. In the
future Stora Enso must utilise all its potential synergies and possibilities for
further development and improvement. E-commerce is one area that is expanding
and accelerating. We have established an internal team to closely monitor
development in this area as well as to improve ways of communicating with
customers.
Flexibility will be necessary if Stora Enso is to meet the new demands and
challenges which the restructuring and consolidation within the industry and
among customers will bring.
Sales by country, EUR million 1998 1999
Germany 1,827.0 1,825.7
UK 1,436.9 1,321.7
France 1,003.6 974.0
Sweden 881.0 810.5
Finland 726.0 730.2
The Netherlands 555.0 538.8
Italy 432.6 450.7
Spain 400.4 440.0
Belgium 373.9 349.4
Denmark 329.6 286.8
Other EU 321.0 423.0
Total EU 8,287.0 8,150.8
Other Europe 733.9 635.3
North America 445.5 607.4
Asia - Pacific 406.2 773.6
Others 617.0 468.6
Total 10,489.6 10,635.7
Sales by country
[Pie Chart appears containing the following information:
Germany 17%
UK 12%
France 9%
Sweden 8%
Finland 7%
The Netherlands 5%
Italy 4%
North America 6%
Asia-Pacific 7%
Others 24%]
Research and Development
R&D is market driven and governed by business. The core competence and
proprietary knowledge developed in-house facilitates the integration and
optimisation of raw materials, technologies and efficiency for the production of
paper and board materials in customer applications.
To create added value to the customer, in-house R&D resources have focused on
improved functionality, performance and consistency in paper and board grades.
Product development and innovation are linked to the development in process
technology. The objective is gradually to shift the focus forward in the value
chain and at the same time capitalise on the knowledge provided by the research
community.
Basic research is sourced from research institutes and universities. For
technology development we work in partnership with equipment and chemical
suppliers.
In 1999 Stora Enso spent EUR 84 million, 0.8% of sales, on research and
development. Stora Enso has 600 full-time R&D employees, of whom 380 are
employed at the four research centres in Falun, Imatra, Karlstad and Viersen and
220 in the business units. Investment in new facilities and equipment amounted
to EUR 3.5 million.
Magazine paper
The Langerbrugge mill in Belgium has extended its deinked pulp installation and
focused on the further improvement of pulp quality. This has led to the
increased usage of DIP in uncoated supercalendered grades, and improved
runnability and printability at the printing presses.
Coated magazine paper
At the Kabel mill in Germany new grades combining the opacity of traditional
mechanical grades and the brightness of woodfree grades have been developed.
This has been accomplished by utilising new high brightness, high yield pulps
and new coating formulations.
Newsprint
Emphasis has been placed on further improving the printability of heatset and
rotogravure grades as improved newsprint is increasingly used in these grades.
Stora Enso's strong position and experience in digital printing papers has
been exploited to develop paper grades for new applications emerging in the
book-printing markets.
The company has installed the latest technology digital high-speed camera
systems at major newsprint customers in Sweden and England in order to support
them with runnability studies in pressrooms. Combining visual information and
machine signals on web run has helped to reduce web breaks to a very low level.
Fine paper
The Berghuizer mill in the Netherlands has upgraded its product portfolio and
developed a product family based on the 4CC brand to be used in high resolution
copying, colour copying and digital printing. Utilising the Group's digital
printing laboratory at Imatra, the 4CC brand has been further improved to meet
the requirements of all major colour copiers as well as of Xeikon-based digital
printing machines.
The Veitsiluoto paper machine no. 2 was rebuilt to meet the rapidly changing
end-use requirements of office printing (high resolution digital) and copying. A
second generation copy paper has been developed for black-and-white,
complementing the Berghuizer product portfolio.
The Grycksbo paper machine no. 10 was rebuilt with new on-line coaters
utilising new Mirroblades technology and Soft-tip coating blades. This
investment has given a smoother printing surface, improved print quality and
runnability at printers and converters and enhanced Grycksbo's competitiveness
in four-colour segments.
Packaging boards
Ensobarr boards have a high barrier multi-layer extrusion coating structure.
They have been used for various liquid packages since 1994. Ensobarr coatings
have recently been developed also for dry food products to replace cardboard
packages with an inner bag. The first applications for cereal, sugar, spices and
meat products have already been launched by our customers.
Ensoven, ovenable boards based on PET plastic coatings, have proved functional
in an increasing number of packaging solutions. The new ovenable board product
recently launched on the market is a heat sealable and peelable carton lid
applicable for trays. With the lid the tray forms a functional, freezer-to-oven
packaging whole and has opened up a new field of application for the board.
Investment in a new coating section on board machine no. 3 in Fors, Sweden has
enhanced Fors's high quality board market position. The rebuild and development
work have resulted in considerably improved brightness, luminance, smoothness
and printgloss as well as in a reduction in mottling.
Pulp
The reinforcing ability of softwood kraft paper pulps produced by the Enocell
mill in Finland and the Norrsundet mill in Sweden have been improved through
wood selection and process modifications. The new pulp grades are now being
regularly supplied to Stora Enso magazine paper mills, giving lower furnish
costs and improved runnability on the paper machine.
In late October the first digester in the world to utilise Compact Cooking
technology was started-up in Celbi, which produces market pulp from eucalyptus.
The new technology has resulted in a good combination of pulp properties and
yield.
Environmental management
Sustainability is embedded in the business
In spring 1999 Stora Enso adopted its Environmental and Social Responsibility
Policy. This policy emphasises Stora Enso's commitment to developing its
business towards ecological, social and economic sustainability. It notes that
Stora Enso's products are produced mainly from renewable and recyclable raw
materials. The company advocates a holistic approach which recognises life cycle
evaluations as a guiding principle in environmental activities. The target is to
minimise the impact on the environment and safeguard related values over the
long term. The same commitment is expected from suppliers.
In its policy Stora Enso acknowledges its role as a model company which
respects the cultures, customs and values of individuals and groups in countries
in which it operates. Stora Enso will comply with and, when possible, go beyond
the requirements of national standards and legislation.
Stora Enso is also committed to enhancing transparent interaction with all
stakeholders, both governmental and non-governmental.
Integrated management systems encompass sustainability
In Stora Enso environmental matters are a vital and integrated part of strategy
and everyday business. The company underlines this approach by bringing the
different management systems under the same umbrella - Excellence 2005 programme
(see page 39). Social and environmental responsibility is an essential element
in this Total Quality Management tool. The same principles are contained in the
Stora Enso Quality policy which was accepted in November 1999.
TQM encompasses also the environmental management systems which are
implemented in the majority of Stora Enso's business units. These are registered
according to EMAS (EU's Eco Management and Audit Scheme) and/or certified
according to ISO 14001. By the end of 1999 76% of the Group's paper, pulp and
board production capacity was covered by these systems. In addition, all Stora
Enso Timber sawmills in Finland and Sweden were certified by the end of 1999.
Also Stora Enso Metsa was awarded the EMAS trial-certificate. The organisation
is responsible for wood procurement in Finland as well as import of wood from
Russia.
The target is for environmental management systems (EMS) to be applied in all
production units. This will enhance full employee participation, continuous
improvement and transparent interaction with all stakeholders.
At each level of the organisation the operative management is responsible for
environmental work and ensures that this is organised and performed efficiently.
In this task the Group support function, Stora Enso Environment, provides
expertise to the operative management. In addition, according to the principles
of Corporate Governance, a Group-wide Environmental Committee chaired by the
Deputy CEO is responsible for decisions on environmental issues of strategic
significance.
Financial review
In 1999, Stora Enso spent EUR 171 million (EUR 164 million) on environmental
investments and costs. The figure includes capital expenditure as well as
operating and maintenance costs, but excludes interest and depreciation. Total
environmental investments amounted to EUR 55 million, while environmental costs
totalled EUR 116 million.
Major environmentally-related investments decided during 1999 include a
biological wastewater treatment plant in the Skutskar mill (EUR 25 million) as
well as the modification and extension of the wastewater treatment plant in the
Hylte mill (EUR 28 million). The new fibre line in the Imatra mill will reduce
emissions to air and water (EUR 42 million). The new boiler in the Kvarnsveden
mill will reduce both emissions to air and the consumption of fossil fuels (EUR
42 million). The gasification plant in Corenso Varkaus will be able to separate
polyethylene film and aluminium, thus enabling the complete recycling of
beverage cartons (EUR 17 million).
The following units are due to renew their environmental permits in 2000-2002:
Imatra, Corenso Pori, Summa, Varkaus, Kitee, Koski, Kotka, Langerbrugge, Brand
Sawmill, Kemijarvi, Oulu, Enocell, Skoghall, Berghuizer, Reisholz, Skutskar,
Nymolla, Gruvon Sawmill and Celbi. In addition, there are postponed matters in
environmental permits for Fors, Kvarnsveden, Molndal, Norrsundet and Gruvon
Mills, which will be settled in 2000-2003.
Estimates indicate that a total of EUR 48 million will be required to cover
future corporate enviromental liabilities.
Forests
In forestry, environmental activities in 1999 concentrated on developing
environmental management and forest certification. Stora Enso Metsa was awarded
EMAS -trial certification. So far, EMAS has been intended only for industrial
sites but the system is being opened to organisations as well. Stora Enso Metsa
is responsible for wood procurement in Finland and the registration covers
imported wood from Russia also. Under the agreements suppliers commit themselves
to Stora Enso environmental principles. Stora Enso Skog wood procurement in
Sweden will introduce the ISO 14001 / EMAS-certification process during 2000.
Sydved AB, a subsidiary of of Stora Enso has been certified to act as an
umbrella organisation for the FSC-certification of private forest-owners. All
Stora Enso's forest holdings in Sweden have been certified earlier according to
FSC.
In Finland, the implementation of FFCS (Finnish Forest Certification System)
began and the first consignments of certified wood were transported to the Stora
Enso Varkaus mill in November.
The merger of Stora and Enso has enabled the co-ordination of wood transport
in the Baltic Sea region. This has resulted in lower costs and a reduced
environmental burden.
Energy
Within Stora Enso extensive work has been done to increase self-sufficiency
within the mills. One of the most important tools in this work is the Energy
Efficiency Programme. Stora Enso aims at uniform annual energy audits in all
units. By the end of 1999 80% of the Finnish units and almost half of the
Swedish units had been audited. In 2000 audits will begin in mills located in
other countries.
In the Anjalankoski mill a combined heat and power production unit (CHP) will
be taken into production in 2000, which will reduce NOx emissions. Electricity
production capacity will rise by about 280 GWh. Also the thermal treatment plant
for drying bio sludge will be completed in 2000.
In Skutskar a large rebuilding of the whole mill has resulted in the more
efficient use of energy and new effective equipment. The rebuilding has reduced
energy consumption in an amount corresponding to 25,000 m3 of oil equivalents.
The recovery boiler has likewise been rebuilt to reduce emissions of NOx.
Further information on environmental issues will be available in the Group's
Environmental Report.
<TABLE>
<S> <C> <C> <C> <C> <C>
I \ Deliveries \
I \ Market Pulp* 1.3 million tons \
I \ Paper and Board 12 million tons \
Wood 38 Mm3 \ Timber Products 4.6m3 \
- ---------------------------------------- \ Corrugated Board 355 m3 \
\ ------------------------------------------------ \
Purchased pulp 0.7 million tons \ Discharge of water \
- ---------------------------------------- \ COD 172,000 tons \
\ AOX 700 tons \
Recovered paper 1.9 million tons \ Phosphorus 300 tons \
- ---------------------------------------- \ Nitrogen 1,900 tons \
\ ------------------------------------------------ \
Filters 2.4 million tons IN \ \
- ---------------------------------------- / OUT /
Water use 822 Mm3 /Emission to air /
- ---------------------------------------- / CO2 from non-renewable fuels 4,757,000 tons /
/ CO2 from renewable fuels 15,040,000 tons /
Electrical power (external) 14.3 Twh / CO2 total 19,797,000 tons /
- ---------------------------------------- / SO2 15,600 tons /
/ NOx (NO2) 15,800 tons /
Fossis fuel 68,200 Tj / ------------------------------------------------ /
- ---------------------------------------- / /
Bio fuel 7,600 Tj / Waste for landfil 357,000 tons /
- ---------------------------------------- / /
I / /
I / /
I / /
* pulp for external customers
</TABLE>
Improving environmental performance
1999 was a year of improved environmental performance: reductions were achieved
in landfilling (14%), SO2 emissions (71%) and COD discharge (7%). Emissions of
nitrogen and phosphorus per tonne produced were reduced slightly. NOx emissions
were approximately the same as in 1998.
[GRAPHIC OMIITED]
Environmental investments and costs
EUR million 1997 1998 1999
Environment-related investments 89 68 55
Environmental costs 99 96 116
188 164 171
When the mills reported investments and costs for 1998 in January 1999 using the
renewed data retrieval form, the figures deviated from those reported in the
previous report. Investments were EUR 58 million and costs EUR 113 million,
adding up to EUR 171 million.
Glossary
AOX (Adsorbable Organic Halogen)
The AOX content of wastewater indicates the concentration of organic chlorine
present.
CO2 (Carbon dioxide)
Gaseous compound formed during combustion.
COD (Chemical Oxygen Demand)
Chemical oxygen-consuming substances. A measure of the amount of oxygen required
for the total chemical breakdown of organic substances in water.
NOX
General formula for a mixture of nitrogen oxides formed by combustion. One of
the causes of acidity in the environment.
SO2 (Sulphur dioxide)
Sulphur dioxide is formed when sulphur-containing fuels such as oil and coal are
burned. Sulphur dioxide contributes to the acidification of soil and water.
Human resources
Our vision is to create a culture and atmosphere that will enable us to attract,
develop and keep the best people and motivate all our employees to top
performance.
During 1999 the principal task of the Group management was the establishment of
the new organisation, the creation of new guidelines, processes and practices
including the selection of best practices and the best people through a fair
process. Our aim has been to establish a well functioning organisation with a
good working climate that is characterised by a performance-oriented spirit.
Internal attitude surveys
To support the new organisation, a values and attitude survey was carried out in
autumn 1998. This was followed by a broad interview survey at the beginning of
1999. The value and attitude survey was repeated in December 1999. The results
of these surveys show that overall we have been successful in establishing the
new organisation which, compared with other mergers of similar size, has been
introduced successfully in most areas although problems have been experienced in
a few units. General problems identified related to a heavy workload resulting
from numerous task forces and work groups, the integration of different
IT-systems and the head office structure.
Problems related to cultural differences have occurred. The problems have been
identified; we have concentrated on solving them and feel that in this respect
we are on the right track. We consider that the cultural differences between
both the merging companies and those countries in which we have major operations
are of character, that handled in the right way can be a competitive advantage
rather than a problem.
Clear evidence of our success is that during the first 18 months we have lost
only 5% of an identified group of 200 key employees. We have also succeeded in
keeping our market shares in the various product areas.
Performance culture
Stora Enso has high ambitions - to be the world's leading forest products
company. To achieve this target our employees must perform better than those of
our competitors. Thus all employees should be capable of fulfilling the demands
required by his/her position. In turn the company should provide the
prerequisites and support which allow all employees to give their best and
constantly develop their skills.
Corporate culture is the cornerstone of our success and growth. We have
therefore assessed our present strengths and challenges to give us a factual
basis for human resource development. We aim at higher performance through the
continuous development of Stora Enso people. This development is evaluated by
means of our total quality management system (TQM) - Stora Enso Excellence 2005.
The Stora Enso mission, vision and values form the guidelines for the future.
The values were launched in June and by the end of 1999 the majority of the
Group's business units had begun to translate the values into practical
principles of behaviour. In 1999 most of the management level had been involved
in this process.
The performance culture requires well-designed organisation and employees'
willingness to meet short- and long-term objectives set by the Group, divisions
and business units. The challenges we face are the high average age of
personnel, a rather low educational level in many production units and a
traditional organisation.
Well-developed leadership is needed to promote change processes and create a
good working climate. The development of performance culture within the
divisions is also being supported by increased emphasis on internal benchmarking
and best practices.
During the year Stora Enso established a European co-operation structure with
employee representatives. Co-operation covers activities at both Group and
divisional level and opens up possibilities for close dialogue between
management and employee representatives.
Personnel satisfaction surveys were widely used at unit level during the year
under review. During 2000 a corporate-wide survey will be introduced, covering
employee well-being, working environment and working climate, management
practices and further development needs.
Key indicators for human resources were established throughout the Group to
allow follow-up and benchmarking within the field. Strategic targets and
operational principles for occupational health and safety were also issued,
together with relevant uniform norms.
Compensation Employees
In 1999 the company ran two different employee compensation systems: in old
STORA units bonuses were based on ROCE targets and called the profit-sharing
scheme and in old Enso units in Finland bonuses were based on company profits
and the achievement of key business targets and called performance-based
bonuses.
From the year 2000 on the company has decided to continue the
performance-based bonus system. Initially the system will cover Finland, Sweden
and a few countries and will later be implemented in all countries.
Implementation of the process will take some time due to local practices and
legislation.
Management
For middle and top management a bonus scheme exists of up to 20 - 40% of salary
depending on the person's position in the company. The bonus is linked to the
corporate ROCE target of 13% and individual business targets.
A decision has also been taken on an annual rolling incentive programme. In
1999 this comprised a share option programme (synthetic options) for about 200
persons in managerial and specialist positions. Participants have been granted
seven-year options, which may be exercised from 15 July 2002. The options are
financially hedged against an increase of the share price and will not dilute
existing shares. Since the programme does not comprise an issue of new shares
the programme decision was taken by the Board of Directors.
The strike price had been decided as the average share price between April and
July plus 10%, EUR 11.75. The share price was at that time at an all time high
and about 50% higher than during the first trading days of 1999.
The disclosure of the programme was informed in connection with the
presentation of Stora Enso's strategy 20 August.
Competence development
Competence development refers to investment in future capabilities to guarantee
improved future performance. Competence development activities are based on
human resources development plans of the various business units, derived from
business strategies, and individual development plans, based on appraisal
discussions.
Thirteen major training programmes were organised, ten as in-house programmes
and three as consortium programmes with other companies. Altogether about 500
persons participated in these programmes. In the in-house management development
programmes, emphasis was placed on intercultural relations, change enablement
and the content as well as the consequences of the mission, vision and values.
Management development programmes cover the entire career of a manager, from
trainee to experienced senior manager. Separate cross-cultural workshops were
conducted to help the integration of the organisation.
At division level both internal and external training was utilised to improve
team-building and networking capabilities, professional skills and the working
climate. Competence levels in recruiting new personnel and in implementing
internal transfers were also raised. Procedures for vocational qualification at
work were widely used to improve the competence level of blue-collar employees.
In Finland, the apprenticeship system was reinforced to train a new young
workforce for the mills.
Attracting top talents
Stora Enso's target is to be the most attractive forest industry employer. New
guidelines for university relations were established. Efforts and activities
towards potential employees more than doubled during the year. The international
trainee programme for newly recruited graduates, started in 1998, was continued.
A Stora Enso career web site was opened. The internal job market (IJM) was
taken into wider use in order to increase employee mobility between units and
divisions.
Facts and figures
Key figures 1998 1999
Average number of employees 40,987 40,226
Sales / employee, EUR 257,863 264,399
Personnel turnover, % * 2.8 1.5
Training days / employee 4.2
* Based on number of outgoing permanent employees who have left the company
voluntarily
<PAGE>
Competence Development Programmes
[GRAPHIC OMIITED]
Average number of employees 1998 1999 %
Finland 15,798 15,116 38
Sweden 11,513 11,285 28
Germany 5,640 4,817 12
France 1,438 1,398 3
Canada 869 712 2
UK 903 859 2
Belgium 688 694 2
Portugal 461 476 1
Spain 382 412 1
Other countries 3,295 4,457 11
Total 40,987 40,226 100
Education Structure
[Pie Chart appears containing the following information:
High school/vocational
school/equivalent 40.5%
Comprehensive school 44%
University degree 6.5%
College/vocational
Institute/equivalent 9%]
<PAGE>
Report on operations by the Board of Directors
Merger process
The merger process has proceeded according to plan. The divisions have worked as
combined entities from the beginning of the year. The marketing network was
successfully consolidated and we have been able to retain our market shares. In
August the Group published its future strategy together with its plan for
incentive schemes and bonus programmes for employees. Synergy benefits during
1999 totalled EUR 113 million, which is more than double the estimate for the
year and means that we have been able to accelerate the process of realising the
total synergies of EUR 300 million. Synergies were greatest in magazine paper,
fine paper and sawn timber. The main synergy sources were purchasing and
logistics, sales and administration as well as production streamlining.
Markets and deliveries
Demand increased clearly on the main West European markets thanks to favourable
economic development. The continuing positive trend on the U.S. market, together
with the improvement in the Asian economy, had a favourable impact on product
demand. Paper and board deliveries totalled 11,995,000 tonnes (11,758,000).
Deliveries of market pulp outside the Group amounted to 1,251,000 tonnes
(1,107,000). Pulp purchases from outside sources amounted to 750,000 tonnes
(732,000). Sawn timber deliveries were 4,637,000 cubic metres (2,764,000).
Sales and financial results
Sales for the year were EUR 10,636 million, up 1.4% on the previous year. Growth
was largely attributable to increased deliveries, particularly from
Holzindustrie Schweighofer AG and the Oulu and Port Hawkesbury mills. The
acquisition of Holzindustrie Schweighofer in December 1998 raised sales by EUR
381 million. Sales were boosted by the rise in prices of pulp and timber whereas
the decline in average prices of fine paper, magazine paper, newsprint and
packaging boards had a contracting impact. The divestment of technical office
paper operations in December 1998 and of the Tervakoski Oy and the Danish Dalum
mills in February 1999 reduced sales by EUR 375 million.
Operating profit for the year was EUR 1,418 million, 13.3% of sales. Operating
profit includes profits from sale of assets and other non-recurring items in a
total of EUR 103 million. Before non-recurring items operating profit was EUR
1,315 million, 12.4% of sales. In 1998 operating profit before non-recurring
items was EUR 1,190 million, 11.3% of sales. The growth in operating profit was
positively affected by the increase in production volumes and deliveries,
synergies and the rise in pulp and sawn timber prices. The efficiency programme
proceeded as planned and about EUR 30 million was realised during the year.
Operating profit includes EUR 49 million from proprietary trading wound up
before the year end and booked as other operations. Profitability was weakened
by the drop in prices and low capacity utilisation resulting from lack of orders
for the Skoghall mill's board machine no. 8. Improved results were reported by
magazine paper, fine paper, sawn timber, pulp and forest product areas and
weaker results by newsprint, packaging boards, merchants and energy.
Profits from sale of assets and other non-recurring items totalling EUR 103
million consist of the sale of Tervakoski Oy's assets and operations (EUR 25
million) and the transaction with Teollisuuden Sahkonmyynti including the sale
of PVO C shares (EUR 48 million). Depreciation includes a EUR 30 million income
item caused by a cumulative change in estimates related to depreciation of
capitalised interests.
Merger and restructuring expenses for the year totalled EUR 85 million and
were covered from provisions made in the 1998 accounts. The main items relate to
the marketing network, merchants, the Molndal board mill and the establishment
of the Falun mine foundation. Remaining provisions for future restructuring
costs amount to EUR 63 million.
Depreciation according to plan was EUR 885 million. In 1998 depreciation was
EUR 1,151 million including a non-recurring write-down on fixed assets and
goodwill items totalling EUR 260 million.
Net interest expenses for the period were EUR 302 million, 2.8% of sales. This
was EUR 49 million less than in the previous year as a result of the drop in
interest rates and decline in net liabilities. Exchange-rate gains for the year
were EUR 32 million against losses of EUR 30 million. Dividend income was EUR 4
million.
Profit before tax and minority interests was EUR 1,151 million, EUR 812
million more than in the previous year. Profit before tax and minority interests
is EUR 329 million higher than the 1998 adjusted profit before tax and minority
interests.
Taxes for the year were EUR 394 million, 34% of the pre-tax profit. The tax
rate for the preceding year is not comparable due to significant non-recurring
items and non-deductible expense items.
Minority interests were EUR 5 million. Profit for the period was EUR 752
million. Earnings per share were EUR 0.99 compared with EUR 0.25 in 1998.
Return on capital employed (ROCE) was 12.3% and return on equity 12.9%. When
compared with the 1998 figures before non-recurring items the figures were 10.2%
and 10.6% respectively.
Fourth quarter result
Sales for the last quarter totalled EUR 2,691 million and operating profit EUR
478 million. Operating profit before non-recurring items was 14.9% of sales. As
a result of higher deliveries and improved prices in pulp, fine paper and
packaging boards, operating profit before non-recurring items was EUR 64 million
higher than that for the third quarter. Profit before tax and minority interests
was EUR 440 million.
Major changes in the Group composition
In February, in line with its business strategy, the Group sold the assets and
business operations of Tervakoski Oy and the Danish Dalum mill. The total sales
price of these transactions amounted to EUR 120 million.
In July, in line with the decision of the EU competition authorities on 25
November 1998, Stora Enso sold its Pure-Pak processing unit to Elopak Oy.
Pursuant to the merger a large number of internal changes have been made in
the Group's legal structure as well as in the names of subsidiaries. Among other
things the German holding companies were merged, as were the various sales
companies in the marketing and sales network.
In December the shares of Stora Enso Timber AB were transferred to the
ownership of Stora Enso Timber Oy. Following the transaction the minority
shareholding in Stora Enso Timber Oy is 26.5 %.
Financing
The cash flow from operations during the year under review was EUR 2,027
million, compared with EUR 2,152 million in 1998. Cash flow less capital
expenditure was EUR 1,425 million, up EUR 516 million on the previous year.
Shareholders' equity at the year end was EUR 5,953 million. Equity per share
was EUR 7.84 an increase of EUR 0.91 on 1998. During the annual conversion
period of A shares to R shares, 6 September to 24 September1999, 2,690 exchange
requests were made pursuant to which 34,443,467 A-shares were exchanged for R
shares. In October 30,000 and in December 246,000 new R shares were subscribed
under the bond loan with warrants issued to the management on 10 April 1997. The
shares subscribed in December (246,000) were registered on 26 January 2000.
Consequently at the year end Stora Enso had 208,951,188 A shares and 550,658,501
R shares. Subsequent to the registration of the new R shares the numbers are
208,951,188 A shares and 550,904,501 R shares. As of 26 January 2000 the share
capital is FIM 7,598,556,890.
The Group's debt/equity ratio at the year end was 0.90, down from 1.05 one
year earlier. Major factors affecting the ratio were profit for the year and the
sale of assets. Interest-bearing net liabilities at the close of the year
totalled EUR 5,524 million, down EUR 296 million on 1998. Translation
differences in consolidation increased equity and minority interests by EUR 184
million and interest-bearing net liabilities by EUR 287 million. Capital
employed averaged EUR 11,522 million, a decrease of EUR 98 million on the
previous year.
No significant debt financing arrangements were made during the year.
Capital expenditure
Capital expenditure amounted to EUR 740 million. The main investments were the
rebuild of the Gruvon recovery boiler (EUR 45 million), the new fibre line at
the Imatra mill (EUR 44 million), the rebuilds of the Maxau magazine paper
machine no. 8 (EUR 34 million), the Grycksbo fine paper machine no. 10 (EUR 24
million), the Veitsiluoto fine paper machine no. 2 (EUR 20 million), board
machine no. 3 at the Fors mill (EUR 14 million) and the new sawmill in Plana
(EUR 27 million).
The Imatra fibre line investment will secure the quality and competitiveness
of integrated pulp and board production. The new line replaces fibre line 1
built during the 1950s which no longer conforms to environmental requirements.
The investment will be implemented over three years and the estimated cost is
EUR 365 million.
In October Stora Enso decided on the modernisation of the Ala, Kopparfors and
Gruvon sawmills in Sweden at a cost of EUR 49 million, the Imatra board machine
no. 4 (EUR 37 million) and the expansion of the Hylte mill's sewage treatment
plant (EUR 28 million).
Negotiations to find a new industrial partner for the Veracel project in
Brazil continue. Stora Enso is prepared to reduce its ownership to 30-35%. Then
Veracel project is part of the Group's fibre strategy to have access to short
fibre pulp for own use.
Research and development
The Group has continued to place emphasis on its R&D work and product
development in all its core businesses. The Group's R&D expenditure amounted to
EUR 84 million (80 million), which is 0.8% of sales.
Personnel
The average number of employees during the year was 40,226, which is 761 fewer
than in 1998. The average number of personnel rose as a result of the Suzhou and
Schweighofer Holtzindustrie acquisitions and decreased as a result of the
divestment of Tervakoski, Dalum and the technical office papers and of other
measures implemented to improve efficiency. At the year end the number of
employees totalled 39,053, down 1,552 on the previous year.
Purchase of remaining STORA shares
In January 1999 Stora Enso initiated the compulsory redemption of STORA shares,
offering to purchase Stora A and B shares at a price per share of SEK 88. During
the year under review 8,231,180 shares were purchased for an aggregate price of
EUR 83 million. At the year end Stora Enso held 98.7% of the shares. The
compulsory redemption procedure has been referred to arbitration and is still
under consideration.
Issues outstanding with the competition authorities
Stora Enso has given its reply to a statement of objection from the European
Commission relating to newsprint producers' operations during 1989-1995. At the
end of September it also gave its response to the Finnish Competition Authority
to a claim of alleged illegal co-operation between forest companies in respect
of wood purchases in Finland. No provision has been made in the accounts in
respect of these.
Turn of the millennium
The turn of the millennium brought no problems for Group operations.
Preparations had been made under the two and a half-year Y2k project, the total
cost of which was approximately EUR 36 million.
Events occurring after the closing of accounts
In January 2000 Stora Enso sold its Stockholm office with a capital gain of EUR
23 million.
Also in January a decision was taken to cease board production at the Molndal
mill in Sweden in April 2000. The board machine's capacity is 45,000 tonnes.
Some 200 people will be affected by the shutdown. Restructuring provisions made
in the 1998 accounts will cover the cost of shutdown.
At the end of January merchant operations signed agreements to acquire the
Finnish paper merchant, Paperi-Dahlberg Oy and the Norwegian paper merchant,
Carl Emil A/S. The deals are expected to be closed at the end of February.
In January 2000 a letter of intent was signed concerning the sale of the major
part of Stora Enso's power assets outside mills in Sweden and Finland for EUR
1,850 million to the Fortum Group or its designates. The capital gain will
amount to EUR 540 million before tax (EUR 425 million after tax). The deal is
scheduled to be closed in the spring after it has been approved by competition
authorities. The number of personnel affected is about 200, all of whom in
Sweden. The agreement does not include the shares in PVO, and Stora Enso will
continue the selling process.
Outlook for 2000
The positive trend in the international economy is expected to continue. This
will have a favourable impact on demand for forest products. Producer pulp
inventories are at their lowest since 1994/95 and demand is lively, giving rise
to expectations of a further strengthening in pulp prices. Good demand for fine
paper is expected to continue and improve prices. Strengthening demand for
packaging board is likewise expected to boost prices of cartonboards, corrugated
boards and containerboards somewhat during the spring. Prices of redwood timber
are at a low and are expected to improve, albeit slowly. Prices of magazine
papers and newsprint are expected to remain stable. We anticipate an improvement
in Group profitability.
Consolidated income statement
(IAS)
EUR mill. Note 1999 1998
Sales 2, 3 10,635.7 10,489.6
Finished and semifinished goods, decrease (-) - 119.4 41.8
Share of profits of associated companies 12 9.7 9.9
Other operating income 5 126.1 44.9
Materials and services - 4,843.3 - 5,033.5
Freights and sales commissions - 993.5 - 1,016.0
Personnel expenses 6, 28 - 1,754.3 - 1,805.2
Depreciation and value adjustments 10 - 885.4 - 1,151.4
Other operating expenses - 757.6 - 861.6
Operating profit 2, 3, 7 1,418.1 718.6
Financing 8 - 266.6 - 379.3
Profit before tax and minority items 1,151.5 339.4
Tax 9 - 394.5 - 148.2
Profit after taxes 757.0 191.2
Minority interests - 4.5 - 0.2
Profit for the period 752.5 191.0
Key Ratios
Earnings per share basic, EUR 29 0.99 0.25
Earnings per share diluted, EUR 0.99 0.25
Consolidated balance sheet
(IAS)
<TABLE>
<S> <C> <C> <C>
Assets EUR mill. Note 31 Dec.1999 31 Dec.1998
Fixed assets and other long-term investments 1, 20
Intangible assets O 60.3 42.0
Goodwill on consolidation O 466.4 540.5
Property, plant and equipment O 10,717.6 10,424.6
Shares, associated companies O 2, 13 165.5 334.1
Shares, other companies O 14 280.4 128.8
Capital investment shares I 15 49.3 48.0
Non-current loan receivables I 19 66.8 90.1
Deferred tax assets T 9 5.9 7.8
Other non-current assets O 88.6 79.2
11,900.8 11,695.1
Current assets
Inventories O 17 1,265.6 1,332.3
Tax assets T 71.9 3.4
Short-term receivables O 18 2,090.4 1,783.4
Short-term investments and receivables I 19 265.9 250.4
Cash and cash equivalents I 19 439.4 348.5
4,133.2 3,718.0
Total assets 16,034.0 15,413.1
Shareholders' equity and Note 31 Dec.1999 31 Dec.1998
liabilities EUR mill. 21
Shareholders' equity
Share capital 1,277.6 1,277.5
Restricted equity 698.2 704.6
Retained earnings 3,224.9 3,093.2
Profit for the period 752.5 191.0
5,953.2 5,266.3
Minority interests 202.0 278.8
Long-term liabilities
Pension provision I 575,5 569.6
Deferred tax liability T 9 1,488.9 1,326.6
Other provisions O 23 186.5 256.0
Long-term debt I 22 3,846.2 4,294.1
Other long-term liabilities O 87.0 90.8
6,184.1 6,537.0
Current liabilities
Current portion of long-term debt I 22 446.7 1,218.4
Short-term borrowings I 22 1,476.6 475.4
Other current liabilities O 23 1,507.8 1,451.7
Tax liability T 263.6 185.5
3,694.7 3,331.0
Total shareholders' equity and liabilities 16,034.0 15,413.1
</TABLE>
Items designated with "O" are included in the operative capital. Items
designated with "I" are included in interest-bearing net liabilites. Items
designated with "T" are included in net tax liability.
<TABLE>
<S> <C> <C> <C> <C>
Consolidated balance sheet
(IAS) Equity reconciliation
EUR mill. 31 Dec.1999 31 Dec.1998
Share capital 1,277.5 1,277.5
Increase 0.1 1,277.6 -- 1,277.5
Share Issue 1.9
Other restricted equity 704.6 736.2
Transfer from non-restricted equity 23.4
Increase 28.6
Translation difference - 8.3 696.3 - 83.6 704.6
Reserve for own shares -- --
Non-restricted equity 3,311.4 3,499.5
Effect of adopting IAS 19 revised - 27.2 - 27.2
Non-restricted equity restated 3,284.2 3,472.3
Dividends paid - 268.3 - 242.6
Share exchange with minority 17.2
Transfer to other restricted equity - 23.4
Translation difference 191.7 - 113.1
Profit for the period 752.5 3,977.4 191.0 3,284.2
Total equity 5,951.2 5,266.3
Distributable funds
Non-restricted equity 3,977.4 3,284.2
Untaxed reserves included in non-restricted equity - 1,387.2 - 935.2
Distributable funds on 31 December 2,590.2 2,349.1
</TABLE>
Consolidated cash flow statement
(IAS)
EUR mill. 1999 1998
Cash flow from operating activites
Operating profits 1,418.1 718.6
Adjustments 778.2 1,147.9
Change in net working capital - 169.7 285.3
Cash flow generated from operations 2,026.6 2,151.8
Net financial items - 263.7 - 379.3
Taxes - 310.9 - 39.1
1,452.0 1,733.4
Cash flow from investing activites
Acquisition of Group companies - 87.1 - 402.8
Acquisition of affiliated companies - 2.7 - 42.4
Investment in other shares - 14.1 - 68.8
Capital expenditures - 740.2 - 896.4
Disposal of Group companies 140.4 128.7
Disposal of affiliated companies 72.0 0.0
Disposal of shares in other companies 1.5 3.7
Sale of fixed assets 38.0 44.5
Changes in long-term operating receivables - 9.4 - 9.1
- 601.6 - 1,242.6
Cash flow from financing activities
Change in long-term liabilities - 602.5 172.8
Change in short term borrowings 81.7 - 143.2
Change in long-term receivables 28.0 - 25.7
Change in short-term receivables 190.1 - 149.3
Dividends paid to shareholders - 268.3 - 237.6
Dividends paid to minority shareholders - 0.5 - 7.1
Proceeds from issuance of share capital 2.0 0.0
Other change in minority interests 0.0 4.2
- 569.5 - 385.9
Net increase in cash and cash equivalents 280.9 104.9
Cash and cash equivalents in sold Group companies 0.0 - 2.9
Translation differences on cash holdings 12.7 - 3.1
Cash and cash equivalents at beginning of period 348.5 249.7
Cash and cash equivalents at end of the period 642.2 348.6
Cash and cash equivalents include:
Bonds and shares 122.8
Short term bank deposits 80.0
Cash in hand and at banks 439.4 348.6
642.2 348.6
Adjustments include: 1999 1998
Depreciation and value adjustments 885.4 1,151.4
Share in profits of associated companies - 9.7 - 9.9
Profits and losses on sale of fixed assets - 97.5 6.4
778.2 1,147.9
Acquisition of Group companies
Cash flow on acquisition
Acquisition price on companies 87.1 411.9
Cash and cash equivalent in acquired companies 0.0 - 9.1
87.1 402.8
Acquired net assets
Operating working capital 1.2 42.3
Operating fixed assets 1.5 598.6
Interest-bearing assets less
cash and cash equivalent 1.3
Tax liabilites - 3.4
Interest-bearing liabilities 1.0 - 183.6
Minority interests 83.4 - 23.8
Equity - 28.6
87.1 402.8
Disposal of Group companies 1999 1998
Cash flow on disposal
Sale consideration from disposal of companies 140.4 128.7
Cash and bank in companies sold 0.0 - 2.9
140.4 125.8
Net assets sold
Operating working capital 27.8 69.1
Operating fixed assets 75.9 154.4
Interest-bearing assets less cash and cash equivalent 0.2
Tax liabilites - 34.5
Interest-bearing liabilities - 45.6
Minority interests - 4.4
Equity (capital gain/loss) 36.7 - 13.4
140.4 125.8
Parent company income statement
(Finnish Accounting Standards)
EUR mill. Note 1999 1998
Sales 1,839.1 1,849.9
Finished and semifinished goods, decrease (-) - 5.4 15.3
Other operating income 31 138.1 71.2
Materials and services - 1,333.3 - 1,361.5
Personnel expenses 32 - 179.2 - 184.4
Depreciation and value adjustments 35 - 74.2 - 69.4
Other operating expenses 33 - 200.5 - 191.1
Operating profit 184.5 130.0
Financing net 34 10.0 - 5.1
Profit before extraordinary items 194.5 124.9
Extraordinary income 321.3 211.0
Extraordinary expenses - 0.5 - 5.0
Profit before adjustments and tax 515.3 330.8
Adjustments - 35.8 49.9
Tax - 138.7 - 107.7
Net profit 340.8 273.0
<TABLE>
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Parent company balance sheet
(Finnish Accounting Standards)
Assets EUR mill. Note 31 Dec.1999 31 Dec.1998
Fixed assets and other long-term investments 36, 37, 42
Intangible assets 16.7 13.3
Property, plant and equipment 1,315.7 1,315.2
Shares, Group companies 27 5,761.8 5,629.8
Shares, associated companies 10.2 251.5
Shares, other companies 311.2 101.5
Capital investment shares 32.5 35.1
Long-term loan receivables 860.9 1,469.7
8,309.1 8,816.1
Current assets
Inventories 39 148.9 163.3
Short-term receivables 40 688.1 469.9
Short-term investments and receivables 41 2,352.8 488.5
Cash and cash equivalents 131.4 20.0
3,321.2 1,141.7
Total assets 11,630.3 9,957.9
Shareholders' equity and liabilities EUR mill. Note 31 Dec.1999 31 Dec.1998
Shareholders' equity 43
Share capital 1,277.6 1,277.5
Share issue 1.9
Restricted equity 4,340.6 4,378.3
Retained earnings 424.9 420.1
Profit for the period 340.8 273.1
6,385.8 6,349.0
Accumulated depreciation difference 36 165.8 130.0
Provisions
Pension provisions 0.0
Other provisions 5.9 6.8
Long-term liabilities 1,531.7 2,074.1
Current liabilities
Current portion of long-term debt 282.2 370.2
Short-term borrowings 44 3,004.0 709.9
Other current liabilities 45 226.0 272.4
Tax liability 29.0 45.4
3,541.1 1,397.9
Total shareholders' equity and liabilities 11,630.3 9,957.9
</TABLE>
Parent company cash flow statement
(Finnish Accounting Standards)
EUR mill. 1999 1998
Cash flow from operating activities
Operating profit 184.5 130.0
Adjustments - 3.3 61.9
Change in net working capital - 250.3 - 2.6
Cash flow from operations - 69.1 189.3
Interest received 92.7 130.6
Interest paid - 153.7 - 162.0
Other financial income and expenses 69.2 28.4
Extraordinary items 320.8 206.0
Income taxes paid - 155.1 - 107.7
Net cash from operating activities 104.8 284.6
Cash flow from investing activities
Acquisition of Group companies - 264.6 - 4,567.8
Acquisition of affiliated companies - 0.2 - 16.3
Investment in other shares - 15.6 - 72.7
Capital expenditures - 80.4 - 71.0
Proceeds from disposal of
shares in Group companies 136.4 0.3
Proceeds from disposal of
shares in affiliated companies 72.2 1.4
Proceeds from disposal of
shares in other companies 5.3 0.3
Proceeds from sale of fixed assets 8.0 9.7
- 138.9 - 4,716.1
Net cash used in investing activities
Change in long-term receivables 613.2 - 299.8
Change in short-term borrowings 2,387.2 182.7
Change in long-term liabilities - 631.4 160.1
Dividends paid - 268.3 - 115.1
Share issue 2.1 4,525.8
Net cash used in financing activities 2,102.9 4,453.7
Net increase (+) / decrease (-)
in cash and cash equivalents 2,068.8 22.1
Cash and cash equivalents at beginning of period 172.9 150.7
Cash and equivalents at end of period 2,241.6 172.9
Adjustments include:
Depreciation 74.2 69.4
Proceeds from sale of fixed assets - 77.5 - 7.5
- 3.3 61.9
Notes to the Financial Statements
Note 1 Accounting principles
Principal activities
Stora Enso Oyj is listed company organised under the laws of the Republic of
Finland. The group is significantly vertically integrated with operations that
are organised through 8 divisions: magazine paper, newsprint, fine paper,
packaging boards, pulp, merchants, timber and Asia Pacific. Corporate support
includes forestry and energy.
The Group's main market is Europe.
Accounting convention
The financial statements of Stora Enso Group and Stora Enso Oyj (the Parent
Company), domiciled in Helsinki, are prepared in accordance and in compliance
with International Accounting Standards (IAS). The financial statements are
prepared under the historical cost convention. They have been modified by the
allocation of surplus values to certain assets in connection with acquisitions.
The financial statements are prepared in Euros.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of incomes and expenses during the reporting period. Actual
results may differ from those estimates.
Principles of consolidation
The Stora Enso Group was formed as a combination of the Groups parented by Enso
Oyj and Stora Kopparbergs Bergslags Aktiebolag (publ). Shareholders of Stora
Kopparbergs Bergslags Aktiebolag (publ) converted 96.1% of their shares into
shares of Enso Oyj. As a result of the merger Stora Kopparbergs Bergslags
Aktiebolag is a subsidiary of Stora Enso Oyj (formerly Enso Oyj).
The Stora Enso merger conforms to the criteria for a pooling of interests
under IAS 22. The historical information of the Stora Enso Group is presented as
if the Group had been operative from the beginning of 1994.
The consolidated financial statements include the parent company, Stora Enso
Oyj, and all companies in which it holds, directly or indirectly, over 50% of
the voting rights. The accounts of certain companies in which Stora Enso holds
less than 50% of the voting rights but significant control are also
consolidated. The most important subsidiaries have been listed in note 27. Some
subsidiaries which have no material bearing on the Group's distributable
shareholders' equity are not included.
Associated companies (voting rights between 20% and 50%) are consolidated
using the equity method. The most important associated companies have been
listed in note 12.
Companies acquired are included in the consolidated financial statements from
the date of their acquisition. Similarly, the result of a Group company divested
during an accounting period is included in the Group accounts only to the date
of disposal.
All inter-company transactions, receivables, liabilities and unrealised
profits, as well as the distribution of profits within the Group, are
eliminated. When necessary, accounting policies for subsidiaries have been
adjusted to ensure consistency with the policies adopted by the Group. Minority
interests have been disclosed separately from shareholders' equity and profit of
each subsidiary and are recorded as a separate deduction in the income statement
and balance sheet.
Acquired companies are consolidated according to the purchase method. Goodwill
represents the excess of the purchase cost over the fair value of assets less
liabilities of the acquired companies. Goodwill is reported using the exchange
rate at the date of the transaction. Goodwill is depreciated on a straight-line
basis over its expected useful life. Useful lives vary from 5-20 years,
depending on the nature of the acquisition. Expected useful lives are reviewed
at each balance sheet date and where these differ from previous estimates,
amortisation periods are adjusted accordingly. When goodwill has been allocated
to fixed assets, it is depreciated in the remaining useful life of such asset.
Goodwill arising from the acquisition of associated companies is also
depreciated in its expected useful life.
Transactions in foreign currencies
Transactions in foreign currencies are recorded at the rates of exchange
prevailing at the dates of transactions. However, for practical reasons, an
approximate is often used for the transactions entered during a month. At the
end of the month, the foreign currency receivables and liabilities in the
balance sheet are valued using the end- of- the -month rate. The foreign
exchange differences of operating business items are entered into the respective
income statement account before operating profit. Foreign exchange differences
on financial assets and liabilities are entered as a net amount in the financial
items of the income statement.
Foreign subsidiaries
The income statements of foreign subsidiaries are translated into Euro using the
average rate for the accounting period. The balance sheets of foreign
subsidiaries are translated using the rate prevailing at the balance sheet day.
Exchange differences related to business operations affect operating profit.
The translation differences arising on elimination of shareholders' equity
have been entered in the balance sheet under shareholders' equity in relation to
distributable and non-distributable shareholders' equity at the date of
acquisition of each company in the Group. Group shareholders' equity contains a
corresponding entry in respect of exchange differences arising on translation of
the value of instruments used to hedge shareholders' equity of foreign
subsidiaries. On the disposal of a foreign group company the cumulative
translation difference is recognised as income or expense in the same period in
which the gain or loss on disposal is entered.
Derivative contracts
Derivative contracts are used to hedge the foreign currency exposure on the
Group's balance sheet receivables and debts and on probable purchasing and sales
contracts. In proprietary operations, derivative contracts were also entered
into for trading purposes. The derivative contracts used to hedge commercial
items are forward exchange agreements, exchange options and cross-currency
swaps.
The business units handle all their foreign currency dealings in conjunction
with Stora Enso Group Bank. Their foreign currency exposure is hedged largely
through forward agreements. Profits and losses are realised as the contracts
mature. The Group Bank calculates the values of all its internal and external
forward agreements using market rates at the balance sheet date.
Premiums on foreign currency options are entered under option premiums as
either premiums paid or premiums received at the date of payment. Profits and
losses are booked on maturity of the agreements and entered as adjustments to
operating income and expenses. The Group Bank calculates the values of all its
option agreements using market rates and capitalises option premiums in the
accounts on a time basis. Options are valued using generally approved
calculation models, and all valuations, together with premiums and
capitalisation, are included in exchange rate differences.
Interest rate flows (interest income and expenses) from swaps are entered
separately and are capitalised at the balance sheet date. Exchange rate
differences are calculated and entered in the accounts in full in the exchange
rate differences account.
Interest rate derivative agreements are used to hedge the Group's interest
rate exposure, and in proprietary operations they were used for trading
purposes. The derivative contracts used for hedging are forward interest rate
agreements, interest rate futures, interest rate options and interest rate swap
agreements.
Hedging is restricted to standardised forward rate agreements, profits and
losses of which are entered as the cash flows are realised. Interest rate flows
are not capitalised in the accounts on a time basis, and income and expenses are
entered in full in the result for the period.
Cash flows from interest rate futures are realised as the agreements mature
or, if the agreement is closed by means of a counter-transaction, before the end
of the agreement period. Interest income and expenses are entered in the
accounts as the cash flows are realised and are not capitalised on a time basis.
Premiums paid on options purchased are entered under short-term interest
expenses. Correspondingly, premiums received on options sold are entered under
short-term interest income. Option premiums are capitalised into interest income
and interest expenses for the period of validity of the agreement. The interest
flows arising on the maturity of agreements are entered in full as income or
expenses for the financial period in question.
Interest flows from interest rate swap agreements are capitalised for the
period of validity of the agreement. In the accounts, interest receivable and
interest payable are capitalised between the interest income and interest
expenses accounts for interest rate derivatives.
Revenue recognition
Sales are recorded upon shipment of products or rendering services to customers
in accordance with agreed terms of sales.
Sales includes the sale of products and services, raw material and energy
supplies, and energy less indirect sales tax, sales discounts and exchange
differences on sales in foreign currencies.
Other operating income includes rental income, subsidies and profit from sale
of fixed assets. Dividends paid by companies considered as financial investment
are recorded in the financial items.
Accounting for the business operations of Stora Enso financial services
Earnings from the business operations of Stora Enso financial services, which
are generated from trading in financial instruments, are reported among other
operating income/expense. Earnings from operations do not include interest on
shareholders' equity or any margins on inter-group lending or forward contracts.
The proprietary operations were wound up in 1999.
Research and development
Research costs are charged as an expense in the income statement in the period
in which they are incurred. Development costs are generally expensed in the
period in which they are incurred. However, development costs which relate to a
defined product which is expected to have future benefits, are recognised as
assets.
Computer software development costs
The development cost or acquisition cost of new software is entered into fixed
assets and depreciated over its useful lifetime. The maintenance of such
software thereafter is expensed as incurred. The charges arising from the
development or adjustment of programmes for the Euro conversion and the
millennium shift are considered as ordinary maintenance and expensed as
incurred.
Environmental remediation costs
Environmental expenditures that pertain to current operations or relate to
future revenues are expensed or capitalised consistent with the Group's
accounting policies. Expenditures that result from remediation of an existing
condition caused by past operations, and do which not contribute to current or
future revenues are expensed. Environmental accruals are recorded based on
current interpretations of environmental laws and regulations when it is
probable that the liability has been incurred and the amount of such liability
can be reasonably estimated. Amounts accrued are not discounted and do not
include third-party recoveries.
Discontinued operations
A discontinued operation results from the sale of an operation that represents a
separate, major line of business of an enterprise and of which the assets, net
profit or losses on operations maybe distinguished physically, operationally and
for financial reporting purposes. The profit effect of discontinued operations
net of tax is disclosed separately.
Extraordinary income and expenses
Virtually all incomes and expenses that affect the Group's net profit derive
from operations within the framework of the Group's normal business. Only in
exceptional cases do events occur which give rise to extraordinary revenue and
expense. Examples of such events are losses arising from earthquakes, war or
confiscation of foreign subsidiaries.
The extraordinary items presented in the income statement of the parent
company are group contributions taken from and given to the parent company's
Finnish subsidiaries. At Group level inter-group contributions received and
given are eliminated.
Income taxes
The Group's taxes include taxes of Group companies based on taxable profit or
proposed dividend for the financial period, together with tax adjustments for
previous periods and the change in deferred tax liability. The tax credits
arising from the distribution of dividends by subsidiaries are deducted from
direct taxes.
Property, plant and equipment
Property, plant and equipment are stated at the original acquisition cost, with
additions/deductions for any allocated goodwill / write-downs less straight line
accumulated depreciation. Construction-time interest expenses related to
qualifying assets, for which a substantial period of time is required before
they are ready for their intended use, are capitalised under property, plant and
equipment. Amortisation of capitalised interest is included in the line
depreciation according to plan. Land includes charges arising from the planting
and care of fast-growing forest holdings outside Finland and Sweden.
Depreciation according to plan is based on the following expected useful lives:
Consolidation goodwill 5-20 years
Buildings
Industrial 10-40 years
hydroelectric power 40-100 years
office & residential 20-50 years
Heavy machinery
Main machines of
pulp or paper mills 20 years
sawmill 12-15 years
Light machinery 10 years
Computer equipment, vehicles, office equipment
and light forestry machinery 4-10 years
Land is not depreciated as it is deemed to have an indefinite life.
Ordinary maintenance and repairs are generally charged to expense during the
financial period in which they are incurred. However, significant renewals and
upgrading are capitalised as other capitalised expenditure and depreciated over
their useful lives. Retirements, sales and disposals of assets are recorded by
removing the acquisition cost and accumulated depreciation from the accounting
records with any resulting gain or loss reflected in the profit and loss
statement.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less cost to sell. As appropriate, fair value of estimates
incorporate adjusted depreciable lives of assets to be disposed of to the extent
that depreciation and other operating costs will be recovered from remaining
operative cash flows.
Impairment
The carrying amounts of assets are reviewed at each balance sheet date to
determine whether there is any indication of impairment. If any such indication
exists, the recoverable amount is estimated as the higher of the net selling
price and the value in use. An impairment loss is recognised whenever the
carrying amount exceeds the recoverable amount.
A previously recognised impairment loss is reversed if there has been a change
in the estimates used to determine the recoverable amount, however not to an
extent higher than the carrying amount that would have been determined had no
impairment loss been recognised in prior years. For goodwill a recognised
impairment loss is not reversed.
Accounting for leases
Leases of property, plant and equipment where the Group assumes substantially
all benefits and risks of ownership are classified as finance leases.
Commodities leased under finance leasing agreements are presented as fixed
assets and the related obligations are presented as interest-bearing
liabilities. The leased assets are depreciated over the useful life of the
assets. Annual leasing payments on finance leases are entered as depreciation
and interest expense.
Leases of assets under which all the risks and benefits of ownership are
retained by the lessor are classified as operating leases. Annual payments on
operating leases and rental agreements are entered as rentals and the
commodities are not entered under fixed assets.
Inventories
Inventories are stated at the lower of cost or net realisable value. Cost is
determined by the first-in, first-out (FIFO) method. The cost of finished goods
and work in progress comprises raw material, direct labour, other direct costs
and related production overheads but exclude interest expenses.
Trade receivables
Trade receivables are carried at anticipated realisable value. An estimate is
made for doubtful receivables based on a review of all outstanding amounts at
year-end. Bad debts are written off during the year in which they are
identified.
Cash and cash equivalents
For the purpose of the cash flow statement, cash and cash equivalents comprise
cash in hand, deposits held at call with banks, and investments in money market
instruments, net of bank overdrafts. In the balance sheet, bank overdrafts are
included in borrowings in current liabilities.
Investments
Investments in marketable securities are carried at the lower of cost and market
value determined on a portfolio basis.
Provisions
Provisions are recognised when the Group has a present obligation as a result of
past events, it is probable that an outflow of resources embodying an economic
benefit will be requested to settle the obligation and a reliable estimate of
the amount of the obligation can be made.
Deferred tax
Deferred tax liabilities and assets are recorded in the consolidated balance
sheet and are calculated from timing differences.
Accumulated depreciation difference and untaxed reserves (appropriations) are
divided into shareholders' equity and deferred tax liability in the consolidated
balance sheet. Under Finland's Companies Act, those portions of untaxed reserves
and accumulated depreciation difference included in the shareholders' equity are
excluded form distributable funds.
Pension schemes
The Group operates a number of defined benefits and defined contribution plans
throughout the world, the assets of which are generally held in separate
trustee-administered funds. The pension plans are generally funded by payments
from employees and by the relevant Group companies, taking into account of the
recommendations of independent qualified actuaries.
For the defined benefit plans, the pension accounting costs are assessed using
the projected unit credit method. Under this method, the cost of providing
pensions is charged to the income statement so as to spread the regular cost
over the service lives of employees in accordance with the advice of qualified
actuaries who carry out a full valuation of the plan every year. The pension
obligation is measured as the present value of estimated future cash outflows
using interest rates of government securities that have terms to maturity
approximating the terms of the related liability. All actuarial gains and losses
are spread forward over the average remaining service lives of employees. In
1999 the Group implemented IAS 19 (revised) Employee Benefits and accounted for
the transitional liability by adjusting the retained earnings at 1 January 1998.
Government grants
Government grants relating to the purchase of property, plant and equipment are
included in non-current liabilities as deferred income. The grants are credited
to the income statement on a straight-line basis over the expected lives of the
related assets.
Dividends
The dividend proposed by the Board is not deducted from the distributable equity
before the shareholders' decision at the Annual General Meeting.
New Accounting Standards
International Accounting Standard IAS 39 Financial Instruments: Recognition and
Measurement was issued in March 1998 and is the first effective for the Group
fiscal year ended 31 December 2001. This standard establishes principles for
recognising information about financial assets and financial liabilities. The
Group has not yet fully evaluated the likely impact of adoption of the standard
on its results of operations, financial position and cash flows.
Notes, EUR million
<TABLE>
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Note 2 Product area information
Operating
Sales 1999 Sales profit
External Intergroup Total 1998 1999 1998
Magazine paper 1,920.7 29.7 1,950.4 1,851.8 287.7 276.3
Newsprint 1,599.0 42.8 1,641.8 1,693.7 299.1 302.9
Fine paper 1,927.9 235.3 2,163.2 2,003.8 195.2 191.6
Packaging boards 2,266.9 74.6 2,341.5 2,396.9 187.9 209.3
Merchants 753.9 33.3 787.2 830.3 1.1 2.0
Timber products 1,044.1 95.9 1,140.0 733.9 40.2 11.1
Market pulp 624.2 333.6 957.8 846.6 94.9 9.7
Forest 226.5 1,403.8 1,630.3 1,645.8 141.1 111.0
Other 95.1 - 2,249.0 - 2,153.9 - 2,104.7 - 32.8 - 32.4
Continuing
operations,
total 10,458.3 0.0 10,458.3 9,898.1 1,214.4 1,081.5
Divested units 24.7 0.0 24.7 399.4 - 1.6 - 6.4
Discontinuing operations,
Energy 152.7 353.3 506.0 481.2 102.7 114.5
Internal sales, Energy 0 - 353.3 - 353.3 - 289.1
Merger costs and
restructuring provisions - 447
Items affecting
comparability 102.6 - 24
Total 10,635.7 0 10,635.7 10,489.6 1,418.1 718.6
Operating Capital Average
capital expenditure personnel
1999 1998 1999 1998 1999 1998
Magazine paper 2,125.5 2,025.2 102.2 219.9 4,745 4,887
Newsprint 1,454.8 1,547.2 72.3 103.8 5,564 5,651
Fine paper 2,301.0 2,260.0 112.9 127.0 7,565 7,310
Packaging boards 2,438.9 2,272.7 232.7 211.7 10,114 10,189
Merchants 187.3 212.4 6.6 12.0 1,577 1,680
Timber products 460.6 401.1 51.3 33.8 3,605 2,188
Market pulp 1,178.0 1,153.3 103.3 96.3 2,383 2,474
Forest 1,346.2 1,408.1 13.8 22.3 2,134 2,212
Other 387.8 127.1 33.3 29.5 2,216 2,387
Continuing
operations,
total 11,880.1 11,407.1 728.4 856.3 39,903 38,978
Divested units 0.0 91.7 0.4 20.5 115 1,800
Discontinuing operations,
Energy 1,473.3 1,367.6 11.4 19.6 208 209
Merger costs and
restructuring provisions
Items affecting
comparability
Total 13,353.4 12,866.4 740.2 896.4 40,226 40,987
</TABLE>
Reconciliations to total assets
1999 1998
Operating capital 13,353.4 12,866.4
Operating liabilities 1,781.4 1,798.5
Interest-bearing receivables 821.4 736.9
Tax receivables 77.8 11.3
Total assets 16,034.0 15,413.1
Capital employed by country at year-ends
1999 1998
Finland 4,291.8 4,422.0
Sweden 3,958.6 3,477.0
Germany 1,205.8 1,502.0
Canada 654.6 529.2
France 333.6 350.5
Portugal 209.6 184.4
China 205.3 178.4
Austria 159.9 81.8
Other 659.4 639.6
11,678.7 11,365.0
Sales by country
1999 1998
Germany 1,825.7 1,827.0
UK 1,321.7 1,436.9
France 974.0 1,003.6
Sweden 810.5 881.0
Finland 730.2 726.0
The Netherlands 538.8 555.0
Italy 450.7 432.6
Belgium 349.4 373.9
Spain 440.0 400.4
Denmark 286.8 329.6
Other EU 423.0 321.0
Total EU 8,150.8 8,287.0
Other Europe 635.3 733.9
North America 607.4 445.5
Asia - Pacific 773.6 406.2
Others 468.6 617.1
Total 10,635.7 10,489.6
Capital expenditure by country
1999 1998
Finland 222.3 190.5
Sweden 290.9 359.4
Germany 86.8 115.5
Canada 6.2 127.5
France 12.5 15.1
Portugal 40.7 20.4
Other 80.8 68.0
740.2 896.4
Total assets by country
1999 1998
Finland 5,603.6 5,563.2
Sweden 5,471.6 4,856.8
Germany 1,929.6 2,111.4
Canada 661.1 551.6
France 485.4 545.4
Portugal 250.9 229.2
Austria 250.6 176.8
China 234.7 213.7
Other 1,146.5 1,165.0
16,034.0 15,413.1
Segment information, continued
Discontinuing operation, Energy
<TABLE>
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Continuing operationsDiscontinuing operations, Energy Group as a Whole
1 Jan.-31 Dec.991 Jan.-31 Dec.981 Jan.-31 Dec.991 Jan.-31 Dec.981 Jan.-31 Dec.991 Jan.-31 Dec.98
Sales 10,129.7 10,017.7 506.0 471.9 10,635.7 10,489.6
Finished and
semifinished goods
decrease (-) - 119.8 42.0 0.5 - 0.2 - 119.4 41.8
Share of profits of
associated companies 9.7 9.9 0.1 0.0 9.7 9.9
Other operating income 77.4 43.3 48.7 1.6 126.1 44.9
Materials and services - 4,582.5 - 5,300.7 - 260.9 - 332.8 - 4,843.3 - 5,633.5
Freights and sales
commissions - 993.5 - 1,016.0 - 993.5 - 1,016.0
Personnel expenses - 1,743.8 - 1,795.3 - 10.4 - 9.9 - 1,754.3 - 1,805.2
Depreciation and value
adjustments - 870.2 - 1,145.7 - 15.2 - 5.7 - 885.4 - 1,151.4
Other operating
expenses - 640.0 - 246.2 - 117.6 - 15.4 - 757.6 - 261.6
Operating profit 1,267.0 609.1 151.1 109.5 1,418.1 718.6
Financing net - 211.1 - 323.9 - 55.5 - 55.4 - 266.6 - 379.2
Profit before tax and
minority items 1,055.9 285.3 95.6 54.1 1,151.5 339.4
Tax - 367.7 - 133.1 - 26.8 - 15.1 - 394.5 - 148.2
Profit after taxes 688.2 152.2 68.8 39.0 757.0 191.2
Minority interests - 4.5 - 0.2 - 4.5 - 0.2
Profit for the period 683.7 152.0 68.8 39.0 752.5 191.0
Fixed assets and other long-term investments
Continuing operationsDiscontinuing operations, Energy Group as a Whole
1 Jan.-31 Dec.991 Jan.-31 Dec.981 Jan.-31 Dec.991 Jan.-31 Dec.981 Jan.-31 Dec.991 Jan.-31 Dec.98
Intangible assets 60.3 42.0 60.3 42.0
Goodwill on consolidation 466.4 540.5 466.4 540.5
Property, plant and equipment 9,451.9 9,248.7 1,265.7 1,175.9 10,717.6 10,424.6
Shares, associated companies 159.6 175.9 5.9 158.2 165.5 334.1
Shares, other companies 96.3 87.7 184.1 41.1 280.4 128.8
Capital investment shares 49.3 48.0 49.3 48.0
Long-term loan receivables 17.4 47.6 49.3 42.5 66.8 90.1
Deferred tax receivable 5.9 7.8 5.9 7.8
Other non-current assets 85.0 77.1 3.7 2.1 88.6 79.2
10,392.1 10,275.3 1,508.7 1,419.8 11,900.8 11,695.1
Current assets
Inventories 1,264.9 1,332.0 0.7 0.3 1,265.6 1,332.3
Tax receivable 71.3 3.4 0.6 71.9 3.4
Short-term receivables 2,031.0 1,722.8 59.5 60.6 2,090.4 1,783.4
Short-term investments
and receivables 160.1 178.6 105.8 71.8 265.9 250.4
Cash and cash equivalents 425.1 340.4 14.3 8.1 439.4 348.5
3,952.3 3,577.2 180.9 140.8 4,133.2 3,718.0
Total assets 14,344.4 13,852.5 1,689.6 1,560.6 16,034.0 15,413.1
Shareholders' equity and liabilities
Continuing operationsDiscontinuing operations, Energy Group as a Whole
1 Jan.-31 Dec.991 Jan.-31 Dec.981 Jan.-31 Dec.991 Jan.-31 Dec.981 Jan.-31 Dec.991 Jan.-31 Dec.98
Shareholders' equity 5,589.5 4,943.7 363.7 322.6 5,953.2 5,266.3
Minority interests 196.1 273.5 5.9 5.3 202.0 278.8
Long-term liabilities
Pension provisions 568.1 562.7 7.4 6.9 575.5 569.6
Deferred tax liability 1,410.7 1,237.4 78.2 89.1 1,488.9 1,326.6
Other provisions 186.5 256.0 186.5 256.0
Long-term debt 2,730.3 3,238.6 1,115.9 1,055.5 3,846.2 4,294.1
Other long-term liabilities 87.0 90.8 87.0 90.8
4,982.7 5,385.4 1,201.5 1,151.5 6,184.1 6,537.0
Current liabilities
Current portion of
long-term debt 440.9 1,217.8 5.8 0.6 446.7 1,218.4
Short-term borrowings 1,413.1 465.4 63.6 10.0 1,476.6 475.4
Other current liabilities 1,461.5 1,381.1 46.3 70.6 1,507.8 1,451.7
Tax liability 260.6 185.5 3.0 263.6 185.5
3,576.1 3,249.8 118.6 81.2 3,694.7 3,331.0
Total shareholders'
equity and liabilities 14,344.4 13,852.5 1,689.6 1,560.6 16,034.0 15,413.1
Cash flow
Continuing operationsDiscontinuing operations, Energy Group as a Whole
1 Jan.-31 Dec.991 Jan.-31 Dec.981 Jan.-31 Dec.991 Jan.-31 Dec.981 Jan.-31 Dec.991 Jan.-31 Dec.98
Cashflow from operating activities
Operating profit 1,267.0 609.1 151.1 109.5 1,418.1 718.6
Adjustments 811.4 1,135.1 - 33.2 12.8 778.2 1,147.9
Change in the working capital - 87.9 294.0 - 81.8 - 8.7 - 169.7 285.3
Cash flow from operations 1,990.5 2,038.2 36.1 113.6 2,026.6 2,151.8
Net financing items - 208.2 - 323.9 - 55.5 - 55.4 - 263.7 - 379.3
Taxes paid - 268.8 - 24.0 - 42.1 - 15.1 - 310.9 - 39.1
Net cash from operating
activities 1,513.5 1,690.3 - 61.5 43.1 1,452.0 1,733.4
Acquisitions - 113.3 - 523.1 - 113.3 - 523.1
Divistments 179.9 176.9 72.0 251.9 176.9
Capital expenditure - 716.6 - 877.9 - 23.6 - 18.5 - 740.2 - 896.4
Net cash flow after
investing activities 863.5 466.2 - 13.1 24.6 850.4 490.8
Dividends - 268.8 - 244.7 - 268.8 - 244.7
Other cash flow from
financing activities - 319.8 - 111.7 19.1 - 29.5 - 300.7 - 141.2
Net increase in cash and
cash equivalent 274.9 109.8 6.0 - 4.9 280.9 104.9
Cash and cash equivalents at
beginning of period 340.5 233.8 8.1 13.0 348.6 246.8
Translation differences 12.5 - 3.1 0.2 12.7 - 3.1
Cash and cash equivalent
at end of period 627.9 340.5 14.3 8.1 642.2 348.6
</TABLE>
Discontinuing operations, Energy
On 20 August, Stora Enso unveiled its new strategy, which includes its power
assets not located at the mills. These assets were initially valued EUR 2
billion.
On 24 September, Stora Enso participated in a restructuring of electricity
sales in Finland with other Pohjolan Voima Oy shareholders. Stora Enso sold its
holdings in Teollisuuden Sahkonmyynti Oy to Eastern Group plc. In the same
connection, Teollisuuden Sahkonmyynti acquired Pohjolan Voima Series C shares
carrying entitlement to thermal power. The related share deals yielded a sales
profit of about EUR 48 million before tax (related tax EUR 13.5 million), which
was entered in the fourth quarter.
The 1999 income statement of Discontinued operation, Energy includes, the
sales profit of Teollisuuden Sahkonmyynti Oy and Pohjolan Voima C series EUR 48
million is included in the operating profit. The related tax amounts to EUR 13.5
million.
In January 2000 Stora Enso Oyj and Fortum Oyj signed a letter of intent
concerning the sale of the main part of Stora Enso's power assets outside the
mills to Fortum group companies or designates. The asset value is SEK 15,850
million (EUR 1,850 million). The capital gain will amount to about EUR 540
million before tax (425 million after tax). The closing of the deal is intended
to take place spring 2000 after the approval of the competition authorities.
In addition to electricity generation, the deal covers regional distribution
networks and power sales contracts in Sweden. The number of personnel involved
is 200, all of them in Sweden.
The agreement does not include the shares in Pohjolan Voima (PVO), which Stora
Enso will continue to sell the shares.
Note 3 Effect of major acquisitions and disposals
Acquisitions
In January 1999 Stora Enso initiated a compulsory redemption of STORA and
offered to buy all outstanding STORA Series A and Series B shares at a price of
SEK 88 per share. At the year end Stora Enso held 98.7% of shares. A total of
EUR 83 million was used to purchase minority shares in January - December 1999.
The compulsory redemption procedure has been referred to arbitration and is
still under consideration.
Disposals
During the period Stora Enso sold Tervakoski Oy to the Austrian company
Trierenberg AG and the fixed assets of Dalum to a group of Danish investors. The
sale prices totalled EUR 120 million. The capital gain on Tervakoski was EUR 25
million and on Dalum no capital gain was recorded.
On 24 September, Stora Enso sold its holdings in Teollisuuden Sahkonmyynti Oy
and Pohjolan Voima Series C to Eastern Group plc (see note 2).
Note 4 Cash flow on acquisitions and disposals
The assets and liabilities acquired and disposed, and resultant cash flows can
be analysed as follows:
<TABLE>
<S> <C> <C> <C> <C>
1999 1998
Acquisition Disposal Acquisition Disposal
Fixed assets 1.2 - 27.8 638.1 - 120.5
Working capital 1.5 - 75.9 40.4 - 64.4
Operating capital 2.7 - 103.7 678.5 - 184.9
Tax liabilities - 3.4 32.1
Capital employed 2.7 - 103.7 675.1 - 152.8
Shareholders' equity 28.6 - 12.6
Minority items - 83.4 22.3 - 4.1
Interest-bearing net debt 86.1 - 103.7 624.2 - 136.0
Financing 2.7 - 103.7 675.1 - 152.8
Note 5 Other operating income
1999 1998
Sales profits of fixed assets 111.7 23.3
Rent 10.1 17.0
Subsidies 4.3 4.6
126.1 44.9
Losses on sale of fixed assets / shares
included in other operating expenses - 7.0 - 29.7
Note 6 Personnel expenses
1999 1998
Wages and salaries 1,333.0 1,364.5
Pensions 139.7 156.2
Other statutory
employers' contributions 281.6 284.5
1,754.3 1,805.2
Remuneration to members of the
Board of Directors and CEO 1.8 1.9
Remuneration to the CEO and DCEO was as follows:
Jukka Bjorn
Harmala Hagglund
Annual salary for principal
employment, EUR1 632,407 525,663
Retirement age 60 60
Pension payment
60-65: 66% of pensionable 60% of
salary (four last pensionable
years average base salary (base
salary + bonus + benefits) salary + bonus)
65: 66% of pensionable salary General pension
scheme plus company
plan that gives
additional 43% at
proposed salary level.
Pensionable salary in
base salary and 50%
of bonuses.
Term of notice 6 months 6 months
Compensation for
termination 12 months 12 months
base salary base salary
An optional 12 An optional 12
months salary months salary
depending on depending on
employment employment
Bonus scheme EUR 146,581 201,000
Entitlement to R shares
through warrant 399,000
Number of synthetic options 112,500 93,750
1 Excluding car and residence
Specification of pensions and other statutory
employers contributions
1999 1998
Pension expenses paid
to pension funds
Obligatory 48.2 40.6
Voluntary 6.7 11.2
Pension expenses paid to
insurance companies
Obligatory 48.2 58.2
Voluntary 5.4 25.9
Accrued pension liabilities
in the period 10.2 18.8
Top management pension
arrangements 2.6
Training 1.0
Other personnel costs
Obligatory 272.3 281.5
Voluntary 30.2 1.0
421.3 440.7
Average number of personnel 40,226 40,987
</TABLE>
Note 7 Items affecting comparability
<TABLE>
<S> <C> <C> <C> <C> <C>
Other Materials Depreciation Other operating
operating and and value and personnel
income services adjustments expenses Total
1998
Capital loss on sale of shares in Stora
Carbonless and Stora Spezialpapiere - 20.6 - 20.6
Writedown of inventory in Skoghall - 9.6 - 9.6
Resolvement of provision for the
sale of Newton Falls 5.8 5.8
Repayment of capital
tax in Germany 20.5 20.5
Capital loss on sale of Svenska Dagbladet - 3.2 - 3.2
Extra depreciation at Corbehem
and Newton Kyme - 8.8 - 8.8
Provision for merger and restructuring - 260.4 - 194.8 - 455.2
26.2 - 9.6 - 260.4 - 227.3 - 471.1
</TABLE>
In connection with the merger of STORA and Enso a provision has been entered to
cover the anticipated restructuring costs. In the prospectus issued by STORA and
Enso on 13 July 1998 the managements of the companies announced their intention
to develop and define a detailed plan restructuring the Stora Enso Group.
Non-recurring restructuring costs associated with this plan have been included
in the restructuring provision.
Other Depreciation
operating and value
income adjustments Total
1999
Capital gain on sale of Tervakoski 24.5 24.5
Capital gain on sale PVO C-series and
Teollisuuden Sahkonmyynti Oy 48.2 48.2
Cumulative accounting adjustment to
previous years, capitalisation
of interest 29.9 29.9
72.7 29.9 102.6
Note 8 Net financing cost
1999 1998
Dividend income 3.9 2.3
Interest income 20.9 17.9
Other financial income 12.6 38.6
Exchange gains and losses 31.6 - 30.3
Interest expenses - 328.0 - 378.4
Other financial expenses - 7.5 - 29.2
- 266.6 - 379.3
Forward contracts and swaps
entered in the financial items
Interest income 14.0 12.3
Exchange rate differences 28.7 - 23.1
Interest expenses - 4.6 - 3.9
Note 9 Income tax expense
The profit before tax and minority items
by country is as follows:
1999 1998
Finnish Group companies 578.0 353.0
Swedish Group companies 304.0 5.1
German Group companies 217.6 - 261.1
Other Group companies 51.8 242.4
1,151.4 339.4
Current tax expense
Finnish Group companies - 141.0 - 110.3
Swedish Group companies - 79.4 - 102.8
German Group companies - 46.6 91.2
Other Group companies - 27.2 - 13.4
Change in deferred taxes
Finnish Group companies - 27.5 4.6
Swedish Group companies - 1.0 64.6
German Group companies - 69.4 - 58.9
Other Group companies - 0.1 - 20.7
Taxes of associated companies - 2.4 - 2.5
- 394.5 - 148.2
<PAGE>
The following is a reconciliation of income taxes
calculated at the 28% tax rate:
1999 1998
Profit before tax 1,151.4 339.4
Hypothetical taxes at 28% 322.4 95.0
Impact of different tax rates
outside Finland 57.4 - 3.4
Non-deductible expenses and
tax exempt income 18.2 78.0
Losses incurred at Group
companies outside Finland
where no deferred tax benefit
is recognised - 15.3 - 1.2
Other items 1 11.8 - 20.2
Income taxes in the consolidated
income statement 394.5 148.2
Deferred tax assets in the
balance sheet
Tax losses carried forward 68.5 78.4
Less valuation allowance - 62.6 - 67.5
Corporate tax credit 0.5
Deferred tax assets in
the balance sheet 5.9 7.8
1 1999 EUR 11.8 million refers to change in the Finnish tax rate from 28% in
1999 to 29% in 2000.
The Group has recognised a deferred tax asset for its net operating loss
carryforwards and established a valuation allowance against this amount. That
determination was based upon an analysis of the more likely than not criterion
applied to each tax jurisdiction of the company.
Deferred tax liabilities in the balance sheet
1999 1998
Depreciation difference
and untaxed reserves 1,140.9 1,111.3
Group eliminations - 5.9 - 10.4
Tax losses carried forward and
other timing differences 5.5 - 140.1
Acquisition surplus values 348.4 365.8
1,488.9 1,326.6
Deferred tax liabilities in the balance sheet, reconciliation of changes
<TABLE>
<S> <C> <C> <C> <C> <C>
Adoption of Charged/ Acquisitions/ Exchange
31 Dec. 1998 IAS 19 revised credited to P/L divestments difference 31 Dec. 1999
Depreciation difference and
untaxed reserves 1,111.3 - 29.2 58.8 1,140.9
Group eliminations - 10.4 4.5 - 5.9
Tax losses carried forward and
other timing differences - 129.5 - 10.6 146.5 - 0.9 5.5
Acquisition surplus values 365.8 - 23.8 - 12.9 19.3 348.4
Total 1,337.2 - 10.6 98.0 - 12.9 77.2 1,488.9
</TABLE>
No deferred tax liability has been recognised for undistributed earnings of
domestic subsidiaries since, in most cases, such earnings can be transferred to
the parent company without tax consequences. The Group does not provide deferred
income taxes on undistributed earnings of foreign subsidiaries because such
earnings are intended to be permanently reinvested in those operations, except
in specific situations where the Group has elected to distribute earnings of
foreign subsidiaries.
<PAGE>
Note 10 Depreciation
1999 1998
Depreciation according to plan
Other intangible assets - 12.7 - 13.6
Buildings and structures - 92.8 - 95.4
Machinery and equipment - 707.9 - 687.2
Other tangible assets - 20.3 - 17.6
Goodwill on consolidation - 61.9 - 64.5
- 895.6 - 878.2
1999 1998
Value adjustments
Buildings and structures 7.4 - 1.5
Machinery and equipment 2.2 - 181.8
Other tangible assets 1.7
Investments in progress - 1.1
Goodwill on consolidation - 89.9
10.2 - 273.2
Note 11 Fixed assets and long-term investments
<TABLE>
Group 1999 Consolidation Other intangible Land and Buildings and Machinery Other
goodwill assets water structures and equipment tangible assets
<S> <C> <C> <C> <C> <C> <C>
Acquisition cost 1 Jan. 994.3 101.0 2,174.9 2,467.5 11,398.4 609.5
Translation difference 7.7 0.9 150.3 85.5 613.6 18.0
Reclassification 12.0 - 66.9 - 6.6 - 15.1 76.7
Additions 3.1 11.8 7.1 63.0 640.6 38.5
Disposals - 18.6 - 4.2 - 4.3 - 40.1 - 332.1 - 161.3
Acquisition cost 31 Dec. 986.5 121.5 2,261.1 2,569.3 12,305.3 581.3
Accumulated
depreciation 1 Jan. 453.8 59.0 820.8 5,205.8 199.1
Accumulated depreciation
at companies acquired 0.3 2.6 3.7
Translation difference 4.4 0.4 31.3 253.3 2.8
Depreciation according
to plan 61.9 12.7 92.8 707.9 20.3
Accumulated depreciation
of assets sold - 11.1 - 38.2 - 222.1 - 70.5
Value adjustments in the period - 7.4 - 2.2 - 0.6
Accumulated
depreciation 31 Dec. 520.1 61.2 901.9 5,946.4 151.1
Carrying value
31 Dec. 1999 466.4 60.3 2,261.1 1,667.4 6,358.9 430.2
Carrying value
31 Dec. 1998 540.5 42.0 2,174.9 1,646.7 6,192.6 410.4
</TABLE>
Note 12 Associated companies
1999 1998
Historical cost 1 Jan. 289.9 273.1
Translation difference 1.8 - 14.8
Additions 20.2 42.3
Disposals - 36.8 - 1.2
Transfer to other companies - 141.9 - 9.4
Historical cost 31 Dec. 133.3 289.9
Equity adjustment to investments
in associated companies 1 Jan. 44.2 44.8
Equity earnings in associated companies 9.7 10.0
Translation difference - 27.3 - 0.1
Dividends received during the year - 3.1 - 7.2
Taxes - 2.4 - 2.6
Disposals and other changes 11.2 - 0.7
Equity adjustment 31 Dec. 32.2 44.2
Carrying value of investments
in associated companies at 31 Dec. 165.5 334.1
<TABLE>
Significant associated companies:
Share in profit in
income statement
Shareholding, % 1999 1998 Domicile
<S> <C> <C> <C> <C>
Sunila Oy (pulp mill) 50.0 1.2 0.6 Finland
Steveco Oy (stevedoring) 36.7 0.7 2.9 Finland
Veracel (pulp mill project) 50.0 -- -- Brazil
Mitsubishi HiTec Paper Bielefeld GmbH
(technical office papers) 24.0 0.1 -- Germany
Mitsubishi HiTec Paper Flensburg GmbH
(technical office papers) 24.0 0.4 -- Germany
</TABLE>
Note 13 Related party transactions
1999 1998
Receivables from and payables to
associated companies
Long-term loans receivable 11.3 28.1
Accounts receivable 22.1 54.7
Short-term investments and receivables 35.9 32.9
Prepaid expenses and accrued income 0.1 0.0
Other receivables 0.0 7.2
Trade payable 11.4 18.0
Accrued liabilities and deferred income 0.2 7.4
Other current interest-bearing liabilities 5.8 29.9
Sales to associated companies 122.7 103.3
Purchases from
associated companies -150.1 - 285.1
The above transactions were carried out on commercial terms and conditions.
Purchases from associated companies relate mainly to energy and pulp purchases.
Sales are mainly sale of wood material.
Stora Enso Oyj is entitled to borrow amounts from its Finnish pension funds.
As of 31 Dec.1998 and 31 Dec.1999 the Group's long-term borrowings from its
Finnish pension funds were EUR 246.1 million and EUR 244.4 million respectively.
Note 14 Shares in other companies
1999 1998
Acquisition cost 1 Jan. 128.8 57.0
Translation differences 0.5 - 1.1
Additions 13.4 68.8
Disposals - 7.1 - 4.8
Write-downs 3.0 - 0.5
Transfer from associated companies1 141.9 9.4
Carrying amount 31 Dec. 280.4 128.8
1 Major part in this line refers to the transfer of
Pohjolan Voima Oy fram associated companies to other shares.
The valuation of other companies is based on historical cost convention. In case
of Pohjolan Voima Oy there is surplus value included which arises from the
acquisition of Veitsiluoto Group.
Note 15 Capital investment in shares
<TABLE>
% No. of shares Carrying value Market value
<S> <C> <C> <C> <C>
Finnlines Oyj, Helsinki 5.5 1,104,670 1.9 33.1
Finnair Oyj, Helsinki 0.0 14,400 0.1 0.1
Helsingin Puhelin Oyj, Helsinki 0.0 1,410 0.1 0.1
HPY Holding Oyj, Helsinki 0.0 19,650 0.0 0.7
Kemira Oyj, Helsinki 0.1 160,000 0.9 1.0
Keski-Suomen Puhelin Oyj, Jyvaskyla, A 0.0 286 0.0 0.0
Merita Foresta, Helsinki 5,000,000 0.8 1.9
Nordic Baltic Holding AB, Stockholm 0.3 3,706,215 8.7 21.6
Neptun Maritime Oyj, Helsinki 2.3 1,261,211 2.5 2.7
Outokumpu Oyj, Espoo 0.0 47 0.0 0.0
Raisio Yhtyma Oyj, Raisio, V 0.1 120,000 0.8 0.5
Raisio Yhtyma Oyj, Raisio, K 0.0 5,100 0.0 0.0
Rautaruukki Oyj, Helsinki 0.1 130,000 0.8 0.9
Sampo Insurance Company, Turku, A 2.8 1,722,228 20.5 59.8
Sonera Oyj, Helsinki 0.0 30,000 0.2 2.0
Merita Pro Obligaatio 59,559 0.5 0.6
Mega Carrier KB 33.0 6.2 6.2
KB Metro Flyg 33.0 5.2 5.2
Total 49.3 136.4
</TABLE>
Proceeds from disposal of capital investment shares:
1999 1998
Net book amount 4.4 4.0
Gain on sale 3.1 9.2
7.5 13.2
The Groups capital investment shares are recorded at cost and are classified in
investments held as non-current assets and stocks. Changes in market value are
not recognised until realised.
Note 16 Receivables from Group Management
There are no receivables from Group Management.
Note 17 Inventories
1999 1998
Materials and supplies 550.2 518.1
Work in progress 65.4 72.1
Finished goods 590.5 695.8
Other inventories 59.5 46.2
1,265.6 1,332.3
Note 18 Short-term receivables
1999 1998
Accounts receivable 1,732.7 1,421.6
Prepaid expenses and accrued income 154.5 149.5
Other receivables 203.1 212.3
2,090.4 1,783.4
Receivables falling due after one year are shown as non-current receivables.
Note 19 Financial assets
1999 1998
Non-current loan receivables 66.8 90.1
Short-term investments and receivables
Current portion of loan receivables 63.0 3.9
Short term bank deposits 202.9 246.5
265.9 250.4
Cash and cash equivalents 439.4 348.5
Major part of the non-current loan receivables relate to loans granted to energy
companies selling energy to Stora Enso Group. The interest rate ranges from 4.8
to 6.8 pa. Normally there is no plan for amortisation. Eur 48.7 million belongs
to the discontinuing operations, energy.
The current portion of loan receivables includes of EUR 35 million loan
granted to an affiliated company (3.5%, maturity 3 months).
Short term deposits
The Group's liquidity position has been secured through long-term credit
facilities and the Group has no need to keep any substantial cash funds.
Note 20 Capitalised interest included in property, plant and equipment
1999 1998
1 Jan. 93.5 101.2
Additions 1 Jan.-31 Dec. 0.3 4.8
Exchange rate difference 7.0 - 0.2
Depreciation 1 Jan.-31 Dec. 18.0 - 12.3
31 Dec. 118.7 93.5
The Group has capitalised interest expenses in connection with investment in
qualifying assets. Interest rate used in calculations ranges from 6 to 11%. The
interest rate has been defined at the start of the investment project in
question and equals the average of Group borrowing cost at the time.
Note 21 Shareholders' equity
EUR 1999 1998
Share capital at 1 Jan. 1,277.5 1,277.5
Increase 0.1
Share capital at 31 Dec. 1,277.6 1,277.5
Share issue 1.9
Other restricted equity 1 Jan. 704.6 736.2
Transfer from other non-restricted equity 23.4
Increase 28.6
Translation difference - 8.3 - 83.5
Other restricted equity 31 Dec. 696,3 704.6
Reserve for own shares 1 Jan. and 31 Dec. - 0.0 - 0.0
Non-restricted equity 1 Jan. 3,311.4 3,499.5
Effect of adopting IAS 19 revised - 27.2 - 27.2
Non-restricted equity 1 Jan. restated 3,284.2 3,472.3
Dividends paid - 268.3 - 242.6
Share exchange with minority 17.2
Transfer to the other restricted equity - 23.4
Translation difference 191.7 - 113.1
Profit for the period 752.5 191.0
Non-restricted equity 31 Dec. 3,977.4 3,284.2
Distributable funds
Non-restricted equity 3,977.4 3,284.2
Untaxed reserves included in
non-restricted equity - 1,387.2 - 935.2
Distributable funds 31 Dec. 2,590.2 2,349,1
Cumulative translation differences
Resticted equity 290.7 298.4
Non-restricted equity - 323.3 - 514.9
Total - 32.6 - 216.5
Under the Articles of Association the company's issued share capital may not be
less than FIM 5,000 million and not more than FIM 20,000 million. The issued
share capital may be increased or reduced between these limits without amendment
to the Articles of Association. The minimum number of shares is 500,000,000 and
maximum 2,000,000,000. The maximum number of shares series A is 500,000,000 and
series R 1,600,000,000. The combined total number of shares series A and R is
not to exceed 2,000,000,000.
<TABLE>
Breakdown of share capital
Series A Series R Total
<S> <C> <C> <C>
31 Dec. 1997 116,729,125 194,361,705 311,090,830
Change from
Series A to R - 1,357,954 1,357,954 --
Conversion from
Stora A ja
B shares 128,023,484 320,465,375 448,488,859
31 Dec.1998 243,394,655 516,185,034 759,579,689
Change from
Series A to R - 34,443,467 34,443,467 --
Subscription
(option rights) 30,000 30,000
31 Dec. 1999 208,951,188 550,658,501 759,609,689
Subscription
(option rights) 246,000 246,000
26 Jan. 2000 208,951,188 550,904,501 759,855,689
Votes 208,951,188 55,065,850 264,017,038
Series A (1 vote/share)
Series R (1 vote/10 shares, minimum 1 vote)
Share capital at
31 Dec. 1999,
EUR million 351.4 926.1 1,277.6
</TABLE>
Subsidiaries held 5,601 Series R shares, nominal value amounting to EUR
8,478.19.
The Board of Directors, the CEO and the DCEO owned 19,275 Series A and 35,409
Series R shares at 31 Dec.1999 representing 0.0% of the total voting rights of
the company.
Series A Series R Warrants
Claes Dahlback 2,541 9,529
Jukka Harmala 3,000 399,000
Bjorn Hagglund 7,877 14,618
Josef Ackermann 1,300
Paavo Pitkanen 3,800
Jan Sjoqvist 508 943
Krister Ahlstrom 1,500
Marcus Wallenberg 3,049 6,019
The Annual General Meeting held on 7 April 1997 decided to offer bonds with
equity warrants up to a maximum value of FIM 1,000,000 (EUR 168,187.93) for
subscription by the company's management. The bonds mature in 2002 and carry
interest at 4%. Each FIM 1,000 (EUR 168.19) bond carries one warrant entitling
the holder to subscribe 3,000 of Series R shares at a subscription price of FIM
45.57 (EUR 7.66). If fully subscribed during period 1 December 1998 to 31 March
2004, the shares represents a maximum of 0.1% of the voting rights generated by
the share capital after the exercise of the warrants and about 0.4% of the share
capital.
Note 22 Borrowings
Repayment schedule of long-term interest-bearing liabilities including current
portion at 31 Dec.1999:
<TABLE>
2000 2001 2002 2003 2004 2005- Total
<S> <C> <C> <C> <C> <C> <C> <C>
Convertible bond loans 0.2 0.2
Bond loans 205.3 160.7 52.6 163.0 345.5 671.7 1,598.7
Loans from credit institutions 152.0 139.5 136.0 76.1 314.2 889.5 1,707.3
Pension loans 33.0 32.9 32.8 27.0 81.8 275.2 482.5
Leasing liabilities 30.9 34.5 17.0 9.7 18.6 192.9 303.5
Other long-term liabilities 25.6 4.0 3.2 30.1 1.6 136.1 200.7
446.7 371.6 241.7 305.9 761.7 2,165.3 4,292.9
</TABLE>
Cash reserve and unutilised credit facilities totalled 2,616 million at the end
of the year.
<TABLE>
Bondloans
Fixed Rate Balance Balance
31 Dec.1999 31 Dec. 1999
Interest rate Currency Original amount EUR Mill. EUR Mill.
<S> <C> <C> <C> <C> <C>
1989-1999 8.00 DEM 200.0 0.0 102.3
1991-2000 8.22 USD 35.0 34.8 29.9
1991-2000 9.68 USD 43.0 42.8 36.8
1991-2006 9.99 USD 50.4 50.2 43.2
1993-2001 6.74 USD 45.0 44.8 38.6
1993-2003 9.50 SEK 150.0 17.5 16.1
1993-2003 9.50 SEK 25.0 2.9 2.7
1993-2003 8.96 SEK 350.0 40.9 36.8
1993-2003 9.50 SEK 255.0 29.8 26.7
1993-2003 8.64 USD 65.0 64.7 55.7
1993-2004 7.11 USD 7.0 7.0 6.0
1993-2019 8.60 USD 50.0 49.8 42.9
1994-2004 8.00 SEK 500.0 58.4 52.5
1995-2001 7.75 USD 50.0 49.8 42.9
1996-2006 8.75 SEK 250.0 29.2 26.4
1996-2006 7.90 SEK 470.0 54.9 49.6
1997-2004 6.00 FIM 249.6 249.6
1997-2007 7.25 SEK 500.0 58.4 52.8
1998-2002 5.50 SEK 200.0 23.4 21.0
1998-2002 5.50 SEK 50.0 5.8 5.2
1998-2002 5.50 SEK 50.0 5.8 5.2
1998-2004 5.35 SEK 200.0 23.4 21.0
1998-2005 5.20 SEK 200.0 23.4 21.0
1998-2005 6.00 SEK 200.0 23.4 21.0
1998-2008 4.00 SEK 264.4 30.9 27.8
1999-2005 4.75 SEK 135.0 15.8 0.0
1999-2005 4.75 SEK 165.0 19.3 0.0
1999-2006 5.90 SEK 500.0 58.4 0.0
Floating Rate
1994-1999 FIM 250.0 0.0 42.0
1994-1999 FIM 425.0 0.0 71.5
1994-1999 USD 100.0 0.0 85.8
1994-1999 USD 50.0 0.0 42.9
1994-1999 USD 50.0 0.0 42.9
1995-2000 USD 75.0 74.7 64.2
1995-2000 USD 50.0 49.8 42.9
1997-2000 JPY 3,000.0 29.2 22.5
1997-2007 FIM 110.0 18.5 18.5
1997-2017 JPY 10,000.0 97.3 75.3
1998-2000 FIM 100.0 16.8 16.8
1998-2001 SEK 200.0 23.4 21.0
1998-2002 SEK 100.0 11.7 10.6
1998-2005 SEK 80.0 9.3 8.4
1998-2005 SEK 200.0 23.4 21.0
1998-2008 USD 30.0 29.9 25.7
1998-2008 USD 40.0 39.9 0.0
1999-2005 SEK 300.0 35.0 0.0
1999-2005 SEK 110.0 12.8 0.0
1999-2008 SEK 105.3 12.3 0.0
1,598.7 1,646.0
</TABLE>
Breakdown of operating capital/net interest-bearing liabilities by currencies
Operating Capital Net interest-bearing liabilitites
1999 1998 1999 1998
EUR 7,327.6 7,387.2 1,896.5 2,757.2
SEK 4,877.4 4,259.6 2,660.7 2,358.6
USD/CAD 689.6 545.0 810.2 687.6
CNY 205.3 159.7
GBP 98.4 119.5 14.1 - 42.0
Other 155.1 395.6 142.1 21.2
Total 13,353.4 12,866.5 5,523.6 5,782.6
<TABLE>
Finance lease liabilities Total Discontinuing operations
Minimum lease payments Group Energy
<S> <C> <C>
Not later than 1 year 62.7 14.9
Later than 1 year and not later than 5 years 251.0 59.8
Later than 5 years 220.3 116.3
534.0 191.1
Future finance charges on finance leases - 230.4 - 78.0
Present value of finance lease liabilities 303.5 113.1
Representing value of finance lease liabilities
Not later than 1 year 58.5 7.7
Later than 1 year and not later than 5 years 169.7 30.9
Later than 5 years 75.5 74.5
303.6 113.1
Short term borrowings
1999 1998
Short term loans 1,476.6 475.4
</TABLE>
The Group's short-term loans are mostly denominated in Swedish crowns (58%) and
in Euros (35%). The maturities of short-term loans are less than one year
varying between 2 weeks and 9 months (SEK) and between 2 weeks and 4 months
(EURO). The short term loans were executed mostly through commercial papers and
the average interest rate in outstanding contracts per 31 Dec.1999 was 3.80%
(SEK) and 3.44% (EUR).
Note 23 Other current liabilites and other provisions
Other current liabilities
1999 1998
Advanced received 17.4 3.0
Trade payables 748.4 643.0
Other current liabilitites 305.6 285.0
Accrued liabilitites and deferred income 436.4 520.7
1,507.8 1,451.7
Other provisions
Restructuring Pension Other
Carrying value at 31 Dec. 1998 151 570 105
Translation difference 3 26 9
Increase 5 19
Decrease - 96 - 21 - 9
Carrying value at 31 Dec. 1999 63 575 124
Note 24 Fair value of financial instruments
<TABLE>
1999 1998
Carrying Carrying
amount Fair value amount Fair value
Financial assets
<S> <C> <C> <C> <C>
Non-current loan receivables 67 67 90 90
Short term money market investments 266 266 250 250
Financial liabilites
Short term borrowings 1,350 1,350 475 475
Long-term debt 3,874 3,947 4,294 4,437
Current portion of long-term debt 398 398 1,218 1,218
Off-balance sheet instruments
Currency options purchased 1 1
Currency options written 0 0
Forward foreign exchange contracts 6 6 25 25
Interest rate swaps 4 5 - 3 27
Interest rate futures FRA:s 21 3
Cross currency swaps 30 71 19 54
Interest rate options 0 0
</TABLE>
Fair value of financial instrument is defined as the net value at which the
instrument could be exchanged in a transaction between willing parties other
than in a forced liquidation or sale.
Fair values of financial instruments have been estimated as follows.
Cash and cash equivalents
The carrying amounts are a good estimate of the fair value in short-term money
market instruments. Bank account balances are not included in the figures.
Short-term borrowing
The carrying amounts are a good estimate of the fair value.
Long-term debt
The carrying amount of floating rate long-term debt approximates fair value.
Pension loans are priced to par. Fixed rate long-term debts are priced using
discounted cash flow analysis.
Currency options
The carrying amounts of currency options are calculated using year-end market
rates and generally used option pricing models and thus the carrying amounts
approximate fair values.
Foreign exchange forward contracts
The carrying amounts of forward contracts are calculated using year end market
rates and thus the carrying amounts approximate fair values.
Interest rate swaps
The fair value of interest rate swaps have been calculated using discounted cash
flow analysis. The carrying amount of interest rate swaps is the amount of net
accrued interest.
Cross currency swaps
The fair value of cross currency swaps have been calculated using discounted
cash flow analysis and year end FX rates. The carrying amount of cross currency
swap is the FX differential between contracts rate and year end market rate and
the amount of net accrued interest.
<PAGE>
Note 25 Risk management contracts
Risk management contracts open at 31 Dec. 1999
Current value 31 Dec. 31 Dec.
1999 1998
Interest rate derivatives
Forward agreements 0 3
Interest rate swap agreements 5 24
Interest rate options 0
Interest rate derivatives, total 5 27
Foreign exchange derivatives
Forward agreements 6 25
Options:
Purchased 1
Written 0
Cross currency swap agreements 71 54
Foreign exchange derivatives, total 77 80
Nominal value
Interest rate derivatives
Forward agreements 1,695 4,896
Interest rate swap agreements 799 792
Interest rate options 2,864
Interest rate derivatives, total 2,495 8,552
Foreign exchange derivatives
Forward agreements 2,973 15,921
Options:
Purchased 659
Written 248
Cross currency swap agreements 425 749
Foreign exchange derivatives, total 3,398 17,577
Maturity of interest rate swap contracts
Under 1 year 87 96
1-5 years 350 434
5-10 years 362 220
Over 10 years 43
Total 799 792
Financial risk management policy
The following is the financial risk management policy in Stora Enso.
International industrial operations entail various forms of risks in the daily
conduct of business. These risks are commercial as well as financial. The major
financial risks are:
o Funding risk
o Interest rate risk
o Currency risks
o Transaction risk
o Supply risk
For Stora Enso, it is vital to be able to define and manage financial risks in
view of the impact they may have on the net income and financial position.
Financial risks should be managed in such a way that the Industrial Divisions
can concentrate primarily on managing commercial risks.
Stora Enso Financial Services is responsible for the development and
implementation of principles minimising Stora Enso's financial risks over the
long term.
Funding risk
Funding risk is the risk of difficulties occuring in obtaining financing at a
given time.
Risk reduction is achieved by funding net capital employed with long-term
funding.
The risk is quantified by an analysis of the extent to which the capital
employed is long-term funded. The relation between capital employed and
long-term funds is expressed as the matching level.
Stora Enso's objective is to have a matching level exceeding 100% and an
average maturity of long-term loans, including credit commitments, in the range
of 3-5 years, with the aim of extending it further over time.
Interest rate risk
Interest rate risk is the risk that the reduced return on capital employed
cannot be compensated for by reduced costs of finance this.
Risk reduction is obtained by fixing interest rates for periods shorter than
12 months.
Stora Enso's objective is to minimise the interest rate risk by fixing
interest rates for periods of less than one year. The aim is that over time
20-40% of net debt should carry interest rates fixed for periods of longer than
one year.
Currency risks
Stora Enso's income and financial position are affected by currency changes. A
considerable part of the products are sold to countries other than those in
which they are produced, creating a transaction risk.
Transaction risk
The transaction risk is the risk of a decrease Stora Enso's income due to
changes in exchange rates.
Stora Enso's objective is to cover in the range of up to 6 months' net flows
outside the Euro area. The exceptions are the GBP and USD which, due to their
high exposure in Stora Enso, could be covered in the range of up to 12 months'
net flows.
Responsibility for covering transaction risk has been decentralised to the
Industrial Divisions of Stora Enso.
Translation risk
Translation risk means the risk that fluctuations in exchange rates negatively
affect the value of Stora Enso's net foreign assets.
About 90% of net foreign assets are nominated within the future Euro-area
(including DKK, GBP, GRD, SEK) and North American currencies. The remainder are
in the emerging markets and represent an insignificant part of net foreign
assets.
Stora Enso's objective is not to cover the Group's net foreign assets
(equity).
Stora Enso Financial Services
Stora Enso Financial Services is a centralised unit which manages financial
risks and services the industrial divisions of the Group. Financial Services is
dividend into cash flow management, financial projects, funding, risk control
and treasury operations.
Any deviations from the Risk Exposure given by the Industrial Division should
be kept and reported in a separate market risk portfolio. The total market risk
exposure may allow a maximum overnight impact of EUR 2 million on Stora Enso's
income after tax. The risk is calculated using a method based on historical
volatilities and correlations (VaR model), which is today used by Stora Enso.
Proprietary operations
Proprietary operations were dismantled by the end of 1999.
Guarantees and other Group support
The different kinds of agreements and legal instruments for managing financial
risks and for proprietary trading operations are entered into in the name of any
of the legal entities operated by Stora Enso Group Treasury. This normally
requires support from the ultimate parent company.
Management of interest rate risks
The management of interest rate risks is centralised. The instruments used in
managing interest rate risks are swaps, forward rate agreements, interest rate
options and bond future agreements. The indicators used in analysing interest
rate risks are the ratio between fixed and variable interest rates, and modified
duration, which is monitored for each currency separately. The Group's
objective is to minimise the interest rate risk by fixing interest rates for
periods of less than one year. At the end of 1999, about 29% of the Group's
loans were subject to fixed interest rates, 60% to variable interest rates and
the remaining 11% pension liabilities. The Group's main loan currencies are
EUR, SEK and USD.
Management of credit risks
Credit insurance has been obtained for customers in the main market areas in
Western Europe, USA and Canada. In other market areas measures to reduce credit
risks include letters of credit, prepayments and bank guarantees. Also export
guarantees covering both political and commercial risks have been obtained from
Finnvera. These export guarantees are used in connection with individual
customers outside OECD area.
There are no major credit risk concentrations among accounts receivable as per
year-end.
Supply risk
The Group's manufacturing operations depend upon obtaining adequate supplies of
appropriate raw materials in a timely manner. Certain of the Group companies may
at times be substantially dependent on a limited number of suppliers of key
resources due to availability, locale, price, quality and other considerations.
Also, from time to time suppliers may extend lead times, limit supplies or
increase prices due to capacity constraints or other factors.
The Group works closely with its key suppliers around the world in attempt to
mitigate supplier risks and also produces some of key resources in house.
If the Group was unable to obtain adequate supplies of raw materials in a
timely manner or if there were significant increases in the costs of raw
materials, the Group's results of operations could be adversely affected.
Note 26 Commitments and contingent liabilities
Group Group
1999 1998
On own behalf
Pledges given 64.6 86.7
Mortgages 649.0 764.9
On behalf of associated companies
Mortgages 1.0 1.0
Guarantees 11.6 112.9
On behalf of others
Pledges given 2.5
Guarantees 198.9 108.3
Other commitments, own
Leasing commitments, in 2000 24.2 23.0
Leasing commitments, after 2000 92.6 100.5
Pension liabilities 3.4 2.5
Other commitments 45.5 17.8
Total
Pledges given 67.1 86.7
Mortgages 650.0 766.0
Guarantees 210.5 221.2
Leasing commitments 116.8 123.5
Pension liabilities 3.4 2.5
Other commitments 45.5 17.8
Total 1,093.3 1,217.6
Contingent assets
Surplus in Swedish pension system 28
Stora Enso Oyj has undertaken to guarantee the leasing agreements relating to
Stora Enso Barcelona SA to a maximum of EUR 38,136,376.34. The commitment
extends until 23 December 2003.
Guarantees are made in the ordinary course of business on behalf of affiliated
companies and others in certain limited circumstances. The guarantees are
entered into with financial institutions and other credit grantors and generally
obligate the Group to make payment in the event of default by the borrower. The
guarantees have off-balance sheet credit risk which represents the accounting
loss that would be recognised at the reporting date if counterparties failed to
perform completely as contracted. The credit risk amounts are equal to the
contractual amounts, assuming that the amounts are fully advanced and that no
amounts could be recovered from other parties.
The Group leases offices and warehouse space under various non-cancellable
operating leases. Certain contracts contain renewal options. The future cost for
contracts exceeding one year and for non-cancellable operating leasing contracts
are as follows:
Total 2000 2001 2002 2003 2004 2004 after
116.8 24.2 19.7 16.4 14.4 6.8 35.3
Schweighofer Privatstiftung holds 26.5% of Stora Enso Timber Oy shares.
Schweighofer Privatstiftung has a put option allowing them to sell their shares
to Stora Enso Oyj at a predetermined price. The put option may be exercised
between 1 January 2002 and 30 June 2006.
Stora Enso is a party to certain legal proceedings that have arisen in the
normal course of business. There is no reason to believe that any single ongoing
or expected legal or arbitration proceeding will have any material effect on
Stora Enso's results of operation or financial condition.
Contingencies
Stora Enso is a party to certain legal proceedings that have arisen in the
normal course of business.
Stora Enso received a statement of objection from the European Commission
relating to newsprint producers' operations during the period 1989-1995. Stora
Enso has given its reply within the stipulated time schedule denying all
allegations. Should the Company be found to have participated in a prohibited
pricing behaviour, it would be subjected to a substantial fine. Management is
currently not in a position to assess the final outcome of the investigation. No
provision has been made in the accounts in relation to the matter.
Except for the administrative proceeding described above, there is no reason
to believe that any single ongoing or expected legal or arbitration proceeding
will have any material effect on Stora Enso's results of operations.
Note 27 Principal Stora Enso Group Companies at 31 December 1999
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
% of The
shares and % of shares nominal Book value Profit for
voting rights held by currency 31 Dec. the period
held by the Parent value of 1,000 1,000
Country the Group company Currency shares 1,000 EUR EUR
Stora Kopparbergs Bergslags AB SE 98.7 SEK 1,676,156 4,738,102 217,279
Stora Enso Newsprint & Magazine Paper
Stora Enso Publication Papers Oy Ltd FI 100.0 EUR 135,391 186,689 - 2,396
Kymenso Oy FI 100.0 EUR 2,523 6,728 - 1,134
Varenso Oy FI 100.0 EUR 1,682 5,046 - 4
Stora Enso Sachsen GmbH DE 100.0 EUR 51,129 55,196 5,788
Stora Enso Maxau GmbH & Co KG DE 100.0 EUR 38,347 544,625 736
Stora Enso Langerbrugge NV BE 100.0 EUR 23,550 15,850 23,008
Stora Enso Corbehem SA FR 100.0 EUR 97,028 308,344 26,714
Stora Enso Kabel GmbH DE 100.0 EUR 17,384 52,663 - 3,714
Stora Enso Reisholz GmbH DE 100.0 EUR 4,602 13,549 - 1,593
Stora Enso Hylte AB SE 100.0 SEK 200,000 334,609 4,413
Stora Enso Kvarnsveden AB SE 100.0 SEK 150,000 239,070 - 4,125
Stora Enso Port Hawkesbury Ltd CA 100.0 CAD 852,550 538,260 - 7,071
Stora Enso Fine Paper
Stora Enso Fine Papers Oy FI 100.0 EUR 84,094 162,857 33,419
Berghuizer Papierfabriek NV NL 100.0 EUR 8,743 47,845 6,302
Stora Enso Fine Paper AB SE 100.0 SEK 487,585 330,131 - 11,652
Stora Enso Nymolla AB SE 100.0 SEK 142,727 153,820 6,383
Stora Enso Grycksbo AB SE 100.0 SEK 125,000 17,496 4,607
Stora Enso Molndal AB SE 100.0 SEK 75,000 0 13,316
Stora Enso Uetersen GmbH DE 100.0 EUR 9,715 28,632 - 316
Stora Enso Suzhou Paper Co Ltd CN 60.7 USD 75,000 36,428 - 16,528
Stora Enso Packaging Boards
Corenso United Oy Ltd FI 71.0 EUR 18,628 26,019 2,157
Stora Enso Ingerois Oy FI 100.0 EUR 33,638 79,048 7,600
Stora Enso Pankakoski Oy Ltd FI 100.0 EUR 5,046 11,773 2,090
Laminating Papers Oy FI 100.0 EUR 10,091 20,183 - 4,075
Stora Enso Barcelona S.A. ES 100.0 EUR 41,332 39,332 5,190
Stora Enso Packaging Oy FI 100.0 EUR 18,501 19,441 23,398
ZAO Pakenso RU 100.0 RUR 137,865 13,363 - 3,371
Stora Enso Packaging AB SE 100.0 SEK 30,000 23,265 3,831
Pakenso Baltica SIA LV 100.0 LVL 570 833 - 814
Stora Enso Paperboard AB SE 100.0 SEK 350,000 496,078 45,431
Stora Enso Fors AB SE 100.0 SEK 180,000 113,921 3,964
Stora Enso Newton Kyme Ltd GB 100.0 GBP 1,500 0 - 3,454
Stora Enso Timber
Stora Enso Timber Oy Ltd FI 73.5 EUR 39,098 148,506 12,247
Holzindustrie Schweighofer AG AU 100.0 EUR 436 120,078 8,368
Puumerkki Oy FI 100.0 EUR 8,241 21,042 137
Stora Enso Timber AB SE 100.0 SEK 100,000 46,715 - 23,663
Stora Enso Pulp
Kemijarven Sellu Oy FI 100.0 EUR 8,409 28,592 6,130
Enocell Oy FI 98.4 EUR 42,383 201,153 - 11,243
Stora Enso Pulp AB SE 100.0 SEK 25,000 109,200 22,185
Celulose Beira Industrial SA PT 100.0 EUR 772,802 76,089 25,074
Stora Enso Merchants
Papyrus Merchants AB SE 100.0 SEK 1,000 99,201 0
Papyrus AB SE 100.0 SEK 21,000 90,511 849
Stora Enso Energy
Pamilo Oy FI 51.0 EUR 182 1,883 81
Stora Enso Energy AB SE 100.0 SEK 100,000 114,040 - 15,010
Kopparkraft AB SE 99.9 SEK 685,967 408,132 644
Stora Enso Forest
AS Stora Enso Mets EE 100.0 EEK 2,126 1,584 174
Stora Enso Skog AB SE 100,0 SEK 25,000 196,328 17,271
</TABLE>
Note 28 Employee benefit plan
Short-term employee benefits
and equity compensation benefits
Most of the employees directly involved in production belong to labour unions.
Customarily, collective wage agreements are negotiated between respective unions
and the forest industry. Salaries for employees belonging to senior management
are negotiated individually.
Stora Enso has following incentive systems:
In 1997, the company issued bonds with an aggregate value of FIM 1,000,000 (EUR
168,187,93) with warrants to 15 members of the senior management. For details,
see note 21. Approximately 120 employees in managerial positions in two
different categories had a bonus scheme based on synthetic options. The bonus
was based on Stora Enso's weighted average share price on Helsinki Exchanges
during 1 October 1999 to 31 December 1999. The variation level was from FIM 45
to 70 (EUR 7.57 to 11.77) per share. The bonus varied linearly between these
share prices. FIM 70 (EUR 11.77) per share gives the maximum bonus of FIM 75,000
or 150,000 (EUR 12,614 or 25,228). The bonus was paid in January, 2000.
A profit-sharing scheme was available in 1999 to all permanent employees
within the former STORA sub-group to the extent possible. From the portion of
Group profit exceeding the equivalent of 12% return on capital employed, 10%
will be set aside for the employees, although this shall not exceed one sixth of
the dividend paid to shareholders. The scheme includes all countries where
former STORA sub-group companies conducts operations, but exceptions are made
for countries where other profit-sharing schemes exists.
Stora Enso applies an incentive system that takes into account the
performance, development and results of the business units, as well as
individual employee performance. Stora Enso's performance based bonus system is
based on company profits and on the achievement of key business targets.
The management of divisions and business units have an annual bonus scheme
based on the result of the respective division or business unit and the
achievement of personal key targets in separately defined areas. The maximum
bonus is two months salary. Employees participate in another bonus scheme in
which the bonus is calculated as a certain percentage of each employee's annual
salary, the maximum being 7%. All bonuses are discretionary and are not
partially triggered if the results of the Group do not exceed a predetermined
minimum level.
Bonus systems from 2000 onwards
From the year 2000 on the company has decided to continue the performance-based
bonus system. Initially the system will cover Finland, Sweden and a few other
countries and will later be implemented expanded depending on local practice and
legislation.
Management
For middle and top management a bonus scheme exists of up to 20 - 40% of salary
depending on the person's position in the company. The bonus is linked to the
corporate ROCE target of 13% and individual business targets.
Option scheme for key personnel (1999)
In August, the company announced an annual share option scheme for about 200 key
personnel. The scheme is an integrated part of the top management compensation
structure. Participation and terms of future schemes will be decided separately
each year. The 1999 scheme comprises synthetic options. The seven-year options
may be exercised from 15 July 2002 to 15 July 2005 entitling the participant to
cash compensation in the form of the difference between the strike price and the
prevailing share price. The strike price is EUR 11.75 based on the average price
in May-July plus a premium of 10%. The option scheme is financially hedged
against an increase in the share price and will not dilute existing shares. The
options are not transferable and expire if the employee leaves the company.
Post employement benefits
Pension schemes
The Group has established a number of pension plans for its operations
throughout the world. In Finland pension cover is arranged through Stora Enso's
own pension funds and partly through Finnish insurance companies. In Sweden
pension cover is arranged through book reserves in accordance with the Swedish
"PRI/FPG System" which covers the vast majority of large Swedish corporations.
Pension arrangements for companies outside Finland and Sweden are made in
accordance with the regulations and practice of each country in question. Most
of these programs are defined benefit pension schemes with retirement,
disability, death and termination income benefits. The retirement benefits are
generally a function of years of employment and final salary and coordinated
with local national pensions.
The Group's policy for funding its defined benefit plans is to satisfy local
statutory funding requirements for tax deductible contributions. Under IAS the
discount rate used in actuarial calculations of liability in book reserves have
been adjusted to market rate. The Group has also some fully insured schemes and
defined contribution schemes. The retirement age of the management of Group
companies has been agreed at between 60-65 years. For members of the Executive
Management Group the retirement age has been agreed at 60 years.
Defined benefit pension schemes
31 Dec. 1999 31 Dec. 1998
The amounts recognised in
balance sheet are as follows:
Present value of funded obligations 334.2 295.8
Fair value of plan assets - 302.3 - 281.5
Present value of unfunded obligations 548.9 523.2
Unrecognised actuarial gains/losses 3.5 2.1
Unrecognised prior service cost - 8.9 - 7.9
Net liability in the balance sheet 575.5 531.7
1 Jan.-31 Dec. 1999 31 Dec. 1998
The amounts recognised in
balance sheet are as follows:
Current service cost 18.4
Interest cost 37.1
Expected return on plan assets - 10.4
Net actuarial losses
(-gains) recognised in year - 19.3
Losses curtailment 0.4
Total included in staff costs 26.1
1 Jan.-31 Dec. 1999 31 Dec. 1998
Movements in the liability recognised
in the balance sheet are as follows:
Opening balance at the
beginning of year 569.6
Effect of adopting IAS 19 37.9
Translation differences 26.2
Net expense recognised
in the income statement 26.1
Contributions paid - 46.4
Net liability at the end of the year 575.5 569.6
31 Dec. 1999 31 Dec. 1998
Discount rate, % 5.0-7.3 5.0-6.5
Expected return on plan assets, % 5.5-8.0 6.0-8.0
Future salary increase, % 1.0-4.0 1.0-4.0
Future pension increase, % 1.5-2.8 1.5-2.8
Expected average remaining
working lives of employees 11-18 12-18
Note 29 Earnings per share
Earnings per share were computed dividing profit for the period by the weighted
average number of shares outstanding. Earnings per share - assuming dilution
were computed assuming that all potentially dilutive securities were converted
into shares at the beginning of each year. A reconciliation of the amounts
included in the computation of earnings per share and diluted earnings per share
is as follows:
Stora Enso Oyj's Annual General Meeting of shareholders held on 7 April 1997
decided to offer bonds with equity warrants up to maximum value of FIM 1,000,000
(EUR 168,187.93) for subscription by the company's management. The bonds mature
in 2002 and carry interest at 4%. Each FIM 1,000 (EUR 168.19) bond carries one
warrant entitling the holder to subscribe 3,000 of Stora Enso's series R shares
at a subscription price of EUR 7.66.
<TABLE>
<S> <C> <C> <C> <C>
1999 1998 1997 1996
Profit of the period, EUR million 752.5 191.0 409.0 368.6
Number of shares 759,609,689 759,609,689 759,609,689 759,609,689
Earnings per share, EUR 0.99 0.25 0.54 0.49
Reconciliation of number of sharers
Number of shares 759,609,689 759,579,689 759,579,689 759,579,689
Number of shares under warrants 2,970,000 3,000,000 3,000,000 3,000,000
Diluted number of shares 762,579,689 762,579,689 762,579,689 762,579,689
Diluted earnings per share
Profit for the period, EUR million 752.5 191.0 409.0 368.6
Diluted number of shares 762,579,689 762,579,689 762,579,689 762,579,689
Diluted earnings per share, EUR 0.99 0.25 0.54 0.48
</TABLE>
Note 30 Events subsequent to the balance sheet date
Stora Enso intends to cease production of board during at Molndal April 2000 at
which time the mill's resources will concentrate solely on the production of
paper. Some 200 of the mill's 530 employees are affected by the shutdown.
Codetermination discussions with local unions will be initiated immediately. The
restructuring provisions made in the 1998 accounts will cover the cost of the
shutdown.
In January 2000 Stora Enso Oyj and Fortum Oyj signed a letter of intent
concerning the sale of the main part of Stora Enso's power assets outside the
mills to Fortum group companies or designates.See note 2 segment information for
more details.
In January Stora Enso Group reached an agreement to acquire Finnish paper
merchant Paperi-Dahlberg Oy and Norwegian paper merchant Carl Emil A/S.
Stora Enso has sold its office building in Stockholm. The capital gain will
amount to EUR 23.2 million before tax and will be entered in the first quarter
of 2000.
Note 31 Other operating income
1999 1998
Profit on sale of fixed assets 77.7 7.7
Rent 10.0 12.3
Insurance compensation 0.0 0.1
Subsidies 1.7 1.2
Other 48.6 49.9
138.1 71.2
Note 32 Personnel expenses
1999 1998
Wages and salaries 137.9 133.6
Pensions 28.3 35.9
Other statutory
employees contributions 13.0 14.9
179.2 184.4
Remuneration of members of
the Board of Directors and CEO 1.1 1.7
Specification of pensions and other
statutory employer contribution
Pension expenses paid to
pension funds
Obligatory 22.2 26.6
Voluntary 2.0 3.2
Pension expenses paid to
insurance companies
Obligatory 2.9 3.1
Voluntary 1.6 2.3
Top management
pension arrangements - 0.4 0.7
Other personnel costs
Obligatory 13.0 14.9
41.3 50.8
Average number of personnel 4,202 4,237
Note 33 Other operating expenses
1999 1998
Loss on sale of fixed assets/shares - 0.2 - 0.3
Included in other operating expenses
Parent Company Notes
(Finnish Accounting Standards)
Note 34 Net financing cost
1999 1998
Dividend income 40.3 15.1
Interest income 107.0 139.6
Other financial income 0.4 5.7
Exchange gains and losses 14.2 - 1.3
Interest expenses - 153.7 - 162.1
Other financial expenses 1.8 - 2.1
10.0 - 5.1
Intergroup financial income and expenses at Parent company
Dividend income
Intergroup companies 31.6 3.0
Associated companies 3.4 8.6
Other 5.3 3.5
Total 40.3 15.1
Interest income from
long-term investments
Intergroup 91.4 127.2
Other 1.3 1.8
Total 92.7 129.1
Total income from
long-term investments 133.1 144.2
Other interest income
and financial income
Intergroup 7.0 3.4
Other 7.7 12.8
Total 14.7 16.2
Total income from long-term
investments and other interest
income and financial income 147.7 160.4
Exchange rate
difference on financial items 14.2 - 1.3
Value adjustments of long-term
financial investments 1.8 - 2.1
Interest expense and other
financial expenses - 24.0 - 12.4
Other - 129.8 - 149.7
- 153.7 - 162.1
Financing net 10.0 - 5.1
Note 35 Depreciation
Depreciation according to plan
1999 1998
Intangible rights - 2.4 - 1.6
Goodwill - 0.2 - 0.2
Other intangible assets - 0.1 - 0.1
Buildings and structures - 8.0 - 8.0
Machinery and equipment - 58.7 - 55.2
Other tangible assets - 4.8 - 4.3
- 74.2 - 69.4
Note 36 Fixed assets and long-term investments
Parent company 1 Jan. - 31 Dec. 1999
<TABLE>
<S> <C> <C> <C> <C> <C>
Other Other
intangible Land and Buildings and Machinery tangible
assets water structures equipment assets
Acquisition cost on 1 Jan. 23.0 611.6 249.6 925.9 114.1
Additions 6.1 1.1 4.4 34.5 34.3
Disposals - 1.7 - 0.9 - 10.8 - 1.8
Acquisition cost on 31 Dec. 29.1 611.0 253.1 949.6 146.6
Accumulated depreciation on 1 Jan. 9.7 74.2 460.4 38.6
Depreciation according to plan 2.7 8.0 58.7 4.8
Accumulated depreciation on 31 Dec. 12.4 82.2 519.1 43.4
Carrying value at 31 Dec. 99 16.7 611.0 170.9 430.5 103.2
Carrying value at 31 Dec. 98 13.3 611.6 174.6 454.8 74.2
The carrying value of fixed assets for the parent company at 31 Dec. 1999
includes EUR 46.2 million leasing assets.
Accumulated depreciation difference by type of fixed assets at Parent company
Accum. depreciation difference at 31 Dec. 1998 4.3 24.2 94.4 7.2
Increase 3.0 34.3 2.0
Decrease 0.6 - 3.0
Accum. depreciation difference at 31 Dec. 1999 3.7 0.0 27.2 125.7 9.2
</TABLE>
Note 37 Stocks, shares and loans receivables
At Parent company
1999 1998
Group companies
Shares 5,761.8 5,629.8
Loans receivable 851.6 1,444.5
Total 6,613.4 7,074.3
Associated companies
Shares 10.2 251.5
Loans receivable 1.3 23.9
Total 11.5 275.4
Note 38 Receivables from Management
Management
There are no receivables from Group Management
Note 39 Inventories
1999 1998
Materials and supplies 88.3 93.5
Work in progress 16.7 12.5
Finished goods 42.6 52.3
Other inventories 1.3 5.0
148.9 163.3
Note 40 Short-term receivables
1999 1998
Accounts receivable
Intergroup 110.8 102.1
Associated 3.8 9.5
Others 101.2 66.8
215.8 178.4
Prepaid expenses and accrued income
Intergroup 22.4 215.3
Associated 0.0 0.0
Others 86.0 58.5
108.4 273.8
Other receivables
Intergroup 330.6 3.6
Associated 0.0 4.5
Others 33.3 9.6
363.9 17.7
Total short term receivables 688.1 469.9
Note 41 Short term investments and receivables
1999 1998
Intergroup receivables
Loan receivables 241.5 334.8
Other securities 1,983.6 78.0
Total 2,225.1 412.8
Receivables from
associated companies 0.0 0.0
Loan receivables 1.2 0.9
Other securities 126.6 74.8
Total 2,352.8 488.5
Note 42 Capitalised interest included in
property, plant and equipment
1999 1998
1 Jan. 5.5 7.1
Increase 0.3
Depreciation 1 Jan. - 31 Dec. - 1.6 - 1.6
31 Dec. 4.2 5.5
Note 43 Shareholders' equity
1999 1998
Share capital at 1 Jan. 1,277.5 523.2
Increase 0.1 754.3
Share capital at 31 Dec. 1,277.6 1,277.5
Share issue (options rights) 1.9
Premium fund 1 Jan. 3,771.5
Increase 0.2 3,771.5
Premium fund 31 Dec. 3,771.7 3,771.5
Reserve fund 1 Jan. and 31 Dec. 367.7 367.7
Revaluation reserve 1 Jan. 239.1 239.9
Decrease - 37.9 - 0.8
Revaluation reserve 31 Dec. 201.2 239.1
Non-restricted equity 1 Jan. 693.2 535.2
Dividends paid - 268.3 - 115.1
Profit for the period 340.8 273.1
Non-restricted equity 31 Dec. 765.7 693.2
Distributable funds
Non-restricted equity 765.7 693.2
Untaxed reserves included in
non-restricted equity
Distributable funds 31 Dec. 765.7 693.2
Breakdown of share capital
Series A Series R Total
31 Dec. 1997 116,729,125 194,361,705 311,090,830
Change from Series A to R - 1,357,954 1,357,954 --
Conversion from Stora A and B shares 128,023,484 320,465,375 448,488,859
31 Dec. 1998 243,394,655 516,185,034 759,579,689
Change from Series A to R - 34,443,467 34,443,467 --
Subscription (options rights) 30,000 30,000
31 Dec. 1999 208,951,188 550,658,501 759,609,689
Subscription (options rights) 246,000 246,000
26 Jan. 2000 208,951,188 550,904,501 759,855,689
Votes 208,951,188 55,065,850 264,017,038
Series A (1 vote/share)
Series R (1 vote/10 shares, minimum 1 vote)
Share capital at 31 Dec. 1999, EUR million 351.4 926.1 1,277.6
Note 44 Short term borrowings
1999 1998
Other short term loans
Intergroup 2,469.4 366.8
Associated companies 0.3 1.7
Others 213.1 68.3
2,682.8 436.8
Other interest-bearing borrowings 321.2 273.1
Total 3,004.0 709.9
Note 45 Other current liabilities
1999 1998
Advanced received
Intergroup 0.0 0.0
Others 1.2 0.1
1.2 0.1
Trade payables
Intergroup 23.9 19.5
Associated 0.5 0.9
Others 91.3 78.5
115.7 88.9
Other current liabilities
Intergroup 0.5 38.8
Others 14.3 12.8
14.8 51.6
Accrued liabilities and deferred income
Intergroup 6.3 5.6
Associated 0.1 23.8
Others 87.9 92.4
94.3 121.8
226.0 272.4
Note 46 Commitments and contingent liabilities
1999 1998
On own behalf
Pledges given 12.6 8.7
Mortgages 423.1 600.9
On behalf of Group companies
Guarantees 2,289.3 267.7
On behalf of associated companies
Guarantees 9.6 111.7
On behalf of others
Guarantees 96.9 1.9
Other commitments, own
Leasing commitments, in 2000 2.4 2.4
Leasing commitments, after 2000 19.8 21.8
Pension liabilities 0.5 0.9
Total
Pledges given 12.6 8.7
Mortgages 423.1 600.9
Guarantees 2,395.8 381.2
Leasing commitments 22.2 24.2
Pension liabilities 0.5 0.9
Total 2,854.2 1,015.9
Stora Enso Oyj has undertaken to guarantee the leasing agreements relating to
Enso Espanola SA to a maximum of EUR 38,136,376.34. The commitments extends
until 23 December 2003.
Proposal for the distribution of dividend
The consolidated balance sheet shows retained shareholders' equity at 31
December, 1999, of EUR 3,977.4 million of which EUR 2,590.2 million is
distributable. Distributable shareholders'equity of the parent company was EUR
765,707,331.57 at 31 December 1999. The Board of Directors proposes to the
Annual General Meeting that the profit for the financial period of EUR
340,801,360.13 be transferred to retained earnings and that dividend be
distributed as follows:
Profits from previous periods 424,905,971.44
Profit for the financial period 340,801,360.13
To be placed at the disposal
of the Board of Directors - 1,000,000.00
Dividend of EUR 0.40 per share
to be distributed to 759,855,689 shares - 303,942,275.60
Retained earnings after
distribution of dividend 460,765,055.97
Helsinki, 10 February, 2000
Claes Dahlback
Chairman
Krister Ahlstrom
Vice Chairman
Josef Ackermann
Raimo Luoma
Jan Sjoqvist
Jukka Harmala
CEO
Harald Einsmann
Paavo Pitkanen
Marcus Wallenberg
Bjorn Hagglund
Deputy CEO
<PAGE>
Auditors' report
To the shareholders of Stora Enso Oyj
We have audited the accounting records, the financial statements and the
administration of Stora Enso Oyj for the year ended 31 December 1999. The
financial statements prepared by the Board of Directors and the President and
Chief Executive Officer include a report of the Board of Directors, consolidated
financial statements of the Stora Enso Group prepared in accordance with
International Accounting Standards (IAS), and parent company financial
statements prepared in accordance with prevailing rules and regulations in
Finland (FAS), both including a balance sheet, an income statement, a cash flow
statement and notes to the financial statements. Based on our audit, we express
an opinion on these financial statements and on the parent company's
administration.
We conducted our audit in accordance with Finnish Standards on Auditing. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by the management, as
well as evaluating the overall financial statement presentation. The purpose of
our audit of the administration has been to examine that the members of the
Board of Directors and the President and Chief Executive Officer have legally
complied with the rules of the Finnish Companies' Act.
In our opinion, the consolidated financial statements prepared in accordance
with International Accounting Standards (IAS) give a true and fair view of the
Stora Enso Group's consolidated result of operations, as well as of the
financial position. The consolidated financial statements are in accordance with
prevailing rules and regulations in Finland and can be adopted.
The parent company's financial statements have been prepared in accordance
with the Finnish Accounting Act and other rules and regulations and give a true
and a fair view of the parent company's result of operations and financial
position. The parent company's financial statements can be adopted and the
members of the Board of Directors and the President and Chief Executive Officer
of the parent company can be discharged from liability for the period audited by
us. The proposal by the Board of Directors regarding the distributable funds is
in compliance with the Finnish Companies' Act.
Helsinki, 22 February 2000
SVH Pricewaterhouse Coopers Oy KPMG Wideri Oy Ab
Authorised Public Accountants Authorised Public Accountants
Pekka Nikula Hannu Niileksela
Authorised Public Accountant Authorised Public Accountant
Shares and shareholders
Share capital
In accordance with the Articles of Association, the minimum share capital of the
company is FIM 5,000 million and the maximum FIM 20,000 million within which
limits the share capital may be raised or lowered without amending the Articles.
On 26 January 2000, the company's fully paid-up share capital entered in the
Finnish Trade Register amounted to FIM 7,598.6 million. During the year, the
share capital rose by FIM 2,760,000 as a result of a share issue based on
warrants. As a consequence of the share issue and the conversion of A shares
into R shares, the distribution of shares changed. The composition of Stora
Enso's share capital is shown in the Change in share capital table (page 89).
Shares
The company's shares are divided between Series A and Series R shares. All
shares carry equal rights to receive a dividend. The difference lies in voting
rights. At an Annual General Meeting, each A share and each ten R shares entitle
the holder to one vote. However, each shareholder has at least one vote. The
nominal value of the shares is FIM 10 per share.
Under the Articles of Association, the company's A shares may be converted
into R shares at the request of a shareholder on dates to be decided annually by
the Board of Directors. During the conversion period of 6-24 September 1999 a
total of 2,690 requests for conversion were made. On the basis of these requests
34,443,467 A shares were converted into R shares. In October- December, 276,000
R shares were issued against bonds with warrants issued to the management in
1997. Since 26 January 2000 numbers of shares and the distribution of the two
series are as follows:
Series A 208,951,188
Series R 550,904,501
Total 759,855,689
The company's shares are entered in the Book-Entry Securities System maintained
by the Finnish Central Securities Depository. On 31 December 1999, 371,666,280
of the company's shares were registered in the Swedish Securities Register
Center as so-called VPC shares. For the purpose of trading or participation in
an Annual General Meeting, the shares may be transferred from one system to the
other by notifying the bank responsible for managing the shareholder's
book-entry securities account.
Share listings
Stora Enso's shares are listed on the Helsinki and Stockholm stock exchanges.
The shares are quoted in Helsinki in euro (EUR) and in Stockholm in euro (EUR)
and Swedish crown (SEK).
Authorisations
The Board of Directors has currently no authorisation to issue shares,
convertible bonds or bonds with warrants. The Board has no authorisation to
purchase Stora Enso's own shares.
Option scheme for management (1997)
On 7 April 1997, the company issued bonds with warrants, with a maximum value of
FIM 1,000,000, to 15 members of the senior management. Each FIM 1,000 bond
carries one warrant entitling the holder to subscribe for 3,000 R shares at a
subscription price of FIM 45.57 each. The exercise period is from 1 December
1998 to 31 March 2004. By the end of 1999, 276,000 R shares had been issued
against warrants. If fully subscribed, the issue will increase the share capital
by a maximum of FIM 30 million. The shares represent about 0.4% of the share
capital or a maximum of 0.1% of the voting rights after the exercise of
warrants.
Option scheme for key personnel (1999)
In August, the company announced an annual share option scheme for about 200 key
persons. The scheme is an integrated part of the top management compensation
structure. Participation and terms of future schemes will be decided separately
each year. The 1999 scheme comprises synthetic options. The seven-year options
may be exercised from 15 July 2002 to 15 July 2005 entitling the participant to
cash compensation in the form of the difference between the strike price and the
prevailing share price. The strike price is EUR 11.75 based on the average price
in May-July plus a premium of 10%. The option scheme is financially hedged
against an increase in the share price and will not dilute existing shares.
Management interests at 31 December 1999
At the end of 1999, members of Stora Enso's Board of Directors, the CEO and the
DCEO owned an aggregate total of 54,684 Stora Enso shares, of which 19,275 were
Series A shares. These shares represent 0.0% of the company's share capital and
voting rights. The CEO also holds 133,000 bonds with warrants, entitling him to
subscribe for 399,000 R shares representing 0.0% of the company's voting rights.
The CEO holds 112,500 synthetic options. Members of the Management Group own a
combined total of 53,204 shares and bonds with warrant entitling to 1,149,000
series R shares. The Management Group's ownership represents 0.16% of the share
capital after the exercise of warrants. The Management Group holds 973,720
synthetic options.
Shareholdings of other Group-related bodies at 31 December 1999
Enso's pension foundation owned 1,300,000 A shares. Stora Enso's profit-sharing
scheme owned 315,140 Stora Enso A shares and 114,000 R shares. E.J. Ljungberg's
Training Fund owned 1,880,540 A shares and 4,831,804 R shares. E.J. Ljungberg's
Fund owned 39,534 A shares and 109,873 R shares. Stiftelsen Bergslagets Sjuk-
och Halsovardskassa owned 626,269 A shares and 1,609,483 R shares. Mr. and Mrs.
Ljungberg's Testamentary Fund owned 5,093 A shares and 13,085 R shares.
Shareholders
The major shareholders are the Finnish State, which owns 18.0% of the shares and
24.1% of the voting rights and the Swedish investment group, Investor AB, which
owns 10.3% of the shares and 24.1% of the voting rights. After the five largest
holders the free float of shares is about 56% and of votes 32%. In June 1998 the
Finnish Parliament passed a resolution to abolish the provision requiring the
State to hold a one-third interest in the company.
At the end of 1999 the company had approximately 65,000 shareholders.
Ownership outside Finland and Sweden is 32% of the shares.
Share price performance and turnover
Stora Enso's R share price rose during the year by 126% (106% in Stockholm).
During the same period the HEX General Index rose by 162%, the Helsinki
portfolio index 66% and the HEX Forest Index by 93%. The SX General Index rose
by 66% and Stockholm Forest Index by 63%.
On 30 December 1999, the closing prices on the Helsinki Exchanges were EUR
17.60 per A share and EUR 17.31 per R share. The closing prices on the Stockholm
Stock Exchange were SEK 149.00 and SEK 146.00 respectively. The trading high in
Helsinki was EUR 17.70 (30 Dec.) and the trading low EUR 6.60 per R share (25
Jan.). The volume weighted average price of the R share over the year was EUR
11.84 (SEK 99.67 in Stockholm), 42% higher than in 1998. In Helsinki, the
trading volume totalled 287,636,231 shares (391,729,918 in Stockholm), the
average daily volume being about 1,145,961 shares (1,560,677 in Stockholm).
Total market capitalisation in Helsinki at the year end was EUR 13.2 billion.
Purchase of remaining STORA shares
In January 1999 Stora Enso initiated the compulsory redemption of STORA shares,
offering to purchase STORA A and B at a price per share of SEK 88. During the
year 8,231,180 shares were purchased for an aggregate price of EUR 83 million.
At the year end Stora Enso held 98.7% of the shares. The compulsory redemption
procedure has been referred to arbitration and is still under consideration.
Stora Enso share is included in at least the following indices:
HEX General Index DJ Stoxx
FOX Index DJ Euro Stoxx
HEX 20 DJ Stoxx Nordic 30
HEX Portfolio Index DJ Sustainability Group Index
HEX Forest Index Index FTSE
SX General Index Norex 30
Stockholm Forest Index
Trading codes and lots
Helsinki Exchanges Stockholm Stock Exchange
A share STEAV STE A and STE AE
R share STERV STE R and STE RE
Trading lot 100 200
SHARE PRICE PERFORMANCE IN HELSINKI, MONTHLY AVERAGE GRAPHIC OMITTED
VOLUMES OF STORA ENSO R SHARES TRADED IN 1999 IN HELSINKI AND IN STOCKHOLM
GRAPHIC OMITTED
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Share price Cumulative turnover from
and turnover Closing price, SEK Closing price, EUR 1 Jan. 1999, number
30 December 1999 Series A Series R Series A Series R Series A Series R
Helsinki Exchanges 17.60 17.31 28,348,798 259,287,433
Stockholm Stock Exchange 149.00 146.00 -- 12.90* 90,825,743 300,904,175
Total turnover 119,174,541 560,191,608
% of total number of shares 50.9 106.6
*) 10 November 1999
</TABLE>
Largest Shareholders as of 30 December 1999
<TABLE>
<S> <C> <C> <C> <C>
% of % of
A shares R shares votes shares
Finnish State 55,595,937 81,483,501 24.1 18.0
Investor AB 61,991,786 15,900,962 24.1 10.3
Social Insurance Institution of Finland 23,825,086 3,738,965 9.2 3.6
Sampo-Varma Group 20,250,785 7.7 2.7
Fourth General Pension Fund 7,318,308 8,732,091 3.1 2.1
Robur 54,522,146 2.1 7.2
Franklin Resources Inc.*) 848,981 36,124,746 1.7 4.9
Skandia Life 2,305,855 3,858,602 1.0 0.8
Erik Johan Ljungberg's Training Fund 1,880,540 4,831,804 0.9 0.9
Knut and Alice Wallenberg Foundation 1,670,467 2,387,000 0.7 0.5
Enso's pension foundation 1,300,000 0.5 0.2
SPP Insurance Company 12,400 7,782,652 0.3 1.0
Bergslaget's Sick and Healthcare Foundation 626,269 1,609,483 0.3 0.3
Handelsbanken's Pension Fund 635,000 1,180,000 0.3 0.2
Gamla livforsakringsaktiebolaget
(insurance company) 582,557 1,613,564 0.3 0.3
Pohjola Life Assurance Company Ltd 675,000 330,000 0.3 0.1
MP-Bolagen i Vetlanda AB 536,200 1,303,800 0.3 0.2
Finnish Cultural Foundation 600,000 0.2 0.1
Mutual Insurance Company Pension-Fennia 380,137 1,134,986 0.2 0.2
Svenska Handelsbanken Ab 395,763 246,150 0.2 0.1
20 largest in total 181,431,071 226,780,452 77.3 53.7
Other 27,520,117 323,878,049 22.7 46.3
Total 208,951,188 550,658,501 100.0 100.0
*) On 23 November
Distribution of shares, 30 December 1999
By shareholding, % shares voting rights shareholders
Finnish institutions 28.4 44.3 1.9
Swedish institutions 32.2 39.1 4.5
Finnish private persons 1.5 1.7 22.2
Swedish private persons 5.6 3.8 70.1
Non-Finnish/Swedish owners 32.3 11.1 1.3
Total 100.0 100.0 100.0
By size of holding, Stora Enso A
Shareholders % Shares %
1-100 2,036 31.90 99,583 0.05
101-1,000 3,384 53.02 1,378,377 0.66
1,001-10,000 869 13.61 2,305,906 1.10
10,001-100,000 69 1.08 1,644,140 0.79
100,001-1,000,000 15 0.23 4,359,277 2.09
1,000,001- 10 0.16 199,145,073 95.31
Total 6,383 100.00 208,932,356 100.00
According to Finnish Central Security Deposity
By size of holding, Stora Enso R
Shareholders % Shares %
1-100 2,795 26.09 149,627 0.03
101-1,000 5,731 53.50 2,514,934 0.46
1,001-10,000 1,877 17.52 5,537,490 1.01
10,001-100,000 244 2.28 6,661,558 1.21
100,001-1,000,000 57 0.53 17,070,696 3.10
1,000,001- 8 0.07 518,683,740 94.19
Total 10,712 100.00 550,618,045 100.00
According to Finnish Central Security Deposity
By book-entry systems, number
Series A Series R Total
FCSD-registered
(Finnish Central Securities Depository) 113,116,668 274,767,453 387,884,121
VPC-registered
(Swedish Securities Register Center)* 95,815,688 275,850,592 371,666,280
FCSD waiting list 300 6,200 6,500
FCSD common account 18,532 34,256 52,788
Total 208,951,188 550,658,501 759,609,689
</TABLE>
*) The VPC-registered shares are also FCSD-registered
[MARKET CAPITALISATION 1995-1999 GRAPHIC OMITTED-DATA TO BE SUPPLIED]
[EARNINGS AND DIVIDEND PER GRAPHIC OMITTED-DATA TI BE SUPPLIED]
<TABLE>
<S> <C> <C> <C> <C>
Share capital Number of Number of
Change in share capital shares shares
1997-1999 (FIM million) Series A Series R Total
Enso Oyj, 31 Dec.1997 3,110.9 116,729,125 194,361,705 311,090,830
Conversion of 1,357,954
Enso Oyj series A shares
into series R shares,
7-11 Sept. 1998 -1,357,954 1,357,954
Conversion of STORA
series A and B shares into
Stora Enso Oyj
series A and R shares,
23 Dec. 1998 1,374.0 128,023,484 320,465,375 448,488,859
Stora Enso Oyj, 31 Dec. 1998 7,595.8 243,394,655 516,185,034 759,579,689
Conversion of Stora Enso series A
shares into series R shares,
6-24 Sept.1999 -34,443,467 34,443,467
Subscription of new Stora Enso Oyj
series R shares 26 Oct. 1999 30,000 759,609,689
Stora Enso Oyj, 31 Dec. 1999 7,596.1 208,951,188 550,658,501 759,609,689
Subscription of new Stora Enso Oyj
series R shares
(entered in the Finnish Trade Register
26 Jan. 2000) 246,000 759,855,689
Stora Enso Oyj, 26 Jan. 2000 7,598.6 208,951,188 550,904,501 759,855,689
Key share ratios 1995-1999
According to Helsinki Exchanges 1999 1998 1997 1996 1995
Earnings/share*, EUR 0.99 0.25 0.54 0.49 1.33
Earnings/share, adjusted**, EUR 0.99 0.25 0.54 0.48 1.32
Equity/share, EUR 7.84 6.93 7.26 6.96 6.66
Dividend/share, EUR 0.40*** 0.35 0.33 0.30 0.23
Payout ratio, % 40.4 140.4 62.2 62.7 17.5
Dividend yield, % Series A 2.3 4.7 5.2 4.9 7.8
Series R 2.3 4.6 5.2 4.9 7.8
Price / earnings (P/E) Series A 17.8 30.1 7.2 8.2 2.9
Series R 17.5 30.5 7.2 8.2 2.9
Share prices****, EUR Series A
- closing price for the period 17.60 7.57 7.15 6.21 4.86
- average price 11.21 9.14 7.75 6.09 6.02
- highest price 17.60 11.77 9.86 6.48 7.01
- lowest price 6.45 5.40 6.22 5.65 4.46
Series R
- closing price for the period 17.31 7.67 7.10 6.22 4.88
- average price 11.84 8.35 7.97 6.18 6.17
- highest price 17.70 11.86 10.01 6.59 7.06
- lowest price 6.60 5.30 6.17 5.68 4.46
Market capitalisation at year-end
Series A, EUR million 3,677 1,842 834 1,116 653
Series R, EUR million 9,532 3,959 1,379 817 529
Total market capitalisation
at year-end, EUR million 13,209 5,801 2,214 1,933 1,182
Number of shares at the end of the period (thousands)
Series A 208,951 243,395 116,729 179,769 134,408
Series R 550,659 516,185 194,362 131,322 108,445
Total number of shares 759,610 759,580 311,091 311,091 242,853
Adjusted number of shares, average for the period
Series A 234,052 -- 174,415 179,769 134,408
Series R 525,557 -- 136,676 131,321 108,445
Share turnover, (1,000)
Series A 28,349 12,749 16,321 17,305 30,720
% of total number of share***** -- -- 9.4 9.6 22.9
Series R 259,287 87,113 109,698 74,971 81,677
% of total number of share***** -- -- 80.3 57.1 75.3
</TABLE>
* 1998 earnings per share before non-recurring items were EUR 0.79 and the
payout ratio 44.6.
** After potential increase of three million shares due to share options
(IAS 33)
*** Board of Directors' proposal to the Annual General Meeting
**** Ratios based on market information are calculated from Enso Oyj's figures
before 29 December 1998.
***** 1999 figures are shown on page 87 and 1998 figures are not available due
to the merger on 28 December 1998.
Year 1995 ratios calculated from Enso-Gutzeit Oy's figures.
<PAGE>
Board of Directors
Front row, from left to right:
Krister Ahlstrom, Jukka Harmala, Claes Dahlback and Bjorn Hagglund.
Back row, from left to right:
Raimo Luoma, Jan Sjoqvist, Josef Ackermann, Marcus Wallenberg and Paavo
Pitkanen.
(Missing from the photo Harald Einsmann)
Claes Dahlback
Chairman
Born 1947. M.Sc. (Ec.), D.Ec. (h.c.).
Vice Chairman, Investor; Chairman, Vin & Sprit, EQT and Gambro; Vice Chairman of
SEB.
Number of shares held in Stora Enso: 2,541 A and 9,529 R.
Krister Ahlstrom
Vice Chairman
Born 1940. M.Sc. (Eng), D.Eng. (h.c.).
Former Chairman and CEO, A. Ahlstrom Corporation; Chairman of the Board, Maizels
MeritaNordbanken; Vice Chairman of the Board, Fortum Corp; Vice Chairman of the
Supervisory Board, Sampo Insurance Company; Member of the Supervisory Board,
Merita Bank.
Number of shares held in Stora Enso: 1,500 A.
Josef Ackermann
Born 1948. Dr. (Oec).
Member of the Group Board of Deutsche Bank; Member of the Supervisory Board,
Linde, EUREX Zurich, Mannesmann and several other international institutions.
Number of shares held in Stora Enso: 1,300 R.
Harald Einsmann
Born 1934. Ph.D. (Econ.).
Member of the Board, EMI Group, UK, Tesco Ltd, UK, BAT Ltd, IBM UK (Advisory
Board); Member of the Advisory Board, University of Boston in Brussels; Member
of the Board, Festival of Flanders.
Number of shares held in Stora Enso: 0.
Bjorn Hagglund
Deputy CEO
Born 1945. Dr. of Forestry.
Chairman of the Employers' Federation of Swedish Forest Industries; Member of
the Board, Federation of Swedish Industries, Swedish Employers' Confederation
and Swedish University of Agricultural Sciences; Member of the Royal Swedish
Academy of Engineering Sciences and the Royal Swedish Academy of Agriculture and
Forestry.
Number of shares held in Stora Enso: 7,877 A and 14,618 R.
Number of synthetic options: 93,750.
Jukka Harmala
CEO
Born 1946. B.Sc. (Econ.), D.Eng. (h.c.).
Vice Chairman, Confederation of Finnish Industry and Employers; Member of the
Board, Finnish Forest Industries Federation; Chairman of the Board of the Sampo
Insurance Company; Vice Chairman of the Board of Finnlines; Member of the
Supervisory Board, Merita Bank.
Number of shares held in Stora Enso: 3,000 R and warrants entitling to 399,000
R shares. Number of synthetic options: 112,500.
Raimo Luoma
Born 1959. Master of Laws, Attorney-at-Law, LL.M. (Brussels).
Partner and Vice Chairman of the Board,
Asianajotoimisto Krogerus & Pirila Oy.
Number of shares held in Stora Enso: 0.
Paavo Pitkanen
Born 1942. M.Sc. (Math.).
President and CEO, Varma-Sampo Mutual Pension Insurance Company; Member of the
Board, Metra, Partek and Sampo Insurance Company; Vice Chairman of the
Supervisory Board of Alma Media. Member of the Supervisory Board, Kesko
Corporation.
Number of shares held in Stora Enso: 3,800 A.
Jan Sjoqvist
Born 1948. MBA.
President and CEO, NCC; Member of the Board, NCC.
Number of shares held in Stora Enso: 508 A and 943 R.
Marcus Wallenberg
Born 1956. B.Sc. (Foreign Service).
President and CEO, Investor; Vice Chairman, Ericsson and Saab; Member of the
Board, Astra, AstraZeneca, Investor, Scania, the Knut and Alice Wallenberg
Foundation, SEB, SAS Assembly of Representatives and Volvo.
Number of shares held in Stora Enso: 3,049 A and 6,019 R.
Management Group
1 Jukka Harmala CEO
Born 1946. Employed by Enso 1970-84 and 1988-98.
Number of shares held in Stora Enso: 3,000 R. Warrants entitling to
399,000 R shares. Number of synthetic options: 112,500.
2 Bjorn Hagglund
Deputy CEO
Born 1945. Joined STORA in 1991.
Number of shares held in Stora Enso: 7,877 A and 14,618 R.
Number of synthetic options: 93,750.
3 Kimmo Kalela
Senior Executive Vice President, Strategy and Business Development
Born 1941. Joined Enso in 1986.
Number of shares held in Stora Enso: 0. Warrants entitling to 180,000 R shares.
Number of synthetic options: 46,900.
4 Kai Korhonen
Senior Executive Vice President, Newsprint
Born 1951. Joined Enso in 1977.
Number of shares held in Stora Enso: 0.
Number of synthetic options: 46,900.
5 Pekka Laaksonen
Senior Executive Vice President, Packaging Boards
Born 1956. Joined Enso in 1979.
Number of shares held in Stora Enso: 0.
Number of synthetic options: 46,860.
6 Esko Makelainen
Senior Executive Vice President, Financial Control and Legal Affairs
Born 1946. Joined Enso in 1970.
Number of shares held in Stora Enso: 1,900 A and 3,169 R.
Warrants entitling to 180,000 R shares.
Number of synthetic options: 46,900.
7 Ingvar Petersson
Senior Executive Vice President, Financial Services and IT; Base Resources
Born 1941. Joined STORA in 1986.
Number of shares held in Stora Enso: 2,602 A and 6,251 R.
Number of synthetic options: 46,900.
8 Bernd Rettig
Senior Executive Vice President, Magazine Paper
Born 1956. Joined STORA in 1982.
Number of shares held in Stora Enso: 0.
Number of synthetic options: 46,900.
9 Yngve Stade
Senior Executive Vice President, Corporate Support
Born 1947. Joined STORA in 1994.
Number of shares held in Stora Enso: 254 A and 471 R.
Number of synthetic options: 46,900.
10 Jouko Taukojarvi
Senior Executive Vice President, Fine Paper
Born 1941. Joined Enso in 1964.
Number of shares held in Stora Enso: 1,000 A.
Warrants entitling to 150,000 R shares.
Number of synthetic options: 49,350.
Executive Management Group consists of people above.
11 Lars Bengtsson
Executive Vice President, Fine Paper
Born 1945. Joined STORA in 1986.
Number of shares held in Stora Enso: 0.
Number of synthetic options: 46,900.
12 Magnus Diesen
Senior Vice President, Corporate Strategy and Investments
Born 1944, Joined Enso in 1988.
Number of shares held in Stora Enso: 0.
Warrants entitling to 30,000 R shares.
Number of synthetic options: 32,900.
13 Seppo Hietanen
Executive Vice President, Asia Pacific
Born 1945. Joined Enso in 1976.
Number of shares held in Stora Enso: 2,000 R. Warrants entitling to 75,000
R shares. Number of synthetic options: 32,900.
14 Sten Holmberg
Executive Vice President, Continuous Productivity Improvement
Born 1948. Joined STORA in 1980.
Number of shares held in Stora Enso: 0.
Number of synthetic options: 32,900.
15 Sven von Holst
Senior Vice President, Marketing and Sales
Born 1948. Joined STORA in 1995.
Number of shares held in Stora Enso: 0.
Number of synthetic options: 32,900.
16 Jyrki Kurkinen
Senior Vice President, Legal Affairs
Born 1948. Joined Enso in 1979.
Number of shares held in Stora Enso: 2,648 A and 5,920 R.
Warrants entitling to 75,000 R shares.
Number of synthetic options: 32,900.
17 Arno Pelkonen
Executive Vice President, Timber Products
Born 1954. Joined Enso in 1984.
Number of shares held in Stora Enso: 0.
Number of synthetic options: 46,860.
18 Sven Rosman
Executive Vice President, Merchants
Born 1945. Joined STORA in 1991.
Number of shares held in Stora Enso: 0.
Number of synthetic options: 32,900.
19 Kari Vainio
Executive Vice President, Communications and Investor Relations
Born 1946. Joined Enso in 1985.
Number of shares held in Stora Enso: 5 A and 1,200 R.
Warrants entitling to 60,000 R shares.
Number of synthetic options: 32,900.
20 Christer Agren
Executive Vice President, Human Resources
Born 1954. Joined STORA in 1993.
Number of shares held in Stora Enso: 0.
Number of synthetic options: 32,900.
21 Bert Ostlund
Executive Vice President, Pulp
Born 1948. Joined STORA in 1986.
Number of shares held in Stora Enso: 101 A and 188 R.
Number of synthetic options: 32,900.
Group profile
Stora Enso Oyj, domiciled in Finland, is one of the world's leading forest
products companies. Core businesses include magazine paper, newsprint, fine
paper and packaging boards. In these product areas the Group holds a leading
global market position. Stora Enso also conducts extensive sawmilling
operations. The Group has annual sales of approximately EUR 10.5 billion and
some 40,000 employees in more than 40 countries. The company's shares are listed
on the Helsinki and Stockholm stock exchanges.
Group structure
[GRAPHIC OMITTED]
Group worldwide presence
[MAP OMITTED]
Packaging boards
Magazine paper
Timber
Merchants
Newsprint
Fine paper
Market pulp
[MAP OMITTED]
Sales Companies
Corporate governance
The principles of Stora Enso's corporate governance policy comply with the
Finnish Companies Act, which the policy supplements.
The Board of Directors, the Chief Executive Officer (CEO) and the Deputy Chief
Executive Officer (Deputy CEO) are responsible for the management of the
company. The duties of the various bodies within the company are determined by
the laws of Finland and by the corporate governance policy decided by the Board
of Directors.
The other governance bodies have an assisting and supporting role.
Stora Enso prepares annual and interim financial accounts conforming to
international accounting standards and published in Finnish, Swedish and
English.
Stora Enso is managed from dual headquarters in Sweden and Finland.
Stora Enso has two auditors.
To the fullest extent possible, corporate actions and corporate records are
taken and recorded in English.
Governance bodies
The decision-making bodies with responsibility for managing the company are:
Board of Directors
o Compensation Committee
The main decision taken by the committee in 1999 was the
approval of the future compensation policy of the Group. In addition it approved
the 1999 remuneration of an identified group of 200 key employees.
CEO and Deputy CEO
o Executive Management Group (EMG)
o Management Group (MG)
o Investment Committee
o Environmental Committee
o R&D Committee
Day-to-day operational responsibility rests with the divisional managements and
their operations teams.
Objectives and composition of governance bodies
Board of Directors
Stora Enso is managed by a Board of Directors under international two-tier
corporate governance principles.
The Board of Directors consists of 10 ordinary members: 8 non-executives and 2
executives. The members are appointed by the Annual General Meeting for a
one-year term.
The Board convened 8 times in 1999.
The Board supervises the operation and management of Stora Enso and decides
upon significant matters concerning strategy, investments, organisation and
finance.
The Board is responsible for the management and proper organisation of the
operations of the company. It is likewise responsible for the proper supervision
of the accounting and the control of the financial matters of the company.
The Board elects a Chairman and a Vice-Chairman from among its members and
appoints a CEO, deputy CEO and heads of divisions and staff functions. The Board
approves the organisational structure of the company.
The Board appoints the Compensation Committee.
Chief Executive Officer (CEO)
The CEO is in charge of the day-to-day management of the company in accordance
with instructions and orders issued by the Board of Directors. It is the duty of
the CEO to ensure that the company's accounting methods comply with the law and
that financial matters are handled in a reliable manner.
The CEO is in charge of the following: strategy (long-range planning and
investments), finance and financial planning, corporate communications, investor
relations, preparatory work with regard to Board meetings. In addition he
supervises decisions regarding personnel and other important operational
matters.
Deputy Chief Executive Officer (Deputy CEO)
The Deputy CEO acts as deputy to the CEO. The Deputy CEO is in charge of
operational matters as follows: monitoring and coaching of the divisions,
corporate support functions (purchasing, logistics), resources (wood, energy),
R&D, environmental matters and human resources.
Executive Management Group (EMG)
The Executive Management Group is chaired by the CEO. It consists of the Deputy
CEO, four divisional heads (Magazine Paper, Newsprint, Fine Paper, Packaging
Boards) and the heads of the following staff functions: Strategic Business
Development Group, Financial Administration and Legal Matters, Finance, IT and
Base Resources, Corporate Support.
The EMG's tasks and responsibilities are as follows: investment planning and
follow-up, control of mergers and acquisitions and divestments, preparation of
strategic guidelines, allocation of resources, review of key day-to-day
operations and operational decisions, preparatory work with regard to Board
meetings, review of main aspects of sales network.
The EMG convened 6 times in 1999.
Management Group (MG)
The tasks and responsibilities of the Management Group are to review the budget,
strategy and daily business development. The members of the Management Group are
as follows: the members of the EMG and divisional heads as well as heads of
staff functions.
The CEO may also appoint additional members.
The Management Group convened 6 times in 1999.
Investment Committee
The Investment Committee is chaired by the head of the Strategic Business
Development Group. Committee members are appointed by the CEO.
The tasks and responsibilities of the Investment Committee are as follows: the
coordination of investment planning and the approval process, the coordination
of the investment completion audit and follow-up process, participation in the
planning and execution of large investment projects and the making of
recommendations regarding funds available for investments.
The Investment Committee convened 11 times in 1999.
The committee has formulated instructions for the feasibility assessment of
large investments to support the Group investment guidelines, and to emphasise
the importance of thorough investment planning. The committee has investigated
all large investment proposals and allocations of divisional funds before
decision.
Environmental Committee
The Environmental Committee is chaired by the Deputy CEO. Committee members are
appointed by the CEO.
The purpose and tasks of the Environmental Committee are as follows: to
formulate and communicate corporate environmental strategy and policy for
divisions, to coordinate relations and communication with governmental /
non-governmental organisations, and other stakeholders, to establish
environmental management procedures, to produce the annual Environmental Report.
The Environmental Committee convened 4 times in 1999.
The Committee prepared a Group Environmental and Social responsibility policy,
which was approved by the Management Group. It is also defined principles of
Forest Certification and Genetic Engineering respectively. The Committee agreed
on workplan and budgeting of the shared Group level resource Stora Enso
Environmental and decided to install an Environment Coordination Team to further
strengthen knowledge management.
R&D Committee
The R&D Committee is chaired by the deputy CEO. Members are appointed by the
CEO.
The purpose and tasks of the R&D Committee are as follows: to assist the
Group's businesses to achieve and maintain quality and productivity leadership
by facilitating high-quality R&D to monitor technology and future-oriented
product development, to recommend the extent of overall R&D activities within
the Group.
The R&D Committee convened 4 times in 1999.
The Committee defined the principles for funding and steering joint Group
level R&D resources, the main guidelines for participating in joint R&D. It has
begun the process of defining R&D strategy, core competencies and key
capabilities of the Group.
Auditors
Auditors of Stora Enso Oyj are SVH Pricewaterhouse Coopers Oy (Certified Public
Accountants) with Pekka Nikula, CPA, as the principal auditor and KPMG Wideri Oy
Ab with Hannu Niileksela , CPA, as the principal auditor.
Information on management remuneration is given in note 6 and details of
management share ownership on page 92-93.
<TABLE>
<S> <C> <C> <C>
Capacity specification 2000
Mill Location Grade Capacity
Magazine paper, 1,000 tonnes 3,175
Anjala FI MFC 145
Corbehem FR LWC 515
Kabel DE LWC, MWC, HWC 595
Kotka FI MFC 145
Kvarnsveden SE SC 110
Langerbrugge BE SC 115
Maxau DE SC 365
Port Hawkesbury CA SC 350
Reisholz DE SC 210
Summa FI SC 80
Veitsiluoto FI LWC, MWC 405
Wolfsheck DE Wallpaper 50
Wolfsheck DE SC 90
Newsprint 1,000 tonnes 3,295
Anjala FI News, Impr. news, book 355
Hylte SE News 805
Kvarnsveden SE News, Impr. news 580
Langerbrugge BE News 130
Maxau DE News 225
Port Hawkesbury CA News 185
Sachsen DE News, Directory 310
Summa FI News, Impr. news 420
Varkaus FI News, Impr. news, Directory 270
Wolfsheck DE News 15
Fine paper, 1,000 tonnes 3,215
Berghuizer NL Uncoated 175
Grycksbo SE Coated 240
Imatra FI Coated 90
Imatra FI Uncoated 200
Molndal SE Uncoated 35
Molndal SE Coated 65
Nymolla SE Coated 150
Nymolla SE Uncoated 300
Oulu FI Coated 810
Suzhou CN Coated 140
Uetersen DE Coated 245
Varkaus FI Coated 80
Varkaus FI Uncoated 220
Veitsiluoto FI Uncoated 470
Packaging boards, 1,000 tonnes
Baienfurt DE FBB 175
Barcelona SP WLC 145
Fors SE FBB 320
Gruvon SE SC, Fluting, Kraft Papers 535
Heinola FI Fluting 260
Imatra FI LPB, SBS, FBB 815
Inkeroinen FI FBB 185
Molndal SE FBB 45
Newton Kyme UK FBB 35
Pankakoski FI FBB, Coreboard, Liner 95
Skoghall SE LPB, WTL, FBB 550
Total 3,160
Imatra FI Laminating papers 25
Kotka FI Laminating papers 140
Total 165
Pori FI Coreboard 100
St. Seurin-sur-l'Isle FR Coreboard 75
Varkaus FI Coreboard 85
Total 260
Core Factories, 1,000 tonnes 95
Imatra FI 5
Krefeld DE 25
Loviisa FI 25
Mandriladora
Tolosana SP 15
Milton-Keynes UK 10
Pori FI 15
Converting factories, 1,000 tonnes 303
Balabanovo RU 45
Ensopack LTD BB 3
Grudiadz PL 10
Heinola FI 30
Jonkoping SE 35
Kaunas LI 10
Lahti FI 60
Riga LT 20
Ruovesi FI 10
Skene SE 35
Tallinn EE 5
Tiukka FI 10
Uni-Pak oy FI 10
Vikingstad SE 20
Market pulp, 1,000 tonnes 2,410
Celbi PT Short-fibre (euca) 280
Enocell FI Short and long-fibre 630
Gruvon SE Long-fibre 70
Kemijarvi FI Long-fibre 215
Kerayskuitu FI DIP 70
Norrsundet SE Long-fibre 295
Nymolla SE Long-fibre 45
Oulu FI Long-fibre 60
Sachsen DE DIP 65
Skutskar SE Short, long-fibre and fluff pulp 520
Sunila (50%) FI Long-fibre 160
Further
processing
Mill Location Grade Capacity capacity
Timber products, 1,000 m3 5,315 1,280
Ala SE Redwood 355 10
Amsterdam NL 110
Bad St Leonhard AT Central European Timber 260
Brand AT Central European Timber 255 180
Gruvon SE Whitewood, redwood 300
Honkalahti FI Redwood 420 110
Imavere* EE Whitewood, redwood 260
Kitee FI Whitewood 360
Kopparfors SE Whitewood 245
Koski** FI Redwood 80
Kotka FI Whitewood 240 60
Lamco*** AT 100
Linghed SE Redwood 45
Plana CZ Central European Timber 240 130
Sollenau AT Central European Timber 305 180
Tolkkinen FI Whitewood 270
Uimaharju FI Redwood 270
Varkaus FI Whitewood 310
Veitsiluoto FI Redwood 210
Ybbs AT Central European Timber 565 345
Zdirec CZ Central European Timber 325 55
* 33% owned by Stora Enso
** 51% owned by Stora Enso
*** 51% owned by Stora Enso/Schweighofer Privatstiftung
</TABLE>
Glossary of technical terms
General
Long-fibre: Wood raw material of pine or spruce for the production of pulp.
Short-fibre: Wood raw material consisting mainly of birch, beech or eucalyptus
for the production of pulp.
Recycled fibre: Wastepaper that has first been defibrated and then deinked
through chemical or mechanical processing.
Wastepaper: Used newspapers and magazines (for the production of printing
papers), and office and printers' waste (for fine papers).
m3: The commercial measurement for pulpwood. It refers to the actual solid
volume of wood excluding bark, in cubic metres.
m3 fo: Measurement used for standing tree. It refers to the total tree volume,
bark and top included, in forest cubic metres.
Coating: Applied to give smoother, glossier surface to and improve the
printability of paper or board. A layer of coating slip- or pigment is applied
to one or both sides of the paper/board.
Pulp
Sulphate (kraft) pulp: Chemical pulp produced by cooking woodchips in an
alkaline solution of sodium hydroxide and sodium sulphide.
Sulphite pulp: Chemical pulp produced by cooking woodchips in a solution of
calcium-, sodium- or magnesium-sulphite.
Mechanical pulp: Produced from debarked wood which is either applied to a
grindstone under water pressure (SGW, stone groundwood pulp), or cut into chips
and ground in refiners, when the fibres are liberated and produce a pulp.
TMP: Thermomechanical pulp. A mechanical pulp produced by the pressurised
presteaming of woodchips prior to defibration in a refiner.
DIP: Deinked pulp. A wastepaper pulp which has been deinked through chemical or
mechanical processing.
CTMP: Chemi-thermomechanical pulp is produced by refining chemically
impregnated, preheated woodchips.
NS: Neutral sulphite, semi-chemical pulp is produced by cooking in a neutral
sulphite solution.
Fluff pulp: A special sulphate (kraft) or CTMP pulp used for absorbent
materials, such as diapers and feminine hygiene products. After dry defibration
the pulp takes on a cotton-like appearance.
Bleaching: During the cooking process, the binding agent lignin is removed from
the wood. The lignin residue and other substances remaining after cooking tend
to discolour the pulp brown or yellow. Bleaching using, for example, chlorine
dioxide, hydrogen peroxide and ozone, provides the pulp with the desired
brightness and protection against aging.
ECF: Elementary Chlorine Free. Pulp which has been bleached using, for example,
chlorine dioxide and not elementary chlorine (chlorine gas).
TCF: Totally Chlorine Free bleached pulp. Pulp in which neither chlorine nor any
chlorine compounds have been used during bleaching.
Oxygen bleaching: A bleaching process using oxygen gas, alkali solution and
stabilising substances.
Magazine paper
SC: Super Calendered, an uncoated paper produced from mechanical pulp, sulphate
(kraft) pulp and filler (china clay) which is treated mechanically between steel
rolls to give a glossy printing surface. Used primarily for periodicals and
advertising materials.
LWC, MWC, HWC: Light-weight, medium-weight and heavy-weight coated papers are
produced from mechanical and chemical pulp. The paper is coated to provide a
high quality printing surface. Used for special and general interest magazines,
catalogues and advertising materials.
MFC: Machine-finished and machine-finished coated papers are produced from
mechanical and chemical pulp. The soft calendering gives a matt finish to the
surface. Used for special and general interest magazines, catalogues and
advertising materials.
Newsprint
Various furnish mixes are used for newsprint production. Newsprint may contain
recycled fibre (up to 100%), mechanical pulp (TMP, SGW pulp) and sometimes also
sulphate (kraft) pulp.
Fine paper
Fine papers: Printing, writing and office papers of the finest quality, produced
from a bleached chemical pulp with very little or no mechanical pulp. May be
either coated or uncoated.
Coated fine papers: Fine papers with a pigmented surface layer which increases
the uniformity of the printing surface and provides improved printing
properties, particularly for the reproduction of illustrations.
Recycled fibre-based fine papers: Uncoated fine papers produced from pulps based
on recovered and recycled office and printing wastepapers.
Label papers: One-side machine-coated or cast-coated papers for labels for the
beverage and food industry.
Packaging boards
Folding Boxboard (FBB): A multilayer board, often mineral coated, with an outer
layer of sulphate (kraft) pulp and middle layer of mechanical pulp (groundwood,
pressure groundwood or TMP). In the top grades also CTMP pulp may be used. Used
primarily for consumer cartons for packaging dry and moist foods, cigarettes and
other consumer products. The board is also used in the graphic industry for
catalogue covers, postcards and folders, etc.
Solid Bleached Sulphate Board (SBS): A board consisting of one or several layers
of bleached chemical pulp, often also pigment coated. Used in the graphic
industry and for various consumer cartons for packaging dry and moist food
products. In the non-food sector SBS boards are typically used for cigarette and
luxury goods cartons.
Solid Unbleached Sulphate Board (SUS): Boards consisting of a bleached chemical
pulp top layer, an unbleached back and unbleached chemical and/or mechanical
pulp middle layers are used for food and non-food cartons.
Coated Kraft Back Boards (CKB): Board consisting of either bleached chemical
pulp or a mineral-coated top layer or both, an unbleached back and a middle
layer of unbleached chemical and/or mechanical pulp. CKB is used for packaging
food and non-food products.
Liquid Packaging Boards, milkstock (LPB): Any of the above grades, FBB, SBS, SUS
and CKB is used to pack liquid food and non-food products. They are plastic
coated for fresh beverages and often laminated for long-life beverages. They are
used by all major liquid packaging systems.
Cupstock: FBB and SBS boards are used for papercup production. The boards are
plastic coated and suitable for cold or hot beverages and for food and non-food
packaging.
White Lined Chipboard (WLC): Boards made mainly or wholly from recovered fibres,
often mineral coated, and used for consumer cartons for dry food and non-food
products.
Greyboard: Boards made of recovered fibres and used for cartons and boxes in
various packaging applications, such as dividers, display boards and for book
binding. They are often laminated with other papers and boards.
Plastic coating and laminating: Papers and boards may be coated by polymers,
typically polyethylene, and/or laminated with other materials, typically
aluminium foil, plastic film or other paper and board. Plastic coating and
laminating provides barrier and other functional properties, making it possible
to select raw material for a specific end use from alternative paper groups.
----------------------------------
Kraftliners: Unbleached Kraftliner is produced from unbleached sulphate (kraft)
pulp, and used for corrugated board. Fully Bleached Kraftliner is produced from
bleached sulphate pulps and is used as top layer in corrugated boards. White Top
Liner and White Mottled Kraftliner have bleached top layers and unbleached body
and are typically used as the surface layer for corrugated board. The surface of
White Top Coated liner is additionally coated with mineral pigments to improve
printability for high demand uses.
Testliners: Testliners are linerboards made partly or wholly from recovered
fibres. The range, covering unbleached, white top, mottled and coated grades, is
used by the corrugated board industry.
SC fluting: Boards made from unbleached semi-chemical pulp and used as a middle
layer for corrugated board.
Wellenstoff: Boards made from recovered fibres and used as a middle layer of
corrugated board.
Corrugated board: Corrugated board consists of surface layers of liners glued to
a rippled board layer of fluting or wellenstoff. The liner grades may be any of
those mentioned above.
MG kraft paper: One-sided calendered paper produced mainly from sulphate (kraft)
pulp. Used for paper bags, wrapping paper, carrier bags, flexible packaging,
etc.
Sack paper: Paper used for the production of bags and sacks. Made from sulphate
(kraft) pulp, with high strength properties.
Coreboard: Coreboards are produced from recovered papers, sometimes combined
with a small proportion of primary wood pulp. They are used to produce
papercores.
Cores: Papercores produced from coreboard are used by the paper and board,
textile-yarn and plastic-film industries.
Laminating papers: These include base kraft papers and phenolic resin
impregnated papers.
Saturated Base Kraft (SBK): Brown Absorbex(R) Kraft Paper is produced from
unbleached sulphate pulp made from sawdust. Brown Absorbex(R) is used mainly in
decorative high-pressure laminates (HPL). White Absorbex(R) Kraft Paper is
manufactured from bleached sulphate pulp and is used for electrical
applications.
Phenolic Resin Impregnated Papers: Core Stock is used in the laminate industry
as the core material in decorative high-pressure laminates, such as compact,
fire-retardant and post-forming laminates.
Graphic design, concept and production: Solberg Kommunikation, Goteborg o Photo:
Peter Bartholdsson and Stora Enso (Lars Arvidsson/Birger Roos)
Print: Libris, Helsinki. The papers used in this Annual Report are - cover
stock: Stora Enso Multiart Silk 240 g/m2, text stock: Stora Enso LumiSilk 130
g/m2.
Calculation of key figures
Return on capital 100 x Operating profit
-------------------------
employed, ROCE (%) Capital employed 1) 2)
Return on operating 100 x Operating profit
------------------------
capital, ROOC (%) Operating capital 2)
Return on equity, 100 x Profit before tax and
minority interest - taxes
------------------------
ROE (%) Equity + minority interests 2)
Equity ratio (%) 100 x Equity + minority interests
------------------------
Total assets
Interest-bearing net
liabilities Interest-bearing liabilities -
interest-bearing assets
Debt/Equity ratio Interest-bearing net liabilities
------------------------
Equity + minority interests
Earnings per share Profit for the period
------------------------
Number of shares
Equity per share Equity
------------------------
Number of shares at the close of the period
Dividend per share Dividend for the period
------------------------
Number of shares
Dividend yield 100 x Dividend per share
------------------------
Share price at the close of the period
Payout ratio (%) 100 x Dividend per share
------------------------
Earnings per share
1) Capital employed = Operating capital - Net tax liabilities.
2) Average of beginning and close of financial period.
Information to Shareholders
Annual General Meeting
The Annual General Meeting of Stora Enso Oyj will be held on Tuesday, 21 March
2000 at 4.00 p.m. (local time) at the Marina Congress Center, address:
Katajanokanlaituri 6, Helsinki, Finland.
Shareholders wishing to attend the Meeting must notify the company either in
writing to:
Stora Enso Oyj, Legal Department
P. O. Box 309, FIN-00101 Helsinki, Finland
or by telephone to: +358 2046 21210, +358 2046 21224, +358 2046 21245 or
+358 2046 21309,
or by fax: +358 2046 21359
not later than 4.00 p.m. (local time) on 17 March 2000.
Only those shareholders who are registered in the share register of Stora Enso
Oyj maintained by Finnish Central Securities Depository Ltd on 16 March 2000
have the right to participate in the Meeting. However, shareholders whose shares
have not yet been transferred to the book entry system also have the right to
attend the Meeting provided that they were registered in Enso-Gutzeit Oy's share
register before 30 September 1993, or in the share register of Veitsiluoto Oy's
before 30 April 1996. At the Meeting, such shareholders must present their share
certificates or furnish other evidence that their shares have not been
transferred to a book-entry account.
VPC-registered shares
Shareholders wishing to participate in and vote at the Meeting and whose shares
are registered in the Swedish Securities Register Center (VPC) must re-register
their shares in the share register of Stora Enso Oyj maintained by Finnish
Central Securities Depository Ltd. Requests for such re-registration should be
made well in advance to VPC. The request and shares must be received by VPC no
later than 5.00 p.m (Swedish time) 10 March, since the shares must be registered
in the Finnish register not later than 16 March 2000, which has been established
as the record date for shares. Unless otherwise requested, ownership will be
transferred back to the Swedish VPC register immediately following the Meeting.
Payment of dividend
The Board of Directors is proposing to the Annual General Meeting that a
dividend of EUR 0.40 per share be paid for the fiscal year ending 31 December
1999. If the proposal is approved, dividends will be paid on 5 April 2000 to
shareholders entered in the register of shareholders maintained by Finnish
Central Securities Depository Ltd or in the register maintained by VPC on the
record date of 24 March 2000. Shareholders who have not transferred their shares
to a book-entry account will receive their dividend when their shares have been
transferred.
Main board proposals to the Annual General Meeting on 21 March 2000
o To amend the share capital into euro nomination so that a minimum share
capital is EUR 850 million and the maximum share capital is EUR 3,400 million.
o To abolish the nominal value of the shares
o To acquire and dispose of own shares not more than 10,446,000 A shares and
27,541,000 R shares.
Publications and additional information
The Annual Report and Interim Reviews are available in English, Finnish and
Swedish. The Annual Report is also available in German. The company's
Environmental Report is available in English, Finnish, German and Swedish. The
Annual and Environmental Reports will be distributed to all shareholders. The
printed Interim Review is available from the addresses listed below. The
Financial Reports are also published on the investors pages of the company's
Internet website:
www.storaenso.com
Finland:
Tel. +358 2046 21294
Fax +358 2046 21267
P.O. Box 309
FIN-00101 Helsinki
[email protected]
Investor Relations
Maija Harsu
Tel. +358 2046 21242
Fax +358 2046 21307
P.O. Box 309
FIN-00101 Helsinki
[email protected]
Sweden:
Tel. +46 8 613 6600
Fax +46 8 10 60 20
P.O. Box 16100
SE-103 22 Stockholm
Tel. +46 23 78 00 00
Fax +46 23 138 58
SE-791 80 Falun
Germany:
Tel. +49 211 581 01
Fax +49 211 581 2555
P.O. Box 101014
DE-40001 Dusseldorf
Change of address
Shareholders should notify the book-entry register maintaining their book-entry
account of any changes of address or in share ownership.
Addresses
Head offices
Stora Enso
P.O.Box 309 o FIN-00101 Helsinki o Finland
Calling address: Kanavaranta 1
Tel. +358 20 46 131 o Fax +358 20 46 21471
Stora Enso
P.O.Box 16100 o SE-103 22 Stockholm o Sweden
Calling address: Vastra Tradgardsgatan 15
Tel. +46 8 613 6600 o Fax +46 8 10 60 20
Regional offices
Stora Enso
P.O.Box 309 o FIN-00101 Helsinki o Finland
Calling address: Kanavaranta 1
Tel. +358 20 46 131 o Fax +358 20 46 21471
Stora Enso
SE-791 80 Falun o Sweden
Calling address: Asgatan 22
Tel. +46 23 78 00 00 o Fax +46 23 138 58
Stora Enso
P.O.Box 101014 o DE-40001 Dusseldorf o Germany
Calling address: Feldmuhleplatz 1
Tel. +49 211 581 01 o Fax +49 211 581 2555
Divisions
Stora Enso Magazine Paper
Stora Enso Newsprint
Stora Enso Fine Paper
P.O.Box 101014 o DE-40001 Dusseldorf o Germany
Tel. +49 211 581 01 o Fax +49 211 581 2555
Stora Enso Packaging Boards
P.O.Box 309 o FIN-00101 Helsinki o Finland
Tel. +358 20 46 131 o Fax +358 20 46 21471
Stora Enso Timber
AT-3531 Brand 44 o Austria
Tel. +43 2826 700 10 o Fax +43 2826 7001 290
Stora Enso Pulp
P.O.Box 897 o SE-801 31 Gavle o Sweden
Tel. +46 26 855 00 o Fax +46 26 855 20
Stora Enso Merchants
P.O.Box 1004 o SE-431 26 Molndal o Sweden
Tel. +46 31 67 05 00 o Fax +46 31 706 09 87
Stora Enso Asia Pacific
1 Grange Road o #05-03 Orchard Building
Singapore 239693
Tel. +65 733 8164 o Fax +65 733 7476
Please refer to the Stora Enso web site for the updated list of names and
addresses: www.storaenso.com
Exhibit G-3
Stora Enso Annual Report 1998
- -----------------------------
Contents
1. Significant events in 1998
1. Key figures
2. Stora Enso in brief
3. Corporate combination
4. Chairman's letter
5. CEO's letter
6. Questions & answers
8. Financial review
19. Magazine paper
22. Newsprint
25. Fine paper
28. Packaging board
31. Merchants
32. Specialty paper
33. Timber products
36. Market pulp
37. Forest
38. Energy
39. Purchasing
40. Marketing and sales network
41. Research and development
43. Environmental management
46. Human resources
48. Report on operations by the Board of Directors
53. Consolidated income statement
54. Consolidated balance sheet
56. Consolidated cash flow statement
57. Parent company income statement
58. Parent company balance sheet
59. Parent company casg flow statement
60. Notes to the financial statements
83. Proposal for the distribution of dividend
84. Auditors' report
85. Shares and shareholders
90. Board of Directors
92. Management group
94. Corporate governance
96. Glossary of technical terms
98. Capacity specification 1999
99. Organization and identity
100. Addresses
101. Information to shareholders
<PAGE>
Significant events in 1998
Divestment of the production units for carbonless and thermal papers,
Hillegossen and Flensburg in Germany, in December.
Acquisition of Holzindustrie Schweighofer AG of Austria in December.
Schweighofer's operations are being combined with Stora Enso Timber.
Schweighofer will strengthen the Group's presence in the European sawn timber
market and in the United States and Japan.
Acquisition of a minority holding of 19.9% in Advance Agro Pcl of Thailand at
the end of November. Stora Enso will have exclusive rights for sales and
marketing of this company's pulp and paper worldwide, excluding Thailand.
In June, a final agreement was signed to acquire 60% of Chinese Suzhou Papyrus
Paper Co. Ltd. in Suzhou, with annual capacity of 120,000 tonnes of coated fine
papers. The company's production is mainly intended for the Chinese market.
A new SC machine (PM 2) came on stream at Port Hawkesbury, Canada, in April. The
machine has an annual capacity of 350,000 tonnes and produces paper for
magazines, catalogs and supplements in the North American market.
Key figures
<TABLE>
<CAPTION>
1998
1997 1998 adjusted Target
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Return on capital employed (ROCE), % 8.0 6.2 10.2 13.0
Debt/Equity ratio, multiple 1.05 1.04 less than 1
Sales, EUR M 9,998 10,490
Operating profit, EUR M 916 719 1,190
% of sales 9.2 6.9 11.3
Profit before tax and
minority interests, EUR M 636 339 822
Net profit, EUR M 409 191
Capital expenditure, EUR M 1,134 896
% of sales 11.3 8.5
Interest-bearing net liabilities, EUR M 6,090 5,783
Capital employed, EUR M 11,875 11,355
Earnings per share, EUR 0.54 0.25 0.79
Equity per share, EUR 7.26 6.97
Dividend per share, EUR 0.33 0.35 *
Dividend per share, FIM 1.99 2.10 *
Market capitalization, EUR M 5,801
Deliveries of paper and
board, million tonnes 11.3 11.8
Deliveries of timber products, million m3 2.5 2.8
Average number of employees 40,301 40,679
* Proposed dividend
</TABLE>
<PAGE>
Stora Enso in brief
- -------------------
1. Stora Enso Oyj is one of the world's leading forest industry companies,
with shares listed on the Helsinki and Stockholm stock exchanges. The Group
was formed through the merger of Finnish Enso and Swedish STORA at the end
of 1998. Stora Enso is domiciled in Finland.
2. Stora Enso is an integrated forest products group that manufactures
magazine paper, newsprint, fine paper and packaging boards. The Group holds
leading global positions in these product areas. Stora Enso owns 2.1
million hectares of productive forest land and conducts extensive
sawmilling operations.
3. Annual sales amount to approximately EUR 10 billion. The number of
employees in 1998 was approximately 40,000 in more than 40 countries.
Europe is Stora Enso's primary market. The Group's global structure enables
Stora Enso to serve customers and develop operations worldwide.
Corporate combination
- ---------------------
Stora Enso was formed through the combination of the Finnish company Enso and
the Swedish company STORA.
Enso was established at Kotka in 1872 and its shares were first listed on the
Helsinki Exchanges in 1916. The company has developed through several mergers
and acquisitions into its present form and position as one of the major pulp and
paper producers in the world.
STORA's history dates back one thousand years to the time when copper mining
started in Falun. In the 1860s, the company also started wood processing
operations. STORA's shares were first listed on the Stockholm Stock Exchange in
1901. Over the years, the company developed into one of the world's leading
forest products groups.
Combination process
June 2, 1998: the Boards of Directors of Enso and STORA approved the combination
of the companies.
June 17, 1998: the Finnish Parliament passed a resolution to abolish the
provision requiring the Finnish State to hold a one-third interest in Enso.
June 18, 1998: an application was submitted to the EU competition authorities
for the approval of the combination.
July 23, 1998: an Extraordinary General Meeting of Enso shareholders approved
the combination on condition that certain terms, such as approval from the EU
competition authorities, were fulfilled.
July 31, 1998: the EU competition authorities announced that they required more
time to consider the merger and started the second-phase investigation.
August 27, 1998: the starting date for the share-exchange offer to STORA
shareholders. The acceptance period for the exchange offer was extended twice
due to the longer-than-expected approval period required by the EU competition
authorities.
November 25, 1998: the EU competition authorities approved the combination,
subject to the following conditions: the sale of the Pure-Pak converting unit to
Elopak, competitive market pricing on liquid packaging board for a limited
period and support for a duty-free quota on North American imports of liquid
packaging board to the EEA.
December 23, 1998: Enso Oyj's share capital was increased, its name was changed
to Stora Enso Oyj, its Articles of Association were amended and the new Board of
Directors was recorded in the Trade Register in Finland.
December 29, 1998: Stora Enso's shares were listed on the Stockholm Stock
Exchange and the new Stora Enso shares on the Helsinki Exchanges.
January 14, 1999: Stora Enso initiated compulsory redemption of the remaining
STORA shares.
January 19, 1999: STORA shares were delisted from the Stockholm, London and
Frankfurt stock exchanges.
<PAGE>
Chairman's letter
- -----------------
Stora Enso is currently one of the world's leading forest products companies and
its goal is to become a truly attractive investment alternative for the world's
investors. In a sector that has seldom met, and perhaps has never fully
understood the market's capital requirements during recent decades, this goal
is, in effect, a challenge.
In order to create shareholder value in the future, new investments must be
viewed in a more realistic manner than previously, and greater focus must be
placed on the company's capital flows. One of the more cherished yardsticks
being applied increasingly by the stock market today is EVA, or Economic Value
Added, which is a type of adjusted cash-flow measurement tool. EVA, or a variant
of this tool, has been shown to bear a very good correlation to the return on
shareholder investment.
Compared with other industries, the pulp and paper industry is characterized
by a highly fragmented structure. The five largest producers in the world
account for only 15% of global production. The sector is also highly capital
intensive, which in combination with its fragmented structure results in excess
capacity and cyclicality in terms of both sales prices and earnings. Through the
merger of STORA and Enso into Stora Enso, a step has been taken towards the
necessary consolidation of the sector. Hopefully, this merger will be followed
by several others during the next few years, which would eventually lead to an
improved and more uniform level of profitability for the sector as a whole.
To assure the success of any merger, a strong, determined corporate management
is needed, with good chemistry between key executives, and a similar corporate
culture in both entities. In a cross-border merger, the difficulties and
challenges in such respects are even greater.
Following my many meetings and contacts with the management groups of both
STORA and Enso, I am convinced, after the barely one year that has passed since
merger discussions were initiated, that in terms of management, personal
chemistry and corporate culture within Stora Enso, the prerequisites for a
successful merger are very good.
In CEO Jukka Harmala and Deputy CEO Bjorn Hagglund, Stora Enso has an
exceptionally strong and highly complementary management pair. The merger has
also made it possible to create a management organization of extremely high
class in other areas of the new company.
I would like to take this opportunity to thank the company's management
personnel on behalf of the Board for their exceptional contributions during the
time since the merger proposals were first presented, and particularly during
the enforced lull in the merger work while waiting for the necessary approval
from the European Commission in Brussels. Our warmest thanks are also extended
to all of the employees in the company, who were naturally affected to a large
extent by the publicity surrounding the merger and by their concern for the
possible effects of the planned merger.
Finally, I would like to thank the members of the Boards of Stora Enso, STORA
and Enso for their invaluable contributions during the year. Special thanks also
go to STORA's former Board Chairman, Bo Berggren, whose prominent achievements
for STORA during many years, as both company president and chairman, created the
base which made the merger with Enso possible.
For STORA, the merger with Enso can be seen as a new chapter in Kopparberget's
history, which stretches back over more than one thousand years - a modern
example of the type of change that must occur at various times if a company is
to survive in the way that Stora Kopparbergs Bergslags AB has survived since
time immemorial.
With a history of more than 125 years of forest-related operations, Enso was
one of Finland's most time-honored companies in this sector. For Enso, the
merger with STORA is yet another successful step in the expansion strategy
established for the company a number of years ago and its successful
implementation has won major respect, even in circles far outside the forest
products industry.
Helsinki, February 10, 1999
Claes Dahlback
<PAGE>
CEO's letter
- ------------
The year 1998 marked a turning point for two long-established forest products
companies. The Stora Enso combination created a unique global group with all the
resources necessary for success in the new millennium.
The merger means a stronger marketing position, a broader base of raw
materials and energy, better logistics, financial strength and the opportunity
to influence the restructuring process going on in the world's forest industry.
As Stora Enso started operations in December 1998, work began on defining
strategies for both the Group and its divisions. Concurrent with this, a
mission, vision, and value process will be undertaken during this spring. The
main lines of the different strategies will be defined by the Group's Board of
Directors towards the end of the spring.
Stora Enso's primary aim is to generate greater shareholder value through
higher efficiency, profitable growth and a balanced dividend policy.
Greater efficiency will be reached principally by achieving annual synergy
benefits worth EUR 300 million by the year 2002. Based on more in-depth analyses
by the divisions, the annual synergies will exceed the previous estimates
considerably. The most significant advantages will be gained through
streamlining of production, in purchasing and logistics, marketing and
administration.
Productivity will also be improved by continuing programs aimed at raising
manufacturing efficiency, releasing operating capital and capital tied up in
stocks. We are putting great emphasis on the "best practice" approach,
benchmarking and on applying our total quality management systems.
As part of the synergy benefits, the combination and streamlining of the two
marketing networks will allow us to strengthen our presence in existing markets.
On the other hand, it gives us a chance to open marketing outlets in new
emerging markets. Our global structure and genuinely international culture
enable us to operate in an efficient, expert and locally knowledgeable way.
To have a "clean slate" start for Stora Enso, it was decided to enter EUR 455
million in write-downs and provisions in the accounts for 1998. These measures
will not delay achievement of the company's target of a debt/equity ratio below
1.00.
The Stora Enso goal is clear - to become a global force with first-class
customer services, a truly comprehensive range of products and highly efficient
production machinery. To keep pace with forest industry consolidation, the
leading players must continue to expand their size in the future. Much of this
growth will come through acquisitions, mergers and strategic alliances.
Stora Enso's business operations are geared to return on capital. An average
13% return on capital employed over the cycle has been set as the target within
the company. This also applies to new investments and represents the minimum
requirement.
The dividend is based on long-term profit from business operations and not on
year-to-year fluctuations due to the nature of the forest industry's business
cycle. The Board of Directors has proposed a dividend of FIM 2.10 per share,
which is in line with the dividend policy of seeking to pay one third of the
total net profit.
The profit-sharing schemes introduced for both management and employees will
be further improved. These incentives are focused on both profits and return on
capital.
In their daily work 40,000 Stora Enso professionals cater for the needs of
demanding customers in the graphic communications, packaging and construction
industries. This service-driven approach, coupled with our size, means better
value for our customers. It also allows us to maintain a two-way relationship
with our customers and permits substantial resourcing in research and
development.
These are just some of the key strengths that will support our performance in
1999, a year in which forest industry markets are clouded by numerous
uncertainties. It is our task to consolidate the newly formed company into a
strong and efficient entity and to make it the most preferred choice for
shareholders, customers and employees.
Helsinki, February 10, 1999
Jukka Harmala
<PAGE>
Questions & answers
- -------------------
CEO Jukka Harmala and Deputy CEO Bjorn Hagglund respond to questions about Stora
Enso's future strategies.
You have described Stora Enso's financial goals at an earlier stage. But what is
the strategy for ensuring that the Group achieves its goals?
Jukka Harmala:
As you know, the European Commission's approval of the merger was not received
until the end of November 1998. A strategy process involving the production of
detailed plans for what we want our different product areas to achieve over the
long term requires a great deal of time and resources. We have only been able to
work for a few months on a process that would normally take somewhat longer to
complete.
As the accompanying diagram shows, we are currently concentrating on the
measures that must be implemented immediately. At the same time, strategic
considerations at both Group and divisional level are being prepared and it will
still take a couple of months before we can disclose our strategy.
What do you mean by immediate measures?
Bjorn Hagglund:
The most important point is to extract the synergistic effects upon which the
merger was based. We must also ensure that the new organization is placed in
operation and starts to function efficiently. It is very important, too, that
our new sales organization achieves a smooth blend to avoid disruptions in the
customer area.
There are also several business-related items to be looked after, such as
productivity- and efficiency-enhancement programs that were initiated prior to
the merger. These must be maintained, coordinated and made to generate the
results we promised earlier.
Furthermore, the new machines must now start to operate satisfactorily and
increase their capacity utilization. This applies particularly to Port
Hawkesbury's SC machine, Skoghall's board machine and Skutskar's pulp production
operations.
What effects will this have on earnings?
Jukka Harmala:
We estimate that the synergy effects resulting from the merger will generate
around EUR 50 M during 1999 and will then increase gradually to total EUR 300 M
per year as of year 2002.
The productivity- and efficiency-improvement programs are expected to
contribute approximately EUR 350 M as of year 2000. This includes the phasing-in
of the new machines, which is a factor of major importance to earnings, with a
potential of around EUR 200 M. In this respect, we are dependent on the market
trend to attain an optimal effect, however. Continual improvements of this kind
are necessary in order to meet the real price trend for forest industry
products.
The divestment decisions made to date - Dalum, Flensburg, Hillegossen and
Tervakoski - reduce our capital employed and future investments in these
operations.
To summarize, the immediate measures are expected to generate a total effect
on earnings of about EUR 700 M, as of year 2002.
<PAGE>
These measures need to be implemented whatever the case. But when can we expect
to hear about the long-term strategic goals for Stora Enso?
Jukka Harmala:
The process I described earlier means that strategic considerations will take
several months to implement. In order to obtain a realistic base for the Group's
long-term planning, we must first prepare scenarios within different key areas.
I can provide some practical examples.
How will multimedia technology affect printing paper consumption in the
future; what can happen within the packaging area and on the transport side to
affect our board products and future customer needs? We also need to make some
long-term scenario projections as an opening base for the strategy process.
We are working with strategies from both a Group and a divisional perspective.
Our agreed aim is to be able to describe Group strategy at mid-year.
One matter that is discussed at length relates to the investment program
implemented in recent years. How can you avoid excessive investment in the
future? It must be difficult in such a large organization to keep investments
under control?
Bjorn Hagglund:
We have introduced a new planning process for investments. This means that each
project is evaluated more strictly in terms of its return and cash-generating
capacity. A number of factors must be addressed and evaluated, for example
general economic developments, market outlook, changes in sector capacity,
changes in customer behavior and potential competition, and substitutes in the
form of other products.
In addition, more stringent follow-up routines are applied. Projects are
reviewed on an ongoing basis and with strictly applied cost analyses. Checks are
made to ensure that time schedules are being maintained and that cost, revenue,
price and raw material estimates are not being exceeded. We learn more by
working in this manner, at the same time as the divisions become more modest in
their demands.
The merging of two former competitors with different corporate cultures and
values might create conflicts and other problems. How are you resolving such
issues?
Bjorn Hagglund:
There are definitely more similarities than differences but of course people
also differ. Differences are also an asset through which we can find several
solutions to one problem.
We are implementing a number of activities designed to increase understanding
and drive the cooperation process.
The internal studies we have made indicate that our fundamental values are
very similar and, in our estimation, a new, shared Stora Enso culture will soon
emerge. We view the individual characteristics that do remain as positive
attributes, which can be used to create new ideas and improvements.
<PAGE>
Financial review
- ----------------
Financial targets
Stora Enso's goal, which is to create value for its shareholders and be the most
attractive listed forest industry company, requires a return that exceeds the
cost of total capital. The Group's internal profitability target is an average
return on capital employed (ROCE) of 13% over an economic cycle.
An effective utilization of capital is important. In the future, higher
returns than previously are required for new investments.
Financial strength is important in the forest industry, which is a
capital-intensive and cyclical sector. A well-balanced debt/equity structure
reduces the financial risk and guarantees the Group financial freedom of action,
thereby providing opportunities for advantageous loan financing.
Stora Enso's goal is that its debt/equity ratio shall be less than a multiple
of 1.0. At year-end 1998, the Group had a debt/equity ratio of 1.04. The
debt/equity goal shall be regarded as long-term in nature, but may be exceeded
in connection with possible acquisitions.
When setting the debt/equity target, consideration was given to the fact that
approximately 20% of the capital employed consists of power and forest assets,
which have a low operating risk and substantial surplus value.
The reported return on capital employed was 6.2%. Adjusted for provisions and
non-recurring items the return was 10.2%, which reflects the Group's actual
earnings more accurately.
<TABLE>
<CAPTION>
Adjusted
1996 1997 1998 1998 Target
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Return on capital employed, % 7.8 8.0 6.2 10.2 13.0
Debt/equity ratio, multiple 1.01 1.05 1.04 <1.0
</TABLE>
Calculation of weighted average cost of capital (WACC)
The weighted average cost of capital (WACC) varies over time as a result of such
factors as interest rates, inflation and the market price of the share. Based on
conditions prevailing at year-end 1998, the following calculation has been made
for Stora Enso:
Shareholders' equity has been assigned the market value as per December 30,
1998, while other balance sheet information is the reported value at year-end.
The interest rate for borrowed capital has been set to 5.5%. Minority
interests have been assumed to have the same interest rate.
Interest expense for shareholders' equity must be calculated before tax and
has the same interest rate as borrowed capital. To this must be added a risk
premium which is set to 5%.
This calculation thus provides a WACC of 10.3%, which is equal to 10.8% return
requirement on the book value of capital employed. This should be compared with
the return requirement established for the Group, 13%. The difference indicates
an ambition to generate an added value that exceeds the cost of capital.
<PAGE>
Calculation of weighted average cost of capital (WACC)
<TABLE>
<CAPTION>
% distri- Interest Weighted
December 31, 1998 EUR M bution expense, % expense, %
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Market value, shareholders'
equity 5,801 48.9 15.4 7.5
Minority interests 279 2.4 5.5 0.1
Interest-bearing net
liabilities 5,783 48.7 5.5 2.7
Market value of capital
employed 11,863 100.0 10.3
</TABLE>
Market trend
Volume increases were noted in most product areas in Western Europe, Stora
Enso's main market, but growth declined slightly towards the end of the year,
particularly within the packaging board segment. The North American market was
in balance due, among other factors, to the labor dispute in the newsprint
segment. The downward trend of the Asian economies resulted in limited demand in
the region. Disruptions in the Russian and South American economies also
affected the market trend.
The table below shows how demand/deliveries have developed in the Group's main
market, Europe, during recent years. Although demand varies between the years,
the average trend is towards growth.
Change in demand in Western Europe
<TABLE>
<CAPTION>
Market in
Annual change, % 85-90 91-95 -96 -97 -98 000 tonnes
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Newsprint 6 3 -6 6 4 9,100
SC (Uncoated magazine paper) 4 1 -4 8 1 2,800
LWC (Coated magazine paper) 10 6 -11 25 9 5,600
Coated fine paper 12 7 12 12 8 5,900
Uncoated fine paper 5 3 4 5 -1 6,100
Packaging boards 3 2 3 5 2 5,400
</TABLE>
Stora Enso's total deliveries of paper and board products increased by
approximately 4%. The increase was attributable to increased magazine paper
production at Holtzmann and Port Hawkesbury, increased production in Oulu and
the acquisition of the Suzhou fine paper mill.
Market pulp deliveries declined by about 7.7%. Taking pulp mill closures into
account, the decrease was less than 3%. Deliveries of timber products rose by
nearly 10%.
Expressed in both tonnes and m3, finished inventory levels remained unchanged
compared with 1997 year-end levels. The order backlog period for most of Stora
Enso's products at the end of 1998 was between 1 and 4 weeks. Traditionally, the
GDP trend is perceived as one of the main indicators of the demand trend for
forest industry products.
<PAGE>
Stora Enso's deliveries by product area
%
Deliveries, 000 tonnes 1997 1998 change
- ---------------------------------------------------------------------
Magazine paper 2,230 2,560 14.8
Newsprint 3,022 3,086 2.1
Fine paper 2,524 2,743 8.7
Packaging boards 3,281 3,130 -4.6
Specialty papers 234 239 2.1
Total paper and board 11,292 11,758 4.1
Timber products, 000 m3 2,520 2,764 9.7
Market pulp, 000 tonnes 2,127 1,964 -7.7
Corrugated board, millions m2 343 339 -1.2
Sales and earnings
Group sales rose by 4.9% to EUR 10,490 M (9,998). The increase was mainly due to
the volume growth noted earlier. Improved prices for newsprint and magazine
papers, and decreased prices for pulp and timber products also affected sales.
Exchange-rate changes were limited as a result of the convergence programs
applied before the introduction of the euro.
Group profit before tax and minority interests totaled EUR 339 M (636).
Adjusted for provisions and other items affecting comparability, profit amounted
to EUR 822 M. The adjusted figure reflects the trend of ongoing operations.
Profit was affected by the start-up of the new plant in Port Hawkesbury, where
the calenders prevented the unit from achieving the quality planned. Low order
bookings for board products during the second half of the year led to a low work
load on the board machine 8 in Skoghall.
Earnings included write-downs and provisions directly attributable to the
merger totaling approximately EUR 210 M, of which EUR 60 M was accounted for by
the write-down on fixed assets and EUR 150 M related to costs for restructuring,
severance payments and fees paid to external advisors.
In addition to write-downs and provisions directly attributable to the merger,
earnings were also charged with provisions and write-downs totaling EUR 245 M,
most of which were due to restructuring measures that will be implemented during
the next few years. Of this amount, EUR 45 M will be reported as provisions for
restructuring measures and EUR 110 M as write-downs on machinery and equipment.
The balance of EUR 90 M will be accounted for by the extraordinary amortization
of goodwill related to units with weak profitability. Planned depreciation will
decrease by approximately EUR 10 M per year as a result of the write-down of the
plants.
In addition, there are other items affecting comparability amounting to EUR 24
M. These include capital losses on the sale of the production units for
carbonless paper and thermal paper, the Svenska Dagbladet holding, and the
write-down of the remaining second-grade board inventory in Skoghall. Earnings
also include repaid capital taxes in Germany and the reversal of reserves for
guarantee commitments which expired in connection with the Newton Falls mill
sold earlier.
The financial net was an expense of EUR 379 M (expense: 280). Adjusted for
items affecting comparability, the financial net was an expense of EUR 368 M.
Costs directly related to the merger, as described above, accounted for EUR 8 M,
and other items affecting comparability for EUR 11 M. In addition, the Group's
financial net was affected by exchange-rate differences in financial
transactions.
Net profit for the year amounted to EUR 191 M (409). Tax for the period
totaled EUR 148 (206) M. Excluding provisions and non-recurring items, tax
amounted to EUR 219 M.
<PAGE>
Operating profit
[Bar Graph appear with horizontal axis showing calendar years 1995, 1996, 1997
and 1998, left vertical axis showing operating profits in millions of euros and
right verticle axis showing percentages from 0% to 20%. Two bars, indicated by
different colors, appear side by side for every year on the graph. One of the
bars indicates Operating Profit, and the indicates Operating Profit Before
Non-recurring Items.]
<PAGE>
Sales
[Bar Graph appears with horizontal axis showing calendar years 1995, 1996, 1997
and 1998 and vertical axis showing sales numbers in millions of euros. The bars
for each year indicate the sales fiqures for such year.]
<PAGE>
Profit before tax and minority interests
[Bar Graph appears with horizontal axis showing calendar years 1995, 1996, 1997,
and 1998 and vertical axis showing amounts in millions of euros. Two bars,
indicated by different colors, appear side by side for each year on the graph.
One bar indicates Profit Before Tax and Minority Interests, and the other
indicates Profit Before Tax, Minority Interest and Non-recurring Items.]
<PAGE>
Roce %
[Bar Graph appears with horizontal axis showing calendar years 1995, 1996, 1997
and 1998 and vertical axis showing ROCE percentages from 0% to 20%. Two bars,
indicated by different colors, appear side by side for each year on the graph.
One bar indicates ROCE percentages, and the other indicates ROCE percentages
before non-recurring items.]
<PAGE>
Income statement in brief
<TABLE>
<CAPTION>
Adjusted
EUR M 1998 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales 10,490 10,490 9,998
Operating expenses -8,621 -8,409 -8,252
Depreciation according to plan -1,151 -891 -830
Operating profit 719 1.190 916
Net financial items -379 -368 -280
Profit before tax and
minority interests 339 822 636
Taxes -148 -206
Minority share -0 -22
Profit for the period 191 409
Analysis of net financial items
EUR M 1998 1997
- -------------------------------------------------------------------------------------------------------------
Net interest income/expense -337.9 -302.8
Items affecting comparability -11.1
Exchange-rate differences -30.3 22.7
Net financial items -379.3 -280.1
</TABLE>
Sales and operating profit by product area
Sales, operating profit and return by product area
<TABLE>
<CAPTION>
Operating Return on
Sales profit/loss operating capital
EUR M 1998 1997 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Magazine paper 1,851.8 1,475.8 276.3 85.9 14.2 4.6
Newsprint 1,693.7 1,534.1 302.9 192.0 19.4 12.2
Fine paper 2,079.8 1,891.6 191.8 139.4 8.4 6.1
Packaging boards 2,396.9 2,485.5 209.3 234.9 8.8 9.4
Merchants 830.3 800.4 2.0 5.4 1.0 2.6
Specialty papers 323.4 324.4 -6.6 9.8 -3.3 3.3
Timber products 733.9 722.2 11.1 51.0 3.3 18.6
Pulp 846.6 958.7 9.7 29.4 0.8 2.2
Forest 1,645.8 1,616.8 111.0 111.2 7.9 8.0
Energy 481.2 530.3 114.5 123.8 8.2 8.6
Other 468.9 484.0 -32.3 -13.9
Eliminations -2,862.7 -2.839.0
Total 10,489.6 9,984.8 1.189.7 968.9 9.1 7.4
Divested units 13.3 -0.5
Merger and restructuring costs -447.0
Other non-recurring items -24.1 -52.0
Total 10,489.6 9,998.1 718.6 916.4 5.5 7.1
</TABLE>
<PAGE>
Earnings for the Group's largest product area, packaging boards, deteriorated.
The relatively cold summer and customer inventory reductions during the latter
part of the year resulted in reduced deliveries.
Fine paper earnings improved slightly, due to increased volumes and somewhat
higher average sales prices. The volume increase derived mainly from the new
machine in Oulu.
The newsprint and magazine paper product areas noted improved earnings,
attributable to higher sales prices. Magazine paper volumes rose with the start
up of the new machine in Port Hawkesbury, Canada.
Lower prices led to a decline in earnings for the timber product area. Market
pulp earnings also deteriorated as a result of lower prices.
Stora Enso's domestic market is Europe, which accounts for 86% of total sales.
The distribution of sales by market is shown under the section headed "Marketing
and sales network".
Group's capital structure
Dec 31, Dec 31,
EUR M 1998 1997
- --------------------------------------------------------------------------------
Fixed assets 11,549 11,737
Working capital 1,317 1,638
Operating capital 12,866 13,375
Net tax liabilities -1,511 -1,500
Capital employed 11,355 11,875
Shareholders' equity 5,294 5,513
Minority interests 279 272
Interest-bearing net liabilities 5,783 6,090
Financing 11,355 11,875
Debt/equity ratio, multiple 1.04 1.05
<PAGE>
Financial position
The Group's capital structure is shown in the table. Stora Enso's debt/equity
ratio was a multiple of 1.04 at year-end 1998 (1.05), a slight deviation from
the Group target.
If compulsory redemption proceedings in regard to STORA shares outstanding
were to be completed, and the proposed dividend entered as a liability, the
Group's debt/equity ratio would have amounted to a multiple of 1.19. Since the
end of the financial year, certain operations have been sold, which would have
improved the debt/equity ratio to a multiple of 1.16.
Shareholders' equity amounted to EUR 5,293.5 M (5,513.1), corresponding to EUR
6.97 (7.26) per share.
Interest-bearing net liabilities which amounted to EUR 5,783 M (6,090),
included pension liabilities of EUR 532 M (564). Interest-bearing net
liabilities increased on a continuous basis during the year as a result of
investment payments but decreased towards the end of the year due to the
weakening of the SEK and to reduced working capital requirements because of the
lower level of sales during the final months of 1998. At year-end, the Group had
unutilized credit facilities totaling EUR 2,472.4 M.
The following table shows how changes in interest-bearing net liabilities are
distributed among ongoing operations and items affecting comparability.
Cash flow from the Group's ongoing operations, after dividends, amounted to
EUR 671 M, which exceeded the effects of the Group's expansion investments and
other items affecting comparability by EUR 110 M.
In addition to nonrecurring depreciation and provisions for restructuring,
items affecting comparability include the investment in Port Hawkesbury, the
acquisitions of Holtzmann, Schweighofer, Advanced Agro, Suzhou and the
divestments of the Flensburg and Hillegossen units.
The cash-flow analysis reported here does not conform with IAS recommendations
and instead follows the Group's own internal cash flow concept. Follow-up
focuses on the operating cash flow and changes in interest-bearing net
liabilities. To reconcile net debt against the consolidated balance sheet,
translation effects and the full effects of acquisitions and divestments are
included here.
<PAGE>
Debt/Equity ratio
[Bar Graph appears with horizontal axis indicating calendar years 1995, 1996,
1997 and 1998 and vertical axis indicating the Debt/Equity Ratio numbers. The
bar for each year indicates the Debt/Equity Ratio for such year.]
<PAGE>
Interest-bearing net liabilities
[Bar Graph appears with horizontal axis indicating calendar years 1995, 1996,
1997 and 1998 and vertical axis indicating the amount of Interest-bearing net
liabilities in millions of euros. The bar for each year indicates the amount of
Interest-bearing net liabilities for such year.]
<PAGE>
Changes in interest-bearing net liabilities
<TABLE>
<CAPTION>
Items Translation Effect
Affecting of foreign on
Ongoing compa- Cash com- balance
EUR M operations rability flow panies sheet
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating profit/loss 1,180 -461 719 719
Depreciation 857 301 1,158 1,158
Change in working capital 78 228 306 15 321
Cash flow before investments 2,115 67 2,183 15 2,198
Investments -789 -107 -896 -896
Other acquisitions of fixed assets -34 -651 -685 -685
Gain on sale of fixed assets 22 135 156 156
Other changes in
operating fixed assets 16 -25 -9 464 455
Operating cash flow 1,330 -582 748 479 1,227
Net financial items -359 -20 -379 -379
Taxes -60 -6 -66 -71 -137
Minority interests -3 19 16 -9 7
Cash flow before transactions
with owners 908 -589 319 399 718
Dividends -238 -238 -238
Other changes in shareholders' equity 29 29 -202 -173
Changes in interest-bearing
net liabilities 671 -560 110 197 307
</TABLE>
The distribution of operating capital and capital employed by country is shown
in the following table. Most of the capital is in Finland and Sweden, but
substantial amounts are also accounted for by Germany, Canada and France.
<TABLE>
<CAPTION>
Operating capital Net tax liabilities Capital employed
----------------- ------------------- ----------------
EUR M % EUR M % EUR M %
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Finland 4,767 37 355 23 4,412 39
Sweden 4,271 33 794 53 3,477 31
Germany 1,830 14 328 22 1,502 13
Canada 543 4 14 1 529 5
France 353 3 2 0 351 3
Portugal 204 2 20 1 184 2
Other 898 7 - 2 0 900 8
Total 12,866 100 1,511 100 11,355 100
</TABLE>
<PAGE>
Adjusted shareholders' equity
Assessments of financial strength should take into account the substantial
values in the Group's forest and power assets. Adjusted shareholders' equity is
arrived at when the hidden values in these assets are added to reported
shareholders' equity. The hidden values are calculated as the difference between
estimated market value and book value, with tax also taken into consideration.
Group shareholders' equity amounted to EUR 5,294 M, equivalent to EUR 6.97 per
share. The hidden values totaled EUR 1,606 M and consisted of EUR 980 M in
forest assets, EUR 538 M in power assets and EUR 88 M in listed shares. Adjusted
shareholders' equity thus totaled EUR 6,900 M, corresponding to EUR 9.09 per
share.
The value of forest assets is based on a yield estimate of wood extraction.
The calculation is based on estimated sustainable felling levels, wood and
timber prices, forestry costs and taxation. The result has been discounted using
a real interest rate factor of 4%. The calculation is applied exclusively to the
Group's forest holdings in the Nordic region. The value of forest assets
amounted to EUR 528 per hectare of productive forest land.
Power assets have been calculated in accordance with the estimated market
value and have been adjusted for tax.
The Group's holdings of listed shares has been valued at the market price
applying at year-end, after deductions for taxes. The largest holdings relate to
Finnlines Oyj and Sampo Insurance Company.
Adjusted shareholders' equity
Dec 31, 1998 EUR M EUR/Share
- -----------------------------------------------------------------------------
Reported shareholders' equity 5,294 6.97
Hidden value in forest assets 980 1.29
Hidden value in power assets 538 0.71
Hidden value in listed shares 88 0.12
Adjusted shareholders' equity 6,900 9.09
Market value of shareholders'
equity, Dec 30, 1998 5,801 7.63
Risks and factors affecting earnings
The overall economic trend in the world and its impact on individual markets is
the factor which has had the greatest effect on all business operations. The
components of the general economic trend are not described in detail here, but
rather a summary is provided of certain variables that can be quantified and
which have a direct effect on Stora Enso's earnings trend.
Price and volume effects
Group profitability is sensitive to changes in sales prices and delivery
volumes. Imbalance in supply and demand affects competition and from time to
time creates fluctuations in both prices and volumes.
The sensitivity analysis in the accompanying table shows how the larger
product areas' operating profit can be affected by a 5% change in sales prices
and volumes. As indicated, price changes have the greatest impact on earnings.
<PAGE>
Sensitivity analysis, effect on operating profit
Change +/- 5%
--------------------------
EUR M Price Volume
- ---------------------------------------------------------------------------
Magazine paper 90 45
Newsprint 70 40
Fine paper 110 50
Packaging boards 75 40
Timber products 50 15
Effect of various cost components
Profit is affected by price and volume trends for the different cost components
in the Group. The major variable cost components relate to transport and sales
commissions, corresponding to 12% of sales; wood and timber, also accounting for
12% of sales; chemicals and filler, accounting for about 10%; and energy for
around 7%. The aim of the efficiency enhancement and synergy programs in
progress is to find solutions that will reduce raw material consumption and
allow the most inexpensive raw materials to be used.
Among fixed-cost components, personnel costs account for about 17% of sales.
Adjusted for nonrecurring effects, depreciation corresponds to about 8%. A 3%
increase in payroll costs would result in the Group's total costs rising by
about EUR 54 M.
Currency effects
A change in the invoicing currency creates a currency risk. The distribution of
sales by market is shown in the table under the section headed "Capital
expenditure." The table headed "Investments in plants" shows where production
occurs and in which currency the main costs are incurred.
The risk that Stora Enso's profit could be affected as a result of changes in
exchange rates is called a transaction risk.
Stora Enso hedges up to six months of its currency flows outside the euro
area, with the exception of GBP and USD. These exceptions correspond to a
substantial exposure for the Group and can therefore be hedged for a period
covering up to 12 months of flows.
The risk of Stora Enso's net assets (shareholders' equity) being affected by
changes in exchange rates is called translation risk.
To minimize this risk, wherever possible borrowing in each Group subsidiary is
conducted in the relevant local currency. No hedging of net assets occurs since
most of these, about 90%, are located within the euro area.
Financing and financing costs
The risk of Stora Enso encountering new borrowing difficulties at any given time
is called a borrowing risk. In order to minimize such a risk, the Group's goal
is that capital employed should be more than 100% long-term financed. Long-term
financing is defined as the sum of shareholders' equity, minority interests,
long-term loans, pension provisions and long-term credit facilities. The average
maturity period for outstanding loans and credit facilities should be at least
3-5 years.
The risk that a reduced return on capital employed cannot be offset by lower
interest costs for its financing is called interest-rate risk. Interest rates
tend to move in line with general economic conditions. To minimize the
interest-rate risk, the Group strives to fix interest rates for periods of less
than one year. The corporate goal is that 60-80% of the loan portfolio should
have interest rates that are fixed for periods of less than one year.
To support and facilitate external lenders' assessments of the company, credit
ratings have been obtained.
Moody's has assigned Stora Enso a Baa1 rating for long-term borrowing and a P-2
rating for short-term borrowing. Standard & Poor's has assigned the STORA
Group's internal finance company an A-2/K-2 rating for short-term borrowing and
put Stora Kopparbergs Bergslags AB rating on an A-observation list for a
possible downgrading of the rating. An assessment of the new Stora Enso is
currently in progress at Standard & Poor's.
Other risks
Fire, accident, plant failure, transport problems, etc. can lead to disruptions
and losses. Routines to identify risks and measures to minimize or avoid them
have been drawn up within the risk-management area.
Most of the Group's operating capital consists of fixed assets. Future
technological development can affect the future value of such plant. Trends
which affect the consumption of paper and board are also of major importance.
The Group has substantial research and development resources through which to
monitor and study such trends (see section headed "Research and development").
The Group's customer credits are self-financed and, consequently, non-payments
result in losses. To minimize this risk, credit controls are applied and
customers' financial positions are monitored on an ongoing basis. Internal
credit ratings are drawn up for all customers.
The ability of suppliers to fulfill their quality, environmental compatibility
and delivery time undertakings is of major importance to the efficiency of the
Group's production and its investments. To ensure compliance with these
requirements, checks and evaluations of suppliers, their products,
transportation methods and other services, are conducted on an ongoing basis.
IT systems are crucial to most of the Group's routines and processes. Major
security programs are conducted on a continuous basis throughout the Group in
order to assure optimal IT support. Advanced technology and methods are used to
adapt to the latest developments within the IT area.
<PAGE>
Euro
As of January 1, 1999, the Group's accounting and reporting is conducted in euro
(EUR). No difficulties have been noted in terms of commercial and internal
transactions.
Among customers, it is mainly the large multinational companies which have
chosen to trade in EUR as of January 1, 1999. The smaller customers have adopted
a more cautious attitude. In recent years, a certain leveling out of price
levels has occurred within the present euro area, and thus no dramatic changes
are foreseen.
Conversion to the euro resulted in only limited costs.
Millennium shift
The Group's units are working to resolve identified problems related to the
millennium shift. This project commenced in January 1997. Most of the units will
meet the internally established deadline of July 1, 1999. Certain units will be
delayed in meeting this date, since measures cannot be implemented while
production is in progress. These plants have elected to wait until the time of
the planned maintenance stoppages in autumn 1999.
With regard to the accounting system, approximately 50% has already been
adapted to comply with Year 2000 requirements and the balance will meet the
established deadline.
Of the total work in progress, about 70% of the technical work has been
completed. The cost of the adjustments is estimated to total EUR 45 M.
The internal risks are assessed as being limited. The existing risks relate
principally to the preparedness of raw materials and other suppliers, customers
and the social structure of the individual countries in which the Group is
active. To reduce these risks, contingency plans are being made for unforeseen
events.
<PAGE>
Capital expenditure
Stora Enso's capital expenditure, excluding acquistions, totaled EUR 896 M.
Capital expenditure by product area
EUR M 1997 1998
- -----------------------------------------------------------------------------
Magazine paper 322.5 219.9
Newsprint 98.2 103.8
Fine paper 282.3 129.7
Packaging boards 215.5 211.7
Merchants 9.7 12.0
Specialty papers 14.9 17.8
Timber products 20.1 33.9
Pulp 107.6 96.3
Forest 21.4 22.3
Energy 19.6 19.6
Other 21.8 29.4
Total 1,133.6 896.4
Depreciation according to plan (1 816.3 878.3
1) Excluding non-recurring write-downs
Most of the capital expenditure related to productivity- and quality-enhancement
projects. In addition, the Group invested in a few growth projects.
The single largest investments made during recent years, besides growth
projects, were for the new paper machines in Oulu, Finland and Port Hawkesbury,
Canada, and for a new board machine in Skoghall, Sweden.
Apart from the PM2 in Port Hawkesbury, the larger projects engaged in during
1998 included the rebuilding of the PM8 in Maxau, Germany, the coater for the
BM3 in Fors, Sweden, and the soft calender for the PM2 in Veitsiluoto, Finland.
The distribution of capital expenditure by country is largely governed by the
location of existing capacity. The following table shows where the Group
implemented investments in 1998. A comparison can be made against the
accompanying table, which shows how production capacity for paper and board is
distributed by country. This shows that 41% of capacity and 21% of investments
pertain to Finland, while the corresponding figures for Sweden are 28% and 40%,
respectively.
<PAGE>
Capital expenditure by country
<TABLE>
<CAPTION>
EUR M 1997 1998 % of total
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Finland 331.2 190.5 21.2
Sweden 387.6 359.4 40.1
Germany 87.4 115.5 12.9
Canada 262.4 127.5 14.2
France 8.4 15.1 1.7
Portugal 15.2 20.4 2.3
Other 41.3 68.1 7.6
Total 1,133.6 896.4 100.0
Capacity for paper and board by country, 1999
000 tonnes
- --------------------------------------------------------------------------------
Finland 5,290
Sweden 3,575
Germany 2,220
France 595
Belgium 240
The Nederlands 165
Spain 145
UK 35
Canada 545
China 120
Total 12,930
</TABLE>
[Pie Chart appears containing the following information:
Finland 41%
Sweden 28%
Germany 17%
France 5%
Canada 4%
Other Countries 5%]
<PAGE>
Key Figures 1995-1998
<TABLE>
<CAPTION>
STORA ENSO (IAS)
EUR 1 = FIM 5.94573 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales MEUR 10490 9998 9510 10583
Change on previous year % 4.9 5.1 -10.1 10.8
Exports and foreign operations % 93.3 92.8 92.4 92.6
Wages. salaries and statutory
employer's contributions MEUR 1805 1737 1688 1660
as % of sales % 17.2 17.4 17.8 15.7
Depreciation and
value adjustments MEUR 1151 830 767 721
Operating Profit MEUR 719 916 843 1796
as % of sales % 6.9 9.2 8.9 17.0
Operating Profit before
non-recurring items MEUR 1190 968 847 1765
as % of sales % 11.3 9.7 8.9 16.7
Financial income and expenses MEUR 379 280 280 395
as % of sales % 3.6 2.8 2.9 3.7
Exchange rate differences MEUR -34 23 -2 -20
Profit before tax and
minority interests MEUR 339 636 563 1401
as % of sales % 3.2 6.4 5.9 13.2
Taxes MEUR 148 206 183 361
Profit for the period MEUR 191 409 369 1007
Distribution of dividend 1) MEUR 268 254 231 176
Capital expenditure MEUR 896 1134 1364 894
as % of sales % 8.5 11.3 14.3 8.4
R&D expenditure MEUR 80 79 72 68
as % of sales % 0.8 0.8 0.8 0.6
Fixed assets MEUR 11695 11864 11034 10634
Current assets MEUR 3718 3690 3535 4030
Assets total MEUR 15413 15554 14569 14664
Shareholders' equity MEUR 5294 5513 5285 5058
Minority interests MEUR 279 272 196 190
Interest-bearing liabilities MEUR 6520 6565 6166 6266
Operating liabilites MEUR 1799 1691 1538 1644
Tax liabilities MEUR 1523 1512 1384 1506
Equity and liabilites total MEUR 15413 15554 14569 14664
Capital employed at year-end MEUR 11355 11875 11015 10667
Operating capital at year-end MEUR 12866 13375 12384 12156
Interest-bearing net liabilities MEUR 5783 6090 5534 5419
Return on capital
employed (ROCE) % 6.2 8.0 7.8 17.2
Return on capital employed (ROCE)
before non-recurring items % 10.2 8.5 7.8 16.9
Return on Investment (ROI) % 6.4 8.4 8.1 16.3
Return on equity (ROE) % 3.4 7.6 7.1 22.1
Return on equity (ROE) (2
before non-recurring items % 10.6 7.6 7.1 22.1
Equity ratio % 36.2 37.2 37.6 35.8
Debt/Equity ratio 1.04 1.05 1.01 1.03
Average number of employees 40679 40301 41810 44917
</TABLE>
1) Year 1998 dividend is Board of Directors' proposal to the Ordinary meeting
of Shareholders.
Year 1997, 1996 and 1995 figures are total sums of Enso Oyj's and Stora
Kopparbergs Bergslags AB's dividends
2) Year 1997, 1996 and 1995 figures after non-recurring items.
<PAGE>
Sales, operating profit and deliveries by product area, per quarter
<TABLE>
<CAPTION>
Sales (EUR M) I/97 II/97 III/97 IV/97 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Magazine paper 279.3 366.7 402.3 427.5 1,475.8
Newsprint 337.3 364.1 414.3 418.4 1,534.1
Fine paper 443.9 443.3 464.2 540.2 1,891.6
Packaging boards 595.0 648.4 624.7 617.4 2,485.5
Merchants 200.2 197.7 189.2 213.3 800.4
Specialty papers 84.9 80.0 80.2 79.3 324.4
Timber products 162.1 198.2 158.2 203.7 722.2
Pulp 208.2 249.9 253.1 247.5 958.7
Forest 422.6 398.9 373.1 422.2 1,616.8
Energy 151.1 113.4 115.3 150.5 530.3
Divested units 9.8 3.5 13.3
Other -602.6 -562.9 -569.2 -620.3 -2,355.0
Total 2,291.8 2,501.2 2,505.4 2,699.7 9,998.1
Sales (EUR M) I/98 II/98 III/98 IV/98 1998
-----------------------------------------------------------------------------------------------------------
Magazine paper 420.8 448.1 474.4 508.5 1,851.8
Newsprint 409.7 411.4 439.0 433.6 1,693.7
Fine paper 571.6 511.3 497.4 499.5 2,079.8
Packaging boards 638.3 642.8 576.6 539.2 2,396.9
Merchants 227.3 208.5 190.6 203.9 830.3
Specialty papers 84.8 83.5 75.6 79.5 323.4
Timber products 167.3 183.7 169.6 213.3 733.9
Pulp 238.3 230.6 202.2 175.5 846.6
Forest 443.2 414.7 386.9 401.0 1,645.8
Energy 145.5 113.6 106.1 116.0 481.2
Divested units
Other -653.6 -599.9 -580.6 -559.7 -2,393.8
Total 2,693.2 2,648.3 2,537.8 2,610.3 10,489.6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Operating profit (EUR M) I/97 II/97 III/97 IV/97 1997
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Magazine paper 5.4 20.4 28.4 31.7 85.9
Newsprint 36.6 42.0 64.5 48.9 192.0
Fine paper 37.5 36.8 23.3 41.8 139.4
Packaging boards 60.6 59.9 70.5 43.9 234.9
Merchants 2.0 1.0 0.8 1.6 5.4
Specialty papers 5.6 2.6 2.2 -0.6 9.8
Timber products 10.6 19.9 12.3 8.2 51.0
Pulp -19.1 -6.0 16.6 37.9 29.4
Forest 422.6 398.9 373.1 422.2 1,616.8
Energy 29.6 25.6 25.7 30.3 111.2
Divested units 1.5 -2.0 -0.5
Merger costs and
restructuring provisions
Items affecting
comparability -29.6 -22.4 -52.0
Other -7.2 10.2 -21.3 4.4 -13.9
Total 206.3 205.1 235.5 269.5 916.4
Operating profit (EUR M) I/98 II/98 III/98 IV/98 1998
-----------------------------------------------------------------------------------------------------------
Magazine paper 63.9 51.2 80.7 80.5 276.3
Newsprint 63.6 67.2 97.0 75.1 302.9
Fine paper 71.8 52.4 38.3 29.3 191.8
Packaging boards 74.5 61.7 65.0 8.1 209.3
Merchants 3.3 -0.7 0.0 -0.6 2.0
Specialty papers 2.6 -0.1 -7.0 -2.1 -6.6
Timber products -2.2 2.5 5.4 5.4 11.1
Pulp 8.8 14.2 7.4 -20.7 9.7
Forest 28.8 27.4 23.6 31.2 111.0
Energy 37.4 26.5 19.9 30.7 114.5
Divested units
Merger costs and
restructuring provisions -447.0 -447.0
Items affecting
comparability 17.4 -41.4 -24.0
Other -10.7 -3.8 -7.8 -10.1 -32.4
Total 341.8 315.9 322.5 -261.6 718.6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Deliveries (000 tonnes) I/97 II/97 III/97 IV/97 1997
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Magazine paper 458 560 604 609 2,230
Newsprint 696 732 813 781 3,022
Fine paper 580 610 637 698 2,524
Packaging boards 807 861 814 799 3,281
Specialty papers 63 56 58 58 234
Total 2,603 2,819 2,925 2,945 11,292
Timber products (000 m3) 587 685 509 739 2,520
Market Pulp (000 tonnes) 514 590 524 499 2,127
Corrugated board (million m2) 78 88 88 89 343
Deliveries (000 tonnes) I/98 II/98 III/98 IV/98 1998
-----------------------------------------------------------------------------------------------------------
Magazine paper 579 615 659 708 2,560
Newsprint 755 743 802 786 3,086
Fine paper 701 684 647 710 2,743
Packaging boards 808 824 755 743 3,130
Specialty papers 60 59 60 61 239
Total 2,902 2,925 2,923 3,008 11,758
Timber products (000 m3) 622 688 580 874 2,764
Market Pulp (000 tonnes) 517 480 495 472 1,964
Corrugated board (million m2) 86 90 81 82 339
</TABLE>
<PAGE>
Calculation of Key Figures
Return on Capital Employed,
ROCE (%) = 100 x Operating Profit
--------------------------
Capital Employed ()
Profit before tax and
minority interests +
Return on Investment, interest and other
ROI (%) = 100 x financial expenses
--------------------------
Total assets -
interest-free liabilities 1) 2)
Return on Equity, Profit before tax and
ROE (%) = 100 x minority interests - taxes
--------------------------
Equity +
minority interest 1)
Equity Ratio (%) = 100 x Equity + minority interest
--------------------------
Total assets
Interest-bearing liabilities
Interest-bearing net liabilities = - interest-bearing assets
Interest-bearing net
Debt/Equity Ratio = liabilities
--------------------------
Equity + minority interest
Earnings per share = Profit for the period
---------------------
Number of shares
Equity per share = Equity
--------------------------
Number of shares at the
end of the period
Dividend per share = Dividend for the period
-----------------------
Number of shares
Dividend yield = 100 x Dividend per share
------------------
Share price at the end
of the period
Payout Ratio (%) = 100 x Dividend per share
------------------
Earnings per share
1) Average of beginning and end of financial period
2) Interest-free liabilities also includes provisions and tax liabilities in
the balance sheet.
<PAGE>
Magazine paper
--------------
Stora Enso aims to strengthen its position as one of Europe's leading suppliers
of magazine papers by developing and improving customer service. This will be
achieved by offering customers a wide range of products and by further improving
delivery reliability.
Stora Enso's magazine paper capacity amounts to 3.1 million tonnes, making it
the world's second largest producer. The Group's market share is 23% in Europe
and 10% globally. The product area also includes base paper for wallpapers.
Market
The market for magazine paper was favorable in 1998. Demand for wood-containing
magazine paper amounted to 22.4 million tonnes. During the period 1986-1998, the
annual average increase in demand for wood-containing and wood-free magazine
papers in Europe was 7%. Volume growth amounted to 6 million tonnes. Demand for
coated wood-free paper increased the most, by 13% a year, and uncoated magazine
paper the least, by 4% a year.
In 1998, demand for coated wood-containing magazine paper rose by 1%, both in
Europe and globally. The corresponding figures for uncoated magazine paper were
9% and 7%, respectively.
Prices for coated paper were raised at the beginning of 1998, and remained
stable throughout the spring. During the summer and autumn some price
fluctuation occurred, as coated grades were partially replaced, due to price
competition from fine paper grades and uncoated magazine paper. Prices were
approximately 10% higher than during 1997.
At the beginning of 1998, prices for uncoated paper were also increased.
Demand was favorable and price levels remained high in all markets throughout
the year. Prices were approximately 10% higher than during 1997.
In 1999, 250,000 tonnes of new uncoated capacity will enter the market,
mainly due to the upgrading of production. Very little new coated capacity is
expected.
Profitability and deliveries
Sales grew by 25%, mainly as a result of an increased sales volume and improved
prices, and totaled EUR 1,851.8 M. The inclusion of Holtzmann throughout the
year and the new machine at the Port Hawkesbury mill as of April boosted sales
by 14%. Operating profit amounted to EUR 276.3 M. Return on operating capital
was 14.2%.
Deliveries of Stora Enso's coated magazine paper amounted to 1,594,000
tonnes, up 4% on the preceding year. The increase was due to improved demand as
a result of growth in printed advertising materials, catalogs, magazine editions
and advertising.
Deliveries of uncoated magazine paper amounted to 919,000 tonnes, up 38% on
1997. The increase was due to higher demand. Port Hawkesbury's PM 2 was started
up at the end of May. Volumes were exceeded but running-in problems in the
calender machines resulted in quality targets not being reached. Continuous
improvements have been achieved.
The magazine paper mills operated at 94% of capacity.
<PAGE>
New projects and structural changes
Port Hawkesbury's SC paper machine, which has a capacity of 350,000 tonnes,
started up in May. Total costs for the project amounted to EUR 420 M.
Stora Enso owns the entire share capital of the German company E. Holtzmann &
Cie AG (Maxau and Wolfsheck mills), having purchased 9.3% of the shares in
September and the remaining 0.8% in October, in addition to the interest it
previously held. The Group paid a total of EUR 289.6 M for the Holtzmann shares
in 1998.
Other major investments included the rebuild of Maxau's PM 8 at a cost of EUR
46 M and a new slitter-winder for Veitsiluoto's PM 1 at a cost of EUR 2 M.
Capital expenditure totaled EUR 219.9 M.
Investments in 1999 are expected to decrease. The main investment relates to
the rebuild of Kabel's PM 5.
Outlook for 1999
Growth in consumption will slow down as general economic growth weakens and
downward pressure is exerted on prices. On the other hand, economic growth in
Europe is expected to remain on a healthy level. The new millennium is expected
to expand the volume of printed advertising materials, which in turn will
increase magazine paper consumption.
Stora Enso's magazine papers
- -------------------------------------------------------------------------------
Magazine papers are used in magazines, printed products for advertising,
catalogs and direct marketing products. The magazine paper grades manufactured
by Stora Enso are uncoated supercalendered (SC), light-weight coated (LWC),
medium-weight coated (MWC), heavy-weight coated (HWC), machine-finished coated
(MFC) and machine-finished (MF) papers.
SC paper is produced in Sweden, Germany, Belgium and Canada. LWC paper is
produced in Finland, Germany and France. MWC is produced in Finland and Germany
and HWC in Germany. MFC and MF papers are manufactured in Finland. Wallpaper
base is produced in Germany. (See also page 98)
<PAGE>
Key figures
<TABLE>
<CAPTION>
1997 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales, EUR M 1,475.8 1,851.8
Operating profit, EUR M 85.9 276.3
Operating margin, % 5.8 14.9
Operating capital, EUR M 1,863.0 2,025.2
Return on operating capital, % 4.6 14.2
Capital expenditure, EUR M 322.5 219.9
Average number of employees 4,575 5,032
Deliveries and capacity (000 tonnes)
Deliveries Capacity
---------------------
1997 1998 1999
- ------------------------------------------------------------------------------------------------------------
SC, MF 665 919 1,300
LWC, MWC, HWC, MFC 1,532 1,594 1,760
Wallpaper base 33 47 65
Total 2,230 2,560 3,125
</TABLE>
World's largest magazine paper producers, 1999
[Bar Graph appears containing magazine paper production capacity information (in
tonnes) for coated and uncoated paper for the following companies: UPM-Kymmene,
Stora Enso, Abitibi Consolidated, Myllykoski, Consolidated Papers, Champion
International, Burgo, Oji, Haindl and Norske Skog.]
<PAGE>
Newsprint
---------
Stora Enso's strategy is to produce newsprint based on primary fiber in the
Nordic countries and on secondary fiber in Central Europe. The aim is to be
located close to customers and raw material resources. The significance of
recovered paper as a raw material for standard newsprint will continue to
increase. Primary fiber will continue to be used for grades where its properties
can best be utilized.
Stora Enso, which has a newsprint capacity of 3.2 million tonnes, including
special grades, is the world's second largest producer of newsprint. The Group's
market share is approximately 25% in Europe and 7% globally.
Market
Nineteen ninety-eight was a good year. Demand increased by 4% in Europe and by
2% in North America. Canada exported 604,000 tonnes of newsprint to Europe, 7%
less than in 1997, mainly due to labor disputes at Abitibi-Consolidated. As a
consequence of the strike, the market balance improved in Europe and North
America. Prices were raised at the beginning of 1998. Price levels remained
favorable throughout the year and were an average of 2.5% higher than in 1997.
In 1999, two new newsprint machines will start up in Europe. At the same
time, newsprint capacity will decrease due to the rebuild of machines to produce
more value-added grades. No major capacity expansion is expected outside Europe.
Profitability and deliveries
Sales increased by 10% to EUR 1,693.7 M, mainly due to increased sales volumes
and improved prices. The acquisition of Holtzmann boosted sales by 2%. Operating
profit was EUR 302.9 M. Return on operating capital was 19.4%.
Newsprint deliveries were 2% higher than in the previous year, amounting to
3,086,000 tonnes as a result of increased demand following strong economic
growth in Europe and moderate price trends for the most important raw materials.
The newsprint mills operated at 98% of capacity.
New projects and structural changes
The main investments in 1998 related to the calender at Varkaus's PM 4 (EUR 16
M), the effluent treatment plant at Anjala (EUR 6 M), capacity increases and
quality improvements in DIP and TMP plants and the rebuild of PM 3 at Hylte (EUR
19 M).
Capital expenditure totaled EUR 103.8 M. In 1999, investments are expected to
remain at this level.
Outlook for 1999
Market conditions are expected to remain relatively stable in Europe and North
America. Weakening economic growth and new capacity entering the market, in
combination with increased supply following the end of a labor dispute in North
America, will have an impact on demand and supply in Europe. In addition,
exports to Asia have been affected by the new capacity entering the area, which
clearly exceeds current local demand. On the other hand, the increase in
advertising and printed materials relating to the year 2000 is expected to have
a positive effect on demand for newsprint.
<PAGE>
Stora Enso's newsprint
- -------------------------------------------------------------------------------
Stora Enso produces both standard and special newsprint, which are used for
newspapers, newspaper supplements, advertising leaflets, direct marketing
products, telephone directories and paperbacks. The raw materials in newsprint
are mechanical pulp, recycled fiber and, to a minor extent, kraft pulp.
Newsprint is produced in Finland, Sweden, Germany, Belgium and Canada.
(See also page 98)
<TABLE>
<CAPTION>
Key figures
1997 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales, EUR M 1,534.1 1,693.7
Operating profit, EUR M 192.0 302.9
Operating margin, % 12.5 17.9
Operating capital, EUR M 1,573.9 1,547.2
Return on operating capital, % 12.2 19.4
Capital expenditure, EUR M 98.2 103.8
Average number of employees 5,215 5,608
Deliveries and capacity (000 tonnes)
Deliveries Capacity
1997 1998 1999
- ------------------------------------------------------------------------------------------------------------
Newsprint 3,022 3,086 3,190
</TABLE>
World's largest newsprint producers, 1999
[Bar Graph appears containing production capacity information (in tonnes) for
newsprint for the following companies: Abitibi Consolidated, Stora Enso,
Bowater, Donohue, Norske Skog, Fletcher Challenge, UPM-Kymmene, Haindl, Nippon
Paper and Oji.]
<PAGE>
Fine paper
----------
Stora Enso's aim is to remain among the world's top three fine paper producers
and to further improve its share of the digital printing papers and special
office papers. Profitability will be improved by creating strong brand names and
partnerships with leading merchants and printing equipment suppliers.
Stora Enso's fine paper capacity is 3.0 million tonnes, and the agreement to
market Advance Agro's production will increase the amount of fine paper marketed
by the Group to 3.3 million tonnes. Stora Enso is currently the second largest
fine paper producer in the world with a 13% share of the European market and a
4% share of the global market.
Market
Global demand for wood-free graphic papers increased by 2% and demand for
office papers by 4%. At the beginning of 1998, prices were raised somewhat.
Initially, prices remained stable, but they started to fall in the spring.
However, the average price level in 1998 was higher than in the previous year.
These products were in abundant supply in Europe and North America, as the
economic difficulties in Asia and South America reduced local demand. About
500,000 to 600,000 tonnes of office papers and minor amounts of graphic papers
were imported to Europe from Asia.
Due to global consolidation trends in the fine paper industry and the
weakening of Asian economies, some of the planned fine paper projects have been
postponed, and the number of machine start-ups is on the way down. In 1999 there
will be 1.4 million tonnes of new fine paper capacity, including 1.25 million
tonnes in Asia.
Profitability and deliveries
Sales increased by 10% to EUR 2,079.8 M, mainly due to a rise in sales volumes.
PM 7, which was put into operation in Oulu in 1997, boosted sales by 7%.
Operating profit amounted to EUR 191.8 M. Return on operating capital was 8.4%.
Fine paper deliveries were 9% higher than in 1997 and amounted to 2,743,000
tonnes.
The fine paper mills operated at 91% of capacity.
New projects and structural changes
In June, the Group signed a cooperation agreement with Advance Agro Pcl. This
agreement granted Stora Enso exclusive rights to global marketing of Advance
Agro's pulp and paper outside Thailand. Advance Agro has the capacity to produce
450,000 tonnes of chemical pulp and 470,000 tonnes of coated and uncoated sheet
offset and copying papers. At year-end, Stora Enso owned 19.9% of the company.
The acquisition price was EUR 74 M.
The agreement with Advance Agro strengthens the fine paper division's product
portfolio and helps to optimize production, while strengthening Stora Enso's
position in Asia. The agreement involves active cooperation, and Stora Enso has
provided transfer of know-how by sending mill management, technical and
logistics experts to Thailand. The Group has two members on Advance Agro's Board
of Directors.
<PAGE>
In 1998, Stora Enso purchased 60% of the Chinese Suzhou Papyrus Paper Co. Ltd,
with an annual production capacity of 120,000 tonnes of coated fine paper. The
company has established sales offices in four regions within China. This
investment also supports the Group's strategy in Asia.
In December, Stora Enso decided to close down Dutch Berghuizer
Papierfabriek's oldest and smallest paper machine by mid-1999. The machine's
production capacity is 19,000 tonnes of one-side glossy paper.
The largest investments in 1998 were the rebuilds of Veitsiluoto's PM 2
(EUR 22 M) and Grycksbo's PM 10 (EUR 14 M).
Capital expenditure totaled EUR 129.7 M.
In 1999, investments will remain at a low level.
Outlook for 1999
The annual growth in fine papers is expected to continue to follow the trend of
approximately 5% for graphic papers and about 2% for office papers. Although
there is an imbalance between supply and demand, which will impose pressure on
prices throughout the spring, prices are expected to pick up after the summer
vacation season, as economic activity increases ahead of the year 2000.
Stora Enso's fine papers
- --------------------------------------------------------------------------------
Stora Enso manufactures both coated fine papers, or graphic papers, and uncoated
fine papers, or office papers. All fine papers contain a high proportion of
chemical pulp.
Graphic papers are used for high-quality books and advertising materials.
Graphic papers are produced in Finland, Sweden, Germany and China.
Office papers include copying and offset papers, envelope and writing papers
and continuous stationery papers. The mills producing office papers are located
in Finland, Sweden and the Netherlands. (See also page 98)
<PAGE>
<TABLE>
<CAPTION>
Key figures
1997 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales, EUR M 1,891.6 2,079.8
Operating profit, EUR M 139.4 191.8
Operating margin, % 7.4 9.2
Operating capital, EUR M 2,283.5 2,285.0
Return on operating capital, % 6.1 8.4
Capital expenditure, EUR M 282.3 129.7
Average number of employees 7,448 7,529
Deliveries and capacity (000 tonnes)
Deliveries Capacity
1997 1998 1999
- ------------------------------------------------------------------------------------------------------------
Graphic (coated) papers 1,299 1,493 1,700
Office (uncoated) papers 1,225 1,250 1,340
Total 2,524 2,743 3,040
</TABLE>
World's largest fine paper producers, 1999
[Bar Graph appears containing fine-print production capacity information (in
tonnes) for coated and uncoated paper for the following companies: International
Paper, Stora Enso, Sappi, Asian Pulp & Paper, Oji, Nippon Paper, Champion
International, Georgia-Pacific, UPM-Kymmene and Metsa-Serla.]
<PAGE>
Packaging boards
----------------
Stora Enso is one of the leading manufacturers of consumer packaging board.
This product is used for packaging milk, juices, other foodstuffs, cigarettes
and cosmetics. More than 40% of the aseptic liquid containers used in the world
are manufactured from Stora Enso board. The Group is also Europe's largest
manufacturer of paper cupstock and primary fiber-based boxboard.
Stora Enso's board capacity amounts to 3.4 million tonnes.
Although the most important market area is Europe, the Group's products are
sold worldwide. R&D within the cartonboard area focuses on improving the
stiffness properties of multi-ply board and on developing plastic and clay
coating technology.
The main market for Stora Enso's corrugated board business is the Baltic Sea
area. The most crucial factor affecting growth is the development of the Russian
economy. Corrugated board raw materials and kraft papers are sold worldwide.
Stora Enso is also a major manufacturer of coreboard in Europe through its
subsidiary Corenso United Oy Ltd.
The product area also includes laminating papers.
Market
Demand for consumer packaging board declined sharply after the summer. In terms
of sales, the cold summer in Europe was a disappointment for a number of
customers, and this meant that accumulated stocks had to be sold off in the
autumn. A number of markets outside the EU were experiencing economic problems,
which also affected demand. The weakening of the US dollar resulted in increased
competition from American manufacturers.
Prices for corrugated board raw materials peaked in the second quarter of the
year but began to fall off in the summer. The market for SC fluting in
particular remained fairly weak throughout the rest of the year. The market
situation for kraft paper was stable.
Demand for corrugated board in Finland and Sweden remained fairly normal
throughout the year. The situation in the Baltic countries and Russia began to
deteriorate markedly during April and May, although a slight improvement was
discernible in Russia during the second half of the year.
Coreboard has suffered from the deterioration of the Asian market since the
end of 1997. Demand was weak and price levels low.
Demand and price level for laminating papers were satisfactory.
Profitability and deliveries
Sales decreased by 4%, amounting to EUR 2,396.9 M. Sales volumes increased as a
result of the spring 1997 start-up of the new board machine at the Skoghall
mill. Due to lack of orders, the machine did not reach full capacity.
Write-downs of second grade inventories at the Skoghall mill weakened earnings.
Operating profit amounted to EUR 209.3 M, which is 11% below the 1997 figure.
Return on operating capital was 8.8%.
Deliveries of consumer packaging board amounted to 1,956,000 tonnes, down 6%
on 1997. Corrugated board deliveries amounted to 339 million m2, down 1% on
1997. Coreboard deliveries were 239,000 tonnes. Core deliveries amounted to
53,000 tonnes. Kraft paper deliveries were 372,000 tonnes.
The board mills operated at 90% of capacity.
<PAGE>
New projects and structural changes
The most important investments were the rebuild of the board machine at the
Fors mill to improve quality (EUR 28 M), the Balabanovo corrugated board mill
(EUR 27 M) and the modernization of board machine no. 1 at the Imatra mill (EUR
10 M).
The Balabanovo mill, which has a capacity of 90 million m2, started up at the
end of the year in a difficult market situation. The Russian economy is expected
to recover and the market for corrugated board to pick up.
Capital expenditure totaled EUR 211.7 M. Capital expenditure in 1999 is
expected to be somewhat higher than in 1998. The main approved investment
relates to the rebuild of the soda recovery boiler at the Gruvon mill (EUR 18
M).
As a condition for the merger of STORA and Enso, the EU competition
authorities demanded cancellation of the cooperation agreement with the
Norwegian company Elopak. This also entails the sale of the Pure-Pak converting
line in Lahti, Finland. Negotiations regarding the divestment have been
initiated with Elopak. After the transaction has been finalized, operations will
remain unchanged and be conducted in the same premises.
Outlook for 1999
Demand for packaging boards remains relatively stable but prices are at a low
level. The outlook depends on the overall economic trend.
Stora Enso's packaging boards
- -------------------------------------------------------------------------------
The main packaging board products are consumer packaging board, corrugated
board and the related raw materials, coreboard and cores, and kraft papers.
The mills producing consumer packaging board are located in Finland, Sweden,
Germany, Spain and the UK. Raw materials for corrugated board are produced in
Finland and Sweden. Coreboard and cores are manufactured in Finland, Germany,
France and the UK. Corrugated board packaging is manufactured in Finland,
Sweden, Estonia, Latvia and Russia. Kraft paper is produced in Sweden. Packaging
machines are manufactured in Finland and Sweden. Laminating papers are produced
in Finland. (See also page 98)
<PAGE>
Key figures
<TABLE>
<CAPTION>
1997 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales, EUR M 2,485.5 2,396.9
Operating profit, EUR M 234.9 209.3
Operating margin, % 9.5 8.7
Operating capital, EUR M 2,508.9 2,272.7
Return on operating capital, % 9.4 8.8
Capital expenditure, EUR M 215.5 211.7
Average number of employees 10,478 10,049
Deliveries and capacity (000 tonnes)
Deliveries Capacity
----------
1997 1998 1999
- ------------------------------------------------------------------------------------------------------------
Consumer packaging boards 2,085 1,956 2,370
Corrugated board raw materials 429 402 600
Coreboard 237 239 270
Kraft paper 394 372 175
Laminating papers 136 160 165
Total 3,281 3,130 3,580
Corrugated board, million m2 343 339 556
Cores, 000 tonnes 32 53 80
</TABLE>
World's largest cartonboard producers, 1999
(FBB, WLC, LPB, SBS, SUS)
[Bar Graph appears containing production capacity information (in tonnes) for
cardboard for the following companies: International Paper, Stora Enso,
Riverwood International, Westwaco, Mayer-Melnhof, Reno de Medici, Mead, Asian
Pulp & Paper, Cascade and Oji.]
<PAGE>
Merchants
---------
Stora Enso's paper merchants in Europe are active in a market comprising
approximately 80,000 printers. The merchants are an important link in the
distribution of fine papers from the paper mills to the graphic industry.
Stora Enso products account for about 45% of the paper merchants' product
range. The Group's paper merchants also market a wide range of products adapted
to the specific needs of offices, public administrations and the industrial
sector.
Market
Paper merchant operations during 1998 were characterized by pressure on prices
and margins. Low growth was noted in the Swedish, Danish and Dutch markets.
During the autumn, the paper merchants in the Baltic states and Poland were
affected by the crisis in Russia. In contrast, demand was stable in the UK and
France.
During the current year, paper merchant operations will be affected by lower
economic activity in Western Europe. Full-year growth is expected to be 2 to 3%.
In Eastern Europe, the Russian crisis is expected to inhibit demand during the
first half of the year; nonetheless full-year growth in this market will total 5
to 10%.
Profitability
Sales were EUR 830.3 M, an increase of 3% as a result of the expansion in
Hungary. Operating profit decreased to EUR 2.0 M, due to higher cost caused by
the expansion.
New projects and development activities
Within merchant operations, synergistic gains will be generated from
coordination and restructuring measures, a number of which are planned for the
current year. The financial effects will materialize in full during the
following two years.
In parallel, activities aimed at additional expansion in new markets in
Europe are being planned.
<PAGE>
Key figures
<TABLE>
<CAPTION>
1997 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales, EUR M 800.4 830.3
Operating profit, EUR M 5.4 2.0
Operating margin, % 0.7 0.2
Operating capital, EUR M 207.4 212.4
Return on operating capital, % 2.6 0.9
Capital expenditure, EUR M 9.7 12.0
Average number of employees 1,636 1,672
</TABLE>
Major paper merchants in Europe
[Bar Graph appears containing sales information (in tonnes) for the following
companies: Buhrman, AWA, Igepa, Schneider, Stora Enso, SCA, Inapa, Metsa-Serla,
Classens and MoDo.]
<PAGE>
Specialty papers
- ----------------
The specialty papers product area includes thermal and carbonless papers
manufactured in Flensburg and Hillegossen in Germany, and specialty papers
produced at Tervakoski in Finland. Since these units have been divested,
Specialty papers will not exist as a separate product area in the future.
Tervakoski specialty papers
In 1998, Stora Enso held a leading market position in this group of papers as
well as in coated thin printing papers. Tervakoski's specialty papers reported
good profitability and a balanced market situation.
In February 1999, Stora Enso signed an agreement to sell Tervakoski Oy to the
Austrian company Trierenberg AG. The divestment is in line with Stora Enso's
strategy of focusing on its core business areas and of securing the future
development of Tervakoski.
Technical office papers
Technical office papers include carbonless and thermal papers. Production
capacity amounted to 155,000 tonnes. Demand was poor and price levels low.
Stora Enso's aim is to divest units that are not part of the Group's core
business. In line with this strategy, negotiations were finalized at the end of
December regarding the sale of the Group's majority interest in the technical
office paper manufacturers, Stora Carbonless Paper GmbH and Stora Spezialpapiere
GmbH, to the Japanese-based Mitsubishi Paper Mills Ltd and the Mitsubishi
Corporation. When the arrangement became effective on January 1, 1999, the
Mitsubishi companies' shareholding rose to 76%. Stora Enso retains a minority
interest in both companies.
Keyfigures
<TABLE>
<CAPTION>
1997 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales, EUR M 324.4 323.4
Operating profit, EUR M 9.8 -6.6
Operating margin, % 3.0 -2.0
Operating capital, EUR M 300.4 97.7
Return on operating capital, % 3.3 -3.3
Capital expenditure, EUR M 14.9 17.8
Average number of employees 1,416 1,402
Deliveries (000 tonnes)
1997 1998
- ------------------------------------------------------------------------------------------------------------
Tervakoski specialty papers 77 81
Carbonless paper 132 127
Thermal paper 25 30
Total 234 238
</TABLE>
<PAGE>
Timber products
- ---------------
The production of timber products supports Stora Enso's Nordic and international
fiber strategy. The Nordic sawmills' close proximity to the Group's paper and
board mills leads to more efficient utilization of wood resources. Approximately
one fifth of Stora Enso's timber products are sold through the Group's own
distribution companies, which helps to ensure better and more individual
customer service.
Stora Enso has a capacity of 4.7 million m3 of sawn products and 1.0 million m3
of planed goods. The Group is the world's second largest producer of sawn timber
and a leading supplier to North America and Asia, and exports timber products to
more than 70 countries. About 20% of Stora Enso's sawn timber and other building
materials are sold through the Group's own distribution companies.
Markets
Nineteen ninety-eight was a difficult year. Production increased heavily in
1997, leading to high stock levels in Finland and Sweden. Whitewood prices
collapsed at the end of 1997 but began to rise in spring 1998. They decreased by
an average of 15% compared with 1997. Redwood prices were on average 6% lower
than during the preceding year. Demand was relatively good in the main markets
in Europe. Due to the economic crisis in Asia, the Japanese market weakened
rapidly in the spring, but recovered during the autumn, although 1997 volumes
were not reached. The US sawn timber market remained favorable throughout the
year.
Profitability and deliveries
Thanks to the increase in sales volume, sales rose by 2% to EUR 733.9 M.
Holzindustrie Schweighofer AG is included in the figures from the beginning of
December. Operating profit amounted to EUR 11.1 M. Return on operating capital
was 2.8%.
Deliveries totaled 2,765,000 m3, up 10%. The growth was mainly attributable to
additional capacity generated by the acquisition of Schweighofer.
New projects and structural changes
The operations of the Austrian company, Holzindustrie Schweighofer AG, were
merged with Stora Enso's timber business in early December. Schweighofer has a
capacity of 1.8 million m3 of timber products, mainly spruce, and 100,000 m3 of
gluelam beams. The company has four mills in Austria and two in the Czech
Republic, which in total produce 1.5 million m3 of chips, in addition to sawn
timber. The acquisition will support Stora Enso's fiber strategy, strengthen its
market position in the US and Japan and help to optimize transport costs in
certain product groups and markets.
Capital expenditure totaled EUR 33.9 M. The principal investments were the
rebuild of the grading plant at the Veitsiluoto sawmill and the modernization of
the saw line at the Tolkkinen sawmill.
<PAGE>
Outlook for 1999
The price of whitewood is expected to rise slightly compared with 1998. The
price of redwood will be under pressure during the first half of the year, since
supply will remain high while demand in the UK and North African markets will
weaken.The US and Japanese markets are expected to remain stable.
Stora Enso's timber products
- -------------------------------------------------------------------------------
Timber products from Stora Enso's Nordic sawmills are used for the joinery,
furniture and construction industries. The customized timber products
manufactured by the Central European mills are used in the joinery and building
industries, as well as in prefabricated houses. Sawn timber is also a raw
material for the packaging industry, while sawmill chips are an important raw
material for the paper industry.
Stora Enso has a total of 19 sawmills. The Nordic Redwood and the Nordic
Whitewood business units include mills in Finland and Sweden. The Central
European Timber unit comprises mills in Austria and and the Czech Republic.
Planed goods are produced in Finland, Austria, the Czech Republic and the
Netherlands. Joint venture LAMCO in Austria produces gluelam beams. The timber
merchants are located in Finland, the UK, the Netherlands and France. (See also
page 98)
<PAGE>
Key figures
<TABLE>
<CAPTION>
1997 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales, EUR M 722.2 733.9
Operating profit, EUR M 51.0 11.1
Operating margin, % 7.1 1.5
Operating capital, EUR M 274.8 401.1
Return on operating capital, % 18.6 3.3
Capital expenditure, EUR M 20.1 33.9
Average number of employees 2,050 2,188
Deliveries and capacity (000 m3)
Deliveries Capacity
---------------------
1997 1998 1999
- ------------------------------------------------------------------------------------------------------------
Nordic Whitewood 1,255 1,392 1,530
Nordic Redwood 1,265 1,292 1,395
Central European Timber -- 81 1,815
Total 2,520 2,765 4,740
</TABLE>
World's largest sawn timber producers, 1999
[Bar Graph appears containing production capacity information (in cubic meters)
for sawn timber for the following companies: Weyerhaeuser, Stora Enso,
Georgia-Pacific, International Paper and West Frazer Timber.]
Note: Capacities of North American Companies are converted to
"real-volumes"-base to facilitate comparison with European sawmills.
<PAGE>
Market pulp
- -----------
Stora Enso produces a total of approximately 2.3 million tonnes of market pulp
of which deliveries to internal processing units account for about 1.3 million
tonnes. The remainder is sold externally. However, since the Group also
purchases pulp, the net pulp balance amounts to 0.4 million tonnes.
In the production of paper and board, long-fiber pulp is used in cases where
fiber strength is of importance in the end product. The special characteristics
of short-fiber pulp are suitable for the manufacture of high-quality fine papers
and printing papers.
The Group also manufactures fluff pulp, which is used in baby diapers and
hygiene products.
Market
During 1998, the capacity for market pulp again exceeded demand. In Asia,
including Japan, consumption decreased due to the economic decline.
Fine-paper producers, the main consumers of short-fiber market pulp, also
experienced a situation in which supply exceeded demand.
After having remained at a stable level during the spring, prices moved
downwards in June, as a result of reduced demand.
Extensive production cutbacks were implemented during the autumn, particularly
in North America, which led to Norscan pulp inventories declining to a normal
level.
Although pulp producers announced price increases in November, these failed to
have an effect due to the depressed market situation in December.
Average prices during the year were USD 515/tonne for long-fiber pulp, and ECU
415/tonne for short-fiber pulp.
New projects and development activities
Concurrently, a program is under way to raise pulp-mill productivity and reduce
fixed costs.
Research work focuses on the development of additional pulp grades that are
adapted specifically to the Group's paper and board products.
Profitability and deliveries
Sales declined by 12% to EUR 846.6 M, mainly as a result of lower prices.
Operating profit amounted to EUR 9.7 M. Return on operating capital was 0.8%.
Deliveries of market pulp amounted to 1,964,000 tonnes, down 8% on 1997. The
pulp mills operated at 84% of capacity.
<PAGE>
Key figures
<TABLE>
<CAPTION>
1997 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales, EUR M 958.7 846.6
Operating profit, EUR M 29.4 9.7
Operating margin, % 3.1 1.1
Operating capital, EUR M 1,313.7 1,153.3
Return on operating capital, % 2.2 0.8
Capital expenditure, EUR M 107.6 96.3
Average number of employees 2,707 2,559
Deliveries and capacity (000 tonnes)
Deliveries Capacity
1997 1998 1999
- ------------------------------------------------------------------------------------------------------------
Short-fiber pulp 811 791 860
Long-fiber pulp 1,129 999 1,310*
Fluff pulp 187 174 180
Total 2,127 1,964 2,350
*) Including recycled fiber 60
Market pulp balance (000 tonnes)
Long- Short-
fiber fiber DIP Fluff Total
- ------------------------------------------------------------------------------------------------------------
Production
Own mills 2,815 2,375 1,285 180 6,655
Associated mills 160 160
Own consumption - 2,800 - 2,320 - 1,325 0 - 6,445
Market pulp balance 175 55 - 40 180 370
</TABLE>
<PAGE>
Forest
- ------
Stora Enso's own forest holdings in Finland and Sweden amount to 2.6 million
hectares, including 2.1 million hectares of productive forest land. The Group
also owns forest holdings in Canada and Portugal. In the Baltic states and
Russia, the Group purchases wood and has felling rights. Stora Enso's forest
operations are responsible for the Group's forest holdings and wood supply in
Finland and Sweden.
Market
The Finnish market. Early in the year, the supply from private forests was held
up by the wood-trading negotiations between the companies and private forest
owners, which continued into the summer. During the autumn, supply picked up but
the exceptionally rainy summer led to increased competition between buyers of
marked timber stands harvested under difficult conditions. The price of logs and
spruce pulpwood rose in the autumn and only stabilized at the end of the year,
when balance between supply and demand was restored.
The Swedish market. The supply of wood declined during the first four months of
the year, due to reduced timber prices. Wood purchased from private forest
owners increased during the summer. Subsequently, the supply of wood slackened.
Prices for pine and birch pulpwood were cut in November, an effect of reduced
industrial demand. The reverse situation was noted for spruce pulpwood.
Wood supply to Group units
Total deliveries from Nordic forest operations amounted to 27.5 million m3
(solid wood under bark), in line with the preceding year. Delivery volumes from
the Baltic states and Russia increased and amounted to 8.5 million m3.
Stora Enso's estimated wood requirement for the current year is approximately
32 million m3. This will mainly be satisfied using supplies in the form of stand
purchases and wood deliveries from private forest owners. Felling in Group-owned
forests is estimated to account for 15% of the Group's requirement and imported
wood for 22%. The principal import countries are Russia and the Baltic states.
Profitability
Sales rose by 2% to EUR 1,645.8 M. Operating profit amounted to EUR 111.0 M.
Return on operating capital was 7.9%.
<PAGE>
Key figures
<TABLE>
<CAPTION>
1997 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales, EUR M 1,616.8 1,645.8
Operating profit, EUR M 111.2 111.0
Operating margin, % 6.9 6.7
Operating capital, EUR M 1,386.9 1,408.1
Return on operating capital, % 8.0 7.9
Capital expenditure, EUR M 21.4 22.3
Average number of employees 2,484 2,341
Harvesting/growth in Stora Enso's Nordic forest
(m3fo million) 1997 1998
- ------------------------------------------------------------------------------------------------------------
Opening growing stock 225.8 231.0
Net growth 9.0 9.7
Final felling -4.2 -4.3
Thinning -1.2 -1.5
Tax reassessment/additional land holdings 1.6 1.1
Closing growing stock 231.0 236.0
</TABLE>
<PAGE>
Energy
- ------
Stora Enso is a major player in the Nordic electricity market, with a turnover
of 22 TWh during a normal year. The Group has an additional 5 TWh in Central
Europe. In Sweden, most of the Group's power is produced in hydropower and
nuclear power plants, while the electrical power produced in Finland is mainly
generated in industrial cogeneration, nuclear power and thermal power plants.
Market
The deregulation of the electricity market, combined with abundant
precipitation, resulted in reduced prices in Sweden and Norway. The lower prices
were particularly noticeable in the Nord Pool market. In Finland, negative
effects on electricity prices were experienced when the country joined the Nord
Pool system in June 1998.
As a result of the deregulation process, new players have established
positions in the market, leading to intensifying competition and price pressure.
It will probably take some years for the situation in the electricity market to
normalize.
Year-end levels in Swedish and Norwegian reservoirs were about normal for the
time of year.
Energy supply
The Group's self-sufficiency in electricity is roughly 90%.
During 1998, electricity consumption in Stora Enso's Nordic plants amounted to
14.5 TWh, of which Finland accounted for 8 TWh and Sweden for 6.5 TWh. External
sales of electricity amounted to 2.0 TWh in Finland and 5.5 TWh in Sweden.
During 1999, the Group's production of electric power is expected to be
normal, although hydropower production will be above normal at the beginning of
the year, due to the high water levels in Swedish and Finnish reservoirs.
New projects and development activities
Stora Enso will benefit from an improved energy balance and lower costs for
purchases of fossil fuels in the future.
A new energy management system was introduced in order to achieve energy
synergies in co-operation with the Swedish energy resources and a liberalized
Finnish and Swedish market.
Energy efficiency audits are a tool to improve overall energy efficiency in
the Group.
Profitability
Sales declined by 9% to EUR 481.2 M, mainly as a result of lower prices.
Operating profit amounted to EUR 114.5 M, down 8% on 1997. Return on operating
capital was 8.2%.
<PAGE>
Key figures
<TABLE>
<CAPTION>
1997 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales, EUR M 530.3 481.2
Operating profit, EUR M 123.8 114.5
Operating margin, % 23.3 23.8
Operating capital, EUR M 1,443.6 1,358.8
Return on operating capital, % 8.6 8.2
Capital expenditure, EUR M 19.6 19.6
Average number of employees 218 215
Power balance
(TWh) Finland Sweden Other Total
- ------------------------------------------------------------------------------------------------------------
CHP 4.0 1.5 1.8 7.3
Hydro 1.0 3.9 4.9
Nuclear 1.3 2.2 3.5
Other resources 1.7 (1.5) 1.7
Total production 8.0 7.6 1.8 17.4
Purchases 2.0 4.4 3.3 9.7
Total procurement 10.0 12.0 5.1 27.1
Stora Enso mill
consumption 8.0 6.5 4.9 19.4
External sales 2.0 5.5 0.2 7.7
</TABLE>
<PAGE>
Purchasing and logistics
- ------------------------
Stora Enso's logistics, procurement of transportation services and strategic raw
materials and investment purchases are coordinated at Group level.
Purchasing
Stora Enso's purchases of strategic raw materials, services and investments are
coordinated at Group level. The objective is to create and manage business
opportunities arising from the benefits of scale and the increased competitive
forces that are possible through joint procurement and sourcing.
Total purchases amount to EUR 2.5 billion annually.
Transports and logistics
The transport requirements of Stora Enso are substantial and the Group is, by
volume, one of Europe's largest transporters. Incoming shipments amount to
approximately 32 million tonnes annually of raw materials such as wood, chips
and chemicals.
Stora Enso manages the transport and distribution of finished goods itself,
with the assistance of various suppliers in the transport field. Each year, the
Group signs agreements amounting to EUR 0.7 billion covering the transport and
distribution of finished goods.
Transport systems within the Group are determined by long-term cost
efficiency, quality, customer service/requirements, flexibility and
environmental awareness.
The outgoing transports originate mainly from Finland, Germany and Sweden.
Transports from the Nordic countries are handled almost exclusively through
combinations of different means of logistics services into transport chains in
which sea transport plays an important role. Transport by truck, rail and sea
are equally critical in ensuring that the products reach customers on time and
undamaged. Goods from German mills are transported and distributed on the
European continent mainly by truck.
New transport system
During 1999 a new transport system will be introduced for Swedish exports. Key
components in the system include a new intermodal carrier for use in shipments
by rail and sea, as well as seaborne transports with new Ro/Ro vessels on the
Gothenburg-Zeebrugge route. The new system will gradually be introduced over a
five-year period. When fully implemented it is expected to result in annual
cost-savings of approximately EUR 22 M through an improvement of more than 20%
in transport efficiency, reduced environmental impact and increased customer
service.
Distribution of purchasing value
38% Raw materials
14% Investments
48% Services
Distribution of transport value
28% Sea transport
33% Rail transport
39% Road transport
<PAGE>
Marketing and sales network
- ---------------------------
Stora Enso's sales network has the day-to-day contact providing service to the
Group's customers in all products areas and around the globe.
Stora Enso's worldwide marketing and sales network includes more than 30 own
regional sales companies, with additional local branch offices, and a wide
network of agents marketing the Group's products and serving its customers.
Europe is Stora Enso's main market, but the Group is significantly expanding its
presence in America and Asia Pacific.
Interactive communication between production facilities, sales companies and
customers is vital to provide excellence in service and distribution of the
Group's products. Stora Enso recognizes the importance of product development
and market research in close cooperation with its customers. Many successes and
synergies are made possible as a result of sharing best practices across
different lines of business and geographic boundaries.
Stora Enso offers expert and professional sales support in the form of a team
drawn from mills, divisions and sales offices, which believes in listening to
customers and working with them to achieve continuous improvement. By focusing
on its customers in all sales-related matters, the Group helps them succeed in
their markets, a prerequisite for Stora Enso's own success.
Stora Enso will continue to seek opportunities to expand its business in
attractive markets to better serve its customers. It is Stora Enso's ambition to
exceed customers' expectations and to become their preferred supplier.
<PAGE>
<TABLE>
<CAPTION>
Sales by country (EUR M) 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Germany 1,827.0 1,611.2
UK 1,436.9 1,405.4
France 1,003.6 893.9
Sweden 881.0 919.9
Finland 726.0 741.3
The Netherlands 555.0 525.7
Italy 432.6 384.9
Spain 400.4 371.9
Belgium 373.9 341.3
Denmark 329.6 307.7
Other EU 321.0 317.9
Total EU 8,287.0 7,821.0
Other Europe 733.9 620.6
North America 445.5 318.3
Far East and Southeast Asia 406.2 623.9
Others 617.0 614.3
Total 10,489.6 9,998.1
</TABLE>
Sales by country
[Pie Chart appears containing the following information:
Germany 17%
UK 14%
France 10%
Sweden 8%
Finland 7%
The Netherlands 5%
Italy 4%
North America 4%
Far East and
South-East Asia 4%
Others 27%]
<PAGE>
Research and development
- ------------------------
The main task of R&D in Stora Enso is to provide knowledge and specialized
know-how to improve overall performance. Good process efficiency needs to be
combined with timely introduction of new or improved grades, striving for unique
advantages.
Economic competitiveness must be combined with sustainability, i.e. ecobalanced
production with minimum impact on the environment. This enables customer demands
for consistent service, appropriate quality and ecobalanced products to be met.
Stora Enso organizes shared R&D resources, facilities and expertise at the
Group's mills and joint Research centers. At corporate level, Stora Enso employs
400 researchers and engineers. The resources at divisional and mill levels are
about the same.
Technology and productivity
Uniform paper quality
During the first year of operation of the proprietary research tool called the
Advanced Total Paper Analyzer, ATPA, about 30 paper and board machines have been
analyzed. The ATPA has proven to be a useful tool for trouble-shooting and for
setting high standards for paper machine performance in terms of uniform and
consistent quality.
Runnability in printing presses and winding
Customers place increasing demands on printing papers. The ability to run the
paper at high speed in the printing press without disturbances is a prerequisite
for achieving high productivity. High print quality is also essential, as well
as a perfect runnability in the finishing department.
Projects for systematic analysis and subsequent reduction of web tension
variations have started in three large press rooms with a total circulation of
about three million newspapers.
Winding is a key production process for achieving customer satisfaction and
internal efficiency. Application-oriented trials reduced break rates for LWC
rotogravure reels by 55%.
Twin ABC at Grycksbo
Quality and productivity have been improved at the Grycksbo paper mill, where
the world's first Twin-ABC coater has been installed. A new blade type was
developed for the coater. In two units, two-sided blade coating is now performed
in one step.
R&D centers No. of employees
- ---------------------------------------------------------------------
Imatra, Finland 120
Falun, Sweden 110
Karlstad, Sweden 130
Viersen, Germany 40
Total 400
<PAGE>
Product performance and new grades
Matt coated fine paper
Matt coated fine paper often suffers from poor ink drying, which results in
ink-stuff problems in the book bindery. This is clearly not acceptable for a
modern, cost-efficient production unit, and the industry has struggled with this
problem for more than twenty years. The solution is to be found in the very
complex interaction between ink and paper surface.
The new modern sheet-fed offset press, recently installed at the Research
Center in Falun, has been an important tool in the research work, combining
printing with advanced chemical and physical analysis of the ink drying process.
This has yielded detailed knowledge of the paper properties and the phenomena
which influence the unwanted smearing and the print quality. Mill
implementations of the new findings are in progress and will lead to important
improvements in matt coated grades.
Reduced smearing on newsprint
Smearing of ink from printed areas onto other parts of the printed copy,
so-called set-off and rub-off, is a well-known problem, mainly in cold-set web
offset printing of newsprint. The main causes of such quality problems and
potential improvements have been identified.
The use of selected types of clay as fillers has been established as a
standard procedure for the production of certain grades of low-smearing
newsprint, which have been well received by the market.
Improved newsprint - Europress
Development work has proceeded on optimizing the furnish to further improve the
Kvarnsveden paper mill's "medium brightness" newsprint grade, known as
Europress. The work has also focused on optimizing other production conditions.
The new grade has been well accepted in the market place.
Digital paper
Stora Enso's leading position as a manufacturer of office papers has been
strengthened by investments in both R&D and production technology. A new
laboratory for digital printing papers has been established at the Imatra
Research Center. Its centerpiece is a Xeicon-engine, four-color digital printing
press with special instrumentation.
Investments at the Veitsiluoto and Berghuizer paper mills have created new
possibilities for developing new grades and increased production efficiency.
A new grade has been launched for high-resolution printers, and new technology
has been introduced for the production of uncoated 4CC grade.
New barrier coating
Plastic-coated barrier products for liquid cartons and oven packages have
entered the commercialization stage. The development is emphasizing on-line
applied dispersion-based coatings, which provide a superior solution for many
packaging applications.
Board properties and packaging performance
Cartons and fiber-based packagings have considerable development potential and
will continue to be highly competitive packaging materials. As a leading board
manufacturer, Stora Enso places special emphasis on being the technology leader
and developing new concepts and technologies for future rebuilds and new
machines.
Research at the Skoghall board mill has demonstrated the relationship between
board properties and packaging performance. Since the bending stiffness of the
board is of vital importance in packaging operations, new concepts for liquid
packaging board production have been developed based on this parameter. New
methods for predicting the properties of packaging already in production have
been implemented at the mill based on this work.
Triplex board
A new Triplex board for advanced flexoprinting has been developed. This board
meets the demand for source reduction and good printability.
<PAGE>
Environmental qualities
Ecomill
The concept of ecobalanced production is an approach which considers both
economy and ecology. A good example is the new bleach plant at the Skoghall
board mill, which combines high pulp quality with small effluent volumes and low
environmental impact.
Another example is the implementation of new water management practices at the
Uetersen paper mill, resulting in lower consumption of process chemicals due to
cleaner process water.
Recycling of used liquid cartons
The processing line for recycling used liquid cartons, which was commissioned in
1995 at Varkaus, has been further developed. The degree of fiber recovery has
been improved with new technology. A gasification technique for polyethylene is
under development and has been tested on a pilot scale. Energy recovery from
polyethylene is highly efficient, and the process also opens up the possibility
of utilizing the separated aluminum as a raw material.
<PAGE>
Environmental management
- ------------------------
Environmental Management Systems
By year-end 1998, 34 Stora Enso sites had EMAS-registered (Eco Management and
Audit Scheme) and/or ISO 14001-certified environmental management systems.
These sites represented 69% of total pulp, paper and board production within
the Group. All sawmills within Stora Enso Timber (Finland and Sweden) will have
certified environmental management systems in early 1999.
Environmental issues as
Part of business management
Environmental issues are an integral part of business management within Stora
Enso. To ensure continuous improvement of its operations and to create openness
to its stakeholders, Stora Enso is working forcefully to implement environmental
management systems.
A majority of Stora Enso's business units is registered according to EMAS
(EU's Eco Management and Audit Scheme) and/or certified according to ISO 14001.
The responsibility for environmental protection rests with operative
management. All Stora Enso employees are encouraged to contribute to achieving
environmental improvements. In order to be able to apply the most up-to-date
environmental expertise at all levels, Stora Enso arranges regular training on
environmental issues for its employees.
In order to optimize the allocation of financial resources to environmental
protection and material flows, and to improve the environmental profile of its
products, Stora Enso applies a lifecycle approach in its efforts to continuously
improve its environmental performance.
<PAGE>
Financial review
In 1998, Stora Enso spent EUR 164 M (1997:188) on environmental protection. The
figure includes capital expenditure as well as operating and mainte-nance costs,
but excludes interests and depreciation. Total environmental investments
amounted to EUR 68 M, while environmental expenses totaled EUR 96 M.
Major environmental investments included EUR 10.3 M for upgrading the chemical
recovery system and internal improvements at the Skutskar pulp mill to reduce
discharge to water. At the Anjalankoski mills the investment program for
improving waste-water treatment was finalized, with the 1998 costs amounting to
EUR 3.6 M. In addition to the modernization of the treatment plant, measures for
closing process water flows and for improving the sludge treatment were
included. At the Norrsundet pulp mill, EUR 3.5 M was invested in an oxygen
delignification stage. EUR 3.0 M was used to finalize the clean-up work on soil
and buildings at the old forest chemicals plant at Imatrankoski.
The following units in Finland are due to renew their discharge permits in
1999-2000: Enocell, Imatra, Oulu and Varkaus. The Hylte, Kvarnsveden, Grycksbo
and Skoghall mills in Sweden are involved in permitting processes for increased
production of current paper and board qualities.
Financial savings can be achieved by integrating environmental issues with
business management. One example is residual products management. Since waste
can in many cases be defined as a raw material in the wrong place, Stora Enso
continuously investigates new solutions for reusing residues which were earlier
regarded as waste. As a result, the business units have been able to reduce
waste volumes by utilizing them on an increasingly large scale. Often, these
solutions can be justified purely based on financial reasons.
A total of EUR 42 M has been estimated to cover future environmental
expenditure. The timing for implementing these measures is not detailed in all
parts but the programs will be carried out over the next few years.
Major remediation projects include the final disposal of mercury at the
Skutskar harbor. At Uetersen, plans are being made for the decommissioning of a
closed landfill area. At Pateniemi in Northern Finland, cleaning of the old
sawmill has been started. At Skoghall, cleanup of mercury contamination at the
disused chloralkali plant continues.
Decommissioning activities at the closed Falun mine area are in progress,
partly financed by the Swedish Government.
Stora Enso is free from legal claims concerning environmental issues which
could have a major impact on Stora Enso's financial position.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
I \ Deliveries 781,000 tons \
I \ Market Pulp* 11,758,000 tons \
I \ Paper and Board 2,764,000 m3 \
Wood 38 Mm3 \ Timber Products \
- ---------------------------------------- \ Corrugated Board 339 Mm3 \
\ ------------------------------------------------ \
Purchased pulp 750,000 tons \ Discharge of water \
- ---------------------------------------- \ COD 186,000 tons \
\ AOX 700 tons \
Recovered paper 1,936,000 tons \ Phosphorus 300 tons \
- ---------------------------------------- \ Nitrogen 2,000 tons \
\ ------------------------------------------------ \
Filters 2,181,000 tons IN \ \
- ---------------------------------------- / OUT /
Water use 813 Mm3 /Emission to air /
- ---------------------------------------- / CO2 from non-renewable fuels 4,747,000 tons /
/ CO2 from renewable fuels 14,979,000 tons /
Electrical power 20 Twh / CO2 total 19,726,000 tons /
- ---------------------------------------- / SO2 17,000 tons /
/ NOx (NO2) 16,000 tons /
Fossis fuel 76,000 Tj / ------------------------------------------------ /
- ---------------------------------------- / /
/ Waste for landfil 451,000 tons /
I / /
I / /
I / /
I / /
* pulp for external customers
</TABLE>
Environmental investments and costs
EUR M 1998 1997
- ---------------------------------------------------------------------------
Environment-related investments
Aquatic environment 36 45
Air environment 12 18
Other 20 26
Total 68 89
Environmental costs 96 99
<PAGE>
Improving environmental performance - [GRAPHIC OMITTED]
Stora Enso devotes considerable effort to finding new solutions for the reuse of
residuals which were earlier considered as waste. A typical example is ash,
which is being used in an increasing amount as a raw material for road and other
land-based construction projects, as well as for the revitalization of forest
lands.
[GRAPHIC OMITTED]
<PAGE>
[GRAPHIC OMITTED]
1) Sales production of market pulp, paper and board.
Total emissions from Stora Enso's operations have decreased, despite the fact
that production is now some 30 % higher than five years ago. This trend is a
result of growing awareness of environmental issues, environmental training and
investment in modern, cleaner, resource-saving technology and the introduction
of environmental management systems.
Forests and energy
In forestry, environmental activities in 1998 concentrated on developing
environmental management and forest certification. Stora Enso's wood supply to
the Finnish mills (including wood imports) as well as the Woodlands Division's
supply to the Port Hawkesbury mill in Nova Scotia, Canada, received ISO 14001
certificates in 1998. The FSC certification of Stora Enso's forest holdings in
Sweden (1.9 million hectares) was completed in 1998. In Finland, the
preparedness for forest certification based on a national standard and criteria
was reached and the certification will start in 1999. The aim is to connect the
Finnish national certification standard to existing international forest
certification schemes.
In energy production, Stora Enso will further develop its biofuel production
as well as seek other means to reduce CO2 emissions from fossil fuels. The large
proportion of biofuels (64%) in Stora Enso and the high hydropower capacity will
provide a good base for these efforts. Energy efficiency audits and the
realization and implementation of environmental management systems for energy
resources have been started.
Approved investments in a new biofuel boiler at Pankakoski and the combined
heat and power production (CHP) with natural gas in Anjalankoski will reduce
emissions significantly.
Further information on environmental issues within Stora Enso will be
available in the Group's Environmental Report, which will be published in early
May 1999. Stora Enso's Environmental Policy will be published in April 1999.
<PAGE>
Glossary
AOX (Adsorbable Organic Halogen) The AOX content
of waste water
indicates the
concentration of
organic chlorine
present.
CO2 (Carbon dioxide) Gaseous compound formed
during combustion.
COD (Chemical Oxygen Demand) Chemical oxygen-consuming
substances. A
measure of the
amount of oxygen
required for the
total chemical
breakdown of
organic
substances in
water.
NOX General formula for a
mixture of nitrogen
oxides formed by
combustion. One of
the causes of acidity
in the environment.
SO2 (Sulphur dioxide) Sulphur dioxide is
formed when
sulphur-containing
fuels such as oil and
coal are burned.
Sulphur dioxide
contributes to the
acidification of soil
and water.
Stora Enso's 1998 Environmental Report may be ordered from
Stora Enso Oyj Stora Enso Oyj
Corporate Communications Corporate Communications
P.O. Box 309 o FIN-00101 Helsinki, Finland SE-791 80 Falun, Sweden
Tel +358 20 46 131 Tel +46 23 78 00 00
Fax +358 20 46 21471 Fax +46 23 253 29
<PAGE>
Human resources
- ---------------
The aim of Human resources is to support competence development and performance
improvement.
Stora Enso's vision is to create a working climate in which all conditions for
excellent performance are in place. This is essential in order to further
develop our competitiveness among the world's leading forest industry groups. It
also means that employees perceive the Group to be a good employer, appreciative
of their knowledge and skills and prepared to reward good performance.
The process to establish Stora Enso's common values and the corporate human
resources strategy was launched during the fourth quarter of 1998 and will
continue during 1999.
Continuous performance improvements during 1998 have been supported by quality
management programs, which will be continued in 1999.
Performance culture
There is a fundamental process in progress to achieve a new corporate culture,
based on a shared vision and values. An attitude survey focusing on
merger-related issues was performed during the third quarter of 1998 among
selected employee groups. The results of this study will benefit management
practices and training programs development within Stora Enso in 1999.
Action programs based on the results of earlier surveys were implemented
during the year. These focused on management practices, human resources
development, employee performance and improvements at all workplaces.
Profit-sharing schemes
Since 1998, Stora Enso has applied compensation systems that take into account
the performance and profit of the Group and Group units, as well as the
individual employee.
The two merged companies have employed compensation systems (see Note 6). As
of 1999, a Compensation Committee has been appointed within and by the Board of
Directors for the purpose of establishing management terms and conditions and
for ensuring that the company develops forms of remuneration that will motivate
and create value in the new Stora Enso.
Planning of Stora Enso's future profit-sharing scheme was started during the
fourth quarter of 1998 and will be finalized in March 1999. The scheme will be
based on company profits and on the achievement of key business targets. Various
job- and performance evaluation systems will be developed to support the scheme.
<PAGE>
Competence development
Competence development improves both employee performance and the working
climate throughout the organization. The Group's goal is that each employee be
assigned an individual development plan.
The efficiency programs implemented in the mills during 1997-98 are designed
to develop the competence of personnel and facilitate change, and to improve all
working methods and processes.
Management development
Stora Enso focuses on good management and to this end several internal and
external training programs and courses were conducted during the year.
Management training programs are designed to meet the specific needs of
different groups of managerial staff and provide optimal opportunities for
professional and individual development.
Programs for sales personnel and candidates for assignment abroad include
internationalization training. Intercultural training workshops were started
during the fourth quarter of 1998.
Competence development within Stora Enso - [GRAPHIC OMITTED] - Data to be
supplied
Attracting top talents
The Group has conducted a trainee program for newly recruited persons with
university degrees in, for example, engineering and business administration. The
program has been internationalized by including participants from different
countries, in order to strengthen the international network.
The internal job market (IJM) has been in operation during the year, with the
aim of increasing employee mobility between units and divisions. Through job
changes and more varied and challenging careers, employees are provided with
improved opportunities for personal development enabling the employer to better
utilize their skills and experience. The IJM concept will be further developed
within the Group.
<TABLE>
<CAPTION>
Key figures
Personnel 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Personnel, average 40,679 40,301
Sales/employee (EUR) 257,863 248,086
Personnel turnover (%) 2.8 2.9
Average number of employees
by country 1998 1997
- ------------------------------------------------------------------------------------------------------------
Finland 15,601 15,852
Sweden 11,354 11,507
Germany 5,782 5,523
France 1,470 1,595
Canada 1,044 894
UK 967 1,021
Belgium 788 807
Portugal 469 487
Spain 393 415
Other countries 2,811 2,200
Total 40,679 40,301
</TABLE>
<PAGE>
Report on operations by the Board of Directors
- ----------------------------------------------
Combination of Stora Kopparbergs
Bergslags Aktiebolag and Enso Oyj
On June 2, 1998, the Boards of Directors of Stora Kopparbergs Bergslags
Aktiebolag (STORA) and Enso Oyj (Enso) signed an agreement to combine the two
companies. The two Boards of Directors decided it would be in the interests of
both the companies and their shareholders to combine their business operations.
In accordance with the terms and conditions approved by Enso's extraordinary
meeting of shareholders on July 23, 1998, it is Enso's intention to acquire all
STORA's shares. Enso has offered STORA shareholders an opportunity to exchange
their shares as follows: 0.50829 Enso Series A shares and 0.94313 Enso Series R
shares for each STORA Series A share held, and 1.45142 Enso Series R shares for
each STORA Series B share held.
The exchange offer was valid from July 27 to December 17, 1998. At the end of
the offer period, Enso had 96.1% of STORA's shares and 96.2% of the votes.
Following the share issue connected with the offer, Enso's share capital was
increased to FIM 7,595,796,890, and this was registered in the Trade Register on
December 23, 1998. Stora Enso's share capital is divided into 243,394,655 Series
A shares and 516,185,034 Series R shares. Quotations for the new shares on the
Helsinki Exchanges began on December 29, 1998. The shares were quoted on the
Stockholm Stock Exchange from the same date.
Stora Enso Oyj intends to acquire all STORA shares outstanding. Accordingly,
on January 14, 1999, Stora Enso announced the compulsory acquisition of all
outstanding STORA shares and made shareholders a cash offer to acquire their
shares at SEK 88 per share. The price corresponds to a cash value of the offered
share consideration in the public offer, based on the weighted average paid
price for Enso Oyj shares at the Helsinki Exchanges between December 7 and 17,
1998.
STORA applied to have listings discontinued for its Series A and B shares on
the Stockholm and London stock exchanges and for its Series B shares on the
Frankfurt Stock Exchange. The final day of trading for STORA's shares was
Tuesday, January 19, 1999.
New Board of Directors and auditors
The amendments to the Articles of Association, together with the members of the
Board of Directors of Stora Enso Oyj and the auditors approved by the
extraordinary meeting of Enso Oyj shareholders on July 23, 1998, were registered
on December 23, 1998. The previous Board of Directors remained in office up to
December 22, 1998 and consisted of Jukka Harmala (Chairman), Kimmo Kalela, Pekka
Laaksonen, Esko Makelainen, Paavo Pitkanen, Juhani Pohjolainen (Vice Chairman),
Jouko Taukojarvi and Paavo Uronen. The members of the new Board of Directors are
Josef Ackermann, Krister Ahlstrom (Vice Chairman), Harald Einsmann, Claes
Dahlback (Chairman), Bjorn Hagglund, Jukka Harmala, Raimo Luoma, Paavo Pitkanen,
Jan Sjoqvist and Marcus Wallenberg. The company's Chief Executive Officer is
Jukka Harmala and Bjorn Hagglund was appointed Deputy Chief Executive Officer.
KPMG Wideri Oy Ab were registered as the company's auditors alongside SVH
Pricewaterhouse Coopers Oy.
The Supervisory Board of Enso Oyj was abolished. The members of the
Supervisory Board, which functioned up to December 22, 1998, were Krister
Ahlstrom, Carl-Olaf Homen, Ulla Lahteenmaki, Jukka Mikkola (Chairman), Pekka
Morri, Markku Makinen, Kauko Makivuoti, Tuija Nurmi, Pekka Ruotsalainen, Sisko
Seppa, Matti Vaisto (Vice Chairman) and Ben Zyskowicz.
The members of the Board of Stora Kopparbergs Bergslags Aktiebolag were Claes
Dahlback (Chairman), Harald Einsmann, Bjorn Hagglund, Hakan Mogren, Jan
Sjoqvist, Bjorn Svedberg and Marcus Wallenberg (Vice Chairman). The employee
representatives were Ingemar Falk, Roger Karlsson, Ann-Christin Kall, Tommy
Nordkvist (deputy member) and Kjell Westin (deputy member).
<PAGE>
Integration of operations and synergy benefits
The European Commission approved the combination proposal in November, opening
the way for fullscale cooperation between the different parts of the new Group.
Management and planning of business operations are now being conducted in
accordance with the Group's new business organization. The search for synergies
and their realization, large-scale benchmarking of operations and the related
search for best practices, and STORA's productivity programs are all going
according to plan.
The most significant synergy benefits accruing from the combination will come
from more efficient production, purchasing and logistics, marketing and
administration. These will be realized in full by 2002. The biggest synergies
will be found in fine paper, packaging boards and chemical pulp.
The estimated reduction in workforce is around 2,000 persons in 1999-2002. As
already announced, the number employed in administration, sales and marketing
will be cut by 400-500. These reductions are due to reorganizations necessary in
other parts of the Group arising from benchmarking and from pursuing a "best
practices" policy.
The combination of the two companies has proceeded according to plan.
Management was appointed on December 23 and combination of divisions on all
levels started at the beginning of 1999. Stora Enso is managed from dual head
offices in Helsinki and Stockholm. Dusseldorf has become the divisional head
office of Magazine paper, Newsprint and Fine paper and the managements have
already started operating from there. Management of the Packaging boards
division is located in Helsinki. Pulp division is led from Gavle, Merchant
division from Molndal and Timber division from Brand in Austria. Asia division
management is in Singapore. The combining of the marketing networks is already
under way, but not yet fully implemented.
Markets and deliveries
Until the fourth quarter, demand for almost all of the Group's products was
better than last year in Western Europe, the main market, thanks to the
favorable economic trend. Economic difficulties in Asia, Russia and South
America reduced demand in these markets. The biggest growth was in magazine
paper, newsprint and fine paper, deliveries of which increased by a combined
total of 613,000 tonnes. Deliveries of packaging boards were 151,000 tonnes down
on the preceding year. Paper and board deliveries totaled 11,758,000 tonnes.
Deliveries of market pulp were down on 1997 because of production curtailments
necessitated by imbalances in the market. Pulp deliveries fell by 163,000 tonnes
and sawn timber deliveries increased by 244,000 cubic meters.
Sales and financial results
Stora Enso's consolidated financial statements have been produced in accordance
with the recommendations of the International Accounting Standards Committee
(IASC). The combination of STORA's and Enso's operations meets the requirements
for pooling as stated in IAS 22, and the combination of STORA and Enso in the
accounts is therefore dealt with using the pooling method.
Consolidated sales were FIM 62,369 million, 4.9% up on the preceding year. The
growth was achieved largely through the increased volume of deliveries made
possible by expansions to production at the Holtzmann, Oulu, Port Hawkesbury and
Skoghall mills. Acquisition of the Suzhou Papyrus Paper mill in China in June
and Holzindustrie Schweighofer in Austria in December raised sales by FIM 296
million. Sales were also boosted by the rise in prices for newsprint and
magazine paper but were reduced by the lower prices for pulp and sawn timber. In
1998, the STORA Group had sales of FIM 30,987 million and the Enso Group sales
of FIM 31,503 million.
Operating profit for 1998 was FIM 4,273 million, 6.9% of sales. Operating
profit before non-recurring items was FIM 7,074 million, 11.3% of sales. The
figures for the preceding year were FIM 5,449 million and 9.2%. Operating profit
benefited from the higher production and delivery volumes and from the rise in
prices for paper products. Profitability was adversely affected by the fall in
prices for chemical pulp and sawn timber and by curtailments to pulp, fine paper
and packaging board production. The financial result was adversely affected by
start-up problems on Port Hawkesbury's new SC paper machine. Due to lack of
orders the Skoghall's board machine no. 8 did not reach full capacity.
At operating profit level, non-recurring items including merger costs,
restructuring provisions and items affecting comparability, totaled FIM 2,801
million.
The direct cost of the combination was FIM 1,249 million, comprising FIM 357
million in depreciation on fixed assets and FIM 892 million in reorganization
costs, fees to the advisors and severance payments.
In addition to these direct costs, FIM 1,457 million as write-downs and
provisions was entered in the accounts. Most of this relates to structural
changes that may be necessary in the future, for which FIM 268 million was
entered as provisions and FIM 654 million as accelerated depreciation on
machinery and equipment. The remaining FIM 535 million represents additional
amortization of goodwill relating to poorly profitable production plants. This
depreciation will reduce depreciation according to plan by around FIM 60 million
annually.
Items affecting comparability include capital tax refunds of FIM 122 million
received in Germany and a loss on the sale of technical office papers of FIM 122
million.
Depreciation increased by FIM 1,913 million to FIM 6,846 million, of which
non-recurring write-downs accounted for FIM 1,548 million. The increase is due
to the machine investments at Port Hawkesbury and Skoghall and to the additional
depreciation made on fixed assets and goodwill in the accounts.
Net financial items for the period were FIM 2,255 million, 3.6% of sales. The
figures for 1997 were FIM 1,666 million and 2.8%. Interest expenses rose because
of the increase in interest-bearing loans taken for investments. Net interest
expenses also include FIM 66 million in non-recurring items. The fall in
interest rates worldwide reduced interest expenses. Exchange-rate losses for the
period totaled FIM 180 million, compared with gains of FIM 135 million in 1997.
Weakening of the rouble brought exchange-rate losses of FIM 101 million in
connection with the Russian corrugated board mill project.
Profit after financial items totaled FIM 2,018 million, a decrease of FIM
1,765 million on the year before. Profit after financial items and before
non-recurring items was FIM 4,885 million.
Taxes for the period were FIM 881 million, 43.7% of the pre-tax profit. The
high tax in relation to profit is explained by the non-tax-deductible expenses,
principally amortization of goodwill, set against profit. Taxes were FIM 342
million lower than in 1997.
Profit for the period was FIM 1,136 million and profit before non-recurring
items FIM 3,578 million. Earnings per share were FIM 1.50, and FIM 4.71
respectively.
Return on capital employed (ROCE) was 6.2%, compared with 8.0% the year
before. ROCE before non-recurring items was 10.2%. Return on equity was 3.4%,
against 7.6% in 1997. The adjusted figure in 1998 was 10.6%.
Changes in Group composition
Following the combination, Stora Kopparbergs Bergslags Aktiebolag is now a
subsidiary of Stora Enso Oyj. The accounts show FIM 26,926 million as the cost
of acquiring a 96.1% share in STORA.
On January 7, 1998, the Group increased its interest in E. Holtzmann & Cie AG
by 40%. This was increased to 100% through further purchases in September and
October. Purchase cost in 1998 amounted to FIM 1,722 million.
On June 12, 1998, an agreement was signed to acquire 60% of the Chinese
company Suzhou Papyrus Paper Co. Ltd. The company's mill, which is located some
90 km west of Shanghai, started production in 1997 and has a coated fine paper
capacity of around 120,000 t/a.
On November 11, 1998, the Group acquired a 19.9% stake in the Thai company
Advance Agro Pcl for FIM 404 million. A marketing agreement was also signed
giving Stora Enso sole rights to market Advance Agro's pulp and fine paper
outside Thailand.
On December 2, 1998, the subsidiary Enso Timber acquired the Austrian company
Holzindustrie Schweighofer AG. The purchase was paid for partly in cash and
partly in Enso Timber shares. As a result, the Schweighofer family now has a 33%
interest.
On December 31, 1998, the Group sold its technical office papers business to
Mitsubishi Corporation. The Group has retained a 24% stake in the technical
office papers manufacturers Stora Carbonless Paper GmbH (Hillegossen) and Stora
Spezialpapiere GmbH (Flensburg). The amount of capital tied up in the businesses
sold was around FIM 1,100 million.
Financing
In accordance with the decision of the extraordinary meeting of shareholders,
STORA shareholders were offered to exchange their shares for Enso shares. The
share issue related to the offer resulted in the company's share capital being
increased by FIM 4,480 million, the number of shares increasing by 448,488,859.
The Group's shareholders' equity at the end of the year was FIM 31,474 million.
Equity per share was FIM 41.44, a decrease of FIM 1.72 on the preceding year.
The Group did not enter into significant loan financing arrangements during
the financial period.
The Group's debt/equity ratio was 1.04 at the end of the year, compared with
1.05 at the end of 1997. Entries in the accounts related to the merger costs
raised the debt/equity ratio by 0.07. The increase in interest-bearing net
liabilities due to investments also raised the debt/equity ratio. The decrease
in working capital, mainly due to production curtailments, the sale of the
technical office papers, and the low level of investment all lowered the
debt/equity ratio in the fourth quarter.
Dividend and payments for acquiring the remaining STORA shares will weaken the
debt/equity level in the first quarter of 1999.
Interest-bearing net liabilities were FIM 34,382 million at the end of the
year, FIM 1,828 million lower than the year before. FIM 1,503 million of this
reduction relates to weakening of SEK against FIM. Capital employed, less tax
liability, averaged FIM 69,059 million, an increase of FIM 1,010 million on
1997.
The cash flow from operations in 1998 was FIM 12,794 million, compared with
FIM 9,471 million the preceding year. Most of the increase is attributable to
the improved profitability for newsprint and magazine paper.
Cash reserves and unutilized credit facilities totaled FIM 14,700 million at
the end of the year.
The introduction of the euro in January 1999 will reduce the cost of the
Group's financing and payment transactions as well as foreign currency and
interest rate risks. The euro area accounts for 53% of the Group's invoicing.
Invoicing will be changed and denominated in euro in stages.
Capital expenditure
Capital expenditure in 1998 totaled FIM 5,330 million. The biggest single
investment was Port Hawkesbury's new paper machine, which started up in April.
The machine has an estimated annual production capacity of 350,000 tonnes of
uncoated (SC) magazine paper. Most of the machine's output is intended for the
North American market. A total of FIM 3,670 million has been spent on this
project, FIM 1,354 million of it in 1998. Start-up did not go fully according to
plan, as difficulties with the calender coverings have caused quality problems.
An action program is being implemented at the mill to raise production
efficiency, product quality and cost competitiveness to the desired levels.
Other sizable investment projects in 1998 were the recovery boiler at the
Gruvon mill (FIM 108 million), a web former at the Hylte mill (FIM 116 million),
a coater for board machine no. 3 at the Fors mill (FIM 165 million), and a
rebuild of paper machine no. 10 at the Grycksbo mill (FIM 83 million) in Sweden,
a rebuild of board machine no. 1 at the Imatra mill (FIM 57 million) and soft
calenders for Veitsiluoto's paper machine no. 2 (FIM 130 million) in Finland, a
rebuild of paper machine no. 8 at the Maxau mill in Germany (FIM 276 million),
and Pakenso's new corrugated board mill at Balabanovo in Russia (FIM 159
million).
Research and development
The Group's research and development work is conducted using joint resources at
the research centers and also within the business units. Some R&D services are
also purchased from outside. The Group's R&D expenditure, including trial runs
at the mills, was about FIM 477 million. Development of products and processes
also takes place in conjunction with investments.
Environmental affairs
Within Stora Enso, environmental affairs are an integral part of business
management. The environmental effects of operations are assessed using the life
cycle approach. To ensure responsible management of these affairs, Stora Enso
places special emphasis on comprehensive environmental management and
environmental monitoring. This applies to normal daily operations, investment
projects and acquisitions.
Personnel
During the year, the Group had an average of 40,679 employees, 378 more than the
preceding year. The increase is due partly to the acquisitions of Holzindustrie
Schweighofer and Suzhou Papyrus Paper and to the investment at Port Hawkesbury.
Information on salaries paid to employees and company directors can be found
in the Notes to the accounts.
Events occurring after the closing of accounts
The offer dated January 14, 1999 to STORA shareholders, under which they may
voluntarily sell their shares, had resulted in the acquisition of an additional
5,050,697 STORA shares by February 10, 1999. Subsequently, Stora Enso holds
97.7% of STORA shares and votes.
On January 19, 1999 STORA shares were delisted from the Stockholm, London and
Frankfurt stock exchanges.
On February 10, 1999, it was decided to sell the business operations and
material assets of Tervakoski Oy to a new Finnish company to be set up by the
Austrian company Trierenberg AG. The selling price is FIM 546 million, which
will produce a profit of FIM 160 million.
It was also decided to sell the fixed assets of the Danish Dalum mill to a
group a Danish investors for about FIM 170 million.
The Board also appointed an advisor to review alternative options for the
future ownership of the Gruvon mill.
<PAGE>
Year 2000 compliance project
The Year 2000 project to comply with IT solutions ahead of the millennium shift
was started in January 1997. By the beginning of 1999, 70% of the necessary
changes had been made. The aim is to have all units ready by July 1, 1999. Not
all changes can be made while the mills are in production, and provision has
thus been made for some minor delays. The cost of the project is around FIM 268
million. The internal risks are thought to be small. The risks mainly concern
predicting the readiness for the year 2000 of raw material and other suppliers,
social structure in different countries, and customers. The aim is to reduce the
risks and to produce contingency plans to secure the continuity of business
operations in all situations.
Outlook for 1999
The trend in the world economy is clouded by uncertainties arising from the
economic trends in Asia, Russia and South America and their potential effects.
In Europe and the United States, on the other hand, economic trends are forecast
to remain fairly stable despite a certain weakening. The first half of 1999 is
not likely to show any major improvement in the market. Economic activity and
demand for paper are expected to increase towards the end of the year with the
approach of the new millennium.
<PAGE>
Consolidated income statement
- -----------------------------
(IAS)
<TABLE>
<CAPTION>
FIM mill. Note 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales 2, 3 62 368.6 59 446.0
Finished and semifinished goods, increase (+) 248.4 47.1
Share of profits of associated companies 59.2 98.2
Other operating income 5 267.2 360.4
Materials and services -33 495.2 -31 831.7
Freights and sales commissions -6 040.8 -6 543.0
Personnel expenses 6, 26 -10 733.1 -10 329.6
Depreciation and value adjustments 10 -6 846.2 -4 933.1
Other operating expenses -1 555.4 -865.5
Operating profit 2, 3, 7 4 272.8 5 448.8
Financing 8 -2 255.0 -1 665.6
Profit before tax and minority interests 2 017.8 3 783.2
Tax 9 -881.1 -1 222.7
Profit after taxes 1 136.7 2 560.5
Minority interests -0.9 -128.6
Profit for the period 1 135.8 2 431.8
Key Ratios
Earnings per share, FIM 27 1.50 3.20
Earnings per share diluted, FIM 1.49 3.19
</TABLE>
<PAGE>
Consolidated balance sheet
- --------------------------
(IAS)
<TABLE>
<CAPTION>
Assets FIM mill. Note 31.12.1998 31.12.1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed assets and other
long-term investments 11, 18
Intangible assets O 249.7 251.1
Goodwill on consolidation O 3 213.6 3 028.7
Property, plant and equipment O 61 981.7 63 806.5
Shares, associated companies O 12 1 986.6 1 890.1
Shares, other companies O 13 766.0 339.2
Capital investment shares I 14 285.3 225.2
Long-term loan receivables I 535.4 462.5
Deferred tax receivable T 9 46.6 69.3
Other non-current assets O 471.0 467.1
69 535.8 70 539.7
Current assets
Inventories O 16 7 921.4 7 664.8
Tax receivable T 9 20.3 1.6
Short-term receivables O 17 10 603.6 12 132.6
Short-term investments
and receivables I 1 489.1 653.8
Cash and cash equivalents I 2 071.9 1 484.6
22 106.3 21 937.5
Total assets 91 642.1 92 477.2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Shareholders' equity and liabilities FIM mill. Note 31.12.1998 31.12.1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholders' equity 19
Share capital 7 595.8 7 595.8
Restricted equity 4 189.1 4 376.9
Retained earnings 18 553.1 18 375.0
Profit for the period 1 135.8 2 431.8
31 473.8 32 779.5
Minority interests 1 657.5 1 615.6
Provisions
Pension provisions I 3 161.6 3 353.5
Deferred tax liability T 9 7 950.8 8 168.4
Other provisions O 1 521.9 722.0
Long-term liabilities
Long-term debt I 20 25 531.4 25 026.1
Other long-term liabilities O 539.9 502.1
26 071.3 25 528.2
Current liabilities
Current portion of long-term debt I 20 7 244.2 7 147.6
Short-term borrowings I 2 826.4 3 508.4
Other current liabilities O 21 8 631.7 8 832.6
Tax liability T 1 103.0 821.4
19 805.3 20 310.0
Total shareholders' equity and liabilities 91 642.1 92 477.2
</TABLE>
Items designated with "O" are included in the operative capital.
Items designated with "I" are included in interest bearing net liabilities.
Items designated with "T" are included in tax liability.
<PAGE>
Consolidated balance sheet
- --------------------------
(IAS) Equity reconciliation
<TABLE>
<CAPTION>
31.12.1998 31.12.1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Share capital 7 595.8 7 595.8
Reserve fund 4 047.8 3 862.8
Increase 170.2
Translation difference -475.2 3 742.8 185.0 4 047.8
Reserve for own shares - -
Other restricted equity 329.2 125.8
Other changes 139.1 178.4
Translation difference -22.1 446.3 24.9 329.2
Non-restricted equity 20 806.8 19 838.6
Dividends paid -1 442.3 -1 388.2
To be placed at the disposal
of the Board of Directors -2.5
Transfer to other
restricted equity -139.1 -178.4
Translation difference -672.4 105.5
Profit for the period 1 135.8 19 688.9 2 431.8 20 806.8
Total equity 31 473.7 32 779.5
Distributable funds
Non-restricted equity 19 688.9 20 806.8
Untaxed reserves included in
non-restricted equity -5 560.2 -4 736.5
Distributable funds 31.12 14 128.6 16 070.2
</TABLE>
<PAGE>
Consolidated cash flow statement
- --------------------------------
(IAS)
<TABLE>
<CAPTION>
FIM mill. 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flow from operating activities
Operating profit 4 272.8 5 448.8
Adjustments 6 824.9 4 803.4
Change in net working capital 1 696.6 -780.9
Cash flow from operations 12 794.3 9 471.3
Net financial items -2 255.0 -1 665.6
Income taxes paid -232.4 -472.3
Net cash from operating activities 10 306.9 7 333.4
Cash flow from investing activities
Acquisition of Group companies net of cash -2 349.9 -1 358.0
Acquisition of affiliated companies -252.0 -557.6
Investment in other shares -409.0 -135.0
Capital expenditures -5 330.0 -6 739.9
Proceeds from disposal of shares in Group companies 765.0 873.1
Proceeds from disposal of shares in affiliated companies 0.0 41.0
Proceeds from disposal of shares in other companies 22.0 26.0
Proceeds from sale of fixed assets 264.8 230.0
Changes in long-term operating assets -54.3 -401.7
Net cash used in investing activities -7 388.4 -8 022.1
Cash flow from financing activities
Change in long-term liabilities 1 027.2 2 107.8
Change in short term borrowings -851.3 -1 024.6
Change in long-term receivables -153.1 105.8
Change in short-term receivables -887.5 901.5
Dividends paid to Stora Enso shareholders -1 413.0 -1 356.2
Other dividends paid to minority shareholders -42.3 -45.0
Other change in shareholders' equity -2.5
Other change in minority interests 24.8 -31.3
-2 295.2 655.5
Net increase in cash and cash equivalents 623.3 -33.3
Cash and equivalents in sold companies -17.5
Translation differences on cash holdings -18.5 57.7
Cash and equivalents at beginning of period 1484.6 1 460.3
Cash and equivalents at end of period 2 071.9 1 484.7
1998 1997
- ------------------------------------------------------------------------------------------------------------
Adjustments include:
Depreciation and value adjustments 6 846.2 4 933.1
Share in profits of associated companies -59.2 -98.2
Profits and losses on sale of fixed assets 37.8 -31.5
6 824.9 4 803.4
Acquisition of group companies
Cash flow on acquisition
Acquisition-price on companies 2 449.0 1 873.0
Cash and bank in acquired companies -54.1 -515.0
2 394.9 1 358.0
Acquired net assets
Operating working capital 251.4 28.0
Operating fixed assets 3 559.3 2 172.0
Interest-bearing assets less cash and bank 8.0 26.0
Tax liabilities -20.0 0.0
Interest bearing liabilities -1 092.0 -473.0
Minority interests -141.9 -395.0
Equity -170.0 0.0
2 394.8 1 358.0
Disposal of Group companies
Cash flow on disposal
Sale consideration from disposal of companies 765.0 873.1
Cash and bank in sold companies -17.5 0.0
747.5 873.1
Net assets sold
Operating working capital 410.9 116.9
Operating fixed assets 918.3 987.1
Interest-bearing assets less cash and bank 1.0 0.0
Tax liabilities -205.4 -80.9
Interest bearing liabilities -271.0 0.0
Minority interests -26.2 0.0
Equity (capital gain /loss) -80.0 -150.0
747.5 873.1
</TABLE>
<PAGE>
Parent company income statement
- -------------------------------
(Finnish Accounting Standards)
<TABLE>
<CAPTION>
FIM mill. Note 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales 10 998.7 11 148.6
Finished and semifinished goods, increase (+) 91.1 -74.3
Other operating income 29 423.0 278.7
Materials and services -8 095.1 -8 552.2
Personnel expense 30 -1 096.3 -1 000.3
Depreciation and value adjustments 33 -412.6 -381.4
Other operating expenses 31 -1 136.0 -444.0
Operating profit 772.8 975.1
Financing net 32 -30.5 15.7
Profit before extraordinary items 742.3 990.8
Extraordinary income 1 254.6 957.3
Extraordinary expense -30.0 -1 631.8
Profit before adjustments and tax 1 966.9 316.3
Adjustments 297.0 517.8
Tax -640.4 -241.4
Net profit 1 623.5 592.7
</TABLE>
<PAGE>
Parent company balance sheet
- ----------------------------
(Finnish Accounting Standards)
<TABLE>
<CAPTION>
Assets FIM mill. Note 31.12.1998 31.12.1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed assets and other
long-term investments 34, 40
Intangible assets 79.2 60.1
Property, plant and equipment 7 819.6 7 895.1
Shares, Group companies 25 33 473.4 6 315.9
Shares, associated companies 1 495.3 1 401.0
Shares, other companies 603.6 181.9
Capital investment shares 208.7 202.5
Long-term loan receivables 8 738.4 7 686.6
52 418.2 23 743.0
Current assets
Inventories 37 970.9 887.5
Short-term receivables 38 2 794.0 3 088.2
Short-term investments and receivables 2 904.5 2 052.3
Cash and cash equivalents 119.1 74.7
6 788.5 6 102.7
Total assets 59 206.7 29 845.7
Shareholder's equity and liabilities FIM mill. Note 31.12.1998 31.12.1997
- ------------------------------------------------------------------------------------------------------------
Shareholders' equity 41
Share capital 7 595.8 3 110.9
Restricted equity 26 032.4 3 612.4
Retained earnings 2 498.0 2 589.6
Profit for the period 1 623.5 592.7
37 749.7 9 905.7
Accumulated depreciation difference 34 773.2 1 070.2
Provisions
Pension provisions 0.3 6.3
Other provisions 40.2 13.6
Long-term liabilities 12 331.9 11 094.8
Current liabilities
Current portion of long-term debt 2 201.1 2 179.9
Short-term borrowings 4 220.8 3 461.4
Other current liabilities 42 1 619.8 1 976.8
Tax liability 269.7 137.0
8 311.4 7 755.2
Total shareholders' equity and liabilities 59 206.7 29 845.7
</TABLE>
<PAGE>
Parent company cash flow statement
- ----------------------------------
(Finnish Accounting Standards)
<TABLE>
<CAPTION>
FIM mill. 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flow from operating activities
Operating profit 772.8 975.1
Adjustments 367.9 313.3
Change in net working capital -15.2 354.3
Cash flow from operations 1 125.5 1 642.7
Interest received 776.6 748.5
Interest paid -963.4 -931.8
Other financial income and expenses 169.0 208.4
Extraordinary items 1 224.6 -674.5
Income taxes paid -640.4 -241.4
Net cash from operating activities 1 691.9 751.9
Cash flow from investing activities
Acquisition of Group companies -27 158.9 -487.5
Acquisition of affiliated companies -97.0 -1.5
Investment in other shares -432.1 -69.2
Capital expenditures -422.1 -213.5
Proceeds from disposal of shares in Group companies 1.7 9.2
Proceeds from disposal of shares in affiliated companies 8.1 22.7
Proceeds from disposal of shares in other companies 2.0 28.3
Proceeds from sale of fixed assets 57.6 60.6
Net cash used in investing activities -28 040.8 -650.8
Change in long-term receivables -1 782.8 1 201.6
Change in short term borrowings 1 086.2 1 797.7
Change in long-term liabilities 952.1 -2 611.5
Dividends paid -684.4 -560.0
Share issue 26 909.3
Placed at the disposal of the Board of Directors -2.5
Net cash used in financing activities 26 480.4 -174.7
Net increase (+) / decrease (-) in
cash and cash equivalents 131.5 -73.6
Cash and cash equivalents at beginning of period 896.3 969.9
Cash and equivalents at end of period 1 027.8 896.3
Adjustments include:
Depreciation 412.6 381.4
Proceeds from sale of fixed assets -44.8 -68.1
367.8 313.3
</TABLE>
<PAGE>
Notes to the Financial Statements
(FIM MILL.)
Note 1
Accounting principles
Accounting convention
The financial statements of Stora Enso Oyj (the Parent company), domiciled in
Helsinki, are prepared in accordance with prevailing rules and regulations in
Finland. The consolidated financial statements of Stora Enso Group are prepared
in accordance with and comply with International Accounting Standards (IAS). The
consolidated financial statements are prepared under the historical cost
convention. The financial statements have been modified by the allocation of
surplus values to certain assets in connection with acquisitions.
The financial statements are presented in Finnish markka (FIM). The Group's
financial period is the calendar year. As of the first quarterly interim report
of 1999, the financial statements will be prepared in euro (EUR).
Statement of compliance
The following IAS have been adopted in the Group's financial statements before
their effective dates:
IAS 33 Earnings per Share
IAS 36 Impairment of Assets
IAS 37 Provisions, Contingent Liabilities and
Contingent Assets
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Principles of consolidation
The Stora Enso Group was formed as a combination of the groups parented by Enso
Oyj and Stora Kopparbergs Bergslags Aktiebolag (publ). The shareholders of Stora
Kopparbergs Bergslags Aktiebolag (publ) converted 96.1% of their shares into
Enso Oyj shares. The complete terms of the merger were disclosed
in the Prospectus. As a result of the merger Stora Kopparbergs Bergslags
Aktiebolag is a subsidiary of Stora Enso Oyj (formerly Enso Oyj).
The Stora Enso merger qualifies the criteria for a pooling
of interests under IAS 22. The historical information of the Stora Enso Group is
presented as if the Group had been operative from the beginning of 1995.
The consolidated financial statements include the Parent company, and all
companies in which it holds, directly or indirectly, more than 50% of the voting
rights. The accounts of certain companies in which Stora Enso holds less than
50% of the voting rights but has significant control are also consolidated. The
most important subsidiaries are listed in Note 25. Certain subsidiaries that
have no material bearing on the Group's distributable shareholders' equity are
not included.
Associated companies (voting rights between 20% and 50%) are consolidated
using the equity method. The most important associated companies have been
listed in Note 12.
Companies acquired are included in the consolidated financial statements from
the date of their acquisition. Similarly, the profits of a Group company
divested during an accounting period are included in the Group accounts only up
to the date of disposal.
All inter-company transactions, receivables, liabilities and unrealized
profits as well as the distribution of the profits within the Group, are
eliminated. When necessary, accounting policies for subsidiaries have been
changed to ensure consistency with the policies adopted by the Group. Minority
interests have been disclosed separately from the shareholders' equity and the
profit of each subsidiary and are recorded as a separate deduction in the income
statement and balance sheet.
Acquired companies are consolidated in accordance with the purchase method.
Goodwill represents the excess value of the purchase cost in relation to the
fair value of the assets less liabilities of the acquired companies. Goodwill is
amortized on a straight line basis over its expected useful life. Useful lives
vary from 5-20 years, depending on the nature of the acquisition. Expected
useful lives are reviewed at each balance sheet date and where these differ from
previous estimates, amortization periods are changed accordingly. When goodwill
has been allocated to fixed assets, it is amortized in the remaining useful life
of such an asset. Goodwill arising from the acquisition of associated companies
is also amortized in its expected useful life.
Transactions in foreign currencies
Transactions in foreign currencies are recorded at the rates of exchange
prevailing at the dates of transactions. However, for practical reasons, an
approximation is often used for the transactions entered during a month. At the
end of month, the foreign currency receivables and liabilities in the balance
sheet are valued using the end of the month rate. The foreign exchange
differences of operating business items are entered into the respective income
statement account before operating profit. Foreign exchange differences on
financial assets and liabilities are entered in a net amount among financial
items in the income statement. The effect of the introduction of the Euro with
fixed rates within the Euro area has been entered in the income statement.
Foreign Group companies
The income statements of foreign subsidiaries are translated into Finnish markka
using the average rate for the accounting period. The balance sheets of foreign
subsidiaries are translated using the rate prevailing at the balance sheet day.
The translation differences arising on elimination of shareholders' equity
have been entered in the balance sheet under shareholders' equity in relation to
distributable and non-distributable shareholders' equity at the date of
acquisition of each company in the Group. Group shareholders' equity contains a
corresponding entry in respect of exchange differences arising on translation of
the value of instruments used to hedge shareholders' equity of foreign
subsidiaries. On the disposal of a foreign Group company, the cumulative
translation difference is recognized as income or expense in the same period in
which the gain or loss on disposal is entered.
Derivative contracts
Derivative contracts are used to hedge the foreign currency exposure on the
Group's balance sheet receivables and debts and on probable purchasing and sales
contracts. In proprietary operations, derivative contracts are also entered into
for trading purposes. The derivative contracts used to hedge commercial items
are forward exchange agreements, exchange options and cross-currency swaps.
The business units handle all their foreign currency dealings in conjunction
with Stora Enso Group Bank. Their foreign currency exposure is hedged largely
through forward agreements. Profits and losses are realized as the contracts
mature. The Group Bank calculates the values of all its internal and external
forward agreements using market rates at the balance sheet date.
Premiums on foreign currency options are entered under option premiums as
either premiums paid or premiums received at the date of payment. Profits and
losses are booked on maturity of the agreements and entered as adjustments to
operating income and expenses. The Group Bank calculates the values of all its
option agreements using market rates and capitalizes option premiums in the
accounts on a time basis. Options are valued using generally approved
calculation models, and all valuations, together with premiums and
capitalizations are included in exchange rate differences.
Interest rate flows (interest income and expenses) from swaps are entered
separately and are capitalized at the balance sheet date. Exchange rate
differences are calculated and entered in the accounts in full in the exchange
rate differences account.
Interest rate derivative agreements are used to hedge the Group's interest
rate exposure, and in proprietary operations for trading purposes. The
derivative contracts used for hedging are forward interest rate agreements,
interest rate futures, interest rate options and interest rate swap agreements.
Hedging is restricted to fixed forward rate agreements and related profits and
losses entered as the cash flows are realized. Interest rate flows are not
capitalized in the accounts on a time basis, and income and expenses are entered
in full in the result for the period.
Cash flows from interest rate futures are realized as the agreements mature
or, if the agreement is closed by means of a counter-transaction, before the end
of the agreement period. Interest income and expenses are entered in the
accounts as the cash flows are realized and are not capitalized on a time basis.
Premiums paid on options purchased are entered under short-term interest
expenses. Correspondingly, premiums received on options sold are entered under
short-term interest income. Option premiums are capitalized into interest income
and interest expenses for the period of validity of the agreement. The interest
flows arising on the maturity of agreements are entered in full as income or
expenses for the financial period in question.
Interest flows from interest rate swap agreements are capital-ized for the
period of validity of the agreement. In the accounts, interest receivable and
interest payable are capitalized between the interest income and interest
expenses accounts for interest rate derivatives.
Revenue recognition
Sales are recorded upon shipment of products or the rendering of services to
customers in accordance with agreed terms of sales.
Sales include the sale of products and services, raw material supplies and
energy less indirect sales tax and other sales reductions.
Other operating profit includes rental income, subsidies and profit from sale of
fixed assets.
Dividends paid by companies considered as a financial investment are recorded in
the financial items.
Accounting for the business operations of Stora Enso financial services
Earnings from the business operations of Stora Enso financial services, which
are generated from trading in financial instruments, are reported among other
operating income/expense. Earnings from operations do not include interest on
shareholders' equity or any margins on inter-Group lending or forward contracts.
Provisions
Provisions are recognized when the Group has a present obligation as a result of
past events, it is probable that an outflow of resources embodying an economic
benefit will be requested in order to settle the obligation and a reliable
estimate of the amount of the obligation can be made.
Research and development
Research costs are charged as an expense in the income statement in the period
in which they are incurred. Development costs are generally expensed in the
period in which they are incurred. However, development costs which relate to a
defined product which is expected to have future benefits, are recognized as
assets.
Computer software development costs
The development cost or acquisition cost of new software is entered into fixed
assets and depreciated over its useful lifetime. Thereafter, the maintenance of
such software is expensed when incurred. The charges arising from the
development or adjustment of programs for the euro conversion and the millennium
shift are considered as ordinary maintenance and expensed when incurred.
Impairment
The carrying amounts of assets are reviewed at each balance sheet date to
determine whether there is any indication of impairment. If any such indication
exists, the recoverable amount is estimated as the higher of the net selling
price and the value in use. An impairment loss is recognized whenever the
carrying amount exceeds the recoverable amount.
A previously recognized impairment loss is reversed if there has been a change
in the estimates used to determine the recoverable amount; however not to an
extent higher than the carrying amount that would have been determined, had no
impairment loss been recognized in previous years. For goodwill, a recognized
impairment loss is not reversed.
Extraordinary income and expense
Virtually all revenue and expenses that affect Group's net profit derive from
operations within the framework of the Group's normal business. Only in
exceptional cases do events occur that give rise to extraordinary revenue and
expense. Examples of such events are losses arising from earthquakes, war or
confiscation of foreign subsidiaries.
The extraordinary items presented in the Parent company's income statement are
Group contributions received from and given to the Parent company's Finnish
subsidiaries. At Group level, inter-group contributions received and given are
eliminated.
Property, plant and equipment
Property, plant and equipment are stated at the original acquisition cost, with
additions/deductions for any allocated goodwill/write-downs less straight-line
accumulated depreciation. Construction-time interest expenses related to
qualifying assets, for which it takes a substantial period of time to get ready
for its intended use, are capitalized under property, plant and equipment.
Amortization of capitalized interest is included in the line depreciation
according to plan. Land includes charges arising from the planting and care of
fast-growing forest holdings outside Finland and Sweden. Depreciation according
to plan is based on the following expected useful lives:
Consolidated goodwill 5-20 years
Buildings
Industrial 10-40 years
Hydroelectric power 40-100 years
Office & residential 20-50 years
Heavy machinery
Main machines of
pulp or paper mills 20 years
Sawmill machinery 12-15 years
Light machinery 10 years
Computer equipment, vehicles,
office equipment and
light machinery of forestry 4-10 years
Land is not depreciated as it is deemed to have an indefinite life.
Gains and losses on disposal of property, plant and equipment are determined
by reference to their carrying amount and are taken into account in determining
operating profit.
Leasing
Leases of property, plant and equipment where the Group assumes substantially
all benefits and risks of ownership are classified as finance leases.
Commodities leased under financial leasing agreements are presented as fixed
assets and the related obligations are presented as interest-bearing
liabilities. The leased assets are depreciated over the useful life of the
assets. Annual leasing payments on financial leases are entered as depreciation
and interest expense.
Leases of assets under which all the risks and benefits of ownership are
retained by the lessor are classified as operating leases. Annual payments on
operating leases and rental agreements are entered as rentals and the
commodities are not entered under fixed assets.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is
determined by the first-in, first-out (FIFO) method. The cost of finished goods
and work in progress comprises raw material, direct labor, other direct costs
and related production overheads but excludes interest expense.
Trade receivables
Trade receivables are carried at anticipated realizable value. An estimate is
made for doubtful receivables based on a review of all outstanding amounts at
year-end. Bad debts are written off during the year in which they are
identified.
Financial instruments and investments
Financial foreign currency instruments are valued at market price. Long-term
financial instruments and short-term interest-rate instruments are carried at
the lower of cost or market value on an aggregate portfolio basis.
Investments in marketable securities are carried at the lower of cost and
market value determined on a portfolio basis.
Accrued interest income and expense is entered in the balance sheet as
non-interest-bearing assets or liabilities.
Cash and cash equivalents
For the purpose of the cash flow statement, cash and cash equivalents comprise
cash in hand, deposits held at call with banks, and investments in money market
instruments, net of bank overdrafts. In the balance sheet, bank overdrafts are
included in borrowings in current liabilities.
Pension schemes
Group companies have various pension schemes in accordance with local conditions
and practices in the countries in which they operate. The schemes are generally
funded through payments to insurance companies, pension funds or by own
provisions, as determined by periodic actuarial calculations. Any deficits or
benefits requiring additional contributions are funded through payments or
provisions allocated over a period of years not exceeding the expected remaining
lives of the participating employees. The Group has met minimum funding
requirements for the countries in which it maintains pension schemes.
Discontinued operations
A discontinued operation results from the sale of an operation that represents a
separate, major line of business of an enterprise and of which the assets, net
profit or losses of activities can be distinguished physically, operationally
and for financial reporting purposes. The profit effect of discontinued
operations net of tax is disclosed separately.
Government grants
Government grants relating to the purchase of property, plant and equipment are
included in non-current liabilities as deferred income. The grants are credited
to the income statement on a straight-line basis over the expected lives of the
related assets.
Taxes
Income statement taxes consist of income taxes and change in deferred income
tax. Deferred income tax is provided, using the liability method, for all
temporary differences arising between the tax base of assets and liabilities and
their carrying values for financial reporting purposes. Currently enacted tax
rates are used to determine deferred income tax.
Under this method the Group is making provisions for deferred income tax on
the revaluation of certain non-current assets and, in relation to an
acquisition, on the difference between fair values of the net assets acquired
and their tax base.
The principal temporary differences arise from depreciation on property, plant
and equipment, revaluations of certain non-current assets, provision for
pensions and tax loss carried forward. Deferred tax assets relating to the carry
forward of unused tax losses are recognized to the extent that it is probable
that future taxable profit will be available against which the unused tax losses
can be utilized.
Dividends
The dividend proposed by the Board is not deducted from distributable equity
before the shareholders' decision at the Annual General Meeting.
Parent company
Finnish Accounting Standards differ from IAS in several respects. In the Parent
company accounts, fixed assets include revaluations, financial leases are not
capitalized and deferred tax liability is not provided for.
Note 2
Product Area information
<TABLE>
Operating
Sales 1998 Sales profit
Inter-
External group Total 1997 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Magazine
paper 10982.5 27.8 11010.3 8774.5 1642.6 510.6
Newsprint 9859.4 211.1 10070.5 9121.3 1801.2 1141.4
Fine paper 11403.8 962.0 12365.8 11246.8 1140.4 828.6
Packaging boards 13959.5 292.1 14251.6 14777.9 1244.3 1396.5
Timber products 3782.9 580.8 4363.7 4294.0 66.0 303.3
Pulp 2796.8 2236.8 5033.6 5700.4 57.4 174.8
Merchants 4931.0 6.0 4937.0 4759.1 11.6 32.2
Forest 1326.9 8458.8 9785.7 9613.2 659.9 661.1
Energy 1141.8 1719.0 2860.8 3153.0 680.7 736.1
Specialty papers 1813.2 109.5 1922.7 1928.5 -39.2 58.0
Divested units 79.0 -3.0
Merger costs
and restructuring
provisions -2658.0
Items affecting
comparability -143.0 -308.9
Other 370.8 2416.9 2787.7 2877.9 -191.1 -81.9
Eliminations -17020.8 -17020.8 -16879.6
Total 62368.6 0.0 62368.6 59446.0 4272.8 5448.8
Operating Capital Average
capital expenditure personnel
1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------
Magazine
paper 12041 11077 1307.7 1917.5 5032 4575
Newsprint 9199 9358 616.9 583.6 5608 5215
Fine paper 13586 13577 771.3 1678.5 7529 7448
Packaging boards 13513 14917 1259.0 1281.4 10049 10478
Timber products 2385 1634 201.5 119.4 2188 2050
Pulp 6857 7811 572.3 640.0 2559 2707
Merchants 1263 1233 71.5 57.8 1672 1636
Forest 8372 8246 132.3 127.4 2341 2484
Energy 8079 8583 116.6 116.3 215 218
Specialty papers 581 1786 106.1 88.6 1402 1416
Divested units
Merger costs
and restructuring
provisions
Items affecting
comparability
Other 624 1302 174.8 129.4 2084 2074
Eliminations
Total 76500 79524 5330.0 6739.9 40679 40301
</TABLE>
Reconciliations to total assets
1998 1997
- -----------------------------------------------------------------------------
Operating capital 76 500 79 524
Operating liabilities 10 693 10 056
Interest-bearing receivables 4 382 2 826
Tax receivables 67 71
Total assets 91 642 92 477
Sales by country
1998 1997
- -----------------------------------------------------------------------------
Germany 10 862.8 9 579.7
UK 8 543.2 8 356.1
France 5 967.1 5 314.9
Sweden 5 238.1 5 469.6
Finland 4 316.8 4 407.3
The Netherlands 3 300.1 3 125.6
Italy 2 572.3 2 288.8
Belgium 2 222.9 2 029.0
Spain 2 380.9 2 211.3
Denmark 1 959.9 1 829.7
Other EU 1 908.3 1 889.9
Total EU 49 272.4 46 501.8
Other Europe 4 363.5 3 689.7
North America 2 648.8 1 892.5
Far East and South East Asia 2 415.0 3 709.7
Others 3 668.9 3 652.2
62 368.6 59 446.0
Capital employed by country at year-ends
1998 1997
- -----------------------------------------------------------------------------
Finland 26 231.8 27 214.7
Sweden 20 673.5 23 299.8
Germany 8 930.5 10 144.3
Canada 3 146.7 2 535.9
France 2 084.2 2 276.4
Portugal 1 096.6 1 106.2
Other 5 350.0 4 027.3
67 513.1 70 604.6
Note 3
Effect of major acquisitions and disposals
Acquisitions
Stora Enso has acquired E. Holtzmann & Cie AG through several steps between
April 1997 and November 1998. The total acquisition cost of the shares amounts
to FIM 3 565 million of which FIM 1 722 million in 1998. The acquisition
resulted in total goodwill of FIM 982 million. The goodwill value at 31.12.1998
was FIM 860 million.
Finnish Enso Timber Oy and Austrian Holzindustrie Schweighofer GmbH joined
their operations 1.12.1998. Schweighofer became a subsidiary of Enso Timber Oy.
A part of the consideration was paid in cash at the date the deal was closed and
the remainder in Enso Timber's shares. The Schweighofer family has a
participation of 33% in Enso Timber Oy. The acquisition increased the net
interest bearing liability of the Group by FIM 531 millon. The goodwill
increased by FIM 439 million.
Stora Kopparbergs Bergslags AB acquired a 60% majority in Suzhou Papyrus Paper
Co. Ltd. Suzhou is the largest and the most efficient producer of woodfree
coated paper in China. The mill has an annual capacity of 120 000 tonnes. The
final price will be decided in 2001. It is subject to the performance of the
mill. This acquisition resulted in an increase in net interest-bearing
liabilities by FIM 1140 million and capital employed by FIM 1270 million. The
acquisition cost of the shares was FIM 470 million.
Stora Enso Oyj paid on November 11, 1998 FIM 404 million for a 19.9% share in
Advance Agro Pcl.
In 1997 STORA and the Brazilian company Odebrecht SA started a joint project
of constructing a pulp mill in Brazil.
The pulp mill is designed for an annual capacity of 750 000 tonnes. Raw
materials will be supplied from plantations belonging to the mill. STORA's
investments amounts to FIM 1 528 million, corresponding to 50% of the share
capital. In 1997 FIM 571 million was paid and the remainder will be paid during
1999-2000.
Disposals
On December 31 Stora Publication Paper AG divested 76% of Stora Carbonless Paper
GmbH and 56% of Stora Spezialpapiere GmbH to Mitsubishi Corporation. (In the
beginning of 1996 Mitsubishi already acquired 20% of Stora Spezialpapiere). The
divestment resulted in a capital loss of FIM 122 million, while net debt was
reduced by FIM 867 million.
Enso Paperikemia Oy sold its business activity, fixed assets and inventory in
February 1997. In 1997 the recycled fiber-based board mill in Arnsberg was sold
to Cascades SA. The annual capacity of the mill is 135 000 tonnes. The
divestment resulted in a capital loss of FIM 157 million.
Note 4
Cash flow on acquisitions and disposals
The assets and liabilities acquired and disposed, and the cash flows arising can
be analyzed as follows:
1998 1997
------------------------- ---------------------
Acquisition Disposal Acquisition Disposal
- --------------------------------------------------------------------------------
Fixed assets 3 794.0 -716.3 2 778.2 -915.8
Working capital 240.4 -382.9 27.7 -111.5
Operating capital 4 034.4 -1 099.2 2 806.0 -1 027.3
Tax liabilities -20.0 191.1 55.6
Capital employed 4 014.4 -908.1 2 806.0 -971.7
Shareholders' equity 170.0 -75.2 0.0 -89.2
Minority interests 132.5 -24.4 395.8 0.0
Interest-bearing net debt 3 712.0 -808.4 2 410.1 -882.5
Financing 4 014.4 -908.1 2 806.0 -971.7
Note 5
Other operating income
1998 1997
- -------------------------------------------------------------------------
Sales profits of fixed assets 138.7 250.1
Rent 100.9 89.2
Subsidies 27.5 21.1
267.2 360.4
Losses on sale of fixed assets / shares
included in other operating expenses -176.5 -218.6
Note 6
Personnel expenses
1998 1997
- -------------------------------------------------------------------------
Wages and salaries 8 112.8 7 723.8
Pension 928.9 963.0
Other statutory employers contributions 1 691.3 1 642.9
10 733.1 10 329.6
Remuneration to the members
of the Board of Directors and CEO 11.2
Remuneration to the CEO and DCEO was as follows:
Jukka Bjorn
Harmala Hagglund
- --------------------------------------------------------------------------------
Annual salary for principal
employment, FIM 000 1) 1 646 1 562
Retirement age 60 60
Pension payment 66% of the aver- see below 2)
age salary for the
four last years
before retirement
Term of notice 6 months 6 months
Compensation for termination 6+12 months 6+12 months
salary if termi- salary if termi-
nated by the nated by the
company 3) company 3)
Bonus scheme Up to 50% of Up to 50% of
base salary base salary
Bonus paid for 1998 243
Entitlement to R shares
through warrants 600 000
1) Excluding car and residence.
2) For the age of 60-65 a pension of 60% of the average base salary and bonus
for the four last years before retirement will be paid. After the age of 65 a
pension will be paid in accordance with the general pension scheme supplemented
by a pension of 32.5% based on salary fractions between 20-30 base amounts, of
50% based on salary fractions between 30-50 base amounts and 32.5% based on
salary fractions exceeding 50 base amounts. The pensionable salary consists of
the average of the fixed salary and 50% of bonuses received for three final
active years of employment prior to retirement.
To qualify for full pension rights, 15 years of employment at STORA are
required.
3) Depending on the individual situation a compensation up to another 12 month
base salary may be paid.
Specification of pensions and other statutory employers contributions
1998 1997
- -------------------------------------------------------------------------
Pension expenses paid to
pension funds
Obligatory 241.4 189.8
Voluntary 66.7 55.7
Pension expenses paid to
insurance companies
Obligatory 346.0 350.0
Voluntary 153.8 129.3
Accrued pension liabilities
in the period 111.7 214.6
Top management pension
arrangements 15.4 6.9
Training 5.7 2.1
Other personnel costs
Obligatory 1 673.6 1 649.7
Voluntary 5.9 7.8
2 620.2 2 605.9
Average number of personnel 40 679 40 301
Pension liabilities 31.12.1997 3 353.5
Exchange rate differences -262.2
Contributions paid and current service costs 70.3
31.12.1998 3 161.6
Pension schemes
The Group has established a number of pension plans for its operations
throughout the world. In Finland the pension cover is arranged through Stora
Enso's own pension funds and partly through Finnish insurance companies. In
Sweden pension cover is arranged through book reserves in accordance with the
Swedish "PRI/FPG System" that covers the vast majority of large Swedish
corporations. The pension arrangements for companies outside Finland and Sweden
are made in accordance with regulations and practice of each country in
question. Most of these programs are defined benefit pension schemes with
retirement, disability, death and termination income benefits. The retirement
benefits are generally a function of years of employment and final salary and
are generally coordinated with local national pensions.
The Group's policy for funding its defined benefit plans is to satisfy local
statutory funding requirements for tax deductible contributions. Under IAS the
discount rate used in actuarial calculations of liability in book reserves have
been adjusted to market rate. The Group has also some fully insured schemes and
defined contribution schemes. The retirement age of the management of Group
companies has been agreed to be between 60-65 years. For the Members of the
Executive Management Group the retirement age has been agreed to be 60 years.
The Group has met minimum funding requirements in all countries in which it
maintains pension schemes.
Note 7
Items affecting comparability
<TABLE>
Other
Depreciation operating
and and per-
Other Materials value sonnel
operating and adjust- exp-
Income services ments enses Total
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Capital loss on sale of Arnsberg -157.1 -157.1
Capital gain on sale of
Stora Reinsurance SA 98.6 98.6
Shutdown of PM1 at
Stora Langerbrugge -19.7 -65.3 -85.0
Shutdown of sulphite pulp production
plant at Stora Port Hawkesbury -29.2 -29.2 -58.5
Pension settlement to outgoing
president in STORA -31.3 -31.3
E. Holtzmann pension liability -75.7 -75.7
98.6 -29.2 -19.7 -358.5 -308.9
1998
Capital loss on sale of shares in Stora
Carbonless and Stora Spezialpapiere -122.4 -122.4
Writedown of inventory in Skoghall -57.2 -57.2
Resolvement of provision for the
sale of Newton Falls 34.3 34.3
Repayment of capital tax
in Germany 121.7 121.7
Capital loss on sale of Svenska Dagbladet -18.8 -18.8
Extra depreciation at Corbehem
and Newton Kyme -52.1 -52.1
Provision for merger and restructuring -1 546.3 -1 160.2 -2 706.5
156.0 -57.2 -1 598.4 -1 301.5 -2 801.0
</TABLE>
In connection with the merger of STORA and Enso a provision has been entered to
cover the anticipated restructuring costs.
In the prospectus issued by STORA and Enso on July 13, 1998 the managements of
the companies announced their intention to develop and define a detailed plan of
restructuring the Stora Enso Oyj. Non-recurring restructuring costs associated
with this plan have been included in the restructuring provision.
Note 8
Net financing cost
1998 1997
- -------------------------------------------------------------------
Dividend income 13.4 12.3
Interest income 106.4 203.8
Other financial income 229.4 185.4
Exchange gains and losses -180.3 134.9
Interest expenses -2 250.1 -2 118.8
Other financial expenses -173.8 -83.2
-2 255.0 -1 665.6
Forward contracts and swaps
entered in the financial items
Interest income 73.2 111.5
Exchange rate differences -137.5 796.8
Interest expenses 23.1 57.9
Note 9
Income tax expense
1998 1997
- ----------------------------------------------------------------------
Current tax expense
Finnish Group companies -655.6 -249.6
Swedish Group companies -611.3 -197.7
German Group companies 542.3 -161.9
Other Group companies -79.9 -4.4
Change in deferred taxes
Finnish Group companies 27.6 -450.0
Swedish Group companies 384.0 -164.5
German Group companies -350.4 17.5
Other Group companies -123.1 15.4
Taxes of associated companies -14.6 -27.4
-881.1 -1 222.7
The following is a reconciliation of income taxes calculated at the 28% tax
rate:
1998 1997
- ------------------------------------------------------------------------------
Profit before tax 2 017.8 3 783.2
Hypothetical taxes at 28% 565.0 1 059.3
Effect of different tax rates outside Finland -20.5 91.6
Non-deductible expenses and tax exempt income 464.0 233.8
Losses incurred at Group companies outside Finland
where no deferred tax benefit is recognised -7.1 -198.2
Other items -120.4 36.2
Income taxes in the consolidated income statement 881.1 1222.7
Deferred tax assets in the balance sheet
Tax losses carried forward 64.1 69.2
Corporate tax credit 2.8 1.7
66.9 70.9
Deferred tax liabilities in the balance sheet
Depreciation difference and untaxed reserves 6 607.6 6 932.5
Group eliminations -62.0 -106.8
Tax losses carried forward and
other timing differences -1 107.2 -721.1
Acquisition surplus values 2 175.0 2 073.1
Other items 337.4 -9.3
7 950.8 8 168.4
Deferred tax liabilities in the balance sheet, reconciliation of changes
Acquisi Ex-
Charged/ tions/ change
31.12 credited divest- diff- 31.12.
1997 to P/L ments erence 1998
- --------------------------------------------------------------------------------
Depreciation difference
and untaxed reserves 6 932.5 199.6 -155.4 -369.2 6 607.6
Group eliminations -106.8 40.3 -62.0
Tax losses carried
forward and
other timing differences -721.1 -386.5 0.4 -1 107.2
Acquisition surplus values 2 073.1 -121.6 358.0 -134.5 2 175.0
Other items -9.3 338.0 5.8 337.4
Total 8 168.4 69.9 202.6 -490.0 7 950.8
Note 10
Depreciation
1998 1997
- --------------------------------------------------------------------------
Depreciation according to plan
Intangible rights -25.5 -23.5
Goodwill -4.1 -4.0
Other intangible assets -50.9 -52.5
Buildings and structures -567.3 -570.0
Machinery and equipment -4 086.2 -3 823.3
Other tangible assets -104.6 -94.2
Goodwill on consolidation -383.5 -285.9
-5 221.9 -4 853.4
Value adjustments
Buildings and structures -8.7 -19.0
Machinery and equipment -1 081.0 -60.7
Goodwill on consolidation -534.6
-1 624.3 -79.7
Note 11
Fixed assets and long-term investments
<TABLE>
Other Land Buildings Machinery Other
Group 1998 Consolidated intangible and and and tangible
goodwill assets water structures equipment assets
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Acquisition cost 1.1. 4 736.4 638.8 12 806.8 14 329.6 61 156.5 3 987.0
Translation difference 126.8 -4.1 -767.8 -56.6 -579.0 -253.9
Reclassification 8.8 5.0 20.1 2 733.0 -2 766.9
Additions 1 132.5 80.4 357.2 869.7 5 181.2 1 949.5
Disposals -84.0 -123.6 -145.5 -491.7 -2 762.4 -204.1
Acquisition
cost 31.12. 5 911.7 600.2 12 255.7 14 671.0 65 729.3 2 711.7
Accumulated
depreciation 1.1 1 905.7 388.1 208.7 4 610.7 26 450.2 427.4
Accumulated
depreciation difference at the
companies acquired 4.6 0.6 99.0 380.6 1.4
Translation difference -78.8 -4.9 -906.9 -246.4 -1 201.1 -231.7
Depreciation
according to plan 383.5 80.5 23.8 567.3 4 086.2 80.5
Accumulated depreciation
of assets sold -47.0 -117.8 -1.9 -159.2 -1 887.0 -5.9
Impairment charges
entered into P/L 534.6 8.7 1 081.0
Accumulated
depreciation 31.12. 2 698.1 350.5 -675.7 4 880.1 28 909.8 271.7
Carrying value
31.12.98 3 213.6 249.7 12 931.3 9 790.9 36 819.5 2 439.9
Carrying value
31.12.97 3 028.7 251.1 13 508.8 10 128.7 36 372.4 3 796.6
</TABLE>
Impairment charges totaling FIM 1,624 million were entered into value adjustment
in the income statement. FIM 1,598 million of these relate to the combination of
STORA and Enso since the integration of operations requires certain structural
changes within the new Group. FIM 317 million of the impairment charges are
based on the estimated net selling prices of certain operations and the
remaining part is based on value in use.
Note 12
Associated companies and related party transactions
1998 1997
- ----------------------------------------------------------------------------
Historical cost 1.1. 1 623.5 1 019.6
Translation difference -88.0 0.3
Additions 251.3 630.5
Disposals -7.1 -27.0
Transfer to other companies -55.8
Historical cost 31.12. 1 724.0 1 623.4
Equity adjustment to investments
in associated companies 1.1. 266.6 240.8
Equity earnings in associated companies 59.2 98.2
Translation difference -0.6 0.0
Dividends received during the year -43.0 -30.5
Taxes -15.3 -27.5
Disposals and other changes -4.3 -14.3
31.12. 262.6 266.7
Carrying value of investments in
associated companies 31.12. 1 986.6 1 890.1
Related party transactions
1998 1997
- -----------------------------------------------------------------------------
Receivables from and payables to
associated companies
Long-term loans receivable 167.3 171.3
Accounts receivable 325.5 28.6
Short-term investments and receivables 195.8 57.8
Prepaid expenses and accrued income 0.1
Other receivables 42.8 23.3
Trade payable 107.1 146.3
Accrued liabilities and deferred income 43.9
Other current interest-bearing liabilities 177.9 3.1
Sales to associated companies 614.2 583.7
Purchases from associated companies -1 695.1 -2 401.3
The above transactions were carried out on commercial terms and conditions.
Purchases fram associated companies relate mainly to energy and pulp purchases.
Sales are mainly sale of wood material.
Significant associated companies:
<TABLE>
Share in profit
after tax in
Shareholding income statement
% 1998 1997 Domicile
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pohjolan Voima Oy (power company) 20.4 0.0 -5.2 Finland
Sunila Oy (pulp mill) 50.0 5.3 28.6 Finland
Steveco Oy (stevedoring) 36.7 24.0 34.6 Finland
Veracel Celulose S.A.
(pulp mill project) 50.0 - - Brazil
Stora Carbonless Paper GmbH
(technical office papers) 24.0 - - Germany
Stora Spezialpapiere GmbH
(technical office papers) 24.0 - - Germany
</TABLE>
Note 13
Shares in other companies
1998 1997
- ----------------------------------------------------------------------------
Acquisition cost 1.1. 339.2 345.9
Translation differences -6.6 0.0
Additions 409.3 62.2
Disposals -28.5 -67.6
Write-downs -3.1 -1.4
Transfer from associated companies 55.8 0
Net carrying amount 31.12. 766.0 339.2
Note 14
Capital investment in shares
No. of Carrying Market
% share value value
- --------------------------------------------------------------------------------
Finnlines Oyj, Helsinki 5.5 1 104 670 11.4 238.6
Finnair Oyj, Helsinki 0.0 14 400 0.6 0.4
Helsingin Puhelin Oyj, Helsinki 0.0 1 410 0.4 0.4
Merita Foresta, Helsinki 4.3 5 000 000 5.0 7.0
Neptun Maritime Oyj, Helsinki, A 6.0 3 252 847 36.4 38.4
Neptun Maritime Oyj, Helsinki, K 6.0 500 000 4.6 8.0
Merita Bank Oyj, Helsinki, A 0.4 3 633 544 41.1 115.5
Outokumpu Oyj, Helsinki 0.0 47 0.0 0.0
Raisio Yhtyma Oyj, Raisio 0.0 5 100 0.3 0.3
Sampo Insurance Company, Helsinki, A 2.8 1 722 228 122.1 332.4
Sonera Oyj, Helsinki 0.0 30 000 1.4 2.7
Merita Pro Obligaatio (bond) 3.0 3.7
KB Air Preca 33.0 0.6 0.6
Mega Flight KB 50.0 1.9 1.9
Mega Carrier KB 33.0 30.7 30.7
KB Metro Flyg 33.0 25.7 25.7
Total 285.3 806.4
Note 15
Receivables from Group Management
There are no receivables from Group Management.
Note 16
Inventories
1998 1997
- ---------------------------------------------------------------------------
Materials and supplies 3 080.2 3 117.1
Work in progress 429.0 410.6
Finished goods 4 137.3 3 874.7
Other inventories 274.9 262.3
7 921.4 7 664.8
Note 17
Short-term receivables
1998 1997
- ----------------------------------------------------------------------------
Accounts receivable 8 452.5 9 535.0
Prepaid expenses and accrued income 888.8 1 118.5
Other receivables 1 262.2 1 479.1
10 603.6 12 132.6
Receivables falling due after one year are shown as non-current receivables.
Note 18
Capitalized interest included in property, plant and equipment
1998 1997
- --------------------------------------------------------------------------
1.1. 601.5 568.4
Additions 1.1.-31.12. 28.7 131.0
Exchange rate difference -1.3 0.0
Depreciation 1.1.-31.12. -73.1 -70.3
31.12. 555.9 629.1
The Group has capitalized interest expenses in connection with investment in
qualifying assets. Interest rate used in calculations ranges from 6 to 11%. The
interest rate has been defined at the start of the investment project in
question and equals to the average of Group borrowing cost at the time.
Note 19
Shareholders' equity
FIM 1998 1997
- -----------------------------------------------------------------------------
Share capital at 1.1. and 31.12. 7 595.8 7 595.8
Reserve fund 1.1. 4 047.8 3 862.8
Increase 170.2
Translation difference -475.2 185.0
Reserve fund 31.12. 3 742.8 4 047.8
Reserve for own shares 1.1. and 31.12. - -
Other restricted equity 1.1. 329.2 125.8
Other changes 139.1 178.4
Translation difference -22.1 24.9
Other restricted equity 31.12. 446.3 329.2
Non restricted equity 1.1. 20 806.8 19 838.6
Dividends paid -1 442.3 -1 388.2
To be placed at the disposal
of the Board of Directors -2.5
Transfer to the other restricted equity - 139.1 -178.4
Translation difference -672.4 105.5
Profit for the period 1 135.8 2 431.8
Non restricted equity 31.12 19 688.9 20 806.8
Distributable funds
Non-restricted equity 19 688.9 20 806.8
Untaxed reserves included in
non restricted equity -5 560.2 -4 736.5
Distributable funds 31.12. 14 128.6 16 070.2
Stora Sub-group's contribution to the Stora Enso equity in pooling combination
at 31.12.1998:
The book value of Stora Kopparbergs Bergslags AB's shares at Stora Enso
Oyj amounting to FIM 26 926.2 million is first eliminated from the share premium
fund amounting to FIM 22 424.4 million that was formed in the share exchange at
Stora Enso Oyj.
FIM 4 484.9 million is eliminated from the restricted equity and FIM 16.9
million from the non-restricted equity of Stora Sub-group. FIM 16.9 million
relates to the capitalized acquisition expenses of Stora Enso Oyj.
SEK Mill. FIM Mill. Elimination Minority Balance
- --------------------------------------------------------------------------------
Share capital 1 608.0 1 007.7 -968.5 -39.2 0.0
Reserve fund 5 376.0 3 369.1 -3 516.3 -131.0 -278.2
Other restricted equity 741.0 464.4 -18.1 446.3
Non-restricted 20 343.0 12 749.0 -16.9 -495.8 12 236.3
Total 28 068.0 17 590.2 -4 501.8 -684.1 12 404.3
Shares Votes
- --------------------------------------------------------------------------------
Break-down of share capital
by type of share at 31.12.1998
Series A (1 vote/share) 243 394 655 243 394 655
Series R (1 vote/10 shares, min. 1 vote) 516 185 034 51 618 503
759 579 689 295 013 158
Series A (1 vote/share) 2 433.9 FIM million
Series R (1 vote/10 shares, min. 1 vote) 5 161.9 FIM million
7 595.8 FIM million
The subsidiaries held 5 601 Series R shares nominal value amounting to FIM 50
409.00.
The members of the Board and the CEO held 17 775 Series A and 32 409 Series R
shares at 31.12.1998representing 0.0% of the total voting rights of the company.
Series A Series R Warrants
- --------------------------------------------------------------------------------
Claes Dahlback 2541 6529
Jukka Harmala 3000 600 000
Bjorn Hagglund 7877 14618
Josef Ackermann 1300
Paavo Pitkanen 3800
Jan Sjoqvist 508 943
Marcus Wallenberg 3049 6019
The Ordinary Meeting of Shareholders held on April 7, 1997 decided to offer
bonds with equity warrants up to a maximum value of FIM 1 000 000 for
subscription by the company's management. The bonds mature in five years and
carry interest at 4%. Each FIM 1000 bond carries one warrant entitling the
holder to subscribe for 3000 of Enso's Series R shares at a subscription price
of FIM 45.57. If fully subscribed during period December 1, 1998 to March 31,
2004. The shares represents a maximum of 0.1% of the voting rights generated by
the share capital after the exercise of the warrants and and about 0.4% of the
share capital.
Note 20
Long-term debt
Repayment schedule of long-term interest-bearing
liabilities including current portion at 31.12.1998:
<TABLE>
1999 2000 2001 2002 2003 2004- Total
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Convertible bond loans 1.0 1.0
Bond loans 2 047.5 1 049.7 599.2 250.7 820.0 3 990.7 8 757.9
Loans from
credit institutions 4 534.8 1 055.8 1 265.1 1 067.9 643.8 9 560.8 18 128.3
Pension loans 200.3 200.0 199.8 199.6 165.7 2 098.9 3 064.3
Leasing liabilities 58.2 60.6 61.8 62.3 62.9 358.4 664.2
Other long-term liabilities 403.5 187.3 125.2 86.4 213.4 1 144.2 2 160.0
7 244.3 2 553.3 2 251.2 1 667.9 1 905.9 17 153.1 32 775.6
Cash reserve and unutilized credit facilities
totaled FIM 14,700 million at the end of the year.
</TABLE>
Original Balance Balance
Bond loans Interest rate Currency amount 31.12.98 31.12.97
- -------------------------------------------------------------------------------
Fixed rate
1991-1998 9.43 USD 57 309
1991-2000 8.22 USD 35 178 190
1993-2001 9.68 USD 43 219 233
1993-2003 8.64 USD 65 331 352
1997-2004 6.00 FIM 1484 868
1997-2007 7.25 SEK 500 314 344
1998-2002 5.50 SEK 200 125
1996-2006 8.75 SEK 250 157 172
1996-2006 7.90 SEK 470 295 323
1998-2002 5.50 SEK 50 31
1998-2002 5.50 SEK 50 31
1993-2003 9.50 SEK 150 96 105
1993-2003 9.50 SEK 25 16 18
1993-2003 8.96 SEK 350 219 240
1993-2003 9.50 SEK 255 159 174
1994-2004 8.00 SEK 500 312 342
1998-2005 5.20 SEK 200 125 0
1998-2005 6.00 SEK 200 125 0
1989-1999 8.00 DEM 200 608 605
1974-1998 7.25 SEK 60 1
1985-1998 9.00 DKK 21 11
Floating rate
1991-1998 FIM 775 5
1994-1999 FIM 250 250 250
1994-1999 FIM 425 425 425
1994-1999 USD 100 510 542
1994-1999 USD 50 255 271
1994-1999 USD 50 255 271
1995-2000 USD 75 382 406
1995-2000 USD 50 255 271
1997-2000 JPY 3000 134 125
1997-2007 FIM 110 110 110
1997-2017 JPY 10000 448 417
1998-2000 FIM 100 100 0
1998-2008 USD 30 153 0
1998-2001 SEK 100 63
1998-2008 SEK 264 165
1998-2005 SEK 80 50
1998-2004 SEK 200 125
1998-2005 SEK 200 125
1998-2001 SEK 200 125
1978-1998 SEK 60 7
Total 8 758 7 386
Breakdown of operating capital / net interest-bearing liabilities by currency
Net interest
Operating capital bearing liabilities
1998 1997 1998 1997
- -----------------------------------------------------------------------
FIM 28 355.2 29 196.3 8 091.4 14 004.5
SEK 25 326.2 28 103.3 14 023.9 13 725.6
DEM 10 881.5 12 060.6 7 422.5 3 338.2
USD/CAD 3 240.4 2 645.6 4 088.5 3 510.9
FRF 2 107.3 2 303.1 970.7 1 335.8
PTE 1 217.7 1 230.5 -316.5 -293.7
CNY 949.5
GBP 710.3 257.0 -249.8 -390.2
BEF 695.8 624.8 99.8 208.7
NLG 664.6 537.3 125.4 193.3
Other 2 352.1 2 565.4 125.9 576.0
Total 76 500.5 79 524.0 34 381.7 36 209.0
Note 21
Other current liabilities and other provisions
1998 1997
- -------------------------------------------------------
Advances received 18.1 14.6
Trade payables 3 823.3 4 323.0
Other current liabilities 1 694.6 1 422.1
Accrued liabilities and
deferred income 3 095.7 3 072.8
8 631.7 8 832.6
- -------------------------------------------------------
Other provisions 31.12.1997 722.0
Translation difference -57.0
Increase 1 029.8
Decrease -172.9
31.12.1998 1 521.9
Other provisions comprise provision in respect of combination and restructuring
costs, environmental liabilities, provision for forest replantation and other
provisions.
Note 22
Fair value of financial instruments
1998 1997
-------------------- ----------------
Carrying Fair Carrying Fair
Amount value amount value
- --------------------------------------------------------------------------------
Financial assets
Short term money
market investments 1 489 1 489 654 654
Receivables
Investment in other shares
Other non-current assets
Financial liabilities
Accounts payable
Short term borrowings 2 826 2 826 3 508 3 508
Long term debt 25 531 26 383 25 026 1)
Off-balance sheet instruments
Currency options purchased 4 5 -17 -8
Currency options written -2 -2 -2 -2
Forward foreign exchange
contracts 147 147 195 195
Interest rate swaps -7 142 -75 72
Interest rate futures FRA:s 20 20 -32 -32
Cross currency swaps 115 324 523 606
Interest rate options 2 2 -1 -1
Estimation of fair values
Cash and cash equivalents
The carrying amounts are a good estimate of the fair value in short term money
market instruments. Bank account balances are not included in the figures.
Short-term borrowing
The carrying amounts are a good estimate of the fair value.
Long-term debt
The carrying amount of floating rate long-term debt approximates fair value.
Pension loans are priced to par price. Fixed rate long term debts are priced
using discounted cash flow analysis.
Currency options
The carrying amounts of currency options are calculated using year end market
rates and generally used option pricing models and therefore the carrying
amounts approximate fair values.
Foreign exchange forward contracts
The carrying amounts of forward contracts are calculated using year end market
rates and therefore the carrying amounts approximate fair values.
Interest rate swaps
The fair value of interest rate swaps have been calculated using discounted cash
flow analysis. The carrying amount of interest rate swaps is the amount of net
accrued interest.
Long term FX swaps
The fair value of long term swaps have been calculated using discounted cash
flow analysis and year end FX rates. The carrying amount of long term FX swap is
the FX rate differential between contract rate and year end market rate.
Note 23
Risk management contracts
Risk management contracts open at 31.12.1998
Current value 31.12.98 31.12.97
Interest rate derivatives
Forward agreements 19 -31
Interest rate swap agreements -58 -195
Interest rate options 2 -1
Interest rate derivatives, total -37 -227
Foreign exchange derivatives
Forward agreements 147 195
Options
Purchased 4 -9
Written -2 -1
Cross currency swap agreements 84 512
Foreign exchange derivatives, total 233 696
Nominal value
Interest rate derivatives
Forward agreements 29 108 9 784
Interest rate swap agreements 4 711 3 030
Interest rate options 17 028 2 187
Interest rate derivatives, total 50 847 15 001
Foreign exchange derivatives
Forward agreements 94 660 32 169
Options
Purchased 3 918 3 025
Written 1 477 2 298
Cross currency swap agreements 4 451 7 770
Foreign exchange derivatives, total 104 505 45 261
Maturity of interest rate swap contracts
Under 1 year 570.0 690.0
Between 1-5 years 2 580.0 1 494.0
Between 5-10 years 1 306.0 598.0
Over 10 years 255.0 248.0
Total 4 711.0 3 030.0
<PAGE>
Financial Risk management policy
The following is the financial risk management policy in Stora Enso.
International industrial operations entail various forms of risks in the daily
conduct of business. These are commercial, as well as financial. The major
financial risks are:
o Funding risk
o Interest rate risk
o Currency risks
Transaction risk
Translation risk
For Stora Enso, it is vital to be able to define and manage financial risks, in
view of the impact they can have on the net income and financial position. They
should be managed in such a way that the Industrial Divisions can concentrate
primarily on managing commercial risks.
Stora Enso Group Treasury is responsible for the development and
implementation of principles to minimize Stora Enso's financial risks over the
long term.
Funding risk
Funding risk is the risk of difficulties occuring in obtaining financing at a
given time.
Risk reduction is achieved by funding net capital employed with long-term
funding.
The risk is quantified by an analysis of the extent to which the capital
employed is long-term funded. The relation between capital employed and
long-term funds is expressed as the matching level.
Stora Enso's objective is to have a matching level exceeding 100% and an
average maturity of long-term loans, including
credit commitments, in the range of 3-5 years, with the ambition of extending it
further over time.
Interest rate risk
Interest rate risk is the risk that the reduced return on capital employed
cannot be compensated for by reduced costs to finance it.
Risk reduction is obtained by fixing interest rates for periods shorter than
12 months.
Stora Enso's objective is to minimize the interest rate risk by fixing
interest rates for periods of less than one year. The ambition is that 20-40% of
net debt should carry interest rates fixed for periods of longer than one year
over time.
Currency risks
Stora Enso's income and financial position are affected by currency changes. A
considerable part of the products are sold to countries other than where they
are produced, creating a transaction risk.
Transaction risk
Transaction risk means the risk that Stora Enso's income decreases, due to
changes in exchange rates.
Stora Enso's objective is to cover in the range of up to
6 months' net flows outside the Euro area. The exceptions are the GBP and USD
which, due to their high exposure in Stora Enso, could be covered in the range
of up to 12 months' net flows.
The responsibility for covering transaction risk has been
decentralised to the Industrial Divisions of Stora Enso.
Translation risk
Translation risk means the risk that fluctuations in exchange rates negatively
affect the value of Stora Enso's net foreign assets.
About 90% of net foreign assets are nominated within the future Euro-area
(including DKK, GBP, GRD, SEK) and North American currencies. The remainder are
in the emerging markets and represent an insignificant part of net foreign
assets.
Stora Enso's objective is not to cover the Group's net foreign assets
(equity).
Stora Enso Group internal bank
The Group Bank is responsible for any day-to day contact it may have with the
Industrial Divisions of Stora Enso. It handles all deposits and loans, buys and
sells currencies and provides advisory as well as other bank services. The basic
idea is that all internal financial activities should be channelled through the
Group Bank.
Any deviations from the Risk Exposure given by the Industrial Division should
be kept and reported in a separate market risk portfolio. The total market risk
exposure may allow a maximum overnight impact of EUR 2 M on Stora Enso's income
after tax. The risk is calculated using a method based on historical
volatilities and correlations (VaR model), which is today used by Stora Enso.
Proprietary operations
The Proprietary Operations utilize Stora Enso's potential, strength and
financial competence by capturing changes in financial markets to create an
added value.
The Operations actively take market risk positions for Stora Enso's own
account, employing directional and relative value risk-taking strategies,
diversified across markets and instruments. Directional strategies anticipate
changes in absolute rate and price levels - while relative value strategies
anticipate changes in relationship between markets and classes of instruments.
These strategies are conducted across many currencies and types of instruments
where opportunities are perceived to exist to generate value. Instruments are
used in Fixed Income, Foreign Exchange and Equity Markets. Positions may be held
for short or long periods of time, depending on strategy and actual market
performance.
Risks are identified and assumed. The total market risk exposure may allow a
maximum overnight impact of EUR 16 M on Stora Enso's income after tax.
Guarantees and other Group support
The different kinds of agreements and legal instruments for managing the
financial risks and for the proprietary trading operations are entered into in
the name of any of the legal entities operated by Stora Enso Group Treasury.
This normally requires support from the ultimate parent company.
Management of interest rate risks
The management of interest rate risks is centralized. The instruments used in
managing interest rate risks are swaps, forward rate agreements, interest rate
options and bond future agreements. The indicators used in analyzing interest
rate risks are the ratio between fixed and variable interest rates, and modified
duration, which is monitored for each currency separately. The Group's
objective is to minimize the interest rate risk by fixing interest rates for
periods less than one year. At the end of 1998, about 21% of the Group's
loans were subject to fixed interest rates and 70% to variable interest rates
and the remaining 9% pension liabilities. The Group's main loan currencies
are FIM, SEK, DEM and USD.
Management of credit risks
Credit insurance for the customers in the main market areas in Western Europe,
USA and Canada has been obtained. Measures in other market areas to reduce
credit risks include letters of credit, prepayments and bank guarantees. Also
export guarantees covering both political and commercial risks have been
obtained from Finnvera. These export guarantees are used in connection with
single customers outside OECD area.
There are no major credit risk concentrations among accounts receivable as per
year-end.
Note 24
Commitments and contingent liabilities
Group Group
1998 1997
- ----------------------------------------------------------------------------
On own behalf
Pledges given 515.4 319.5
Mortgages 4 548.2 6 288.3
On behalf of Group companies
Guarantees
On behalf of associated companies
Mortgages 6.0 56.0
Guarantees 671.5 763.1
On behalf of others
Guarantees 643.7 787.6
Other commitments, own
Leasing commitments, in 1999 136.7 152.0
Leasing commitments, after 1999 597.6 729.6
Pension liabilities 14.8 15.8
Other commitments 105.6 114.6
Total
Pledges given 515.4 319.5
Mortgages 4 554.2 6 344.3
Guarantees 1 315.2 1 550.7
Leasing commitments 734.2 881.6
Pension liabilities 14.8 15.8
Other commitments 105.6 114
Total 7 239.4 9 226.4
Stora Enso Oyj has undertaken to guarantee the leasing agreements relating to
Enso Espanola SA to a maximum of FIM
242 443 817.98. The commitment extends until December 23, 2003.The Group leases
offices and warehouse space under various non-cancellable operating leases.
Certain contracts contain renewal options. The future cost for contracts
exceeding one year and for non-cancellable leasing contracts are as follows:
1999 2000 2001 2002 2003 2003 after
- ---------------------------------------------------------
136.9 128.2 102.4 87.4 71.5 207.9
Schweighofer Privatstiftung holds 33% of Enso Timber shares. Schweighofer
Privatstiftung has a put option allowing them to sell their shares to Stora Enso
Oyj at a predetermined price. The put option may be exercised between January 1,
2002 and June 30, 2006.
Stora Enso is a party to certain legal proceedings that have arisen in the
normal course of business. There is no reason to believe that any single ongoing
or expected legal or arbitration proceeding will have any material effect on
Stora Enso's results of operations or financial condition.
Note 25
Principal Stora Enso Group Companies at 31.12.98
<TABLE>
% of % of The nominal
shares and shares currency Book
voiting rights held by value value
held by the Parent of shares 31.21.98
Country the Group company Currency '000 000 FIM
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stora Kopparbergs
Bergslags AB (publ) SE 96.1 SEK 1 545 000 26 909 332
Stora Enso Newsprint
& Magazine Paper
Enso Publication Papers Oy Ltd FI 100.0 FIM 805 000 1 110 000
Kymenso Oy FI 100.0 FIM 15 000 40 000
Varenso Oy FI 100.0 FIM 10 000 30 000
Sachsen Papier Eilenburg GmbH DE 100.0 DEM 100 000 328 168
E. Holtzmann & Cie GmbH & Co KG DE 100.0 DEM 75 000 3 238 190
Stora Langerbrugge NV BE 100.0 BEF 950 000 94 240
Stora Corbehem SA FR 100.0 FRF 636 460 1 833 332
Stora Kabel GmbH DE 100.0 DEM 34 000 313 120
Stora Reisholz GmbH DE 100.0 DEM 9 000 80 560
Stora Hylte AB SE 100.0 SEK 200 000 1 795 554
Stora Kvarnsveden AB SE 100.0 SEK 150 000 1 282 878
Stora Port Hawkesbury Ltd CA 100.0 CAD 852 550 2 888 366
Stora Enso Fine Paper
Enso Fine Papers Oy FI 100.0 FIM 500 000 968 304
Berghuizer Papierfabriek NV NL 100.0 NLG 19 266 284 474
Tervakoski Oy FI 100.0 FIM 100 000 200 000
Oulun Pakkauslava Oy FI 100.0 FIM 1 000 1 000
Tornion Pakkauslava Oy FI 100.0 FIM 2 000 2 000
Stora Fine Paper AB SE 100.0 SEK 487 585 1 771 524
Stora Nymolla AB SE 100.0 SEK 142 727 825 419
Stora Grycksbo AB SE 100.0 SEK 125 000 93 888
Stora Molndal AB SE 100.0 SEK 75 000 90 326
Stora Dalum A/S DK 100.0 DKK 100 000 324 009
Stora Uetersen GmbH DE 100.0 DEM 19 000 170 240
Suzhou Papyrus Paper Co Ltd CN 60.6 USD 75 000 310 624
Stora Enso Packaging Boards
Corenso United Oy Ltd FI 71.0 FIM 110 760 154 699
Enso Cartonboards Oy Ltd FI 100.0 FIM 200 000 470 000
Pankakoski Boards Oy Ltd FI 100.0 FIM 30 000 70 000
Enso Espanola SA ES 100.0 ESP 6 877 000 233 859
Pakenso Oy FI 100.0 FIM 110 000 115 590
ZAO Pakenso RU 100.0 RUR 78 275 69 026
Pakenso Tambox AB SE 100.0 SEK 30 000 124 843
Pakenso Baltica SIA LV 100.0 LVL 570 4 953
Stora Paperboard AB SE 100.0 SEK 350 000 2 662 015
Stora Fors AB SE 100.0 SEK 180 000 611 311
Stora Newton Kyme Ltd GB 100.0 GBP 1 500 12 642
Stora Paperboard GmbH DE 100.0 DEM 21 000 188 480
Stora Enso Timber
Enso Timber Oy Ltd FI 67.0 FIM 170 168 607 976
Holzindustrie Schweighofer AG AU 100.0 ATS 6 000 713 952
Puumerkki Oy FI 100.0 FIM 49 000 125 108
Stora Timber AB SE 100.0 SEK 100 000 263 936
Stora Enso Pulp
Kemijarven Sellu Oy FI 100.0 FIM 50 000 170 000
Enso Fibres AG CH 99.9 CHF 3 995 7 781
Enocell Oy FI 98.4 FIM 252 000 1 196 000
Stora Cell AB SE 100.0 SEK 25 000 585 980
Celbi SA (Portugal) PT 100.0 PTE 154 932 880 408 304
Stora Enso Merchants
Stora Merchant AB SE 100.0 SEK 1 000 532 327
Pappersgruppen AB SE 100.0 SEK 21 000 485 693
Stora Enso Energy
Pamilo Oy FI 51.0 FIM 1 084 11 197
Enso Alueverkko Oy FI 100.0 FIM 50 50
Stora Kraft AB SE 100.0 SEK 100 000 526 624
Kopparkraft AB SE 99.9 SEK 685 967 2 190
Stora Enso Forest
Enso Forest
Development Oy Ltd FI 100.0 FIM 1 000 2 000
AS Lumiforest EE 100.0 EEK 2 126 9 416
Stora Skog AB SE 100.0 SEK 25 000 1 053 519
</TABLE>
Note 26
Employee benefit plan
Most of the employees directly involved in production belong to labour unions.
Customarily, collective wage agreements are negotiated between respective unions
and the forest industry. Salaries for employees belonging to senior management
are negotiated individually.
Stora Enso applies an incentive system that takes into account the
performance, development and results of the business units, as well as
individual employee performance. Stora Enso's future profit-sharing schemes will
be based on company profits and on achievement and on the achievement of key
business targets.
The two merged companies have the following incentive systems:
Enso
Enso has issued bonds with an aggregate value of FIM 1,000,000 with warrants to
20 members of the senior management. For details, see note 19. Approximately 120
employees in managerial positions in two different categories have a bonus
scheme based on synthetic options. The bonus is based on Stora Enso's weighted
average share price on Helsinki Exchanges during October 1, 1999, to December
31, 1999. The variation level is from FIM 45 to 70 per share. The bonus varies
linearly between these share prices. FIM 70 per share gives the maximum bonus of
FIM 75,000 or 150,000. The bonus will be paid in January, 2000.
The management of divisions and business units have an annual bonus scheme
based on the result of the respective division or business unit and the
achievement of personal key targets in separately defined areas. The maximum
bonus is two months salary. The rest of the employees participate in another
bonus scheme in which the bonus is calculated as a certain percentage of each
employee's annual salary, the maximum being 7%. All bonuses are discretionary
and are not partially triggered if the results of the Group not exceed
predetermined minimum level.
STORA
STORA's profit sharing scheme is available to all permanent employees within the
STORA sub-group to the extent possible. From the portion of Group profit
exceeding the equivalent of 12% return on capital employed, 10% will be set
aside for the employees, although this shall not exceed one sixth of the
dividend paid to shareholders. The scheme includes all countries where STORA
sub-group companies conducts operations, but exceptions are made for countries
where other profit-sharing schemes exists. In Sweden, the intention is to place
the profit participation into trust, through which investments will be made in
Stora's shares. The participation will become available to employees after three
years.
Note 27
Earnings per share
1998 1997 1996 1995
- ----------------------------------------------------------------------------
Profit for the period,
FIM million 1 135.8 2 431.8 2 191.4 5 985.0
Number of shares 759 579 689 759 579 689 759 579 689 759 579 689
Earnings per share, FIM 1.50 3.20 2.88 7.88
Stora Enso Oyj's ordinary meeting of shareholders held on April 7, 1997 decided
to offer bonds with equity warrants up to a maximum value of FIM 1 000 000.
Each FIM 1 000 bond carries one warrant entitling the holder to subscribe for 3
000 of Stora Enso's series R shares. The shares can be subscribed for between
1.12.1998-31.3.2004.
<TABLE>
Reconciliation of number of shares 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Number of shares 759 579 689 759 579 689 759 579 689 759 579 689
Number of shares under warrants 3 000 000 3 000 000 3 000 000 3 000 000
Diluted number of shares 762 579 689 762 579 689 762 579 689 762 579 689
Diluted earnings per share 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------
Profit for the period, FIM million 1 135.8 2 431.8 2 191.4 5 985.0
Diluted number of shares 762 579 689 762 579 689 762 579 689 762 579 689
Diluted earnings per share, FIM 1.49 3.19 2.87 7.85
</TABLE>
Note 28
Events subsequent to the balance sheet date
The offer of January 14, 1999 to STORA shareholders, under which they may
voluntarily sell their shares, had resulted in the acquisition of 5,050,697
STORA shares by February 10, 1999. Stora Enso now holds 97.7% of STORA shares
and votes.
On January 19, 1999 STORA shares were delisted from the Stockholm, London and
Frankfurt Stock exchanges.
On February 10, 1999 it was decided to sell the business operations and
material assets of Tervakoski Oy to a new Finnish company to be set up by
Trierenberg AG. The selling price is FIM 546 million, which will produce a
profit of FIM 160 million.
It was decided to sell the fixed assets of Danish Dalum mill for FIM 170
millon to a group of Danish investors.
The Board also appointed an advisor to review alternative options for future
ownership of the Gruvon mill.
Note 29
Other operating income
1998 1997
- ------------------------------------------------------------
Sales profits of fixed assets 45.8 68.1
Rent 73.2 60.4
Insurance compensation 0.5 1.3
Subsidies 7.1 7.9
Other 296.5 141.0
423.0 278.7
Note 30
Personnel expenses
1998 1997
- ----------------------------------------------------------------------
Wages and salaries 794.5 731.8
Pension 213.3 150.5
Other statutory employers contributions 88.5 118.0
1 096.3 1 000.3
Fringe benefits 3.3 3.3
1 099.6 1 003.6
Remuneration of the members of
the Board of Directors and CEO 10.1 8.5
Specification of pensions and other
statutory employers contributions
Pension expenses paid to pension funds
Obligatory 158.4 117.7
Voluntary 18.9 11.4
Pension expenses paid to insurance companies
Obligatory 18.3 14.4
Voluntary 13.5 2.0
Accrued pension liabilities in the period
Top management pension arrangements 4.3 5.0
Training
Other personnel costs
Obligatory 88.5 87.5
Voluntary 30.5
301.8 268.5
Average number of personnel 4 237 4 217
Note 31
Other operating expenses
1998 1997
- --------------------------------------------------------------------
Loss on sale of fixed assets/shares -1.5 -18.0
Note 32
Net financing cost
1998 1997
- --------------------------------------------------------------------
Dividend income 90.0 73.7
Interest income 776.6 748.5
Other financial income 87.0 16.3
Exchange gains and losses -8.0 127.1
Interest expenses -963.4 -941.1
Other financial expenses -12.7 -8.8
-30.5 15.7
Intragroup financial income and expenses at Parent company
Financial income from Group
companies at Parent company
Dividend received 12.9 19.6
Interest income on
long-term investments 756.4 676.3
Interest income on
short-term investments 20.3 18.5
789.5 714.4
Financial expense to Group
companies Interest expense -73.5 -54.4
Note 33
Depreciation
1998 1997
- ---------------------------------------------------------------
Depreciation according to plan
Intangible rights -9.6 -6.1
Goodwill -1.4 -1.4
Other intangible assets -0.7 -1.4
Buildings and structures -47.9 -41.0
Machinery and equipment -327.4 -308.1
Other tangible assets -25.6 -23.4
-412.6 -381.4
Note 34
Fixed assets and long-term investments
<TABLE>
Mach-
Other Land Buildings inery Other
intangible and and equip- tangible
assets water structures ment assets
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Acquisition cost 1.1. 109.5 3 604.8 1 421.1 5 405.0 630.7
Additions 30.9 43.2 71.2 340.1 49.5
Disposals -3.6 -11.6 -8.1 -239.7 -1.6
Acquisition cost 31.12. 136.8 3 636.4 1 484.2 5 505.4 678.6
Accumulated depreciation 1.1. 49.4 406.3 2 547.2 213.4
Depreciation according to plan 11.8 47.9 327.4 25.6
Accumulated depreciation
of assets sold -3.6 -8.0 -73.5 -1.4
Accumulated depreciation 31.12. 57.6 446.2 2 801.1 237.6
Carrying value 31.12.98 79.2 3 636.4 1 038.0 2 704.3 440.9
Carrying value 31.12.97 60.1 3 604.8 1 007.2 2 827.4 455.7
</TABLE>
The carrying value of fixed assets for the parent company
at 31.12.1998 includes FIM 316.2 million leasing assets.
Accumulated depreciation difference by type of fixed assets at Parent company
Accum. depreciation
difference 31.12.1997 26.5 130.5 863.8 49.4
Increase 0.6 13.2 2.9
Decrease -1.8 -305.5 -6.5
Accum. depreciation
difference 31.12.1998 25.3 143.7 561.2 42.9
Note 35
Stocks, shares and loans receivable
at Parent company 1998 1997
- ----------------------------------------------------------------
Group companies
Shares 33 473.4 6 315.9
Loans receivable 8 588.9 7 528.6
Total 42 062.2 13 844.5
Associated companies
Shares 1 495.3 1 401.0
Loans receivable 142.2 151.2
Total 1 637.4 1 552.2
Note 36
Receivables from Group management
There are no receivables from Group Management.
Note 37
Inventories
1998 1997
- -------------------------------------------------------
Materials and supplies 556.1 453.9
Work in progress 74.4 69.1
Finished goods 310.7 224.9
Other inventories 29.7 139.6
970.9 887.5
Note 38
Short-term receivables
1998 1997
- --------------------------------------------------------
Accounts receivable 1 061.0 1 240.9
Prepaid expenses and
accrued income 1 657.3 1 803.6
Other receivables 98.2 43.7
2 794.0 3 088.2
Note 39
Receivables and liabilities, Group companies and associated comp.
at Parent company 1998 1997
- -----------------------------------------------------------
Accounts receivable, Group comp. 606.9 625.3
Accounts receivable, assoc. comp. 56.5 71.3
Loans receivable, Group comp. 1 990.7 1 248.9
Loans receivable, assoc. comp. 0.1 6.8
Prepaid expenses, Group comp. 1 280.2 983.7
Other receivables, Group comp. 21.4 2.0
Other receivables, assoc. comp. 26.5 3.8
Other securities, Group comp. 463.9 524.2
4 446.2 3 466.0
at Parent company 1998 1997
- ---------------------------------------------------------------
Accounts payable, Group comp. 116.1 128.2
Accounts payable, assoc. comp. 5.5 90.7
Other current liabilities, Group comp 230.6 0.5
Accrued liabilities, Group comp. 33.2 772.1
Accrued liabilities, assoc. comp. 141.5
Other short-term loans,
Group associated comp. 10.1 2.5
Other short-term loans, Group comp 2 181.0 1 997.2
2 718.13 2 991.2
Note 40
Capitalized interest included in property, plant and equipment
1998 1997
- ----------------------------------------------------------------------
1.1. 42.2 51.6
Depreciation 1.1.-31.12. -9.4 -9.4
31.12. 32.8 42.2
Note 41
Shareholders' equity
1998 1997
- ----------------------------------------------------------------------
Share capital at 1.1. 3 110.9 3 110.9
Increase 4 484.9
Share capital at 31.12. 7 595.8 3 110.9
Premium fund 1.1.
Increase 22 424.4
Premium fund 31.12. 22 424.4
Reserve fund 1.1. and 31.12 2 186.3 2 186.3
Revaluation reserve 1.1. 1 426.1 1 437.2
Decrease in connection with fixed sales -4.5 -11.1
Revaluation reserve 31.12. 1 421.6 1 426.1
Non restricted equity 1.1 3 182.3 3 152.1
Dividends paid -684.4 -560.0
To be placed at the disposal of the
Board of Directors -2.5
Profit for the period 1 623.5 592.7
Non restricted equity 31.12 4 121.5 3 182.3
Distributable funds
Non-restricted equity 4 121.5 3 182.3
Untaxed reserves included
in non restricted equity
Distributable funds 31.12. 4 121.5 3 182.3
Shares Votes
- -------------------------------------------------------------------------------
Break-down of share capital by
type of share at 31.12.1998
Series A (1 vote/share) 243 394 655 243 394 655
Series R (1 vote/10 shares, min. 1 vote) 516 185 034 51 618 503
759 579 689 295 013 158
Series A (1 vote/share) 2 433.9 FIM million
Series R (1 vote/10 shares, min. 1 vote) 5 161.9 FIM million
7 595.8 FIM million
Note 42
Other current liabilities
1998 1997
- --------------------------------------------------------------------------
Advances received 0.8 1.9
Trade payables 588.5 580.3
Other current liabilities 486.4 759.6
Accrued liabilities and deferred income 544.1 635.0
1 619.8 1 976.0
Note 43
Commitments and contingent liabilities
1998 1997
- --------------------------------------------------------------------------
On own behalf
Pledges given 51.7 55.0
Mortgages 3 572.7 4 921.5
On behalf of Group companies
Guarantees 1 591.4 3 540.4
On behalf of associated companies
Mortgages 50.0
Guarantees 663.9 754.9
On behalf of others
Guarantees 11.3 25.6
Other commitments, own
Leasing commitments, in 1999 14.3 2.2
Leasing commitments, after 1999 129.5 3.7
Pension liabilities 5.4 8.0
Other commitments
Total
Pledges given 51.7 55.0
Mortgages 3 572.7 4 971.5
Guarantees 2 266.6 4 320.9
Leasing commitments 143.7 5.9
Pension liabilities 5.4 8.0
Other commitments
Total 6 040.3 9 361.3
Stora Enso Oyj has undertaken to guarantee the leasing agreements relating to
Enso Espanola SA to a maximum of FIM 242 443 817.98. The commitment extends
until December 23, 2003.
Proposed distribution of profit
The consolidated balance sheet shows retained
shareholders' equity of FIM 19,688.9 million at December 31, 1998, of which FIM
14,128.6 million is distributable.
The parent company's distributable shareholders' equity was FIM
4,121,493,528.47 at December 31, 1998. The Board of Directors proposes to the
Annual General Meeting that the profit for the financial period of FIM
1,623,533,493.48 be transferred to retained earnings and that dividend be
distributed as follows:
Profits from previous periods 2,497,960,034.99
Profit for the financial period 1,623,533,493.48
Dividend of FIM 2.10 per share 1,595,117,346.90
Retained earnings after
distribution of dividend 2,526,376,181.57
Helsinki, February 10, 1999
Claes Dahlback Krister Ahlstrom
Chairman Vice Chairman
Josef Ackermann Harald Einsmann
Raimo Luoma Paavo Pitkanen
Jan Sjoqvist Marcus Wallenberg
Jukka Harmala Bjorn Hagglund
CEO Deputy CEO
Auditors' report
- ----------------
To the shareholders of Stora Enso Oyj
We have audited the accounting records, the financial statements and the
administration of Stora Enso Oyj for the year ended December 31, 1998. The
financial statements prepared by the Board of Directors and the Chief Executive
Officer include a report of the Board of Directors, consolidated financial
statements of the Stora Enso Group prepared in accordance with International
Accounting Standards (IAS), and parent company financial statements prepared in
accordance with prevailing rules and regulations in Finland (FAS), both
including a balance sheet, an income statement, a cash flow statement and notes
to the financial statements. Based on our audit, we express an opinion on these
financial statements and on the parent company's administration.
We conducted our audit in accordance with Finnish Standards on Auditing. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by the management, as
well as evaluating the overall financial statement presentation. The purpose of
our audit of the administration has been to examine that the members of the
Supervisory Board and the Board of Directors and the Chief Executive Officer
have legally complied with the rules of the Finnish Companies' Act.
In our opinion, the consolidated financial statements prepared in accordance
with International Accounting Standards (IAS) give a true and fair view of the
Stora Enso Group's consolidated result of operations, as well as of the
financial position. The consolidated financial statements are in accordance with
prevailing rules and regulations in Finland and can be adopted.
The parent company's financial statements have been prepared in accordance
with the Finnish Accounting Act and other rules and regulations and give a true
and a fair view of the parent company's result of operations and financial
position. The parent company's financial statements can be adopted and the
members of the Supervisory Board and the Board of Directors and the Chief
Executive Officer of the parent company can
be discharged from liability for the period audited by us. The
proposal of the Board of Directors for disposal of the profit is in compliance
with the Finnish Companies' Act.
In accordance with Finnish regulations we have acquainted ourselves with the
interim reports published by the company during the year. In our opinion they
have been prepared in accordance with the rules and regulations governing the
preparation of such reports.
Helsinki, February 23, 1999
SVH Pricewaterhouse Coopers Oy KPMG Wideri Oy Ab
Authorized Public Accountants Authorized Public Accountants
Pekka Nikula Hannu Niileksela
Authorized Public Accountant Authorized Public Accountant
<PAGE>
Shares and Shareholders
- -----------------------
Share capital
In accordance with Stora Enso Oyj's Articles of Association, the minimum share
capital of the company is FIM 5,000,000,000 and the maximum FIM 20,000,000,000,
within which limits the share capital may be increased or decreased without
amending the Articles of Association. On December 31, 1998, the company's fully
paid-up share capital entered in the Finnish Trade Register amounted to FIM
7,595,796,890. During the year, the share capital increased as a result of the
share issue to STORA shareholders. As a consequence of the share issue and
conversion of A shares into R shares, the distribution of shares changed. The
composition of Stora Enso's share capital is presented in the Change in share
capital table.
Shares
The company's shares are divided between Series A and Series R shares. All
shares carry equal rights to receive a dividend. The difference lies in voting
rights. At an Annual General Meeting, each A share and each ten R shares entitle
the holder to one vote. However, each shareholder has at least one vote.
According to the Articles of Association, the company's A shares may be
converted into R shares at the request of a shareholder on dates to be decided
annually by the Board of Directors. During the conversion period of September
7-11, 1998, a total of 43 requests for conversion were made. On the basis of
these requests 1,357,954 A shares were converted into R shares. In the share
issue directed to STORA shareholders, 128,023,484 A shares and 320,465,375 R
shares were offered for subscription. The new numbers of shares of the two
series were entered in the Trade Register on December 23, 1998, as follows:
Series A 243,394,655
Series R 516,185,034
Total 759,579,689
The company's shares have been entered in the Book-Entry Securities System
maintained by the Finnish Central Securities Depository. On December 23, 1998,
424,937,573 of the company's shares were registered in the Swedish Securities
Register Center as so-called VPC shares. For the purpose of trading or
participation in an Annual General Meeting, the shares may be transferred from
one system to the other by notifying the bank responsible for managing the
book-entry securities account.
At the end of 1998, the company had approximately 70,000 shareholders. Foreign
ownership outside Finland and Sweden accounted for 24%.
Share listings
Stora Enso's shares are listed on the Helsinki and Stockholm stock exchanges.
The shares are quoted in euro (EUR) in Helsinki and in Swedish krona (SEK) in
Stockholm.
STORA shares were delisted from the Stockholm, London and Frankfurt stock
exchanges on January 19, 1999.
Board of Directors' authority to raise
the share capital or purchase shares
The Annual General Meeting held on March 26, 1998 decided to authorize the Board
of Directors to increase the share capital by a maximum of FIM 10,000,000 by
offering 1,000,000 new R shares for subscription. The right to subscribe rests
primarily with employees in the Group. The authorization, which is valid until
March 26, 1999, has not been used. The Board of Directors has received no other
authorization to issue shares, or to issue convertible bonds or bonds with
warrants. The Board has no authorization to purchase Stora Enso's own shares.
Options scheme for the management
On April 7, 1997, the company issued bonds with a maximum value of FIM
1,000,000, with warrants, to members of senior management. Each FIM 1,000 bond
carries one warrant entitling the holder to subscribe for 3,000 Series R Stora
Enso shares at a subscription price of FIM 45.57 each. If fully subscribed, the
issue will increase the share capital by a maximum of FIM 30 M. Shares may be
subscribed for during the period December 1, 1998 to March 31, 2004. The shares
represent 0.4% of the share capital or 0.1% of the voting rights after the
exercise of warrants.
Management interests at December 31, 1998
At the end of 1998, the members of Stora Enso's Board of Directors, the CEO and
the DCEO owned a combined total of 50,184 Stora Enso shares, of which 17,775
were Series A shares. These shares represent less than 0.00% of the company's
share capital and voting rights. The CEO also holds bonds with equity warrants
worth FIM 200,000, which entitle him to subscribe for 600,000 Series R shares.
The shares represent 0.0% of the company's voting rights. The members of the
Management Group own a combined total of 44,431 shares and bonds with warrants
entitling to 1,650,000 series R shares. The Management Group's ownership
represents 0.2% of the share capital after the exercise of warrants.
Shareholdings of other
Group-related bodies at December 31, 1998
Enso's pension foundation owned 786,500
R shares. Stora Enso's profit-sharing scheme owned 315,140 Stora Enso A shares
and 114,000 R shares. E.J. Ljungberg's Training Fund owned 1,880,540 A shares
and 4,831,804 R shares. E.J. Ljungberg's Fund owned 39,534 A shares and 101,579
R shares. Stiftelsen Bergslagets Sjuk- och Halsovardskassa owned 626,269 A
shares and 1,609,483 R shares. Mr. and Mrs. Ljungberg's Testamentary Fund owned
4,093 A shares and 13,085 R shares.
Finnish State ownership
The Finnish State owns 18.1% of the company's shares and 21.6% of the voting
rights generated by the shares. In June 1998, the Finnish Parliament passed a
resolution to abolish the provision requiring the State to hold a one-third
interest in the company.
<PAGE>
Share price trend
The new Stora Enso shares were entered in the Trade Register on December 23,
1998. On the same day, Enso Oyj was renamed Stora Enso Oyj, and the existing
shares quoted on the Helsinki Exchanges were accordingly renamed Stora Enso
shares. The total of 448,488,859 new shares offered to STORA shareholders were
quoted together with the existing shares as of December 29, 1998. Trading in
Stora Enso shares on the Stockholm Stock Exchange began on the same day.
On December 29, 1998, the prices quoted on the Helsinki Exchanges were FIM
47.90 per Series A Stora Enso share and FIM 47.50 per Series R share. The prices
quoted on the Stockholm Stock Exchange were SEK 69.00 and SEK 70.00
respectively. On the last trading date of 1998, the quotations were as follows:
in Helsinki, FIM 45.00 per A share and FIM 45.60 per R share; in Stockholm, SEK
70.00 per A share and SEK 71.00 per R share. The Group's total market
capitalization at year-end was EUR 5,801 M (FIM 34,491 M) in Helsinki. The
market capitalization in Stockholm is calculated on the basis of the number of
VPC shares. At year-end, the market capitalization in Stockholm was EUR 3,122 M
(SEK 18,561 M).
STORA shares continued to be quoted on the Stockholm, London and Frankfurt
stock exchanges until January 19, 1999.
On January 14, 1999, Stora Enso began compulsory redemption of all the
outstanding STORA shares belonging to minority shareholders, in order to acquire
the company's entire share capital. In addition to compulsory redemption,
shareholders were offered the voluntary alternative of selling their shares for
cash at a price of SEK 88 per share.
Trend in share prices, series A and R - [GRAPHIC OMITTED] - Data to be supplied
<PAGE>
Stora Enso turnover
<TABLE>
<CAPTION>
Turnover, number Closing price, FIM
------------------------- --------------------------
Helsinki Exchanges series A series R series A series R
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
29.12.1998 78,221 417,395 47.90 47.50
30.12.1998 104,203 383,718 45.00 45.60
29-30.12.1998 182,424 801,113
Stockholm Stock Exchange
- ------------------------------------------------------------------------------------------------------------
29.12.1998 247,313 534,851 69.00 70.00
30.12.1998 255,252 575,721 70.00 71.00
29-30.12.1998 502,565 1,110,572
Stora Enso's main shareholders:
A shares R shares % of % of
December 31, 1998 1,000s 1,000s shares voting rights
- ------------------------------------------------------------------------------------------------------------
Finnish State 55,596 81,484 18.1 21.6
Investor AB 27,208 50,485 10.2 10.9
Social Insurance
Institution 23,825 3,739 3.6 8.2
Robur 12,305 45,410 7.6 5.7
Fourth General Fund 7,318 13,579 2.8 2.9
Sampo Group 7,956 1,134 1.2 2.7
Varma-Sampo Mutual Pension
Insurance Company 7,306 25 1.0 2.5
SPP 4,189 9,739 1.8 1.7
Skandia 2,507 7,006 1.3 1.1
Unicarta Oy 2,661 3,277 0.8 1.0
Ratos 2,007 3,724 0.8 0.8
Erik Johan Ljungberg's
Training Fund 1,881 4,832 0.9 0.8
The Knut and Alice
Wallenberg Foundation 1,670 3,100 0.6 0.7
AMF 800 2,249 0.4 0.4
Solidium Oy 5,227 0.7 0.2
Other 86,166 281,175 48.2 38.8
Total 243,395 516,185 100.0 100.0
Shareholder categories
% of % of % of
December 31, 1998 shares voting rights shareholders
- ------------------------------------------------------------------------------------------------------------
Finnish institutions 30.3 41.0 30.4
Swedish institutions 37.9 35.9 37.8
Finnish private persons 2.2 2.0 2.2
Swedish private persons 5.8 5.3 5.8
Non-Finnish/Swedish owners 23.8 15.8 23.8
Total 100.0 100.0 100.0
</TABLE>
<PAGE>
Shareholder statistics, Stora Enso A
<TABLE>
<CAPTION>
Number of % of Number of % of
December 31, 1998 shareholders shareholders A shares shares
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1-1001 29,277 49.9 3,048,956 1.3
101-1,000 24,303 41.4 7,872,234 3.2
1,001-10,000 4,558 7.8 10,789,504 4.4
10,001-100,000 423 0.7 12,066,015 5.0
100,001-1,000,000 134 0.2 39,509,032 16.2
1,000,001- 28 0.0 170,108,914 69.9
Total 58,723 100.0 243,394,655 100.0
Shareholders statistics, Stora Enso R
Number of % of Number of % of
shareholders shareholders R shares shares
- ------------------------------------------------------------------------------------------------------------
December, 31 1998
1-100 (1 18,769 29.3 11,727,104 2.3
101-1,000 33,615 52.5 13,863,956 2.7
1,001-10,000 10,376 16.2 28,116,598 5.4
10,001-100,000 952 1.5 26,004,494 5.0
100,001-1,000,000 243 0.4 75,978,964 14.7
100,000,001- 49 0.1 360,493,918 69.8
Total 64,004 100.0 516,185,034 100.0
1) Includes Series A Series R
- -------------------------------------------------------------------------
Waiting list 1,500 1,200
Swedish shareholders 2,249,594 10,839,541
Total 2,251,094 10,840,741
Distribution of shares
December 31, 1998
Series A Series R Total
- ------------------------------------------------------------------------------------------------------------
FCSD-registered (the Finnish
Central Securities Depository) 117,737,969 203,811,812 321,549,781
VPC-registered (the Swedish
Securities Register Center) 1) 123,405,592 301,532,481 424,938,073
FCSD waiting list 1,500 1,200 2,700
FCSD common account 2,249,594 10,839,541 13,089,135
Total 243,394,655 516,185,034 759,579,689
1) The VPC-registered shares are also FCSD-registered
Share price and market value
Closing price Dec 30, 1998 Market value
-------------------------- ------------------------
FIM SEK FIM M EUR M
- ------------------------------------------------------------------------------------------------------------
Helsinki Exchanges, A shares 45.00 71.80 10,953 1,842
Helsinki Exchanges, R shares 45.60 72.76 23,538 3,959
Stockholm Stock Exchange,
A shares 43.87 70.00
Stockholm Stock Exchange,
R shares 44.50 71.00
Total market value in Helsinki 34,491 5,801
</TABLE>
<PAGE>
Change in share capital
<TABLE>
<CAPTION>
Total Number Number Total
share of series of series number of
capital (FIM) A shares R shares shares
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Enso Oyj, Dec. 31, 1997 3,110.9 116,729,125 194,361,705 311,090,830
Conversion of 1,357,954
Enso Oyj series A shares into
series R shares, Sept. 7-11,1998 -1,357,954 1,357,954
Conversion of STORA series
A and B shares into Stora Enso Oyj
series A and R shares,
Dec. 23, 1998 1,374.0 128,023,484 320,465,375 448,488,859
Stora Enso Oyj, Dec. 31, 1998 7,595.8 243,394,655 516,185,034 759,579,689
</TABLE>
<PAGE>
Stora Enso (IAS)
Key Share Ratios 1995-1998
<TABLE>
<CAPTION>
1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings/share1), EUR 0.25 0.54 0.49 1.33
Earnings/share, adjusted2), EUR 0.25 0.54 0.48 1.32
Equity/share, EUR 6.97 7.26 6.96 6.66
Dividend/share, EUR 0.35 3) 0.33 0.30 0.23
Dividend/share, FIM 2.10 1.99 1.81 1.38
Payout ratio, % 140.4 62.2 62.7 17.5
Dividend yield, %
Series A 4.7 5.2 4.9 7.8
Series R 4.6 5.2 4.9 7.8
Price / earnings
Series A 30.1 7.2 8.2 2.9
Series R 30.5 7.2 8.2 2.9
Price trend per share (4, EUR
Series A
- closing price for the period 7.57 7.15 6.21 4.86
- average price 9.14 7.75 6.09 6.02
- highest price 11.77 9.86 6.48 7.01
- lowest price 5.40 6.22 5.65 4.46
Series R
- closing price for the period 7.67 7.10 6.22 4.88
- average price 8.35 7.97 6.18 6.17
- highest price 11.86 10.01 6.59 7.06
- lowest price 5.30 6.17 5.68 4.46
Market Capitalization at year-end
Series A, EUR M 1,842 834 1,116 653
Series R, EUR M 3,959 1,379 817 529
Total Market Capitalization
at year-end, EUR M 5,801 2,214 1,933 1,182
Number of shares at the end
of the period (thousands)
Series A 243,395 116,729 179,769 134,408
Series R 516,185 194,362 131,322 108,445
Total number of shares 759,580 311,091 311,091 242,853
</TABLE>
1) 1998 earnings per share before non-recurring items were EUR 0.79 and the
payout ratio 44.6.
2) After potential increase of three million shares due to share options
(IAS 33)
3) Board of Directors' proposal to the Ordinary meeting of shareholders
Ratios based on market information are calculated from Enso Oyj's figures
before 29 December 1998. Year 1995 ratios calculated from Enso-Gutzeit
Oy's figures.
<PAGE>
Board of Directors
- ------------------
Claes Dahlback, Chairman
Born 1947. M.Sc.(Ec.), Dr. (h.c.). President and CEO of Investor through April
14, 1999. Vice Chairman of Investor, effective April 15, 1999. Chairman of Vin &
Sprit and Gambro. Vice Chairman of Skandinaviska Enskilda Banken. Member of the
Board of Astra. Member of the STORA Board in 1990-98.
Shares held in Stora Enso: 2,541 A and 6,529 R.
Krister Ahlstrom, Vice Chairman
Born 1940. M.Sc. (Engineering), Dr.(h.c.). Chairman of A. Ahlstrom Corporation.
Vice Chairman of Fortum Corp. Vice Chairman of the Supervisory Board of the
Sampo Insurance Company and Member of the Supervisory Board of Merita Bank.
Member of the Enso Supervisory Board in 1993-98.
Shares held in Stora Enso: 0.
Josef Ackermann
Born 1948. Dr.(Oec). Member of the Group Board of Deutsche Bank. Member of the
Supervisory Boards of Linde, S AirGroup, EUREX Zurich and several international
institutions.
Shares held in Stora Enso: 1,300 R.
Harald Einsmann
Born 1934. Ph.D. (Econ.). President of Procter & Gamble Europe, Middle East and
Africa. Executive Vice President and Member of the Executive Committee and the
Board of the Procter & Gamble Company U.S.A. Chairman of the Board of the
Procter & Gamble Group of Companies in Germany. Member of the Board of the EMI
Group, UK. Member of the Advisory Board of the University of Boston in Brussels,
and Member of the Board of the Festival of Flanders. Member of the STORA Board
in 1998.
Shares held in Stora Enso: 0.
Bjorn Hagglund, Deputy CEO
Born 1945. Dr. of Forestry. Member of the Boards of the Federation of Swedish
Industries, the Swedish Forest Industries Association and the Swedish University
of Agricultural Sciences. Member of the Royal Swedish Academy of Engineering
Sciences and the Royal Swedish Academy of Agriculture and Forestry. President
and CEO of STORA in 1998.
Shares held in Stora Enso: 7,877 A and 14,618 R.
<PAGE>
Jukka Harmala, CEO
Born 1946. B.Sc.(Econ.). Chairman of the Confederation of Finnish Industry and
Employers. Member of the Board of the Finnish Forest Industries Federation.
Chairman of the Board of Sampo Insurance Company. Member of the Supervisory
Board of Merita Bank. Deputy Chairman of Finnlines and Member of the Board of
Neptun Maritime. President and COO of Enso in 1988-91 and President and CEO in
1992-98.
Shares held in Stora Enso: 3,000 R and warrants entitling to 600,000 R shares.
Raimo Luoma
Born 1959. M.Sc.(Laws), (LL.M). Partner and Member of the Board of
Asianajotoimisto Raimo Luoma Oy.
Shares held in Stora Enso: 0.
Paavo Pitkanen
Born 1942. M.Sc.(Math.). Managing Director of Varma-Sampo Mutual Pension
Insurance Company. Member of the Boards of Metra, Partek and Sampo Insurance
Company. Member of the Supervisory Board of Instrumentarium and Vice Chairman of
the Supervisory Board of Alma Media. Member of the Enso Board in 1994-98.
Shares held in Stora Enso: 3,800 A.
Jan Sjoqvist
Born 1948. MBA. President and CEO of NCC. Member of the Boards of NCC, Neptun
Maritime and Hufvudstaden. Member of the STORA Board in 1997-98.
Shares held in Stora Enso: 508 A and 943 R.
Marcus Wallenberg
Born 1956. B.Sc. (Foreign Service). Executive Vice President of Investor through
April 14, 1999. President and CEO of Investor, effective April 15, 1999. Vice
Chairman of Astra, Ericsson and Saab. Member of the Boards of Gambro, Scania,
Skandinaviska Enskilda Banken, SAS Assembly of Representatives and the Knut and
Alice Wallenberg Foundation. Member of the STORA Board in 1998.
Shares held in Stora Enso: 3,049 A and 6,019 R.
<PAGE>
Management group
- ----------------
Jukka Harmala
CEO
Born 1946. Employed by Enso in 1970-84 and in 1988-98. Shares held in Stora
Enso: 3,000 R and warrants entitling to 600,000 R shares.
Bjorn Hagglund
Deputy CEO
Born 1945. Joined STORA in 1991. Shares held in Stora Enso: 7,877 A and
14,618 R.
Kimmo Kalela
Senior Executive Vice President, Strategy and Business Development
Born 1941. Joined Enso in 1986. Shares held in Stora Enso: Warrants entitling to
300,000 R shares.
Esko Makelainen
Senior Executive Vice President, Financial Control and Legal
Born 1946. Joined Enso in 1970. Shares held in Stora Enso: 1,900 A and 3,169 R
and warrants entitling to 300,000 R shares.
Ingvar Petersson
Senior Executive Vice President, Finance and IT; Base Resources
Born 1941. Joined STORA in 1986. Shares held in Stora Enso: 2,602 A and 6,251 R.
Yngve Stade
Senior Executive Vice President, Corporate Support
Born 1947. Joined STORA in 1994. Shares held in Stora Enso: 254 A and
471 R.
Sten Holmberg
Executive Vice President, Continuous Productivity Improvement
Born 1948. Joined STORA in 1980. Shares held in Stora Enso: 0.
Kari Vainio
Executive Vice President, Communications and Investor Relations
Born 1946. Joined Enso in 1985. Shares held in Stora Enso: 1,000 R and warrants
entitling to 75,000 R shares.
Christer Agren
Executive Vice President, Human Resources
Born 1954. Joined STORA in 1993. Shares held in Stora Enso: 0.
Bernd Rettig
Senior Executive Vice President, Magazine Paper
Born 1956. Joined STORA in 1982. Shares held in Stora Enso: 0.
Kai Korhonen
Senior Executive Vice President, Newsprint
Born 1951. Joined Enso in 1977. Shares held in Stora Enso: 0.
Jouko Taukojarvi
Senior Executive Vice President, Fine Paper
Born 1941. Joined Enso in 1964. Shares held in Stora Enso: 1,000 A and warrants
entitling to 300,000 R shares.
<PAGE>
Lars Bengtsson
Executive Vice President, Fine Paper
Born 1945. Joined STORA in 1986. Shares held in Stora Enso: 0.
Pekka Laaksonen
Senior Executive Vice President, Packaging Boards
Born 1956. Joined Enso in 1979. Shares held in Stora Enso: 0.
Arno Pelkonen
Executive Vice President, Timber Products
Born 1954. Joined Enso in 1984. Shares held in Stora Enso: 0.
Bert Ostlund
Executive Vice President, Pulp
Born 1948. Joined STORA in 1986. Shares held in Stora Enso: 101 A and
188 R.
Sven Rosman
Executive Vice President, Merchants
Born 1945. Joined STORA in 1991. Shares held in Stora Enso: 0.
Seppo Hietanen
Executive Vice President, Asia Pacific
Born 1945. Joined Enso in 1976. Shares held in Stora Enso: 2,000 R and warrants
entitling to 75,000 R shares.
<PAGE>
Corporate governance
- --------------------
General
The principles of Stora Enso's Corporate Governance Policy are in accordance
with the Finnish Companies Act, which the Policy supplements.
The Board of Directors (BOD), the Chief Executive Officer (CEO) and the Deputy
Chief Executive Officer (DCEO) shall be responsible for the management of the
company. The duties of the various bodies within the company shall be determined
by the laws of Finland and by this Corporate Governance Policy determined by the
Board of Directors.
The rest of the governance bodies have an assisting and supporting role.
Stora Enso will prepare annual and interim financial accounts conforming to
international accounting standards, to be published in the Finnish, Swedish and
English languages.
Stora Enso will be managed from dual headquarters in Sweden and Finland.
Stora Enso will have two auditors.
To the fullest extent possible, corporate actions and corporate records will
be taken and recorded in English.
Governance bodies
The decision-making bodies with responsibility to manage the company are:
Board of Directors
- - Compensation Committee
CEO, DCEO
- - Executive Management Group (EMG)
- - Management Group
- - Investment Committee
- - Environmental Committee
- - R&D Committee
Day-to-day operational responsibility rests with the divisional managements and
their operations teams.
<PAGE>
Objectives and composition of governance bodies
Board of Directors
Stora Enso will be managed by a Board of Directors under international two-tier
corporate governance principles.
The BOD will consist of 10 ordinary members: 8 non-executives and 2
executives. The members will be appointed by the Annual General Meeting for a
one-year term.
The BOD will meet at least 5 times per year.
The BOD will supervise the operation and management of Stora Enso, as well as
decide upon significant matters concerning strategy, investments, organization
and finance.
The BOD shall be responsible for the management and the proper arrangement of
the operations of the company. The BOD shall be responsible for the proper
supervision of the accounting and the control of the financial matters of the
company.
The BOD will elect a Chairman and a Vice-Chairman from among its members and
will appoint a CEO, DCEO and the heads of divisions and staff functions. The BOD
approves the organizational structure of the company.
The BOD will appoint the Compensation Committee.
Chief Executive Officer (CEO)
The CEO shall be in charge of the day-to-day management of the company in
accordance with the instructions and orders given by the Board of Directors. It
shall be the duty of the CEO to ensure that the company's accounting methods
comply with the law and that the financial matters are being handled in a
reliable manner.
The CEO will be in charge of the following:
- - strategy, long-range planning and investments
- - finance and financial planning
- - corporate communications
- - investor relations
- - preparatory work with regard to board meetings
In addition he will supervise decisions regarding
- - personnel
- - important operational matters
<PAGE>
Deputy Chief Executive Officer (DCEO)
The DCEO works as a deputy to the CEO. The DCEO will be in charge of operational
matters as follows:
- - follow-up and coaching of the divisions
- - corporate support functions (purchasing, logistics), resources (wood, energy)
- - R&D
- - environmental matters
- - human resources
Executive Management Group (EMG)
The Executive Management Group will be chaired by the CEO. It will consist of
the DCEO, 4 divisional heads (Magazine Paper, Newsprint, Fine Paper, Packaging
Boards) and the following heads of staff functions:
- - Strategic Business Development Group
- - Financial Administration and Legal Matters
- - Finance, IT and Base Resources
- - Corporate Support
The EMG's tasks and responsibilities are as follows:
- - investment planning and follow-up, control of mergers and acquisitions and
divestments
- - preparation of strategic guidelines
- - allocation of resources
- - review of key day-to-day operations and operational decisions
- - preparatory work with regard to board meetings review of main features of
sales network
The EMG will meet approx. 10 times per year.
<PAGE>
Management Group
The tasks and responsibilities of the Management Group are to review the budget,
strategy and daily business development. The members of the Management Group are
as follows:
- - Members of the EMG
- - Divisional heads as well as heads of staff functions
In addition to the above, additional members can be appointed by the CEO. The
Management Group meets approx. 5 times per year.
Investment Committee
The Investment Committee will be chaired by the head of the Strategic Business
Development Group. Members (4-7) will be appointed by the CEO. The tasks and
responsibilities of the Investment Committee are as follows:
- - coordinate investment planning and the approval process
- - coordinate the investment completion audit and follow-up process
- - participate in the planning and execution of large investment projects
- - make recommendations regarding the funds available for investments
The Investment Committee will meet once a month or as required.
Environmental Committee
The Environmental Committee will be chaired by the DCEO. Members (5-9) will be
appointed by the CEO. The purpose and tasks of the Environmental Committee are
as follows:
- - formulate and communicate the corporate environmental strategy and policy for
divisions
- - coordinate the connections and communication with Non-Governmental
Organizations, the European Union, the World Bank, etc.
- - establish environmental management procedures
- - produce the annual Environmental Report
The Environmental Committee will meet regularly as required.
R&D Committee
The R&D Committee will be chaired by the DCEO. Members (4-8) will be appointed
by the CEO. The purpose and tasks of the R&D Committee are as follows:
- - assist the Group's businesses to achieve and maintain quality and productivity
leadership by providing high-quality R&D competence and service
- - monitor technology and future-oriented product development
- - recommend the extent of overall R&D activities within the Group
The R&D Committee will meet regularly as required.
<PAGE>
Glossary of technical terms
- ---------------------------
General
Soft pulpwood
Wood raw material of pine or spruce for production of pulp.
Hard pulpwood
Wood raw material of mainly birch, beech or eucalyptus for production of pulp.
Recycled fiber
Wastepaper that has been defibrated and then deinked through chemical or
mechanical processing.
Wastepaper
Used newspapers and magazines (used for producing printing papers), and office
and printers' waste (for fine papers).
m3
The commercial measurement for pulpwood. It refers to the actual solid volume of
wood in cubic meters, excluding bark.
m3 fo
Measurement used for standing tree. Refers to total tree volume, bark and top
included, in forest cubic meters.
Coating
Applied to make the surface of paper or board smoother and more glossy. Improves
printability. A layer of coating slip, or pigment, is applied to one or both
sides of the paper/board.
Pulp
Sulphate (kraft) pulp
Chemical pulp produced by cooking woodchips in an alkaline solution of sodium
hydroxide and sulphide.
Sulphite pulp
Chemical pulp produced by cooking woodchips in a solution of calcium-, sodium-
or magnesiumsulphite.
Mechanical pulp
Produced from debarked wood that is applied to a grindstone under water pressure
(SGW, stone groundwood pulp), or which is cut into chips and ground in refiners,
whereby the fibers are liberated and produce a pulp.
TMP
Thermomechanical pulp, a mechanical pulp produced by pressurized presteaming of
woodchips prior to defibration in a refiner.
DIP
Deinked pulp, a wastepaper pulp that has been deinked through chemical or
mechanical processing.
CTMP
Chemi-thermomechanical pulp is produced by refining chemically impregnated,
preheated woodchips.
NS
Neutral sulphite, semi-chemical pulp produced by cooking in a neutral sulphite
solution.
Fluff pulp
A special sulphate (kraft) or CTMP pulp, used for absorbent materials, such as
diapers and hygiene products. After dry defibration, the pulp takes on a
cotton-like appearance.
Bleaching
During the cooking process, the binding agent lignin is removed from the wood.
The lignin residue and other substances remaining after cooking tend to discolor
the pulp brown or yellow. Bleaching, using, for example, chlorine dioxide,
hydrogen peroxide and ozone, provides the pulp with the desired brightness and
protection against aging.
ECF
Elementary Chlorine Free. A pulp that has been bleached without using elementary
chlorine (chlorine gas) but with, for example, chlorine dioxide.
TCF
A Totally Chlorine Free pulp. This means that neither chlorine nor any chlorine
compounds have been used during bleaching.
Oxygen bleaching
A bleaching process using oxygen gas, alkali solution and stabilizing
substances.
<PAGE>
Magazine paper
SC
Super Calendered, an uncoated paper produced from mechanical pulp, sulphate
(kraft) pulp and filler (china clay) that is treated mechanically between steel
rolls to achieve a glossy printing surface. Used primarily for periodicals and
advertising materials.
LWC, MWC, HWC
Light-weight, medium-weight and heavy-weight coated is a coated SC paper
produced from mechanical pulp and sulphate (kraft) pulp. Used for periodicals
and advertising materials, where four-color printing quality demands are high.
MFC
Machine-finished coated paper has high brightness, opacity, bulk, and stiffness
and is used in specialized magazines, catalogs, inserts, advertising materials
and books. The soft (nip) calender gives a matt finish to the surface.
Newsprint
Newsprint
Newsprint contains mainly mechanical pulp (TMP, SGW pulp) and often some
sulphate (kraft) pulp. Newsprint furnish can also contain some recycled fiber or
be made of 100% recycled fiber.
Fine paper
Fine papers
Printing, writing and office papers of the finest quality, produced from a
bleached chemical pulp with very little or no mechanical pulp. Can be either
coated or uncoated.
Coated fine papers
Fine papers with a pigmented surface layer that increases the uniformity of the
printing surface and provides improved printing properties, particularly for the
reproduction of illustrations.
Recycled fiber-based fine papers
Uncoated and coated fine papers produced from pulps based on recovered and
recycled office and printing wastepapers.
Label papers
Single-sided coated or cast-coated papers used for production of labels for
beverages and food products.
Packaging board
Folding Boxboard (FBB)
A multilayer board, often mineral coated, with an outer layer of sulphate
(kraft) pulp and a middle layer of mechanical (groundwood, pressure groundwood,
TMP or CTMP) pulp. Principally used for packaging of dry, moisture-containing
and liquid foods, paper cups, cigarettes and other consumer products. The board
is also used within the graphic industries for catalog covers, postcards and
folders, etc.
Solid Bleached Sulphate Board (SBS)
A board consisting of one or several layers of bleached chemical pulp, often
also mineral coated. Used within the graphic industries and for various types of
packaging of dry, moisture-containing and liquid food products, including paper
cups. In the non-food sector, SBS boards are typically used for cigarette and
luxury goods packaging.
Solid Unbleached Sulphate (SUS) and White Top Liner (WTL)
Board consisting of bleached chemical pulp or a mineral-coated top layer, or
both, an unbleached back and a middle layer of unbleached chemical and/or
mechanical pulps. SUS boards are used for packaging of food and non-food
products, liquid food packaging and paper cups. WTL is typically used as surface
layer of corrugated board.
Kraftliner (KL)
A liner produced from unbleached sulphate (kraft) pulp, often containing 20-30%
recycled fiber, and used for corrugated board.
SC fluting
Boards made from unbleached semi-chemical pulp. Used as a middle layer of
corrugated board.
White Lined Chipboard (WLC) and White Top-coated Test Liner (WT-coated)
Boards made mainly of recycled fiber, often mineral coated, and used for carton
materials for dry products, both food and non-food, for liquid detergents, and
as top layer of corrugated board.
Greyboard, Testliner, Wellenstoff
Boards made of recycled fiber without white top layer. Used for various cartons
and corrugated board.
MG kraft paper
One-sided calendered paper mainly produced from sulphate (kraft) pulp. Used for
paper bags, wrapping paper, carrier bags, flexible packaging, etc.
Sack paper
Paper used for the production of bags and sacks. Made from sulphate (kraft)
pulp, with high strength properties.
Plastic coating and laminating
Each of the above grades may be coated by polymers, typically with polyethylene,
and/or laminated with other materials, typically with aluminum foil, plastic
film or other paper. Coating and lamination provides barrier and other
functional properties, which makes it possible to select raw material for a
specific end use from alternative paper groups.
Corrugated board
Corrugated board consists of one or more layers of rippled paper (fluting) glued
to one layer, or between several layers, of flat paper (kraftliner, testliner).
Coreboard
Coreboards are produced from recycled raw materials (85%), combined with primary
wood pulp (15%). All grades are recyclable. Coreboards are used for extra strong
cores used within the paper, textile-yarn and plastic-foil industries.
Cores
Cores used by paper and board industries are designed for many applications:
from standard cores for newsprint to super-strong cores for jumbo reels and high
speed rotation. All core grades are recyclable.
Laminating papers
Include base kraft papers and phenolic resin impregnant papers.
Saturated Base Kraft (SBK)
Brown Absorbex(R) Kraft Paper is manufactured from unbleached sulphate pulp made
from sawdust. Brown Absorbex(R) is mainly used in decorative high-pressure
laminates (HPL). White Absorbex(R) Kraft Paper is manufactured from bleached
sulphate pulp and is developed for electrical applications.
Phenolic Resin Impregnant Papers
Core Stock is used in the laminate industry as the core material in decorative
high-pressure laminates, such as compact, fire-retardant and post-forming
laminates.
<PAGE>
Capacity specification 1999
- ---------------------------
<TABLE>
<CAPTION>
Total
Mill Location Grade Capacity
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Magazine Paper, 1,000 tonnes 3,125
Anjalankoski FI MFC 140
Corbehem FR LWC 510
Kabel DE LWC, MWC, HWC 570
Kotka FI MFC 140
Kvarnsveden SE SC 110
Langerbrugge BE SC 115
Maxau DE SC 355
Port Hawkesbury CA SC 350
Reisholz DE SC 210
Summa FI MF Magazine 70
Veitsiluoto FI LWC, MWC 400
Wolfsheck DE SC 90
Wolfsheck DE Wallpaper base 65
Newsprint, 1,000 tonnes 3,190
Anjalankoski FI Newprint, Book 345
Hylte SE Newsprint 770
Kvarnsveden SE Newsprint 555
Langerbrugge BE Newsprint 125
Maxau DE Newsprint 225
Port Hawkesbury CA Newsprint 195
Sachsen DE Newsprint, Directory 310
Summa FI Newsprint 390
Varkaus FI Newsprint, Directory 275
Fine Paper, 1,000 tonnes 3,040
Berghuizer NL Uncoated 165
Grycksbo SE Coated 200
Imatra FI Uncoated 200
Imatra FI Coated 90
Molndal SE Uncoated 30
Molndal SE Coated 55
Nymolla SE Uncoated 300
Nymolla SE Coated 135
Oulu FI Coated 800
Suzhou CN Coated 120
Uetersen DE Coated 220
Varkaus FI Uncoated 210
Varkaus FI Coated 80
Veitsiluoto FI Uncoated 435
Packaging Boards, 1,000 tonnes 3,575
Imatra FI Paperboards 820
Skoghall SE Paperboards 550
Baienfurt DE Cartonboards 175
Barcelona ES Cartonboards 145
Fors SE Cartonboards 305
Inkeroinen FI Cartonboards 185
Molndal SE Cartonboards 45
Newton Kyme UK Cartonboards 35
Pankakoski FI Carton-, Coreboards 110
Gruvon SE SC, Fluting, kraft papers 520
Heinola FI SC, Fluting 250
Imatra FI Laminating papers 25
Kotka FI Laminating papers 140
Pori FI Coreboards 100
St. Seurin-sur-l'Isle FR Coreboards 85
Varkaus FI Coreboards 85
Total Paper and Board 12,930
Core Factories, 1000 tonnes 80
Imatra FI 5
Krefeld DE 25
Loviisa FI 25
Milton-Keynes UK 10
Pori FI 15
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Million 1,000
m2 tonne
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Converting Factories 556 278
Balabanovo RU 90 45
Heinola FI 50 25
Jonkoping SE 60 30
Lahti FI 100 50
Lahti FI 60 30
Riga LT 50 25
Ruovesi FI 20 10
Skene SE 50 25
Tallin EE 4 2
Tiukka FI 14 7
Varkaus FI 8 4
Vikingstad SE 50 25
Market Pulp, 1,000 tonnes 2,350
Celbi PT Short fiber 270
Enocell FI Short fiber 420
Enocell FI Long fiber 200
Gruvon SE Long fiber 100
Kemijarvi FI Long fiber 210
Norrsundet SE Long fiber 295
Nymolla SE Long fiber 45
Oulu FI Long fiber 70
Sachsen DE DIP 60
Skutskar SE Short fiber 170
Skutskar SE Long fiber 170
Skutskar SE Fluff pulp 180
Sunila FI Long fiber 160
Timber Products, 1,000 m3 4,740
Ala SE 320
Bad St. Leonhard AT 230
Brand AT 260
Gruvon SE 280
Honkalahti FI 390
Hameenkoski FI 85
Kitee FI 340
Kittila FI 30
Kotka FI 200
Linghed SE 35
Norrsundet SE 230
Plana CZ 255
Sollenau AT 300
Tolkkinen FI 260
Uimaharju FI 265
Varkaus FI 290
Veitsiluoto FI 200
Ybbs AT 500
Zdirec CZ 270
</TABLE>
<PAGE>
The organization and identity of Stora Enso
- -------------------------------------------
The organization of Stora Enso [GRAPHIC OMITTED] - Data to be supplied
The Stora Enso brand - a new corporate identity
Stora Enso's strategy is to build a strong corporate brand to serve as an
umbrella under which all of its businesses operate.
The brand represents attributes as service, attractiveness, efficiency and
responsibility, which are valued by Stora Enso customers and employees as well
as investors and other company stakeholders. The corporate brand is supported by
the Group's wide range of products, many of which are leading brands in their
segments.
<PAGE>
Addresses
- ---------
Head Offices
Stora Enso Oyj
P.O.Box 309
FIN-00101 Helsinki, Finland
Office address: Kanavaranta 1
Tel. +358 20 46 131
Fax +358 20 46 21471
Stora Enso Oyj
P.O.Box 16100
SE-103 22 Stockholm, Sweden
Office address: Vastra Tradgardsgatan 15
Tel. +46 8 613 6600
Fax +46 8 10 60 20
Regional offices
Stora Enso Oyj
P.O.Box 309
FIN-00101 Helsinki, Finland
Office address: Kanavaranta 1
Tel. +358 20 46 131
Fax +358 20 46 21471
Stora Enso Oyj
SE-791 80 Falun, Sweden
Office address: Asgatan 22
Tel. +46 23 78 00 00
Fax +46 23 138 58
Stora Enso Oyj
P.O.Box 101014
DE-40001 Dusseldorf, Germany
Office address: Feldmuhleplatz 1
Tel. +49 211 581-01
Fax +49 211 581-2555
<PAGE>
Divisions
Stora Enso Magazine Paper
Stora Enso Newsprint
Stora Enso Fine Paper
P.O.Box 101014
DE-40001 Dusseldorf, Germany
Tel. +49 211 581-01
Fax +49 211 581-2555
Stora Enso Packaging Boards
P.O.Box 309
FIN-00101 Helsinki, Finland
Tel. +358 20 46 131
Fax +358 20 46 21471
Stora Enso Timber
AT-3531 Brand 44, Austria
Tel. +43 2826 700 10
Fax +43 2826 7001 290
Stora Enso Pulp
P.O.Box 897
SE-801 31 Gavle, Sweden
Tel. +46 26 855 00
Fax +46 26 855 20
Stora Enso Merchants
P.O.Box 1004
SE-431 26 Molndal, Sweden
Tel. +46 31 67 05 00
Fax +46 31 706 09 87
Stora Enso Asia Pacific
1 Grange Road
#05-03 Orchard Building
Singapore 239693
Tel. +65 733 8164
Fax +65 733 7476
A formal process is currently under way to register the new names of the Group
companies. Please refer to the Stora Enso web site for the updated list of names
and addresses: www.storaenso.com
<PAGE>
Information to shareholders
- ---------------------------
Annual General Meeting
The Annual General Meeting of Stora Enso Oyj will be held on Tuesday, March 23,
1999 at 3.00 p.m. (local time) at the Marina Congress Center, address:
Katajanokanlaituri 6, Helsinki, Finland.
Shareholders wishing to attend the Meeting must notify the company either in
writing to: Stora Enso Oyj, Legal Department, P. O. Box 309, FIN-00101 Helsinki,
Finland or by telephone to: +358 2046 21210, +358 2046 21224 or +358 2046 21245,
no later than 4.00 p.m. (local time) on March 19, 1999.
Only those shareholders who are registered as shareholders in the share
register of Stora Enso Oyj maintained by Finnish Central Securities Depository
Ltd on March 18, 1999, have the right to participate in the Meeting. However,
shareholders whose shares have not yet been transferred to the book entry system
also have the right to attend the Meeting, provided that they were registered in
the company's share register before September 30, 1993, or in Veitsiluoto Oy's
share register before April 30, 1996. At the Meeting, such shareholders must
present their share certificates or furnish other proof that their shares have
not been transferred to a book entry account.
VPC-registered shares
Shareholders wishing to participate in and vote at the Meeting and whose shares
are registered in the Swedish Securities Register Center (VPC) must re-register
their shares in the share register of Stora Enso Oyj maintained by Finnish
Central Securities Depository Ltd. Requests for such re-registration should be
made well in advance to the account operating institute (kontoforande institut)
for the shareholders' VP account, but no later than March 15, since the shares
must be registered in the Finnish register no later than March 18, 1999, which
has been established as the record date for shares. The account operating
institute for the shareholders' VP account is usually the shareholders' regular
bank or stock-broker. Unless otherwise requested, ownership will be transferred
back to the Swedish VPC register immediately following the Meeting.
Shareholders who do not wish to participate in and vote at the Meeting may
follow the Meeting in Helsinki via a one-way telelink communication installed at
Kristinehallen, Bergmastaregatan 32, Falun, Sweden, on March 23, 1999, at 2.00
p.m. (local time). Notice of attendance at Kristinehallen should be made in
writing to: Stora Enso Oyj, Legal Department, SE-791 80 Falun, Sweden, or by
telephone to: +46 23 78 24 34, no later than 4.00 p.m. (local time) on March 19,
1999.
Payment of dividend
The Board of Directors is proposing to the Annual General Meeting that a
dividend of FIM 2.10 per share be paid for the fiscal year ending December 31,
1998. If the proposal is approved, dividends will be paid on April 13, 1999 to
shareholders entered in the register of shareholders maintained by Finnish
Central Securities Depository Ltd and to shareholders entered in the register
maintained by VPC on the record date of March 26, 1999. Shareholders who have
not transferred their shares to a book entry account will receive their dividend
when their shares have been transferred.
Stora Enso will publish the following
financial reports during 1999:
February 10 Year-end Report 1998
March 11 Annual Report 1998
May 11 Interim Report - Jan.-March 1999
August 10 Interim Report - Jan.-June 1999
November 9 Interim Report - Jan.-Sept 1999
The Annual Report and Interim Reports are available in Finnish, Swedish and
English. The Annual Report is also available in German. The company's
Environmental Report will be published in May in Finnish, Swedish, English and
German. The Financial Reports are also published on the company's Internet
website: www.storaenso.com As of January 1, 1999, Stora Enso's reporting will be
conducted in euro (EUR).
<PAGE>
Publications and additional information:
Stora Enso Oyj
Corporate Communications
Kanavaranta 1
FIN-00160 Helsinki
Tel. +358 2046 21296
Fax +358 2046 21267
Stora Enso Oyj
Corporate Communications
SE-791 80 Falun
Tel. +46 23 780000
Fax +46 23 25329
Stora Enso Oyj
Investor Relations
Kanavaranta 1
FIN-00160 Helsinki
Tel. +358 2046 21242
Fax +358 2046 21307
Change of address
Shareholders should notify the book entry register maintaining their book entry
account of any changes of address or share ownership.
Exhibit K-1
Juridiction
Company of Organization
- --------------------------------------------------------------------------------
Stora Enso Oyj Finland
AS Stora Enso Mets Estonia
Stora Baltic Forestry Ltd Estonia
Caribbean International Holdings Cayman Islands
Ensopack Ltd Barbados
Corenso United Oy Ltd Finland
Corenso (UK) Ltd Great Britain
Corenso France SA France
Mandriladora Tolosana S.A. Spain
Sicdus France SA France
Corenso United (Deutschland) Verwaltungs GmbH Germany
Enocell Oy Finland
Enotuhka Oy Finland
Enso Alueverkko Oy Finland
Enso Finance BV Netherlands
Enso Interamericas Inc USA
Enso Latinamerica S.A. Uruguay
Enso Argentina S.A. Argentina
Enso Chile S.A. Chile
Enso Peru S.A. Peru
Enso Norge A/S Norway
Enso Paperikemia Oy Finland
Enso Polska Sp.z.o.o. Poland
Enso Surya Pte Ltd Singapore
Enso Sverige AB Sweden
Fortek Oy Finland
Herman Andersson Oy Finland
Janka Oy Finland
Kemi Shipping Oy Finland
Kemijarven Sellu Oy Finland
Kerayskuitu Oy Finland
Kittila Wood Oy Finland
Kymenso Oy Finland
Laminating Papers Oy Finland
Kombi Voima Oy Finland
L.P. Pacific Films Sdn. Bhd. Malaysia
SF Pacific Rim Hld Pte Ltd Singapore
Lumi Hamina Oy Finland
Lumi Shipping Oy Finland
Merivienti Oy Finland
Nordic Forest Development Pte Ltd Singapore
Oulu Shipping Ltd Cayman Islands
Oulun Pakkauslava Oy Finland
Ousaari Oy Finland
Pakkaus-Piste Oy Finland
Pamilo Oy Finland
Kemijarven Voima Oy Finland
Oulun Voima Oy Finland
Veitsiluodon Voima Oy Finland
PSC Pulp Sales AG Switzerland
PSC Holding AG Switzerland
Oy Pulp Sales Finland Ab Finland
Pulp Sales (Asia-Pacific) Pte Ltd Singapore
Pulp Sales (Far East) Ltd Hong Kong
Pulp Sales Corporation (Miami) USA
Pulp Sales Corporation Ltd (London) Great Britain
Pulp Sales Europe SA Belgium
Rakennusosakeyhtio Tehtaanmaki Finland
SIA Stora Enso Mezs Latvia
Stora Enso (HK) Ltd Hong Kong
Enso-Eurocan Hongkong Ltd Hong Kong
Stora Enso Austria GmbH Austria
Stora Enso Espana SA Spain
Cartiberia SA Spain
Recogida Selectiva de Papel y Carton de
Cataluna AIE Spain
Stora Enso Grafic SA Spain
Stora Enso Portugal Lda Portugal
Stora Enso Fine Papers Oy Finland
Berghuizer Papier Fabriek NV Netherlands
WKC De Grift BV Netherlands
WKC Grift CV Netherlands
Stora Enso Lumi Paper NV Belgium
Stora Enso Forest Consulting Oy Ltd Finland
PT Enso Forest Developement Indonesia Indonesia
Stora Enso Ingerois Oy Finland
Stora Enso Barcelona S.A. Spain
Cogeneration Plant S.L. Spain
Stora Enso Pankakoski Oy Finland
Stora Enso Italia Srl Italy
Stora Enso Japan K.K. Japan
Stora Enso Korea Co Ltd South Korea
Stora Enso Packaging Oy Finland
Formeca Oy Finland
Oy Uni-Pak Ab Finland
Pakenso Sweden Holding AB Sweden
June Emballage AB Sweden
Rakennus AB Sweden
Stora Enso Packaging AB Sweden
Osterbergs Forpackningsmaskiner AB Sweden
Stora Enso Packaging A/S Estonia
Stora Enso Packaging Polska Sp.z.o.o. Poland
Stora Enso Packaging SIA Latvia
Stora Enso Packaging UAB Lithuania
Tamrest Oy Finland
ZAO Stora Enso Packaging Russia
Stora Enso Polska Sp.z.o.o. Poland
Stora Enso Publication Paper Oy Ltd Finland
Stora Enso Singapore Pte Ltd Singapore
Stora Enso Timber Oy Ltd Finland
Enso Bois SA France
Enso International Softwoods BV Netherlands
Enso Timber (Nederland) BV Netherlands
Euro Timber GmbH Austria
Euro Timber Spol sro Slovakia
Holzindustrie Schweighofer AG Austria
HESPOL GmbH Poland
Holzindustrie Schweighofer Bad St.
Leonhard GmbH Austria
Holzindustrie Schweighofer Plana spol sro Czech Republic
Holzindustrie Schweighofer Zdirec spol sro Czech Republic
Lamco Holzverarbeitungs GmbH Austria
Majetkova Zdirec spol sro Czech Republic
Honkalahden Teollisuuslaituri Oy Finland
Kollis-Pohjan Puu Oy Finland
Koski Timber Oy Finland
Oy Borga Stuveri Ab Finland
Puhoksen Satama Oy Finland
Puumerkki Oy Finland
Helsingin Pitkapuu Oy Finland
Puumerkki Eesti AS Estonia
Puumerkki Latvia SIA Latvia
Raumo-Enso Timber Sales Oy Ltd Finland
Schweighofer HolzhandelsgmbH Austria
Schweighofer Spol sro Czech Republic
Stora Enso Timber Holding AB Sweden
Stora Enso Timber AB Sweden
Fredriksson & Co AB Sweden
Stora Timber (Deutschland) GmbH Germany
Stora Timber Benelux Beheer BV Netherlands
Houtpak BV Netherlands
Houttransport Amsterdam BV Netherlands
Stora Timber Benelux BV Netherlands
Stora Timber DHZ Produktion BV Netherlands
Stora Timber Finance BV Belgium
Stora Timber France SA France
Stora Timber Skandinavien AB Sweden
Stora Timber Varmeenergi AB Sweden
Stora Enso Timber UK Great Britain
Stora Timber (UK) Ltd Great Britain
Woodpax Ltd Great Britain
D.I.Y. Timber Ltd Great Britain
Yhteistoiminta Oy Finland
Stora Enso Transport and Distribution NV Belgium
Stora Enso Belgium SA/NV Belgium
Stora Enso Nederland BV Netherlands
Stora Kopparbergs Bergslags AB Sweden
AB Bergslagets Praktiska Skolor Sweden
Berudia AB Sweden
Enso (Schweiz) AG Switzerland
HBA Steel Co Inc USA
Kopparkraft AB Sweden
Bullerforsens Kraft AB Sweden
Dalalvens Kraft AB Sweden
Horrmundsvalla Kraft AB Sweden
Ljusnans Kraftaktiebolag Sweden
Spjutmo Kraft AB Sweden
Pappersgruppen AB Sweden
Papyrus Merchant AB Sweden
AS Papyrus Estonia
Papyrus AB Sweden
Opti Sverige AB Sweden
Papyrus Hungaria Rt. Hungary
Papyrus Sp.zo.o. Poland
SIA Papyrus Latvia
UAB Papyrus Distribution Lithuania
UAB Popierius Lithuania
Ragnar Dahl (HK) Ltd Hong Kong
Stora Corporate Research AB Sweden
Stora Enso (Schweiz) AG Switzerland
Stora Enso Australia PTY Ltd Australia
Stora Enso Beteiligungen GmbH Germany
Corenso United (Deutschland) GmbH & CO KG Germany
Corenso Elfes GmbH & Co KG Germany
Elfes Beteiligungs GmbH Germany
FPB Holding AG Germany
De Ruysscher Papyrus SA France
Feldmuhle Finance BV Netherlands
FPB-Hilfe GmbH Germany
Papyrus BV Netherlands
PB Papier SA Belgium
Stora Enso Baienfurt GmbH Germany
Stora Enso Feldmuhle Holding France SA France
Stora Enso Corbehem SA France
Siex Developpement SA France
Stora Enso Finance France SA France
Stora Enso France SA France
Stora Enso Langerbrugge NV Belgium
Stora Enso Publication Paper AG Germany
MPB HiTec Paper France S.A. France
MPB HiTec Paper ME Vertriebsges.mbH Austria
MPB HiTec Paper Nederland B.V. Netherlands
MPB HiTec Paper Srl Italy
MPB HiTec Paper UK Ltd Great Britain
Oy MPB HiTec Paper Ab Finland
Stora Enso Deutschland GmbH Germany
Stora Enso Kabel GmbH Germany
Stora Enso Reisholz GmbH Germany
Stora Enso Uetersen GmbH Germany
Patricia Beteiligungs GmbH Germany
Stora Enso Dienstleistungs GmbH Germany
Stora Enso Lubeck GmbH Germany
Stora Enso Maxau Beteiligungs-G.m.b.H. Germany
Stora Enso Maxau GmbH & Co. KG. Germany
ALPAGE Altpapier Verwaltungs-G.m.b.H Germany
E. Holzmann Papierverarbeitung
Verwaltungs-G.m.b.H. Germany
Stora Enso Maxau Verwaltungs-G.m.b.H. Germany
Stora Enso Pulp International GmbH Germany
Stora Enso Sachsen GmbH Germany
Stora Enso Transport and Distribution GmbH Germany
Altpapier Verwertung Wattenscheid GbmH Germany
Stora Enso Brasil Ltda Brazil
Stora Enso Energy AB Sweden
Bergvikens Kraft AB Sweden
Blybergs Kraft AB Sweden
Bullerforsens Kraft AB Sweden
Dalalvens Kraft AB Sweden
Horrmundsvalla Kraft AB Sweden
Ljusnans Kraftaktiebolag Sweden
Spjutmo Kraft AB Sweden
Orealvens Kraft AB Sweden
Runn Kraft AB Sweden
Vasa Kraft AB Sweden
Stora Enso Fine Paper AB Sweden
Stora Enso Fine Paper International AB Sweden
Stora Enso Grycksbo AB Sweden
Stora Enso Molndal AB Sweden
Stora Enso Network AB (Emb. AB W. Ericsson) Sweden
Stora Enso Nymolla AB Sweden
Stora Fine Paper Sverige AB Sweden
Stora Enso Forsakrings AB Sweden
Stora Enso Hellas AE Greece
Stora Enso Holding A/S Denmark
Papyrus A/S Denmark
Stora Dalum A/S Denmark
Stora Enso Danmark A/S Denmark
Viggo Borch Ejendomme A/S Denmark
Stora Enso Holdings UK Ltd Great Britain
Enso (UK) Ltd Great Britain
Allan Farrow (Paper Sales) Ltd Great Britain
Enso Ireland Ltd Ireland
Enso Publication Paper Ltd Great Britain
Enso Rose Ltd Great Britain
Papyrus Paper Ltd Great Britain
Enso Trans (UK) Ltd Great Britain
Papyrus Distribution Ltd Great Britain
Stora Kopparberg Ltd Great Britain
Papyrus GB Ltd Great Britain
Caxton Group Ltd Great Britain
Barnett Group Ltd Great Britain
Caxton Paper Ltd Great Britain
RA Brand & Co Ltd Great Britain
Brand Paper Ltd Great Britain
Brand Paper Scotland Ltd Great Britain
Stora Enso Lumi Paper Ltd Great Britain
Stora Enso Transport and Distribution Ltd Great Britain
Stora Enso UK Ltd Great Britain
Stora Paperboard (UK) Group Holdings Ltd Great Britain
Billerud UK Ltd Great Britain
Stora Billerud Paper Ltd Great Britain
Stora Enso Newton Kyme Ltd Great Britain
Stora Paperboard (UK) Ltd Great Britain
Stora Pension Trust Ltd. Great Britain
Stora Publication Paper UK Ltd Great Britain
Stora Enso Hungary Kft Hungary
Stora Enso Ireland Ltd Ireland
Stora Enso Kraftnat AB Sweden
Stora Enso North America Corp. USA
Enso International Inc. USA
Stora Sales Company Inc. USA
Stora Enso Paperboard AB Sweden
Soc d'Etudes de la Call du Cong France
Stora Enso Billerud AB Sweden
Stora Enso Fors AB Sweden
Kopparfors GmbH Germany
Stora Oppboga AB Sweden
Stora Paperboard Scandinavia AB Sweden
Stora Enso Praha s.r.o. Czech Republic
Stora Enso Pulp AB Sweden
Celulose Beira Industrial (Celbi) S.A. Portugal
Celbinave Lda Portugal
Viveiros Lda Portugal
Skutskars Industriservice AB Sweden
Stora Cell Ltd Great Britain
Stora Enso Scandinavia AB Sweden
Stora Enso Norge A/S Norway
Pappersgruppen A/S Norway
Stora Enso Skog AB Sweden
Jet Interior AB Sweden
Stora Impex Russia
Kingiseppskoye Timber Co Russia
Kopparland AB Sweden
NAB Stora Enso Miskas Lithuania
Stora Forestry Gdov JV Russia
Stora Forestry Plus JV Russia
Stora Forestry Strug JV Russia
Stora Transport OOO Russia
Sydved AB Sweden
Gotalands Skogsforvaltning AB Sweden
Skogsutveckling Syd AB Sweden
Sydved Energileveranser AB Sweden
Fastbransle AB Sweden
Vastbranslen AB Sweden
Vastved AB Sweden
Ostved AB Sweden
Tratag AB Sweden
Stora Enso Transport and Distribution AB Sweden
Combi Shipping AB Sweden
Stora Enso Treasury Stockholm AB Sweden
Stora Credit AB Sweden
Stora Enso Treasury Amsterdam BV Netherlands
Stora Enso China Holdings AB Sweden
Papyrus Trading Co Ltd Hong Kong
Stora Enso Suzhou Paper Co Ltd China
Stora Enso Trading (Shanghai) Co Ltd China
Stora Luxemburg Sarl Luxembourg
Stora Treasury Sarl Luxembourg
Alluma SA Belgium
Stora Treasury Asia Pte Ltd Singapore
Veracel Celulose SA Ltda Brazil
Stora Securities AB Sweden
Stora Flight AB Sweden
Stora Forvaltnings AB Sweden
Stora Holding Co NV Netherlands
Stora HongKong Ltd Hong Kong
Stora News AB Sweden
Stora (Israel) Ltd Israel
Stora Enso Hylte AB Sweden
Stora Enso Kvarnsveden AB Sweden
Stora Enso Port Hawkesbury Ltd Canada
Stora Papyrus (HK) Ltd Hong Kong
Stora Singapore Pte Ltd Singapore
Stora Trading AB Sweden
AB Nykvarns Bruk Sweden
Stora Enso (Thailand) Co Ltd Thailand
Green Mountain Land Co Ltd Thailand
Stora Enso Agroforestry Co Ltd Thailand
AB Siefvert & Fornander Sweden
Fastigh. bolaget Vastra Tradgardsgatan 15 Sweden
Bergslagets Bostads AB Sweden
Cefortia AB Sweden
M-Carrier AB Sweden
Dixie Cup AB Sweden
DJKN Forvaltnings AB Sweden
Mega Flight KB Sweden
Letpak International AB Sweden
Stora AB Sweden
Stora Dormant AB Sweden
Sunila Oy Finland
Tornator Oy Finland
Tornion Pakkauslava Oy Finland
Vaakamitta Oy Finland
Vakuutusosakeyhtio Pankavara Finland
Varenso Oy Finland
Veitsiluodon Kiinteistohuolto Oy Finland
Woodpax Nederland BV Netherlands
ZAO Stora Enso Moscow Russia
Exhibit K-4
Stora Enso and Fortum sign agreement on sale of power assets
[Apr. 17, 2000]
Stora Enso has today signed the agreement concerning the sale of its power
assets outside the mills in Finland and Sweden based on the letter of intent
signed in January by Stora Enso and Fortum. The deal is subject to the approvals
of the Finnish and Swedish competition authorities, whose decisions are expected
later this spring. The agreement does not include Stora Enso's shares in
Pohjolan Voima, and Stora Enso will continue preparations to sell them.
The total asset value of the deal is SEK 15.85 billion (about EUR 1.9 billion)
of which SEK 14.20 billion is Fortum's share and SEK 1.65 billion is the share
of the regional network in Central Sweden that will be owned by Birka Nat AB, a
subsidiary of Birka Energi AB, which is jointly owned by Fortum and the city of
Stockholm.
For further information:
Ingvar Petersson, Senior Executive Vice President, tel. +46 70 595 7605
