ROCE

Stora Enso measures its profitability by Return on Capital Employed (ROCE). The target is 13% over the cycle. The pre-tax weighted average cost of capital at the end of 2004 was 8.7%. ROCE is a good basic indicator of the profitability of a capital-intensive company.

The ROCE was 3.0% in 2004. The Group was suffering from low sales prices, higher costs and the impact of the low dollar in 2004. Further, the impact of the North American Profit Enhancement Programme is still not fully reflected in the Group’s figures, although the division’s results improved significantly during the latter part of the year. The programme is on schedule and it is to be completed mid 2005.

Growth

The Company aims to increase its Earning per Share (EPS) through profitable growth, which can be achieved organically and through mergers and acquisitions.

The recent past has been a difficult time for making acquisitions, because the earnings potential of possible acquisitions is out of line with the cost of acquisition. One reason for high acquisition prices is that many investors are active in the market and some of these competing buyers have different financial and industrial objectives.

Cash flow

Cash flow from operations has been given emphasis. Cash flow should exceed average capital expenditure and dividends calculated on a three-year rolling basis. This measure is a tool to enhance efficiency in working capital management. Stora Enso will adopt the Cash Value Added (CVA^®)¹⁾ concept in its investment planning to highlight cash flow.

The cash flow in 2004 was EUR 1 209.3 million, so the target was met on a rolling three-year basis.

Stability of the company

Financial

Financial risk is indicated by the debt-to-equity ratio, the target being at or below 0.8.

This measure is a good indicator of the balance sheet strength and financial flexibility of a company. The target was well achieved, the debt-to-equity ratio being 0.38 in 2004. In the absence of potential acquisition targets, the balance sheet strength is currently being utilised by buying back the Company’s own shares.

Volatility

Stora Enso aims to reduce the volatility of its business by making its portfolio less cyclical and by geographically diversifying the business.

The strategic target of the Company in risk control is to increase the size of the packaging boards business within the Group’s portfolio and to continue to expand its operations in emerging markets. Packaging boards now account for 21% of Group turnover, and Group sales outside Europe and North America for 14% of turnover.

¹⁾ Trademark registered by Anelda AB.

Reaching key financial targets	Target	2000	2001	2002	2003	2004
ROCE, % *	13	15.4	10.6	7.2	4.5	3.0
Debt/Equity ratio	≤0.8	0.63	0.58	**0.37	0.49	0.38
Dividend/share, EUR		0.45	0.45	0.45	0.45	***0.45
Payout ratio, % *	50	34	48	82	180	180

*Excluding non-recurring items
** Adjusted with the initial valuation of IAS 41 Agriculture

*** Board of Directors' proposal to the AGM