Stora Enso - Annual Report 2004 > Financials > Notes > Note 29 Related Party Transactions

Note 29 Related Party Transactions

During the last three years, Stora Enso has not been involved in any material transactions with any Group directors or executive officers, any of the 10% shareholders, or any relative or spouse of any of these persons. With certain limitations, the Finnish Companies Act permits members of the Board of Directors to borrow money from the Group so long as such loans are secured and within the limits of distributable equity. However, no directors or executive officers and none of the 10% shareholders owe any significant amounts to the Group. The Group has not, directly or indirectly, extended or maintained credit, arranged for the extension of credit, or renewed an extension of credit, in the form of a personal loan to or for any of directors or executive officers in violation of the US Exchange Act.

In the ordinary course of business, the Group engages in transactions on commercial terms with associated companies and other related parties that are no less favourable than would be available to other third parties. Stora Enso intends to continue with transactions on a similar basis with its Associates, further details of which are shown in Note 13.

Chemical Pulp

Although most chemical pulp requirements are produced internally, some is purchased from the pulp mill of Sunila Oy, a 50% associated company owned jointly with Mylly-koski Oy. Stora Enso supplies fibre to Sunila, selling them EUR 36.6 (EUR 33.4) million of wood during the year, and in return, Sunila sells the resulting pulp back to the Group, all at market prices; in 2004 the Group purchased 156 696 (123 921) metric tons from Sunila for a total price of EUR 66.5 (EUR 49.1) million.

Energy

Stora Enso holds a 15.7% interest in Pohjolan Voima Oy, a power producer that is a majority shareholder in Teollisuuden Voima Oy, one of Finland’s two nuclear power companies. Prices paid to Pohjolan Voima for electricity are based on production costs, which are generally lower than market prices, and the Group has the right to appoint a Board Director.

Financial Arrangements

The Group borrows from, or has financial arrangements with, several financial institutions where certain members of the Stora Enso Board of Directors or Executive Management Group also act as members of the Board of Directors, Supervisory Board or Executive Management Group of one or more of those bodies. These include Skandinaviska Enskilda Banken AB in the case of Marcus Wallenberg, Varma Mutual Pension Insurance Company in the case of Jukka Härmälä and Paavo Pitkänen, and Mutual Pension Insurance Company Ilmarinen in the case of Esko Mäkeläinen. All Group borrowings and financial arrangements have been negotiated on arms-length terms and several have existed for a number of years and prior to the current board membership.

Research and Development

Stora Enso conducts research and development activities through Oy Keskuslaboratorio (“KCL”) in which a 30% interest is held. Part of the Group’s basic research requirements is sourced from KCL, which also performs research on a contract basis at cost; in 2004 total payments to KCL amounted to EUR 5.0 (EUR 5.7) million. Discoveries made in the process of its research activities are the property of KCL, which makes a decision whether to apply for a patent for each discovery on a case-by-case basis. If a patent is granted, the four corporate owners of KCL, one being Stora Enso, have a right to use the patent. If, however, KCL decides not to apply for a patent, the discovery is auctioned to its corporate owners or, if they are not interested, to unrelated third parties.

Recycled Paper

The Group owns minority interests in several paper recyclers from whom recycled paper is purchased at market prices, this amounting to EUR 36.9 (EUR 20.2) million for the year.

Restructured Forest Assets and Wood Procurement

In July 2002 the Group transferred some 600 000 hectares (approximately 1.5 million acres) of forest land and related operations in Finland to a newly-formed subsidiary Tornator Oy. In December 2002 Tornator Oy was sold to Tornator Timberland Oy, in which the Group holding is 41% with the remaining 59% being held by Finnish institutional investors. One such investor with a 13.3% holding is Varma Mutual Pension Insurance Company, where Jukka Härmälä, Stora Enso’s CEO, is the vice chairman of the Supervisory Board and another board member, Paavo Pitkänen, was till recently the president, CEO, and a member of the Board. Stora Enso has longterm supply contracts with the Tornator Group for approximately 1.5 million cubic meters of wood annually at market prices and in 2004 purchases came to EUR 46.7 (EUR 44.9) million.

In March 2004 Stora Enso transferred some 1.5 million hectares (approximately 3.7 million acres) of forest land and related operations in Sweden to a newly-formed company Bergvik Skog AB, of which 43.3% was owned by the group and 5.0% by Korsnäs AB, a Swedish forest industry company controlled by the Kinnevik Group. The remaining 51.7% was sold to institutional investors as a result of which a gain of EUR 113.9 million was recorded. These investors include the Knut and Alice Wallenberg Foundation with a holding of 7.0%; however they also control 23.8 percent of the voting rights in Stora Enso. The Group has longterm supply contracts with Bergvik Skog AB under which it sells some 4.5 million cubic meters of wood annually at market prices; in 2004 purchases of 3.98 million cubic meters came to EUR 97.3 million with Group sales to Bergvik being EUR 25.4 million.

Stevedoring

The Group currently owns 34.3% of the shares of Steveco Oy, a Finnish company engaged in loading and unloading vessels, the other shareholders being UPM-Kymmene, Finnlines, Ahlström and Myllykoski Paper. Stevedoring services provided by Steveco are at market prices and, in 2004, amounted to EUR 21.9 (EUR 20.8) million.