Dear Shareholder,

There were many notable achievements in 2004, such as improved performance of our North American operations and cost savings, but market conditions held back the overall financial performance of the Group and the results were very unsatisfactory. Much improvement is needed in the years ahead.

Stora Enso’s profitability was disappointing in 2004. Operating profit excluding non-recurring items was EUR 336 million, down EUR 190 million on the previous year. The Group’s net sales totalled EUR 12 396 million, which was only slightly up on the previous year in spite of higher sales volumes.

Demand for Stora Enso’s products started to pick up and continued to rise throughout the year. Market conditions improved, especially in North America, where we were able to raise our prices moderately towards the end of the year.

In Europe prices were generally lower than in 2003, offsetting much of the gain from improving demand. Profitability was also affected by the depreciation of the dollar that started at the beginning of the year, accelerated towards the end of the year and has continued into this year. This has affected our pricing power in the markets.

Our North American Profit Enhancement Programme that began in 2002 is a good example of measures to improve Stora Enso’s performance. The effect of this programme was showing through by the end of the year as losses in North America were significantly cut back. The full benefits of the programme will be gained when the last two machine rebuilds have been completed.

Our personnel in North America have handled this demanding profit enhancement programme well, including cost cutting and asset modernisations. The programme is proceeding according to plan.

Another key to raising profitability is our asset restructuring programme. For some time now we have been building new machines and modernising and rebuilding others. The fine paper and newsprint assets are generally in excellent shape, and our Langerbrugge recycled newsprint machine is being modified.

During 2005 a new Super-Calendered (SC) machine will come on stream at Kvarnsveden in Sweden and the Veracel joint-venture pulp mill in Brazil will start production in the summer. We shall start benefiting from these projects to improve long-term profitability from the end of this year.

In addition, programmes are improving the profitability and overall efficiency of individual mills.

We have divested the forestlands in Sweden, releasing capital from non-core assets. We intend to invest this capital in emerging markets in projects that meet our financial targets. The areas we are concentrating on are South America, China and Russia.

Following our strategy of increasing the importance of packaging boards within the Group’s portfolio, we bought a Polish corrugated packaging boards company to develop packaging boards operations in Eastern Europe. Also, in line with our strategy of expanding the merchanting business to improve its profitability and move closer to the customers for paper products, we bought a paper merchant in the Netherlands and are finalising the acquisition of a French paper merchant.

These recent acquisitions have been relatively modest for a company of Stora Enso’s size because this has not been an opportune time for making acquisitions. Assets have not been generally of sufficient quality and valuations of potential targets have been too high.

In Europe demand for advertising-driven paper grades is expected to stay healthy and in North America print advertising expenditure remains robust. The price outlook is positive for publication papers and rather good for coated fine papers in Europe and North America, but uncoated fine papers are suffering from increased competition and the weak US dollar.

Demand for packaging board should remain stable, and some price increases are being implemented in consumer boards and coreboards. Demand for construction and joinery wood products is relatively stable globally, but there is overcapacity in Europe and weak currencies in important export markets together with higher wood costs are leading to unsatisfactory returns.

Although the outlook for demand is generally positive, Group profits are expected to be depressed in early 2005 by the weak US dollar and costs related to rebuilding publication paper machines. The Group’s financial performance will also continue to be adversely affected by rising energy-related and chemical costs. However, despite the near-term challenges to Group profitability, the financial results for the full year 2005 are expected to show an improvement on 2004.

Stora Enso remains strong in many respects. We have a balanced portfolio that makes us an attractive partner for our customers. We have made sound asset investments in recent years and we have highly skilled and international personnel. Our financial strengths are a strong balance sheet, good credit ratings and a steady dividend. The Board of Directors is therefore proposing to the Annual General Meeting of shareholders that the dividend be maintained at EUR 0.45 per share for the year 2004. A new mandate to buy back shares will be sought from the Annual General Meeting in March 2005.

We would like to thank our personnel for their hard work during a difficult year and look forward to further progress in 2005.

Helsinki, 3 February 2005

Claes Dahlbäck, Chairman Jukka Härmälä, CEO