As filed with the Securities and Exchange Commission on October 7, 2005



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SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549



FORM 20-F/A

(Amendment No. 1)



 ̈REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR

(g) OF THE
SECURITIES EXCHANGE ACT OF 1934



OR



x ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the year ended December 31, 2004



OR



 ̈TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES
EXCHANGE ACT OF 1934



OR



 ̈SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



Date of event requiring this shell company report



Commission File Number: 1-15112



STORA ENSO OYJ

(Exact name of Registrant as specified in its charter)



Stora Enso Corporation

(Translation of Registrants name into English)



The Republic of Finland

(Jurisdiction of incorporation or organization)



Kanavaranta 1

FI-00160 Helsinki

Finland

(Address
of principal executive offices)



Securities registered or
to be registered pursuant to Section 12(b) of the Act:



|                                                                                     |  |                                          
|------------------------------------------------------------------------------------ |  | -----------------------------------------
|Title of each class:                                                                 |  | Name of each exchange on which registered
|Series R Shares, nominal value 1.70 each, represented by American Depositary Shares |  | New York Stock Exchange, Inc             



Securities registered
or to be registered pursuant to Section 12(g) of the Act: None



Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None



Number of Series R shares, nominal value 1.70 each, outstanding on December 31, 2004: 658,194,876



Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorted period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



Yes x                        No ̈



Indicate
by check mark which financial statement item the registrant has elected to follow.





Item 17 ̈Item 18 x



If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



Yes ̈No  x



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TABLE OF CONTENTS



|                                      |  |                                                             |  |   
|------------------------------------- |  | ----------------------------------------------------------- |  | --
|Introduction                          |  | iii                                                        
|Presentation of Financial Information |  | iii                                                        
|Forward-Looking Statements            |  | iv                                                         
|                                      |  |                                                            
|PART I                                |  |                                                             |  |   
|                                      |  |                                                            
|Item 1.                               |  | Identity of Directors, Senior Management and Advisers.      |  | 1 
|Item 2.                               |  | Offer Statistics and Expected Timetable.                    |  | 1 
|Item 3.                               |  | Key Information.                                            |  | 1 
|                                      |  |                                                            
|                                      |  | Selected Financial Data                                     |  | 1 
|                                      |  | Exchange Rates                                              |  | 4 
|                                      |  | Risk Factors                                                |  | 6 
|                                      |  |                                                            
|Item 4.                               |  | Information on the Company.                                 |  | 10
|                                      |  |                                                            
|                                      |  | General                                                     |  | 10
|                                      |  | Strategy                                                    |  | 10
|                                      |  | Company History                                             |  | 11
|                                      |  | Principal Shareholders                                      |  | 12
|                                      |  | Corporate Structure                                         |  | 13
|                                      |  | Business Summary                                            |  | 14
|                                      |  | Paper                                                       |  | 15
|                                      |  | Packaging boards                                            |  | 23
|                                      |  | Forest products                                             |  | 25
|                                      |  | Seasonality                                                 |  | 30
|                                      |  | Raw Materials                                               |  | 30
|                                      |  | Marketing                                                   |  | 32
|                                      |  | Intellectual Property                                       |  | 32
|                                      |  | Transportation and Logistics                                |  | 32
|                                      |  | Environmental Matters                                       |  | 32
|                                      |  | Significant Subsidiaries                                    |  | 35
|                                      |  | Property, Plants and Equipment                              |  | 35
|                                      |  |                                                            
|Item 5.                               |  | Operating and Financial Review and Prospects.               |  | 39
|                                      |  |                                                            
|                                      |  | General                                                     |  | 39
|                                      |  | Industry Overview                                           |  | 39
|                                      |  | Outlook                                                     |  | 40
|                                      |  | Recent Developments                                         |  | 41
|                                      |  | Currency Fluctuations                                       |  | 46
|                                      |  | Critical Accounting Policies                                |  | 46
|                                      |  | New Accounting Standards                                    |  | 49
|                                      |  | Principal Differences between IFRS and U.S. GAAP            |  | 51
|                                      |  | Results of Operations                                       |  | 52
|                                      |  | Liquidity and Capital Resources                             |  | 57
|                                      |  | Off-Balance Sheet Arrangements                              |  | 58
|                                      |  | Research and Development                                    |  | 58
|                                      |  | Capital Expenditure                                         |  | 59
|                                      |  | Inflation                                                   |  | 60
|                                      |  |                                                            
|Item 6.                               |  | Directors, Senior Management and Employees.                 |  | 61
|                                      |  |                                                            
|                                      |  | Management of Stora Enso                                    |  | 61
|                                      |  | Corporate Governance                                        |  | 65
|                                      |  | Compensation of Directors and Executive Management Group    |  | 67
|                                      |  | Equity-Based Programs                                       |  | 68
|                                      |  | Share Ownership by Directors and Executive Management Group |  | 70
|                                      |  | Employment Agreements                                       |  | 70



i



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|          |  |                                                                                 |  |    
|--------- |  | ------------------------------------------------------------------------------- |  | ---
|          |  | Share Repurchases                                                               |  | 71 
|          |  | Home Country Practices                                                          |  | 71 
|          |  | Employees                                                                       |  | 72 
|          |  |                                                                                
|Item 7.   |  | Major Shareholders and Related Party Transactions.                              |  | 74 
|          |  |                                                                                
|          |  | Ownership of Stora Ensos Securities by Management and Significant Shareholders |  | 74 
|          |  | Changes in the Percentage of Ownership of Significant Shareholders              |  | 74 
|          |  | Ownership of Our Securities in the United States                                |  | 75 
|          |  | Related Party Transactions                                                      |  | 75 
|          |  |                                                                                
|Item 8.   |  | Financial Information.                                                          |  | 77 
|          |  |                                                                                
|          |  | Consolidated Financial Statements                                               |  | 77 
|          |  | Export Sales                                                                    |  | 77 
|          |  | Legal Proceedings                                                               |  | 77 
|          |  | Dividend Policy                                                                 |  | 79 
|          |  | Significant Changes                                                             |  | 80 
|          |  |                                                                                
|Item 9.   |  | The Offer and Listing.                                                          |  | 81 
|          |  |                                                                                
|          |  | Nature of Trading Markets                                                       |  | 81 
|          |  | Trading and Settlement on the Helsinki Stock Exchange                           |  | 82 
|          |  | Regulation of the Finnish Securities Market                                     |  | 83 
|          |  | The Finnish Book-Entry Securities System                                        |  | 84 
|          |  |                                                                                
|Item 10.  |  | Additional Information.                                                         |  | 86 
|          |  |                                                                                
|          |  | Memorandum and Articles of Association                                          |  | 86 
|          |  | Control of Foreign Ownership                                                    |  | 88 
|          |  | Exchange Controls                                                               |  | 88 
|          |  | Material Contracts                                                              |  | 88 
|          |  | Taxation                                                                        |  | 88 
|          |  | Finnish Taxation                                                                |  | 89 
|          |  | U.S. Federal Income Taxation                                                    |  | 90 
|          |  | Documents on Display                                                            |  | 93 
|          |  |                                                                                
|Item 11.  |  | Quantitative and Qualitative Disclosures About Market Risk.                     |  | 94 
|          |  |                                                                                
|          |  | Operational Risk                                                                |  | 94 
|          |  | Financial Risk Management                                                       |  | 94 
|          |  | Foreign Exchange Risk                                                           |  | 95 
|          |  | Funding and Interest Rate Risk                                                  |  | 96 
|          |  | Outstanding Foreign Exchange and Interest Rate Derivatives                      |  | 96 
|          |  | Market Risks of Total Return Swaps                                              |  | 97 
|          |  | Commodity and Energy Risk                                                       |  | 97 
|          |  | Equity Price Risk                                                               |  | 98 
|          |  |                                                                                
|Item 12.  |  | Description of Securities Other than Equity Securities.                         |  | 98 
|          |  |                                                                                
|PART II   |  |                                                                                 |  |    
|          |  |                                                                                
|Item 13.  |  | Defaults, Dividend Arrearages and Delinquencies.                                |  | 99 
|Item 14.  |  | Material Modifications to the Rights of Security Holders and Use of Proceeds.   |  | 99 
|Item 15.  |  | Controls and Procedures.                                                        |  | 99 
|Item 16.  |  | [Reserved]                                                                      |  | 99 
|Item 16A. |  | Audit Committee Financial Expert.                                               |  | 99 
|Item 16B. |  | Code of Ethics.                                                                 |  | 99 
|Item 16C. |  | Principal Accountant Fees and Services.                                         |  | 100
|Item 16D. |  | Exemptions from the Listing Standards for Audit Committees.                     |  | 100
|Item 16E. |  | Purchases of Equity Securities by the Issuer and Affiliated Purchasers.         |  | 101
|          |  |                                                                                
|PART III  |  |                                                                                 |  |    
|          |  |                                                                                
|Item 17.  |  | Financial Statements.                                                           |  | 102
|Item 18.  |  | Financial Statements.                                                           |  | 102
|Item 19.  |  | Exhibits.                                                                       |  | 102



ii



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Introduction



In this annual
report, the terms Company, we, us, and our refer to Stora Enso Oyj or Stora Enso Oyj and its subsidiaries, as the context may require. As used herein, the term Finnish State refers to the
Republic of Finland.



Presentation of Financial Information



We publish our consolidated financial statements in euro. As used in this annual report:



| |  |  | euro or  means the common currency of those member states of the European Union (EU) participating in the Economic and Monetary Union;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | U.S. dollar or $ means the lawful currency of the United States of America;
| | - |  | -------------------------------------------------------------------------------



| |  |  | Swedish krona, Swedish kronor or SEK means the lawful currency of the Kingdom of Sweden;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | British pound sterling or GBP means the lawful currency of the United Kingdom of Great Britain and Northern Ireland;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | Canadian dollar means the lawful currency of Canada; and
| | - |  | ----------------------------------------------------------



| |  |  | Chinese renminbi means the lawful currency of the Peoples Republic of China (China).
| | - |  | -----------------------------------------------------------------------------------------



Our consolidated financial statements are prepared in accordance with
International Financial Reporting Standards (IFRS), including International Accounting Standards (IAS) and interpretations issued by the International Accounting Standards Board, and include the financial statements of Stora
Enso Oyj and its subsidiaries.



IFRS varies in certain
significant respects from accounting principles generally accepted in the United States of America (U.S. GAAP). Information relating to the nature and effect of such differences is presented in note 31 to our consolidated financial
statements beginning on page F-1 of this annual report.



Amounts previously reported for our consolidated net income (loss) in accordance with U.S. GAAP differ from those amounts shown for the fiscal years ended December 31, 2002 and 2003 presented in this annual report. The amounts presented in
this annual report have been restated under U.S. GAAP to properly present the change in fair value of certain derivative financial instruments. In prior years, we inadvertantly recorded the income statement effect as the total fair value of the
derivative instrumentsnot the change in fair value. A discussion of the impact of the restatement on our consolidated net income (loss) in accordance with U.S. GAAP is included in note 31 to our consolidated financial statements beginning on
page F-1 of this annual report. This restatement did not affect our shareholders equity under U.S. GAAP. Our financial statements under IFRS did not change as a result of this restatement.



In this annual report, we are using operating profit excluding
non-recurring items and goodwill amortization as a non-GAAP measure for the operating performance of our respective product areas. Operating profit excluding non-recurring items and goodwill amortization for our respective product areas equals
operating profit before amortization of goodwill, before gains and losses from sale of shares and fixed assets, before write-downs and before restructuring expenses. Main non-recurring items for each of the years 2002, 2003 and 2004 are described
under Item 3. Key InformationSelected Financial Data. Such non-recurring items are included in the items not reflected in operating profit excluding non-recurring items and goodwill amortization. Management believes that, besides
operating profit, operating profit excluding non-recurring items and goodwill amortization is also a measure commonly reported and widely used by analysts, investors and other interested parties in the paper industry. Accordingly, operating profit
excluding non-recurring items and goodwill amortization is presented to enhance the understanding of our historical operating performance. Operating profit



iii



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excluding non-recurring items and goodwill amortization, however, should not be considered as an alternative to IFRS or U.S. GAAP measures of operating
profit as an indicator of our operating performance. Operating profit excluding non-recurring items and goodwill amortization is not a measure of operating performance under IFRS or U.S. GAAP and may not be comparable to other similarly titled
measures for other companies. Operating profit excluding non-recurring items and goodwill amortization is not meant to be predictive of potential future results.



Forward-looking Statements



This
annual report contains statements about our business that are not historical facts but, rather, are statements about future expectations, and may constitute forward-looking statements within the meaning of Section 27A of the U.S.
Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act). When used in this annual report, the words anticipates, believes,
expects, intends, should and similar expressions as they relate to our Company or our management are intended to identify forward-looking statements. Forward-looking statements in this annual report are based on
our managements current views and assumptions and may be influenced by factors that could cause actual results, performance or events to be materially different from those projected. These forward-looking statements are subject to numerous
risks and uncertainties. Important factors could cause actual results, performance or events to differ materially from those in the forward-looking statements, some of which are beyond our control. These factors include those described below under
Risk Factors and in documents that we file with the Securities and Exchange Commission (the SEC) from time to time, as well as:



| |  |  | the impact of general economic conditions in Europe, North America, Asia and in other regions in which we currently do business;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | industry conditions, including competition and fluctuation in prices of our products and the raw materials used to make them;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | operating factors, including continued success of manufacturing activities and the achievement of efficiencies therein, continued success of product development, acceptance of new
products or services by our targeted customers, and success of existing and future collaboration arrangements;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in business strategy or development plans or targets;
| | - |  | -------------------------------------------------------------



| |  |  | changes in the degree of protection created by our patents and other intellectual property rights;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | changes in laws and regulations, including monetary convergence and the further implementation of the EUs Economic and Monetary Union;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | fluctuation in interest and exchange rates; and
| | - |  | -----------------------------------------------



| |  |  | access to capital markets.
| | - |  | --------------------------



The actual results or performance of our business could differ materially from those expressed in, or implied by, these forward-looking statements.
Accordingly, we can give no assurances that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what impact they will have on our business, financial condition and results of operations. We
do not intend to assume any obligation to update these forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made.



iv



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PART I



Item 1.    Identity of Directors, Senior Management and Advisers.



Not applicable.



Item 2.    Offer Statistics and Expected Timetable.



Not applicable.



Item 3.    Key Information.



Selected Financial Data



The
following table presents selected consolidated financial information of Stora Enso. You should read this table together with Item 5. Operating and Financial Review and Prospects and our audited consolidated financial statements,
including the related notes, contained elsewhere in this annual report. The selected consolidated financial data presented below as of and for each of the last five fiscal years ended December 31, 2004 have been derived from our audited consolidated
financial statements for the relevant periods.



We report our
financial information in accordance with IFRS. The principal differences between IFRS and U.S. GAAP that are relevant to our consolidated financial statements are discussed in note 31 to our consolidated financial statements beginning on page F-1 of
this annual report.



Amounts previously reported for our
consolidated net income (loss) in accordance with U.S. GAAP differ from those amounts shown for the fiscal years ended December 31, 2002 and 2003. The amounts included in the U.S. GAAP income statement data below have been restated to properly
present the change in fair value of certain derivative financial instruments. In prior years, we inadvertantly recorded the income statement effect as the total fair value of the derivative instrumentsnot the change in fair value. A discussion
of the impact of the restatement on our consolidated net income (loss) in accordance with U.S. GAAP is included in note 31 to our consolidated financial statements beginning on page F-1 of this annual report. This restatement did not affect our
shareholders equity under U.S. GAAP. Our financial statements under IFRS did not change as a result of this restatement.



Solely for the convenience of the reader, the euro amounts for 2004 have been translated into U.S. dollars at the noon buying rate in New York City for
cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York (the Noon Buying Rate) on December 31, 2004 which was $1.00 = 0.7387.



1



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|                                                  |  |                                                    |   |  |         |   |  |         |      |  |         |     |  |         |   |  |         |  
|------------------------------------------------- |  | -------------------------------------------------- | - |  | ------- | - |  | ------- | ---- |  | ------- | --- |  | ------- | - |  | ------- | -
|                                                  |  | As of and for the year ended December 31,          |  
|                                                  |  | 2000                                               |   |  | 2001    |   |  | 2002    |      |  | 2003    |     |  | 2004    |   |  | 2004    |  
|                                                  |  |                                                   |   |  |        |   |  |        |      |  |        |     |  |        |   |  | $       |  
|                                                  |  | (in millions, except shares and per share amounts) |  
|INCOME STATEMENT DATA                             |  |                                                    |   |  |         |   |  |         |      |  |         |     |  |         |   |  |         |  
|IFRS                                              |  |                                                    |   |  |         |   |  |         |      |  |         |     |  |         |   |  |         |  
|Sales                                             |  | 13,017                                             |   |  | 13,509  |   |  | 12,783  |      |  | 12,172  |     |  | 12,396  |   |  | 16,781  |  
|Operating costs                                   |  | 9,394                                              |   |  | 9,926   |   |  | 9,716   |      |  | 9,673   |     |  | 9,686   |   |  | 13,112  |  
|Depreciation, amortization and impairment costs   |  | 1,129                                              |   |  | 1,268   |   |  | 2,442   |      |  | 1,200   |     |  | 1,172   |   |  | 1,587   |  
|Other operating expenses/(income)                 |  | 150                                                |   |  | 840     |   |  | 803     |      |  | 828     |     |  | 832     |   |  | 1,126   |  
|Operating profit (loss)(1)                        |  | 2,344                                              |   |  | 1,475   |   |  | (178    | )    |  | 471     |     |  | 706     |   |  | 956     |  
|Net financial items                               |  | (293                                               | ) |  | (344    | ) |  | (206    | )    |  | (237    | )   |  | (106    | ) |  | (144    | )
|Share of results of associated companies          |  | 20                                                 |   |  | 80      |   |  | 15      |      |  | (23     | )   |  | 39      |   |  | 53      |  
|Profit (loss) before tax and minority interest(1) |  | 2,071                                              |   |  | 1,211   |   |  | (369    | )    |  | 211     |     |  | 639     |   |  | 865     |  
|Income tax expenses                               |  | (642                                               | ) |  | (296    | ) |  | 128     |      |  | (67     | )   |  | 109     |   |  | 148     |  
|Profit (loss) after tax(1)                        |  | 1,429                                              |   |  | 915     |   |  | (241    | )    |  | 144     |     |  | 748     |   |  | 1,013   |  
|Minority interests                                |  | (14                                                | ) |  | 3       |   |  | 0       |      |  | (6      | )   |  | (8      | ) |  | (11     | )
|Net profit (loss) for the period(1)               |  | 1,415                                              |   |  | 918     |   |  | (241    | )    |  | 138     |     |  | 740     |   |  | 1,002   |  
|Basic earnings (loss) per share                   |  | 1.74                                               |   |  | 1.02    |   |  | (0.27   | )    |  | 0.16    |     |  | 0.89    |   |  | 1.20    |  
|Diluted earnings (loss) per share                 |  | 1.74                                               |   |  | 1.02    |   |  | (0.27   | )    |  | 0.16    |     |  | 0.89    |   |  | 1.20    |  
|U.S. GAAP                                         |  |                                                    |   |  |         |   |  |         |      |  |         |     |  |         |   |  |         |  
|Income (loss) from operations                     |  | 3,186                                              |   |  | 1,531   |   |  | (152    | )    |  | 581     |     |  | 464     |   |  | 628     |  
|Net income (loss) for the period                  |  | 2,155                                              |   |  | 875     |   |  | (335    | )(4) |  | 135     | (4) |  | 369     |   |  | 500     |  
|Basic earnings (loss) per share                   |  | 2.65                                               |   |  | 0.97    |   |  | (0.38   | )(4) |  | 0.16    | (4) |  | 0.44    |   |  | 0.60    |  
|Diluted earnings (loss) per share                 |  | 2.65                                               |   |  | 0.97    |   |  | (0.38   | )(4) |  | 0.16    | (4) |  | 0.44    |   |  | 0.60    |  
|                                                  |  |                                                    |   |  |         |  
|BALANCE SHEET DATA                                |  |                                                    |   |  |         |   |  |         |      |  |         |     |  |         |   |  |         |  
|IFRS                                              |  |                                                    |   |  |         |   |  |         |      |  |         |     |  |         |   |  |         |  
|Cash and cash equivalents                         |  | 744                                                |   |  | 247     |   |  | 169     |      |  | 202     |     |  | 274     |   |  | 371     |  
|Operating capital(2)                              |  | 16,423                                             |   |  | 15,960  |   |  | 13,100  |      |  | 13,548  |     |  | 12,170  |   |  | 16,475  |  
|Total assets                                      |  | 21,323                                             |   |  | 20,558  |   |  | 18,214  |      |  | 17,942  |     |  | 16,412  |   |  | 22,217  |  
|Total indebtedness                                |  | 6,856                                              |   |  | 6,410   |   |  | 5,176   |      |  | 5,174   |     |  | 4,028   |   |  | 5,453   |  
|Net indebtedness(3)                               |  | 5,183                                              |   |  | 4,820   |   |  | 3,055   |      |  | 3,919   |     |  | 3,051   |   |  | 4,130   |  
|Minority interests                                |  | 149                                                |   |  | 50      |   |  | 30      |      |  | 60      |     |  | 136     |   |  | 184     |  
|Share capital                                     |  | 1,576                                              |   |  | 1,542   |   |  | 1,530   |      |  | 1,469   |     |  | 1,423   |   |  | 1,926   |  
|Shareholders equity                              |  | 8,476                                              |   |  | 8,885   |   |  | 8,035   |      |  | 7,953   |     |  | 8,051   |   |  | 10,899  |  
|Long-term debt                                    |  | 5,515                                              |   |  | 5,182   |   |  | 4,525   |      |  | 3,405   |     |  | 3,328   |   |  | 4,505   |  
|U.S. GAAP                                         |  |                                                    |   |  |         |   |  |         |      |  |         |     |  |         |   |  |         |  
|Total assets                                      |  | 23,306                                             |   |  | 22,327  |   |  | 19,736  |      |  | 18,542  |     |  | 17,291  |   |  | 23,407  |  
|Shareholders equity                              |  | 10,026                                             |   |  | 10,283  |   |  | 9,185   |      |  | 8,364   |     |  | 8,140   |   |  | 11,021  |  
|                                                  |  |                                                    |   |  |         |  
|CASH FLOW DATA                                    |  |                                                    |   |  |         |   |  |         |      |  |         |     |  |         |   |  |         |  
|IFRS                                              |  |                                                    |   |  |         |   |  |         |      |  |         |     |  |         |   |  |         |  
|Net cash provided by operating activities         |  | 2,161                                              |   |  | 1,539   |   |  | 1,319   |      |  | 1,645   |     |  | 1,405   |   |  | 1,902   |  
|Net cash used in investing activities             |  | (2,911                                             | ) |  | (883    | ) |  | (257    | )    |  | (1,072  | )   |  | (1,335  | ) |  | (1,807  | )
|Net cash used in financing activities             |  | (853                                               | ) |  | (1,145  | ) |  | (1,127  | )    |  | (526    | )   |  | (11     | ) |  | (15     | )
|Dividends per share                               |  | 0.45                                               |   |  | 0.45    |   |  | 0.45    |      |  | 0.45    |     |  | 0.45    |   |  | 0.61    |  
|                                                  |  |                                                    |   |  |         |  
|OTHER FINANCIAL DATA                              |  |                                                    |   |  |         |   |  |         |      |  |         |     |  |         |   |  |         |  
|IFRS                                              |  |                                                    |   |  |         |   |  |         |      |  |         |     |  |         |   |  |         |  
|Capital expenditures                              |  | 769                                                |   |  | 857     |   |  | 878     |      |  | 1,248   |     |  | 975     |   |  | 1,320   |  
|Average number of shares outstanding (1,000)      |  | 812,040                                            |   |  | 901,506 |   |  | 889,606 |      |  | 851,128 |     |  | 829,936 |   |  | 829,936 |  



2



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|                                             |  |                                                                        |  |       |  |       |  |       |  |      
|-------------------------------------------- |  | ---------------------------------------------------------------------- |  | ----- |  | ----- |  | ----- |  | -----
|                                             |  | For the year ended December 31,                                       
|                                             |  | 2000                                                                   |  | 2001  |  | 2002  |  | 2003  |  | 2004 
|                                             |  | (deliveries in thousands of metrictons, except as otherwise indicated)
|SELECTED OPERATING DATA                      |  |                                                                        |  |       |  |       |  |       |  |      
|Publication paper                            |  | 6,403                                                                  |  | 6,902 |  | 6,807 |  | 6,954 |  | 7,398
|Fine paper                                   |  | 3,262                                                                  |  | 3,448 |  | 3,432 |  | 3,591 |  | 3,893
|Packaging board                              |  | 3,306                                                                  |  | 2,509 |  | 2,910 |  | 3,006 |  | 3,119
|Wood products (in thousands of cubic meters) |  | 4,880                                                                  |  | 4,860 |  | 5,112 |  | 5,822 |  | 6,664

---

|(1) |  | In measuring the performance of our business segments from period to period without variations caused by special or unusual items, we focus on operating profit (loss) by product
area, which excludes goodwill amortization and non-recurring items. Operating profit in the tables above includes net non-recurring items totaling 446 million in 2000, consisting mainly of capital gains from the sale of power assets and the
Stockholm office building, a surplus in the Swedish pension system, asset write-downs and closing costs related to mill closings, and a one-time increase in costs due to inventory fair valuation in the Consolidated Papers acquisition; (8)
million in 2001, consisting mainly of capital gains from the sale of the Düsseldorf office building and closing costs related to a mill closing, and a provision related to the disposal of Stora Carbonless Paper GmbH; (1,078) million in
2002, consisting mainly of a one-time impairment charge related to our North American assets and capital gains from the sale of shares of Billerud and forest land in Finland and the United States; (54.4) million in 2003, consisting mainly of
restructuring charges related to the cost reduction program in North America, a provision related to restructuring costs at the Corbehem Mill in France and a provision related to the expected capital loss on the sale of forest land in Ontario,
Canada and 369.7 million in 2004, consisting mainly of the gain on the restructuring of ownership of our Swedish forest land, a reversal of expenses already taken in respect of various U.S. retiree healthcare programs, a provision for the
future reduction of maintenance personnel in the United States and income relating to the change in our Finnish disability pension liabilities.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Operating capital represents the sum of fixed assets and other long-term investments (excluding investments in associated companies and in marketable equity securities, non-current
loan receivables, and deferred tax assets), inventories, short-term receivables, pension and other provisions, other long-term liabilities and other current liabilities.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Net indebtedness consists of net interest-bearing liabilities.
|--- |  | --------------------------------------------------------------

|(4) |  | Amount has been restated.
|--- |  | -------------------------



3



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Exchange Rates



We present our
financial statements in euro. A portion of our revenues and expenses are denominated in euro and a portion are denominated in currencies other than the euro. The first table below sets forth, for the periods and dates indicated, the average, high,
low and period-end Noon Buying Rates for the euro expressed in euro per U.S. dollar. The second table below sets forth, for the periods and dates indicated, the average, high, low and period-end Noon Buying Rates for the Swedish krona expressed in
Swedish kronor per U.S. dollar.



The average Noon Buying Rates
have been calculated based on the Noon Buying Rate for the last business day of each month or portion of a month during the relevant period. We are providing this information solely for the readers convenience. These are not necessarily the
rates we used in the preparation of the financial statements and we make no representation that euro or Swedish kronor could have been converted into U.S. dollars at the rates shown or at any other rate for such periods or at such dates.



Solely for the convenience of the reader, certain euro amounts in this
annual report have been translated into U.S. dollars at the Noon Buying Rate on December 31, 2004, which was $1.00= 0.7387.



|                      |  |                      |  |        |  |        |  |            
|--------------------- |  | -------------------- |  | ------ |  | ------ |  | -----------
|                      |  | Euro per U.S. Dollar
|Year                  |  | Average              |  | High   |  | Low    |  | Period- end
|2000                  |  | 1.0860               |  | 1.2090 |  | 0.9675 |  | 1.0650     
|2001                  |  | 1.1037               |  | 1.1947 |  | 1.0488 |  | 1.1235     
|2002                  |  | 1.0531               |  | 1.1636 |  | 0.9537 |  | 0.9537     
|2003                  |  | 0.8782               |  | 0.9652 |  | 0.7938 |  | 0.7938     
|2004                  |  | 0.8014               |  | 0.8474 |  | 0.7339 |  | 0.7711     
|2005(through April 5) |  | 0.7673               |  | 0.7829 |  | 0.7421 |  | 0.7787     



|                        |  |        |  |       
|----------------------- |  | ------ |  | ------
|Interim Periods         |  | High   |  | Low   
|2004                    |  |        |  |       
|October                 |  | 0.8149 |  | 0.7823
|November                |  | 0.7872 |  | 0.7526
|December                |  | 0.7562 |  | 0.7339
|2005                    |  |        |  |       
|January                 |  | 0.7720 |  | 0.7421
|February                |  | 0.7829 |  | 0.7534
|March                   |  | 0.7766 |  | 0.7427
|April (through April 5) |  | 0.7787 |  | 0.7754



4



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|                      |  |                                |  |         |  |        |  |            
|--------------------- |  | ------------------------------ |  | ------- |  | ------ |  | -----------
|                      |  | Swedish Kronor per U.S. Dollar
|Year                  |  | Average                        |  | High    |  | Low    |  | Period- end
|2000                  |  | 9.2250                         |  | 10.3600 |  | 8.3530 |  | 9.4440     
|2001                  |  | 10.4328                        |  | 10.8810 |  | 9.5227 |  | 10.4571    
|2002                  |  | 9.6571                         |  | 10.7290 |  | 8.6950 |  | 8.6950     
|2003                  |  | 8.0351                         |  | 8.7920  |  | 7.1950 |  | 7.1950     
|2004                  |  | 7.3320                         |  | 7.7727  |  | 6.5939 |  | 6.6687     
|2005(through April 5) |  | 7.0033                         |  | 7.1477  |  | 6.6855 |  | 7.1438     



|                        |  |        |  |       
|----------------------- |  | ------ |  | ------
|Interim Periods         |  | High   |  | Low   
|2004                    |  |        |  |       
|October                 |  | 7.3810 |  | 7.0723
|November                |  | 7.1406 |  | 6.7007
|December                |  | 6.8043 |  | 6.5939
|2005                    |  |        |  |       
|January                 |  | 7.0069 |  | 6.6855
|February                |  | 7.1114 |  | 6.8275
|March                   |  | 7.7312 |  | 7.0716
|April (through April 5) |  | 7.1477 |  | 7.1093



5



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Risk Factors



Intense
competition in the paper and forest products industry may negatively impact our profitability and require us to make significant capital expenditures.



The paper and forest products industries in which we operate are mature and highly competitive. We have from time to time experienced pricing pressure
from competitors in many of our product lines and geographic markets. We compete principally with a number of large international paper and forest product companies, as well as numerous regional and more specialized competitors. This competitive
environment has been a principal factor behind the large fluctuations in profitability we have experienced in recent years. In addition, competitive pressures have required us to make significant investments in our manufacturing facilities and in
product development. There can be no assurance that we will have sufficient resources to maintain similar levels of capital investment in the future. For a discussion of the various factors that cause fluctuations in profitability, see Item 5.
Operating and Financial Review and ProspectsIndustry Overview.



Product prices and raw material costs in our industry are cyclical. A period of low product prices or high raw material costs could negatively affect our profitability.



Prices for our products are affected by changes in capacity and production
and by demand for our products, which is influenced by general economic conditions and inventory levels maintained by our customers. Changes in these factors have resulted in significant fluctuations in the prices for our products.



The timing and the magnitude of changes in our product prices have varied
significantly over time and have been unpredictable. Changes in prices differ between products and geographic regions. While we are a significant participant in most of the markets in which we compete, our actions have only limited influence on
changes in our product prices.



Our largest raw material costs
are for recycled fiber and pulpwood. A significant increase in prices for these raw materials would significantly increase our production costs and could have a material adverse effect on our business, financial condition or results of operations if
we were unable to increase our product prices sufficiently to maintain margins.



As a result of unpredictable and substantial changes in our product prices and raw material costs, our financial results have varied significantly over time. In a period of sustained low product prices or high raw
material costs, it may be possible that we are unable to operate our production facilities in a cost-effective manner, pursue our strategic initiatives and meet all of our financial obligations.



Changes in consumer preferences may have an adverse effect on demand for
our products and our profitability.



Changes in consumer
preferences have affected the demand for paper and board in general, and demand for specific grades of paper and board. Some of the most significant changes in consumer preferences include the increase in direct-mail advertising, increasing interest
in environmentally-friendly products, increased use of e-mail and electronic media and increased use of personal computer printers.



Our ability to meet shifts in consumer demand will depend upon our ability to correctly anticipate changes in consumer preferences and our ability to
develop and produce new products on a competitive and economic basis. There can be no assurances that we will be able to meet changes in consumer preferences in the future, which could have a material effect on our business, financial condition or
results of operations and our ability to meet our obligations.



We could encounter difficulty in financing the significant capital investments, including future acquisitions, that may be necessary to achieve our growth plans.



Our growth plans may require significant capital investments, particularly in relation to any major acquisitions that we may
undertake in the future. Our ability to meet these capital requirements depends on



6



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numerous factors such as the availability of funds from operations and access to additional debt and equity financing. No assurance can be given that the
necessary funds will be available. Moreover, incurrence of additional debt financing would increase the size of the debt payments we must make and could involve the imposition of restrictive covenants that could negatively impact our ability to
operate in the desired manner. The failure to obtain funds necessary for the realization of our growth plans could prevent us from realizing our growth strategy and, in particular, could force us to forego acquisition opportunities that may arise in
the future. This could, in turn, have a negative impact on our competitive position.



The failure to make successful acquisitions or mergers in accordance with our growth strategy could have a negative impact on our competitiveness. Additional acquisitions may also expose us to new liabilities.



The forest products industry has experienced
consolidation driven in part by a desire to achieve economies of scale and synergies. As part of our strategy, we will seek further growth through acquisitions of, or mergers with, other paper and/or forest products companies to stay competitive
with our increasingly larger competitors or to enhance our position in our core areas of operation. This strategy entails risks that could negatively impact our business, financial condition or results of operations. These risks include unidentified
liabilities of the companies we may acquire or merge with, the possible inability to successfully integrate and manage acquired operations and personnel, the potential failure to achieve the economies of scale or synergies sought and the diversion
of managements attention away from other ongoing business concerns. In addition, we may not be able to identify attractive acquisition or merger opportunities and might not be able to make acquisitions or mergers on attractive terms.
Regulation of merger and acquisition activity by the EU or the United States might also limit our ability to make future acquisitions or mergers. We might also be required to record significant impairment related to goodwill or other intangible
assets in connection with possible future acquisitions.



If
we are unable to continue importing wood from Russia and the Baltic countries, we may be forced to pay higher prices for this key raw material or alter our manufacturing operations.



In 2004, we depended on suppliers in Russia and the Baltic countries (Estonia, Latvia and Lithuania) for approximately
one-fifth of our annual wood requirements in Finland and Sweden. As a result of economic, political, legal or other difficulties or restrictions as well as further development of a domestic forest product industry in these countries and the
resulting growth in domestic raw material needs, our supply of raw materials from Russia and the Baltic countries may be interrupted or limited. In case of a significant interruption or limitation in the supply of raw materials from these areas, we
would seek to obtain raw materials from other sources, but there can be no assurance that we would be able to do so without an adverse impact on our manufacturing operations, such as an interruption or downscaling of production or change in the
product mix, or increased costs. This could, in turn, have a material adverse effect on our business, financial condition or results of operations.



Exchange rate fluctuations may have a significant adverse impact on our financial results.



As a result of the global nature of our business, changes in foreign
currency exchange rates could have an adverse effect upon our business, financial condition and results of operations. Currency fluctuations affect us because the majority of our operating costs are denominated in euro and U.S. dollars, while a
proportionately larger share of our sales are denominated in certain other currencies, including British pounds sterling. In addition, the proportion of our operating costs denominated in Swedish kronor is substantially higher than the proportion of
our sales that is denominated in Swedish kronor.



Our reported
earnings may be affected by fluctuations between the euro, which is our accounting currency, and the non-euro currencies in which our various subsidiaries report their results of operations. In addition, appreciation of the euro compared with the
U.S. dollar would reduce the competitiveness of the products we produce in Europe against imports from the United States, leading to lower sales and earnings. Furthermore, the euro value of our sales and earnings in U.S. dollars would be further
reduced if the euro continued to appreciate against the dollar. As a result, currency exchange rate fluctuations between the euro and other currencies, such as the British pound sterling or U.S. dollar, could have a material adverse effect on our
business, financial condition or results of operations.



7



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We may face high costs for compliance with and clean-up under environmental laws and regulations,
which would reduce profit margins and earnings.



We are
subject to various environmental laws and regulations in the jurisdictions in which we operate, governing, among other things, wood procurement, use of recycled material and different forms of production discharges and emissions. We have been the
subject of a variety of complaints relating to, among other things, odors emitted from our mills, soil contamination, high levels of organic matter and mercury near our mills, and the failure of some of our mills to execute their environmental
plans. The risk of substantial environmental costs and liabilities is inherent in industrial operations, including the forest products industry, and there can be no assurance that we will not incur significant costs and liabilities in the future or
that the adoption of increasingly strict environmental laws, regulations and enforcement policies will not result in substantially increased costs and liabilities in the future. Higher regulatory, environmental and similar costs would reduce our
profit margins and earnings.



The value of our investments
in countries outside of Western Europe and North America may be adversely affected by political, economic and legal developments in these countries.



We have operations in countries outside of Western Europe and North America, including Brazil, Poland, Russia, Thailand and China. The political, economic
and legal systems in these countries are less predictable than in countries with more developed institutional structures. Political or economic upheaval, changes in laws and other factors could have a material adverse effect upon our operations in
these countries and, in turn, the amount of income from, and the value of, the investments we have made in relation to our operations in such countries. The more significant risks of operating in emerging market countries arise from the
establishment or enforcement of foreign exchange restrictions, which could effectively prevent us from receiving profits from, or from selling our investments in, these countries. While none of the countries in which our operations are located
currently have foreign exchange controls that have a significant effect on us, most of these countries have imposed foreign exchange controls in the recent past, and no assurance can be given that these countries will not reinstitute these controls
in the future.



We rely on outside suppliers for the
majority of our electricity needs and are therefore susceptible to increases in electricity prices and electricity shortages.



Electricity is one of the most significant components of our production costs. Historically, electricity has represented approximately 7 percent of our
production costs. In the past, we met almost all of our electricity needs in Finland and Sweden from our own internal production. In 2004, we relied on outside suppliers for approximately 49 percent of our electricity needs in Finland and Sweden.
Also in 2004, we relied on outside suppliers for approximately 75 percent of our electricity needs in North America. As a result of this dependence on outside suppliers, increases in the price of electricity could have a material adverse effect on
our business, financial condition or results of operations if we are not able to increase the prices of our products accordingly. In addition, an electricity shortage could force us to curtail production.



A few significant shareholders may influence or control the direction of
our business.



The Finnish State controls approximately
24.6 percent and the Knut and Alice Wallenberg Foundation, a Swedish foundation, controls approximately 24.1 percent of our voting rights as of the date of this annual report. Accordingly, the Finnish State and the Knut and Alice Wallenberg
Foundation have significant power to influence matters submitted to a vote of shareholders, such as the approval of the annual financial statements, declarations of annual reserves and dividends, capital increases, amendments to our articles of
association and the election of the members of our board of directors. To the extent matters presented to our shareholders require approval of a particular percentage of shares represented at a meeting of shareholders or of a super majority of
outstanding shares, these investors may be able to significantly influence the outcome of the vote. For a description of significant holdings, see Item 7. Major Shareholders and Related Party TransactionsOwnership of Stora Ensos
Securities by Management and Significant Shareholders.



8



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A significant portion of our employees are members of labor unions and we may face labor disruptions
that could interfere with our operations and have a material adverse effect on our business, financial condition and results of operations.



We are subject to the risk of labor disputes and adverse employee relations, and these disputes and adverse relations could disrupt our business
operations and adversely affect our business, financial condition and results of operations. The majority of our employees are represented by labor unions under several collective bargaining agreements in different countries where we operate.
However, not all of our employees represented by labor unions are currently bound by valid collective bargaining agreements. In addition, organizations collectively representing us and other employers in our industry may not be able to renegotiate
satisfactory collective labor agreements when they expire. Furthermore, the existing collective bargaining agreements may not prevent a strike or work stoppage at any of our facilities in the future, and any such work stoppage could have a material
adverse effect on our business, financial condition and results of operations has experienced work stoppages in the past. Although we have not had any material problems in the past with the labor unions or collective bargaining agreements, there can
be no assurance that there will not be labor disputes and/or adverse employee relations in the future.



We are a subject of antitrust proceedings of the European and U.S. competition authorities and class-action lawsuits in the United States concerning
alleged anticompetitive conduct.



In May 2004, we became a
subject of inspections carried out by the European Commission and the Finnish Competition Authority at certain locations in Europe and received subpoenas issued by the U.S. Department of Justice as part of preliminary antitrust investigations into
the paper industry in Europe and the United States. The investigations by the authorities in both Europe and the United States are at a fact-finding stage only and no formal allegations have been made against us or any of our employees.



Subsequent to the commencement of these
antitrust investigations in May 2004, we and certain of our subsidiaries have been named, along with other producers of paper and forestry products, as defendants in a number of class-action lawsuits brought in U.S. federal and state courts by
direct and indirect purchasers of publication paper. They allege, generally, that the defendants have agreed to fix, increase or maintain the price of publication paper in the United States. They seek unspecified treble damages and, in some cases,
restitution for the alleged overcharges resulting from the alleged violations, including interest and legal costs. There can be no assurances that we will prevail in our efforts to defend against these claims. We do not carry liability insurance
which would cover any adverse judgments or losses resulting from these lawsuits.



No provision has been made with respect to these antitrust investigations by the European and U.S. competition authorities and class-action lawsuits in U.S. federal and state courts. There can be no assurances that
such investigations or lawsuits, if determined adversely to us, would not have a material adverse effect on our business, results of operations and financial condition.



9



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Item 4.    Information on the Company.



General



Stora Enso Oyj is the
largest paper and board manufacturer in Europe and the largest paper and board manufacturer in the world based on production capacity, with 16.4 million metric tons of annual paper and board production capacity and leading market positions in many
of our core businesses. Domiciled and incorporated under the laws of the Republic of Finland, we have production facilities in 20 countries on three continents. Our core product areas are paper, packaging boards and forest products. The principal
markets for our products are Western Europe and North America. We distribute our products through our own global marketing network, which has an established presence on six continents with more than 30 sales companies and a number of independent
agents.



As of December 31, 2004, we had total assets of
approximately 16.4 billion ($22.2 billion) and had approximately 45,300 employees. In 2004, we had sales of approximately 12.4 billion ($16.8 billion), approximately 44 percent of which were outside Finland and Sweden.



We were created through the 1998 merger of the Swedish company Stora
Kopparbergs Bergslags Aktiebolag (publ) (STORA) and the Finnish company Enso Oyj (Enso), which established us as a leader in the global forest products industry. Since then, our management team has concentrated on integrating
the two companies and has significantly reduced operating costs and improved the combined companys financial performance. This has been accomplished by focusing on our core businesses, divesting non-core businesses, improving operating
efficiencies and reducing administrative costs.



On August 31,
2000, we greatly expanded our company and entered the U.S. market through the acquisition of Consolidated Papers, a leading U.S. producer of magazine and fine paper. The acquisition significantly increased our presence in the important North
American market, thereby enhancing our global diversification. The total consideration for the acquisition (including assumed debt) was approximately $4.5 billion. Consolidated Papers had sales of $1.8 billion in 1999.



Historically, we have satisfied a significant portion of our raw material
needs internally from our own forest lands. However, after the divestments of our forest lands in Finland in 2002 and in Sweden and Canada in 2004, we currently have long-term wood procurement arrangements relating to those forest lands. The
principal raw material required in the manufacture of paper and board products is pulp, which is produced from wood cut for that purpose and from sawmill residues as well as from recycled fiber. Our purchases and sales of pulp on the market are
largely in balance and we are able to satisfy a substantial portion of our pulp needs internally. A limited portion of the pulp we produce is made with wood from our own forest lands. In addition to pulp, the manufacture of paper and board products
requires significant amounts of energy. We have our own power plants at certain of our mills. These power plants supply approximately 52 percent of our electricity needs in Finland and Sweden.



Stora Enso Oyj is a stock corporation incorporated under the laws of the
Republic of Finland. Stora Enso Oyjs registered office is located at Kanavaranta 1, FI-00160, Helsinki, Finland; telephone +358 20 46 131. Our agent for U.S. federal securities law purposes is Stora Enso North America Inc., located at 1209
Orange Street, Wilmington, New Castle County, Delaware 19801, the United States of America.



Strategy



We operate and we are
managed as a single industrial group. Our core products are graphic and office papers, newsprint, packaging boards and wood products.



Our strategic goal is to increase the value of our company through profitable growth generated by targeted capital expenditure, mergers and acquisitions,
world-class facilities, continuous performance improvement and excellent management resources.



10



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We strive to be a sustainable forest products company renowned for operational excellence and superior
performance. We believe that the key to achieving this is enhanced competence and know-how supported by commitment to shared values.



We aim at being our customers first choice by providing services that support our customers product development and enhance their value
creation. We also intend to continue our product development to improve existing products and production processes and to develop new products.



Our target for return on capital employed is 13 percent per annum as an average over the cycle, compared to the weighted average pre-tax cost of capital
of 8.7 percent for the year 2004. Our target for the debt to equity ratio is to keep a level at or below 0.8. For the capital expenditures our target is that the cash flow should exceed average capital expenditure and dividend calculated on a
three-year rolling basis.



Fiber strategy amended to reduce
costs



Our fiber strategy seeks to secure high-quality,
cost-competitive raw materials from socially and environmentally sustainable sources. Our aim is to reduce raw material costs, which currently account for approximately 19 percent of our costs.



Our main raw materials are wood, recovered paper and purchased pulp. The most
important elements of our fiber strategy are own production of pulp and wood products and sourcing of wood from mainly external suppliers. We seek to ensure the availability of different types of fiber from multiple sources through our fiber
sourcing and pulping operations.



Disciplined acquisition
policy supports core business development



We have adopted
a disciplined acquisition policy. According to this policy, each merger or acquisition must support core business development, provide customer and production synergies, and be in line with the market outlook.



We have identified three ways of increasing our assets: expansion in our
existing core products in existing markets such as Europe and the United States; expansion in our existing core products into new markets such as Russia, South America and Asia; and expansion into new branches of the forest products industry or
related business segments in existing markets.



According to
our acquisition policy, each expansion must meet the financial targets of being earnings per share and cash earnings per share accretive after one year following the acquisition. In the near-term, each expansion must yield more than our weighted
average cost of capital and, in the long-term, clearly support our target for return on capital employed of 13 percent per annum over the cycle.



Company History



STORA



STORAs history dates back one thousand years to the time when copper
mining started in Falun, Sweden. In its early years, STORAs principal businesses were copper mining and steel production. STORA commenced activities in the forest products industry in the late nineteenth century with the 1885 acquisition of
the Skutskär sawmill, which was at the time the largest sawmill in the world. The business operations of STORA were incorporated in 1888 and its shares were initially listed on the Stockholm Stock Exchange in 1901. In the early 1900s, STORA
built a paper and pulp mill with an annual production capacity of 30,000 metric tons in Kvarnsveden, Sweden. Production at STORAs Swedish paper mills increased gradually during the period from the 1920s through the 1940s, as it built new paper
machines and developed new production technologies, including the bleaching of pulp and technologies enabling faster paper machines.



11



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In 1962, STORA began expanding outside Sweden by building a pulp mill in Nova Scotia, Canada. In 1966,
STORA acquired a majority of the shares of Grycksbo Pappersbruk AB, the largest fine paper mill in Sweden. In the late 1970s, the global economy went through a deep recession, which had a serious effect on the forest products and metal industries.
In response, STORA restructured its operations, selling its steel operations to SSAB Oxelösund AB, a newly established Swedish steel company, and focusing entirely on its forest products operations. In the 1980s and 1990s, STORA actively
participated in the consolidation of the forest products industry by acquiring several forest products companies and units including Billerud, a Swedish paper and board manufacturer, in 1984; Papyrus and Kopparfors, each, a Swedish paper
manufacturer, in 1987; and Feldmühle Nobel, a German industrial group with paper and board operations, in 1990. Through these acquisitions, STORA also acquired significant non-forest products industry operations, most of which were divested
prior to the merger with Enso.



Enso



Enso started operations in the 1870s when Hans Gutzeit, a Norwegian
entrepreneur, opened a sawmilling company in southern Finland with the support of Norwegian investors. The business was incorporated in 1896. In the early 1900s, Enso expanded the sawmilling business by opening a pulp mill to use sawdust and waste
wood generated by the sawmilling. Enso also began to acquire forest lands and, in 1907, purchased its first paper mill. In 1916, Enso became the first company listed on the Helsinki Stock Exchange. In 1918, a group of Norwegian investors sold 61
percent of Ensos outstanding share capital to the Finnish State. During the 1930s, Enso acquired several forest products companies and built new facilities. By the end of the 1930s, Enso had become the third largest pulp producer in Europe.
Ensos operations suffered considerably as a result of World War II but, in the late 1940s and early 1950s, it invested heavily in new pulp mills and paper machines.



In the 1960s, Enso began to expand outside Finland and participated, from the early 1970s to 1993, in a paper and pulp
production joint venture in British Columbia, Canada. In 1994, Enso started production in Sachsen, Germany, with the construction of a paper mill which produces newsprint using 100 percent recycled fiber as its fiber raw material. In the 1980s and
1990s, Enso was active in the consolidation of the forest products industry, acquiring several forest products companies and units including the fine paper operations of the Ahlstrom Varkaus Mills in Finland in 1987; the Berghuizer fine paper mill
in the Netherlands in 1989/1994; Tampella Forest Oys newsprint, publication papers and packaging boards businesses in 1993; Veitsiluoto, a Finnish forest products company, in 1996; and E. Holtzmann & Cie, a German producer of newsprint and
supercalendered paper, in 1997. Throughout its history, Enso has been involved in various businesses outside of the forest products industry, including the shipping, engineering and chemicals industries, but had divested substantially all of its
interests in these non-core industries prior to the merger with STORA.



Creation of Stora Enso



Stora Enso was created
through the 1998 merger of STORA and Enso. In the merger, Ensos name was changed to Stora Enso and the shares of STORA were exchanged for shares of Stora Enso.



Acquisition of Consolidated Papers



On August 31, 2000, we greatly expanded our company and entered the U.S. market through the acquisition of Consolidated Papers. Consolidated Papers was
incorporated in Wisconsin in 1894 and operates throughout North America with a principal focus on magazine and coated fine paper.



Principal Shareholders



The
Finnish State controls approximately 24.6 percent and the Knut and Alice Wallenberg Foundation, a Swedish foundation, controls approximately 24.1 percent of Stora Ensos voting rights as of the date of this annual report. Accordingly, the
Finnish State and the Knut and Alice Wallenberg Foundation have significant power to influence matters submitted to a vote of our shareholders. See Item 3. Key InformationRisk FactorsA few significant shareholders may influence or
control the direction of our business and Item 7. Major Shareholders and Related Party TransactionsOwnership of Stora Ensos Securities by Management and Significant Shareholders.



12



---

Corporate Structure



We organize
our businesses into three core product areas, which are paper, packaging boards and forest products. The following chart illustrates the principal products of our core product areas and the principal uses for these products:



LOGO



In May 2003, our core product areas
were reorganized to include three global product areas: paper, packaging boards and forest products. The paper product area operates through the publication papers, fine paper and merchants divisions. The old newsprint and magazine paper product
areas were merged to form the publication papers division. Speciality papers product unit, which was part of the packaging boards product area, forms a business area within the fine paper division. The packaging boards product area comprises of the
consumer boards, corrugated packaging boards, industrial papers and cores and coreboards divisions. The forest products product area comprises of our wood products and wood procurement operations and the pulp competence center. All information in
this annual report for the years 2002 and 2003 has been reclassified to reflect our current organizational structure.



13



---

Our organizational structure will change as from May 1, 2005. See Recent DevelopmentsNew
Organizational Structure.



In terms of production
capacity, we are the worlds second largest producer of magazine paper, third largest producer of newsprint, third largest producer of graphic (coated) fine paper, sixth largest producer of office (uncoated) fine paper, largest producer of
speciality papers, seventh largest paper merchant in Europe, one of the worlds leading producers of consumer packaging boards and the worlds second largest producer of sawn softwood.



Business Summary



In measuring
the performance of our business segments from period to period without variations caused by special or unusual items, we focus on operating profit (loss) by product area, which excludes goodwill amortization and non-recurring items. The following
tables present our annual sales and operating profit by product area for the years indicated:



Sales by product area



|                                                   |  |                                 |   |  |          |   |  |          |  
|-------------------------------------------------- |  | ------------------------------- | - |  | -------- | - |  | -------- | -
|                                                   |  | For the year ended December 31, |  
|                                                   |  | 2002                            |   |  | 2003     |   |  | 2004     |  
|                                                   |  | ( in millions)                 |  
|Paper                                              |  |                                 |   |  |          |   |  |          |  
|Publication paper                                  |  | 4,715.6                         |   |  | 4,295.7  |   |  | 4,343.3  |  
|Fine paper                                         |  | 3,427.4                         |   |  | 3,197.7  |   |  | 3,173.1  |  
|Merchants                                          |  | 720.6                           |   |  | 627.6    |   |  | 637.9    |  
|Packaging boards                                   |  | 2,720.2                         |   |  | 2,761.6  |   |  | 2,771.5  |  
|Forest products                                    |  |                                 |   |  |          |   |  |          |  
|Wood products                                      |  | 1,235.2                         |   |  | 1,400.0  |   |  | 1,566.8  |  
|Wood supply Europe                                 |  | 1,958.7                         |   |  | 2,074.3  |   |  | 2,481.6  |  
|Elimination of internal sales; other operations(1) |  | (1,995.1                        | ) |  | (2,184.6 | ) |  | (2,578.4 | )
|                                                   |  |                                 |   |  |          |   |  |          |  
|Total                                              |  | 12,782.6                        |   |  | 12,172.3 |   |  | 12,395.8 |  
|                                                   |  |                                 |   |  |          |   |  |          |  

---

|(1) |  | Other operations include the results of units that are not within our product areas, such as separate transportation and sales and distribution companies.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



Operating profit (loss) by product area



|                               |  |                                 |   |  |          |   |  |       |   |  |        |   |  |       |   |  |       |  
|------------------------------ |  | ------------------------------- | - |  | -------- | - |  | ----- | - |  | ------ | - |  | ----- | - |  | ----- | -
|                               |  | For the year ended December 31, |  
|                               |  | 2002                            |   |  | 2003     |   |  | 2004  |  
|                               |  | ( in millions)                 |  
|                               |  |                                 |   |  | (1)      |   |  |       |   |  | (1)    |   |  |       |   |  | (1)   |  
|Paper                          |  |                                 |   |  |          |   |  |       |   |  |        |   |  |       |   |  |       |  
|Publication paper              |  | (762.7                          | ) |  | 313.6    |   |  | 47.2  |   |  | 111.1  |   |  | 144.5 |   |  | 91.3  |  
|Fine paper                     |  | 67.9                            |   |  | 298.3    |   |  | 100.1 |   |  | 153.5  |   |  | 104.0 |   |  | 64.3  |  
|Merchants                      |  | (24.7                           | ) |  | 5.4      |   |  | (8.9  | ) |  | (6.7   | ) |  | 9.9   |   |  | 11.2  |  
|Packaging boards               |  | 332.3                           |   |  | 345.3    |   |  | 280.5 |   |  | 292.4  |   |  | 339.7 |   |  | 277.6 |  
|Forest products                |  |                                 |   |  |          |   |  |       |   |  |        |   |  |       |   |  |       |  
|Wood products                  |  | 30.1                            |   |  | 44.5     |   |  | 6.5   |   |  | 26.5   |   |  | 29.8  |   |  | 34.7  |  
|Wood supply Europe             |  | 120.5                           |   |  | 94.6     |   |  | 116.5 |   |  | 116.5  |   |  | 158.6 |   |  | 32.3  |  
|Other(2)                       |  | 58.9                            |   |  | (52.5    | ) |  | (70.5 | ) |  | (51.5  | ) |  | (80.4 | ) |  | (84.7 | )
|                               |  |                                 |   |  |          |   |  |       |   |  |        |   |  |       |   |  |       |  
|Operating profit (loss), total |  | (177.7                          | ) |  | 1,049.2  |   |  | 471.4 |   |  | 641.8  |   |  | 706.1 |   |  | 426.7 |  
|Goodwill amortization          |  |                                |   |  | (148.8   | ) |  |      |   |  | (116.0 | ) |  |      |   |  | (90.3 | )
|Non-recurring items(3)         |  |                                |   |  | (1,078.1 | ) |  |      |   |  | (54.4  | ) |  |      |   |  | 369.7 |  
|                               |  |                                 |   |  |          |   |  |       |   |  |        |   |  |       |   |  |       |  
|Operating profit (loss), total |  | (177.7                          | ) |  | (177.7   | ) |  | 471.4 |   |  | 471.4  |   |  | 706.1 |   |  | 706.1 |  
|                               |  |                                 |   |  |          |   |  |       |   |  |        |   |  |       |   |  |       |  

---

|(1) |  | The operating profit (loss) presented by product area excludes goodwill amortization and non-recurring items.
|--- |  | -------------------------------------------------------------------------------------------------------------

|(2) |  | Includes non-allocated corporate overhead items and elimination of group internal margin in consolidation.
|--- |  | ----------------------------------------------------------------------------------------------------------



14



---

|(3) |  | The non-recurring items for 2002 consist mainly of a one-time impairment charge related to our North American assets and capital gains from the sale of shares of Billerud and forest
land in Finland and in the United States. The non-recurring items for 2003 consist mainly of restructuring charges related to the cost reduction program in North America, a provision related to restructuring costs at the Corbehem Mill in France and
a provision related to the expected capital loss on the sale of forest land in Ontario, Canada. The non-recurring items for 2004 consist mainly of the gain on the restructuring of ownership of our Swedish forest land, a reversal of expenses already
taken in respect of various U.S. retiree healthcare programs, a provision for the future reduction of maintenance personnel in the United States and income relating to the change in our Finnish disability pension liabilities.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following table presents our annual external
sales in various geographic markets by destination and origin for the years indicated:



|                                   |  |                                 |  |                                 |  |          |  |          |  |          |  |         
|---------------------------------- |  | ------------------------------- |  | ------------------------------- |  | -------- |  | -------- |  | -------- |  | --------
|                                   |  | Sales by destination            |  | Sales by origin                
|                                   |  | For the year ended December 31, |  | For the year ended December 31,
|                                   |  | 2002                            |  | 2003                            |  | 2004     |  | 2002     |  | 2003     |  | 2004    
|                                   |  | ( in millions)                
|Austria                            |  | 195.4                           |  | 222.0                           |  | 238.6    |  | 266.9    |  | 324.8    |  | 390.4   
|Baltic States                      |  | 28.3                            |  | 89.3                            |  | 135.5    |  | 163.6    |  | 280.1    |  | 310.7   
|Belgium                            |  | 301.3                           |  | 267.2                           |  | 258.4    |  | 244.3    |  | 182.7    |  | 263.4   
|Czech Republic                     |  | 121.7                           |  | 118.9                           |  | 111.1    |  | 129.3    |  | 136.5    |  | 143.8   
|Denmark                            |  | 297.9                           |  | 276.1                           |  | 262.2    |  | 79.0     |  | 68.6     |  | 66.8    
|Finland                            |  | 780.6                           |  | 786.9                           |  | 808.5    |  | 4,205.5  |  | 4,048.9  |  | 4,085.5 
|France                             |  | 965.5                           |  | 862.7                           |  | 835.2    |  | 432.6    |  | 378.6    |  | 347.1   
|Germany                            |  | 1,673.6                         |  | 1,616.1                         |  | 1,624.6  |  | 1,505.1  |  | 1,475.6  |  | 1,500.9 
|Italy                              |  | 391.5                           |  | 380.7                           |  | 369.1    |  | 0.1      |  | 0.1      |  | 0.1     
|The Netherlands                    |  | 488.4                           |  | 491.9                           |  | 508.8    |  | 209.2    |  | 187.7    |  | 211.2   
|Portugal                           |  | 60.9                            |  | 64.9                            |  | 83.2     |  | 128.0    |  | 124.9    |  | 131.1   
|Spain                              |  | 463.4                           |  | 499.4                           |  | 488.8    |  | 114.4    |  | 118.0    |  | 114.0   
|Sweden                             |  | 1,034.2                         |  | 994.4                           |  | 1,040.5  |  | 2,870.1  |  | 2,814.1  |  | 2,820.3 
|United Kingdom                     |  | 1,053.4                         |  | 979.3                           |  | 963.8    |  | 59.1     |  | 23.4     |  | 24.4    
|Russia                             |  | 112.8                           |  | 130.7                           |  | 151.8    |  | 45.3     |  | 59.8     |  | 118.3   
|Other Europe                       |  | 916.0                           |  | 762.8                           |  | 777.4    |  | 78.7     |  | 71.8     |  | 66.9    
|                                   |  |                                 |  |                                 |  |          |  |          |  |          |  |         
|Total Europe                       |  | 8,884.9                         |  | 8,543.3                         |  | 8,657.5  |  | 10,531.2 |  | 10,295.6 |  | 10,594.9
|Africa                             |  | 118.2                           |  | 146.8                           |  | 149.9    |  |         |  |         |  |        
|Australia and New Zealand          |  | 115.6                           |  | 122.9                           |  | 124.3    |  | 39.7     |  | 20.2     |  | 5.6     
|Canada                             |  | 160.0                           |  | 143.7                           |  | 127.5    |  | 286.4    |  | 285.6    |  | 275.5   
|China (incl. Hong Kong)            |  | 257.3                           |  | 267.0                           |  | 281.4    |  | 120.1    |  | 107.4    |  | 107.8   
|Japan                              |  | 340.6                           |  | 323.2                           |  | 346.2    |  | 1.1      |  | 0.5      |  |        
|Other Far East and South East Asia |  | 272.6                           |  | 310.6                           |  | 382.5    |  | 14.2     |  | 11.5     |  | 12.6    
|Middle East                        |  | 176.1                           |  | 185.5                           |  | 201.4    |  | 0.1      |  |         |  | 0.2     
|United States                      |  | 2,267.3                         |  | 1,918.3                         |  | 1,904.9  |  | 1,789.7  |  | 1,451.5  |  | 1,398.7 
|Latin America                      |  | 128.4                           |  | 126.0                           |  | 162.9    |  | 0.1      |  |         |  |        
|Others                             |  | 61.6                            |  | 85.0                            |  | 57.3     |  |         |  |         |  | 0.5     
|                                   |  |                                 |  |                                 |  |          |  |          |  |          |  |         
|Total                              |  | 12,782.6                        |  | 12,172.3                        |  | 12,395.8 |  | 12,782.6 |  | 12,172.3 |  | 12,395.8
|                                   |  |                                 |  |                                 |  |          |  |          |  |          |  |         



Paper



In May 2003, our core
product areas were reorganized to include three global product areas: paper, packaging boards and forest products. The new paper product area operates through the publication paper, fine paper and merchants divisions.



Publication Paper



General



In connection with the reorganization of our operations in May 2003, our old newsprint and magazine paper divisions were merged to form the new
publication paper division. The papers produced by the publication paper division are used for newspapers, magazines, catalogues and direct mail in large quantities.



15



---

We are the worlds second largest producer of uncoated magazine paper and coated magazine paper,
with combined annual production capacity of 4.6 million metric tons and a share of global production capacity of approximately 17 percent. Europe and North America are the principal markets for our magazine paper. Currently, we have approximately 20
percent of the European and approximately 20 percent of the North American production capacity for magazine paper. We are currently the worlds third largest producer of newsprint, with annual production capacity of approximately 3.5 million
metric tons and a share of global production capacity of approximately 8 percent in 2004. The principal market for our newsprint is in Europe, where we have approximately 22 percent of the production capacity for newsprint.



Publication paper accounted for 34 percent of our sales in 2004, compared to
34 percent in 2003 and 36 percent in 2002.



The following table
presents the capacity of publication paper by country or geographic area for the year ended December 31, 2004:



|              |  |     
|------------- |  | ----
|              |  | 2004
|              |  | (%) 
|North America |  | 20  
|Germany       |  | 25  
|Finland       |  | 22  
|France        |  | 7   
|Belgium       |  | 7   
|Sweden        |  | 19  
|              |  |     
|Total         |  | 100 
|              |  |     



Our magazine paper
strategy is to focus on our present paper grades and to develop value-added products, such as high quality coated and supercalendered printing papers, for our principal markets in Europe and North America. We seek to be the preferred supplier for
our customers by offering the best product quality and a high level of customer service. Our strategy is to enhance cost competitiveness and to further optimize our asset structure in this business area and to seek growth opportunities.



Our newsprint strategy is to utilize the natural characteristics of fiber
raw materials. We use virgin fiber, fiber obtained from wood and being used for the first time in the production of pulp, for value-added products, while we use recycled fiber for standard newsprint. Our use of recycled fiber increased further when
our 100 percent recycled fiber based mill in Langerbrugge, Belgium began production in June 2003. We believe that the market trend is towards more customized and varied speciality grades of newsprint. We see growth opportunities for this business
area in Europe and in emerging markets.



As part of our
strategy, we intend to continue to increase the specialization of our paper machines for publication papers and phase out production that does not prove to be profitable over the long term. In accordance with this strategy, we closed down paper
machine no. 1 at the Summa mill in Finland and paper machine no. 2 at the Langebrugge mill in Belgium in 2003.



16



---

The following table presents financial and statistical data regarding the publication papers product area
for the years indicated:



|                                                                            |  |                                                           |    |  |         |   |  |         |  
|--------------------------------------------------------------------------- |  | --------------------------------------------------------- | -- |  | ------- | - |  | ------- | -
|                                                                            |  | For the year ended December 31,                           |   
|                                                                            |  | 2002                                                      |    |  | 2003    |   |  | 2004    |  
|                                                                            |  | ( in millions, except for percentagesand personnel data) |   
|Total sales                                                                 |  | 4,715.6                                                   |    |  | 4,295.7 |   |  | 4,343.3 |  
|of which group internal sales                                               |  | 116.4                                                     |    |  | 116.4   |   |  | 121.0   |  
|Operating profit (loss)                                                     |  | (762.7                                                    | )  |  | 47.2    |   |  | 144.5   |  
|Operating margin                                                            |  | (16.2                                                     | )% |  | 1.1     | % |  | 3.3     | %
|Capital expenditure                                                         |  | 482.2                                                     |    |  | 591.6   |   |  | 486.3   |  
|Average operating capital(1)                                                |  | 4,202.0                                                   |    |  | 3,953.2 |   |  | 4,057.4 |  
|Operating capital, year-end(2)                                              |  | 4,103.7                                                   |    |  | 4,132.1 |   |  | 4,265.7 |  
|ROOC(3)                                                                     |  | 7.5                                                       | %  |  | 2.8     | % |  | 2.3     | %
|Operating profit excluding non-recurring items and goodwill amortization(4) |  | 313.6                                                     |    |  | 111.1   |   |  | 91.3    |  
|Operating margin excluding non-recurring items and goodwill amortization(5) |  | 6.7                                                       | %  |  | 2.6     | % |  | 2.1     | %
|Average personnel                                                           |  | 13,241                                                    |    |  | 12,903  |   |  | 12,317  |  

---

|(1) |  | Average operating capital excluding goodwill.
|--- |  | ---------------------------------------------

|(2) |  | Operating capital at year-end including goodwill. Operating capital equals capital employed plus net tax liabilities.
|--- |  | ---------------------------------------------------------------------------------------------------------------------

|(3) |  | ROOC is return on operating capital and is calculated by dividing operating profit excluding non-recurring items and goodwill amortization by average operating capital.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Operating profit (loss) excluding non-recurring items and goodwill amortization for 2002, 2003 and 2004 excludes non-recurring items of (1,019.6) million, (29.5) million
and 76.4 million, respectively, and goodwill amortization of 56.6 million, 34.4 million and 23.2 million, respectively.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Operating margin excluding non-recurring items and goodwill amortization for 2002, 2003 and 2004 excludes non-recurring items of (1,019.6) million, (29.5) million and
76.4 million, respectively, and goodwill amortization of 56.6 million, 34.4 million and 23.2 million, respectively.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Products



Uncoated Magazine Paper.    Uncoated magazine paper grades include supercalendered and machine finished paper. We produce
supercalendered paper in the United States, Sweden, Belgium, Germany and Canada and machine-finished paper in Finland. Uncoated magazine paper is used primarily in magazines and catalogs with broad circulation and for other printed advertising
purposes. Niche products produced by the magazine paper business area include wall paper base, which is produced in Germany.



Coated Magazine Paper.    Coated magazine paper grades include machine finished coated paper, light-weight coated paper,
medium-weight coated paper and heavy-weight coated paper. We produce machine finished coated paper in Finland; light-weight coated paper in the United States, France, Germany and Finland; medium-weight coated paper in Germany and Finland and
heavy-weight coated paper in Germany. Coated magazine paper is used for magazines, catalogs, brochures and other printed advertising purposes.



Newsprint.    Our newsprint products include standard newsprint and newsprint specialties. Various newsprint grades are used in
newspapers, newspaper supplements, advertising leaflets, telephone directories and paperback books. Newsprint specialties include improved newsprint, book and directory papers. Raw materials used in producing newsprint include recycled fiber,
mechanical pulp and, to a minor extent, kraft pulp. We produce standard newsprint in Finland, Sweden, Belgium, Germany and Canada. We produce newsprint specialties at our Finnish and Swedish mills.



Capital Expenditures



Uncoated Magazine Paper.    We have invested in
the rebuild of uncoated magazine paper machine no. 6 at the Maxau mill, Germany, in total 168.0 million, of which 111.4 million were invested in 2004 and 52.9 million in 2003. During 2004, preparations were initiated for the
installation of a new supercalendered paper



17



---

machine no. 12 at the Kvarnsveden mill, Sweden, which is scheduled to be completed in 2005. The total investment in this paper machine is expected to amount
to 467.0 million, of which 86.6 million was invested in 2004 and 4.3 million in 2003. Paper machine no. 2 at the Summa mill was prepared for its 53.0 million NGS-project, which resulted in capital expenditures of 24.0
million in 2004. Our investment in the rebuilding of paper machine no. 3 at the Langerbrugge mill in Belgium to convert it to the production of supercalendered magazine paper instead of newsprint and to increase its capacity by 50,000 metric tons to
165,000 metric tons amounted to 36.4 million. The Langerbrugge rebuild was already completed in December 2002 at a cost of 32.5 million in 2002. In 2003, additional investments of 3.9 million were made.



Coated Magazine Paper.    In 2004, the rebuild of
the magazine paper machine no. 5 at the Corbehem mill, France, was prepared. The total investment is expected to amount to 60.0 million, 25.7 million of which was invested in 2004 and 6.0 million in 2003. The construction of a new
energy plant at the same site was completed in 2004 at a total cost of 23.0 million, of which 6.8 million was invested in 2004 and 14.8 million in 2003. The 30.5 million Solaris Press project relating to paper machine no. 2
at the Kotka mill in Finland led to capital expenditures of 1.9 million in 2004 and 27.3 million in 2003. We also invested 18.8 million to the building of a peroxide plant at our Veitsiluoto mill in Finland, completed in 2004, to
enhance the quality of magazine paper, of which 14.4 million was invested in 2004 and 4.4 million in 2003. We spent 23.3 million on the rebuilding of paper machine no. 26 at the Biron mill in the United States in 2004. In addition,
we invested 10.4 million in a pulp conversion project at three mills, the Wisconsin Rapids pulp mill, the Biron mill and the Kimberly mill in the United States, which aims at converting the Wisconsin Rapids pulp mill to all-hardwood pulp
production and integrating the output to the Wisconsin Rapids and the Kimberly mills.



Newsprint.    In 2004, the completion of the 477.1 million project to build paper machine no. 4 at the Langerbrugge mill in Belgium resulted in investments of 11.1 million,
whereas 201.1 million was invested in 2003. We are constructing a new boiler at the Kvarnsveden mill in Sweden for a total cost of 55.0 million, 20.0 million of which was invested in 2004 and 23.6 million in 2003.
Furthermore, a new thermo-mechanical pulp line was installed at the Varkaus mill in Finland for 37.0 million consisting of 22.8 million in 2004 and 9.5 million in 2003. Various DIP improvement measures at the Hylte mill, Sweden,
are scheduled to result in a total cost of 19.0 million. During 2004, 14.2 million was invested and 1.2 million in 2003. In addition, we have spent 13.9 million for the modernization of paper machine no. 1 at the Sachsen mill
in Germany, of which 0.8 million was spent in 2004 and 13.1 million in 2003. We also invested 49.4 million in a thermo-mechanical pump line to be installed at Port Hawkesbury mill in Canada, of which 20.7 million was spent
during 2004.



Sales



The following table describes deliveries of publication paper by paper grade
for the years indicated:



|                        |  |                                 |  |       |  |      
|----------------------- |  | ------------------------------- |  | ----- |  | -----
|                        |  | For the year ended December 31,
|                        |  | 2002                            |  | 2003  |  | 2004 
|                        |  | (in thousands of metric tons)  
|Uncoated magazine paper |  | 1,430                           |  | 1,477 |  | 1,548
|Coated magazine paper   |  | 2,440                           |  | 2,445 |  | 2,507
|Wall paper base         |  | 38                              |  | 39    |  | 34   
|Newsprint               |  | 2,899                           |  | 2,993 |  | 3,309
|                        |  |                                 |  |       |  |      
|Total                   |  | 6,807                           |  | 6,954 |  | 7,398
|                        |  |                                 |  |       |  |      



18



---

The following table presents sales of publication paper by geographic area for the year ended December
31, 2004:



|                   |  |      
|------------------ |  | -----
|                   |  | 2004 
|                   |  | (%)  
|Northern Europe(1) |  | 19.2 
|Continental Europe |  | 53.7 
|North America      |  | 18.7 
|Asia Pacific       |  | 5.2  
|Other              |  | 3.2  
|                   |  |      
|Total              |  | 100.0
|                   |  |      

---

|(1) |  | Northern Europe includes the Nordic countries (Finland, Sweden, Denmark and Norway), the United Kingdom and Ireland.
|--- |  | --------------------------------------------------------------------------------------------------------------------



Competition



Like all sectors of the forest products industry, the market for magazine paper is highly competitive. Our principal
competitors in uncoated magazine paper grades in the European market are UPM-Kymmene Corporation, Myllykoski Paper Oy, Norske Skog Industrier ASA and Svenska Cellulosa Aktiebolaget SCA (publ), and in the North American market, Abitibi-Consolidated
Inc., Bowater Inc., Norske Skog Canada Ltd. and UPM-Kymmene. Our principal competitors in coated magazine paper in Europe are UPM-Kymmene, Myllykoski, Cartiere Burgo SpA, Norske Skog, Svenska Cellulosa and M-Real Corporation and, in the North
American market, International Paper Company, UPM-Kymmene and Bowater Incorporated.



The market for newsprint is also highly competitive. Our principal competitors in the European newsprint market include UPM-Kymmene, Norske Skog, Holmen AB and Svenska Cellulosa. Our principal competitors in the North
American newsprint market are Abitibi, Bowater and Norske Skog Canada Ltd.



The competition in both magazine paper and newsprint is principally driven by price and increasingly also by environmental considerations, including the extent of the use of recycled fiber in the paper products. In
addition, especially in the area of magazine paper, quality considerations impact the purchasing decisions of our customers.



Fine Paper



General



We are
the second largest manufacturer of coated fine paper in the world with approximately 13 percent share of the production capacity in Europe and approximately 16 percent share of the production capacity in the United States. We are the fifth largest
manufacturer of office papers in the world with approximately 14 percent share of the production capacity in Europe. We are the worlds largest producer of speciality papers. The total annual capacity of our fine and speciality paper production
facilities is 4.6 million metric tons. In 2004, fine paper division accounted for 23 percent of our sales.



The following table presents the capacity of fine paper by country or geographic area for the year ended December 31, 2004:



|                |  |     
|--------------- |  | ----
|                |  | 2004
|                |  | (%) 
|Finland         |  | 47  
|Sweden          |  | 16  
|North America   |  | 22  
|Germany         |  | 6   
|The Netherlands |  | 5   
|China           |  | 4   
|                |  |     
|Total           |  | 100 
|                |  |     



19



---

All fine paper products contain a high proportion of chemical pulp, chemicals and fillers. Our fine paper
strategy is to focus on the profitable manufacture of fine paper for the graphic industry and office product distribution chains, using environmentally accepted primary fiber as a raw material. We anticipate growth opportunities for this product
area principally in Europe and in Asia, where we are already operating through our own production facilities in China and a minority holding in a producer in Thailand.



We produce coated fine paper in China through our subsidiary, Stora Enso Suzhou Paper Co Ltd (Suzhou), which is
partly owned by local Chinese entities. As a result of our acquisition of an additional 20 percent of the shares of Suzhou in October 2001, we currently own 80.9 percent of Suzhou and the local Chinese entities hold the remaining interest. Under the
terms of the shareholders agreement, we may sell coated fine paper in China, Hong Kong and Taiwan only through this company. The total annual capacity of Suzhous coated fine paper production facility is approximately 170,000 metric tons, and
sales through Suzhou totaled approximately 102.3 million in 2004.



In 2004, we commenced a plan to invest 38 million in the upgrading and modernizing of the paper machine and increase of its sheeting capacity at Suzhou mill in China. The investment is intended to improve productivity and safeguard
market presence in the fast-growing Chinese market. To the date of this annual report, we have spent 2.0 million towards this plan.



The following table presents financial and statistical data regarding the fine paper product area for the years indicated:



|                                                                            |  |                                                            |   |  |         |   |  |         |  
|--------------------------------------------------------------------------- |  | ---------------------------------------------------------- | - |  | ------- | - |  | ------- | -
|                                                                            |  | For the year ended December 31,                            |  
|                                                                            |  | 2002                                                       |   |  | 2003    |   |  | 2004    |  
|                                                                            |  | ( in millions, except for percentages and personnel data) |  
|Total sales                                                                 |  | 3,427.4                                                    |   |  | 3,197.7 |   |  | 3,173.1 |  
|of which group internal sales                                               |  | 287.4                                                      |   |  | 274.5   |   |  | 266.6   |  
|Operating profit                                                            |  | 67.9                                                       |   |  | 100.1   |   |  | 104.0   |  
|Operating margin                                                            |  | 2.0                                                        | % |  | 3.1     | % |  | 3.3     | %
|Capital expenditure                                                         |  | 134.6                                                      |   |  | 219.1   |   |  | 198.6   |  
|Average operating capital(1)                                                |  | 3,893.4                                                    |   |  | 3,484.3 |   |  | 3,361.2 |  
|Operating capital, year-end(2)                                              |  | 4,303.8                                                    |   |  | 3,874.9 |   |  | 3,837.2 |  
|ROOC(3)                                                                     |  | 7.7                                                        | % |  | 4.4     | % |  | 1.9     | %
|Operating profit excluding non-recurring items and goodwill amortization(4) |  | 298.3                                                      |   |  | 153.5   |   |  | 64.3    |  
|Operating margin excluding non-recurring items and goodwill amortization(5) |  | 8.7                                                        | % |  | 4.8     | % |  | 2.0     | %
|Average personnel                                                           |  | 9,872                                                      |   |  | 9,521   |   |  | 8,921   |  

---

|(1) |  | Average operating capital excluding goodwill.
|--- |  | ---------------------------------------------

|(2) |  | Operating capital at year-end including goodwill. Operating capital equals capital employed plus net tax liabilities.
|--- |  | ---------------------------------------------------------------------------------------------------------------------

|(3) |  | ROOC is return on operating capital and is calculated by dividing operating profit excluding non-recurring items and goodwill amortization by average operating capital.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Operating profit excluding non-recurring items and goodwill amortization for 2002, 2003 and 2004 excludes non-recurring items of (176.3) million, (10.3) million and
78.5 million, respectively, and goodwill amortization of 54.1 million, 43.1 million and 38.8 million, respectively.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Operating margin excluding non-recurring items and goodwill amortization for 2002, 2003 and 2004 excludes non-recurring items of (176.3) million, (10.3) million and
78.5 million, respectively, and goodwill amortization of 54.1 million, 43.1 million and 38.8 million, respectively.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We believe that our integrated mills, which combine pulp manufacturing with paper production, represent one of our strengths in fine paper production.
Many of our mills that produce fine paper are equipped with sheet cutting facilities, which allow the mills to cut the fine paper to the specifications of the local market. However, compared to the most modern and ideally located fine paper mills,
some of our production units are further away from their key customers and too small to fully benefit from the economies of scale available to larger, more modern mills.



20



---

Products



Graphic (Coated Fine) Paper.    Coated fine paper has a pigmented surface layer, which increases the uniformity of the printing
surface and provides improved printing properties, particularly for the reproduction of illustrations. Coated fine paper is used in the production of marketing materials, brochures and high-quality books and magazines. We produce coated fine paper
in Finland, Sweden, the United States, Germany and China.



Office (Uncoated Fine) Paper.    Our primary uncoated fine paper products are copy and offset papers, envelope and writing papers, continuous stationery papers and digital printing papers. We produce uncoated fine
paper in Finland, Sweden and the Netherlands.



Speciality
Papers.    Our speciality paper products include flexible packaging papers, technical papers and label papers. Our production facilities for speciality papers are located in Finland, Germany and the United States. The
speciality papers business group within our packaging boards division was created in October 2001 and transferred as a business area to our fine paper division in 2003.



Capital Expenditures



Fine Paper investments in 2004 included the completions of the rebuild of paper machine no. 3 at the Veitsiluoto mill in Finland at a cost of 27.5
million and the upgrade of paper machine no. 1 at the Nymölla mill in Sweden at a cost of 12.1 million. In 2004, the biological effluent treatment project at the Veitsiluoto mill was completed at a cost of 3.4 million, and the
quality and capacity development project related to paper machine no. 9 at the Grycksbo mill in Sweden at a cost of 7.3 million was also completed. In 2003, we invested 82.4 million to upgrade our paper machine no. 3 and a further
10.6 million for the office paper project at the Veitsiluoto mill and 6.7 million in a graphic paper project at the Oulu mill in Finland. In addition, we invested 10.7 million in the upgrade of paper machine no. 1 and 15.6
million for the office paper projects at the Nymölla mill in Sweden. In 2002, we invested 16.5 million in the rebuild of paper machine no. 6 at the Oulu mill.



Sales



The following table describes the deliveries of fine paper by paper grade for the years indicated:



|                             |  |                                 |  |       |  |      
|---------------------------- |  | ------------------------------- |  | ----- |  | -----
|                             |  | For the year ended December 31,
|                             |  | 2002                            |  | 2003  |  | 2004 
|                             |  | (in thousands of metric tons)  
|Graphic (coated) fine paper  |  | 1,826                           |  | 1,900 |  | 2,120
|Office (uncoated) fine paper |  | 1,330                           |  | 1,347 |  | 1,393
|Speciality papers            |  | 276                             |  | 344   |  | 380  
|                             |  |                                 |  |       |  |      
|Total                        |  | 3,432                           |  | 3,591 |  | 3,893
|                             |  |                                 |  |       |  |      



The following table
presents sales of fine paper by geographic area for the year ended December 31, 2004:



|                   |  |      
|------------------ |  | -----
|                   |  | 2004 
|                   |  | (%)  
|Northern Europe    |  | 19.5 
|Continental Europe |  | 36.1 
|North America      |  | 27.9 
|Asia Pacific       |  | 10.0 
|Other              |  | 6.5  
|                   |  |      
|Total              |  | 100.0
|                   |  |      



21



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Competition



Our principal competitors in the European coated fine paper market are M-real, Sappi Limited, Lecta and UPM-Kymmene. Asian Pulp & Paper Inc. is our
principal competitor in Asia. Our principal competitors in the European uncoated fine paper market are Mondi Packaging Company, UPM-Kymmene, Grupo Portucel Soporcel, International Paper and M-real. Our principal competitors in the North American
market in coated fine paper are Sappi, Cerberus and International Paper. We do not have operations in the uncoated fine paper market in North America.



The competition in the market for fine paper is principally driven by price and quality considerations.



Merchants



Our paper merchants act as an important link in the distribution of our fine paper products to the graphical industry.
Merchants division comprises of service companies selling and distributing mainly fine paper products to the graphical industry. Merchants operate under the name of Papyrus. In 2004, paper merchants accounted for 5 percent of our sales.



Papyrus is the leading paper merchant in the Nordic countries and seventh
largest in Europe and its primary objective is to leverage that position to become a leading paper merchant in Europe mainly through acquisitions.



The following table presents financial and statistical data regarding our paper merchants product area for the years indicated:



|                                                                                   |  |                                                            |    |  |       |    |  |       |  
|---------------------------------------------------------------------------------- |  | ---------------------------------------------------------- | -- |  | ----- | -- |  | ----- | -
|                                                                                   |  | For the year ended December 31,                            |   
|                                                                                   |  | 2002                                                       |    |  | 2003  |    |  | 2004  |  
|                                                                                   |  | ( in millions, except for percentages and personnel data) |   
|Total sales                                                                        |  | 720.6                                                      |    |  | 627.6 |    |  | 637.9 |  
|of which group internal sales                                                      |  | 1.8                                                        |    |  | 1.8   |    |  | 9.6   |  
|Operating profit (loss)                                                            |  | (24.7                                                      | )  |  | (8.9  | )  |  | 9.9   |  
|Operating margin                                                                   |  | (3.4                                                       | )% |  | (1.4  | )% |  | 1.6   | %
|Capital expenditure(1)                                                             |  | 0.0                                                        |    |  | 25.6  |    |  | 3.2   |  
|Average operating capital(2)                                                       |  | 174.0                                                      |    |  | 152.5 |    |  | 164.6 |  
|Operating capital, year-end(3)                                                     |  | 170.6                                                      |    |  | 159.5 |    |  | 192.7 |  
|ROOC(4)                                                                            |  | 3.1                                                        | %  |  | (4.3  | )% |  | 6.8   | %
|Operating profit (loss) excluding non-recurring items and goodwill amortization(5) |  | 5.4                                                        |    |  | (6.7  | )  |  | 11.2  |  
|Operating margin excluding non-recurring items and goodwill amortization(6)        |  | 0.7                                                        | %  |  | (1.1  | )% |  | 1.8   | %
|Average personnel                                                                  |  | 1,411                                                      |    |  | 1,254 |    |  | 1,296 |  

---

|(1) |  | Includes finance lease on buildings of 21.5 million.
|--- |  | -----------------------------------------------------

|(2) |  | Average operating capital excluding goodwill.
|--- |  | ---------------------------------------------

|(3) |  | Operating capital at year-end including goodwill. Operating capital equals capital employed plus net tax liabilities.
|--- |  | ---------------------------------------------------------------------------------------------------------------------

|(4) |  | ROOC is return on operating capital and is calculated by dividing operating profit excluding non-recurring items and goodwill amortization by average operating capital.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Operating profit (loss) excluding non-recurring items and goodwill amortization for 2002, 2003 and 2004 excludes non-recurring items of (24.9) million, 0.0 million and
0.8 million, respectively, and goodwill amortization of 5.2 million, 2.2 million and 2.1 million, respectively.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | Operating margin excluding non-recurring items and goodwill amortization 2002, 2003 and 2004 excludes non-recurring items of (24.9) million, 0.0 million and 0.8
million, respectively, and goodwill amortization of 5.2 million, 2.2 million and 2.1 million, respectively.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The main market for our paper operations is Europe, especially the Nordic region. Our customer base comprises approximately 42,000 customers, primarily
printers. Other customers include offices and agencies in the public and private sectors. In 2004, our products accounted approximately 45 percent of the volume distributed.



22



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Our main competitors are PaperlinX Limited, Antalis Group, Igepa Group GmbH & Co. KG, Map Merchant
Group and Inapa Group. Our strength in paper merchant operations is based on the synergistic gains generated from coordination between the distribution and production at the mills.



Packaging Boards



General



Packaging Boards produces materials for packaging
applications: consumer packaging boards, graphical boards, containerboards and corrugated boxes, industrial papers for laminating industry, coreboards and cores. In December 2004, Packaging Boards acquired also kraft paper and paper sack production
in Poland.



Our annual production capacity for packaging boards
is 3.6 million metric tons. In 2004, Packaging Boards accounted for 21 percent of Stora Enso sales.



The following table presents the capacity of Packaging Boards by country or geographic area for the year ended December 31, 2004:



|              |  |     
|------------- |  | ----
|              |  | 2004
|              |  | (%) 
|Finland       |  | 51  
|Sweden        |  | 28  
|Poland        |  | 7   
|Germany       |  | 6   
|Other Europe  |  | 7   
|North America |  | 1   
|              |  |     
|Total         |  | 100 
|              |  |     



Our goal in the
Packaging Boards product area is to achieve a market share in excess of 25 percent in selected markets and product segments through growth based on innovation and development. Our strategy is to improve competitiveness by streamlining production and
improving productivity. We expect growth within this product area to take place mainly within our existing product portfolio and through our acquisitions and our investments in new operations in developing markets.



The following table presents financial and statistical data regarding the
packaging boards product area for the years indicated:



|                                                                                   |  |                                                           |   |  |         |   |  |         |  
|---------------------------------------------------------------------------------- |  | --------------------------------------------------------- | - |  | ------- | - |  | ------- | -
|                                                                                   |  | For the year ended December 31,                           |  
|                                                                                   |  | 2002                                                      |   |  | 2003    |   |  | 2004    |  
|                                                                                   |  | ( in millions, except for percentagesand personnel data) |  
|Total sales                                                                        |  | 2,720.2                                                   |   |  | 2,761.6 |   |  | 2,771.5 |  
|of which group internal sales                                                      |  | 148.3                                                     |   |  | 199.1   |   |  | 219.0   |  
|Operating profit                                                                   |  | 332.3                                                     |   |  | 280.5   |   |  | 339.7   |  
|Operating margin                                                                   |  | 12.2                                                      | % |  | 10.2    | % |  | 12.3    | %
|Capital expenditure                                                                |  | 140.5                                                     |   |  | 170.9   |   |  | 167.3   |  
|Average operating capital(1)                                                       |  | 2,565.8                                                   |   |  | 2,518.5 |   |  | 2,608.3 |  
|Operating capital, year-end(2)                                                     |  | 2,587.4                                                   |   |  | 2,530.0 |   |  | 2,753.3 |  
|ROOC(3)                                                                            |  | 13.5                                                      | % |  | 11.6    | % |  | 10.6    | %
|Operating profit excluding non-recurring items and goodwill amortization(4)        |  | 345.3                                                     |   |  | 292.4   |   |  | 277.6   |  
|Operating margin profit excluding non-recurring items and goodwill amortization(5) |  | 12.7                                                      | % |  | 10.6    | % |  | 10.0    | %
|Average personnel                                                                  |  | 9,949                                                     |   |  | 10,068  |   |  | 10,113  |  

---

|(1) |  | Average operating capital excluding goodwill.
|--- |  | ---------------------------------------------



23



---

|(2) |  | Operating capital at year-end including goodwill. Operating capital equals capital employed plus net tax liabilities.
|--- |  | ---------------------------------------------------------------------------------------------------------------------

|(3) |  | ROOC is return on operating capital and is calculated by dividing operating profit excluding non-recurring items and goodwill amortization by average operating capital.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Operating profit excluding non-recurring items and goodwill amortization for 2002, 2003 and 2004 excludes non-recurring items of 0.1 million, 0.0 million and 67.0
million, respectively, and goodwill amortization of 12.9 million, 11.9 million and 4.9 million, respectively.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Operating margin excluding non-recurring items and goodwill amortization for 2002, 2003 and 2004 excludes non-recurring items of 0.1 million, 0.0 million and 67.0
million, respectively, and goodwill amortization of 12.9 million, 11.9 million and 4.9 million, respectively.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The largest market for our packaging board products is Europe but our products are sold worldwide. We believe that our strength in multilayer consumer
packaging boards is based on the broad variety of pulps used in our products, the recyclability of our products and the high level of integration to our own pulp resources, which enables cost-efficient production.



Products



Consumer Boards.    Consumer packaging boards include liquid packaging boards, food service
boards, graphical boards, cigarette boards and cartonboards. They are used in a variety of end-use segments forming packaging solutions, for example, for the food and non-food, pharmaceutical, cigarette and cosmetics industries and also for
graphical end-uses such as postcards, brochures and covers. Our primary fibre board grades are solid bleached sulfate grades, coated unbleached kraft boards, folding boxboards and white lined chipboard, which is paperboard made of recovered fiber.
Our liquid packaging boards are used for packaging of products such as milk, juices, soups and spices. Our food service boards are used in the manufacture of drinking cups and processed food packaging. We are one of the worlds leading
manufacturers of consumer packaging board overall and Europes largest manufacturer. Due in part to our proprietary plastic coating technology and our ability to manufacture board suitable for the different packaging and filling systems of our
customers, we can offer our boards for wide range of end-uses. Our consumer packaging board production facilities are located in Finland, Sweden, Germany and Spain.



Corrugated Packaging.    Corrugated board is the forest products industrys largest single
product sector. Corrugated board is used primarily in transportation packaging and may also be used in consumer packaging. Corrugated board is produced by combining layers of linerboard and fluting in a corrugated conversion process. Linerboard is
paperboard used as the top and bottom layer, around the pleated paperboard fluting, in corrugated board. We both manufacture the raw materials, linerboard and fluting, and have converting operations. Our corrugated board business area currently
produces corrugated packages at our converting plants in Finland, Sweden, Estonia, Latvia, Lithuania, Hungary and Russia as well as Poland, where we aquired production facilities in December 2004. Our goal is to maintain our position as a leading
producer of corrugated board in the Baltic Rim area, which is our principal market for corrugated board.



Containerboards.    Corrugated board raw materials are produced in Sweden, Finland and Poland. Principal products include
flutings, which are the wave forming materials for corrugated board, and liners, which are the outer layers in corrugated board. We produce both recycled and primary fibre grades and sell containerboards worldwide.



Cores and Coreboards.    Coreboard, which is
produced from recovered fibers, sometimes combined with a small portion of primary wood pulp, is used to produce paperboard tubes for the paper, textile and plastic-film industries. Our production of coreboard in Europe is carried out through
Corenso United Oy Ltd., a venture with UPM-Kymmene, in which we hold a 71 percent interest. Corenso has production facilities in Finland, Germany, France, the United Kingdom, Spain, the Netherlands, Sweden, China and the United States. Coreboard is
an essential part of our recycling strategy because used beverage cartons may be collected and recycled into coreboard. See Item 5. Operating and Financial Review and ProspectsRecent DevelopmentsRecent Acquisitions.



Sack Paper and Paper sacks.    Sack
paper is produced in Poland for our own paper sack production in Poland and Serbia and also for export as paper.



24



---

Laminating Papers.    Our laminating paper products include brown saturated
base kraft papers with and without phenolic resin impregnation used for high-pressure laminates in the manufacture of table tops, other kitchen furniture and floors as well as low-pressure laminates as surface covering for wood-based panels. Our
production facilities for laminating papers are located in Finland and Malaysia.



Capital Expenditure



In 2004, we
invested 54.7 million in Energy 2005 project at the Skoghall mill. This aims to secure the future basis for board production at the Skoghall mill and strengthen the mills energy supply to enable production with low emissions. At the
Baienfurt mill in Germany, we invested 28.1 million to enhance the folding box board production in 2004. We also completed a 5.0 million investment in our latest corrugated board mill in Arzamas, Russia.



Sales



The following table describes deliveries of Packaging Boards by board or paper grade for the years indicated:



|                                            |  |                                                              |  |       |  |      
|------------------------------------------- |  | ------------------------------------------------------------ |  | ----- |  | -----
|                                            |  | For the year ended December 31,                             
|                                            |  | 2002                                                         |  | 2003  |  | 2004 
|                                            |  | (in thousands of metric tons, except as otherwise indicated)
|Consumer boards                             |  | 2,153                                                        |  | 2,270 |  | 2,316
|Containerboards                             |  | 307                                                          |  | 285   |  | 307  
|Coreboards                                  |  | 289                                                          |  | 281   |  | 315  
|Laminating papers                           |  | 161                                                          |  | 170   |  | 181  
|                                            |  |                                                              |  |       |  |      
|Total                                       |  | 2,910                                                        |  | 3,006 |  | 3,119
|                                            |  |                                                              |  |       |  |      
|Cores                                       |  | 145                                                          |  | 152   |  | 168  
|Corrugated board, millions of square meters |  | 484                                                          |  | 500   |  | 570  



Set forth below are
sales of Packaging Boards by geographic area for the year ended December 31, 2004:



|                   |  |      
|------------------ |  | -----
|                   |  | 2004 
|                   |  | (%)  
|Northern Europe    |  | 25.8 
|Continental Europe |  | 55.5 
|North America      |  | 2.3  
|Asia Pacific       |  | 11.6 
|Other              |  | 4.8  
|                   |  |      
|Total              |  | 100.0
|                   |  |      



Competition



Our principal competitors in the consumer packaging board market are
International Paper, MeadWestvaco Corporation, Korsnäs, AssiDomän Cartonboard AB, M-real, Iggesund Paperboard, Mayr-Melnhof Karton AG and Reno de Medici S.p.A. Our principal competitors in the corrugated board market are Kappa Packaging,
Smurfit-Stone Container Corporation and SCA Packaging. Our principal competitor in the coreboard area is Sonoco Products Company. Our principal competitors in laminating papers are MeadWestvaco and International Paper.



Forest Products



In connection
with the reorganization of our operations in May 2003, our timber and forest divisions and the pulp competence center were merged to form the new forest products product area, which operates through the



25



---

wood products and wood supply Europe divisions. It enables better coordination between sawmilling, pulping and wood procurement by integrating the wood
supply activities in Europe and optimizing the global wood flows.



Wood
Products



General



Product range of our wood products division includes rough and semi-finished
sawn and processed wood products and components. Focus is on mass customized value-added products, like planed, finger jointed, glued, stress graded, special dried and special measured or profiled products.



We are one of the largest producers of sawn softwood products in the world,
operating 25 sawmills and 22 further processing sites in ten countries, and are the leading European supplier of sawn wood products to North America and Asia. In 2004, wood products accounted for 12 percent of Stora Enso groups sales. The main
markets for our sawn and further-processed wood products are in Europe, which covers 58 percent of all of sales. Asia Pacific covers 25 percent, North America 9 percent and North Africa and Middle East 8 percent of our sales. Our annual production
capacity of sawn wood products is 7.7 million cubic meters, of which 3.2 million cubic meters are value-added products.



The following table presents the capacity of wood products by country for the year ended December 31, 2004:



|               |  |     
|-------------- |  | ----
|               |  | 2004
|               |  | (%) 
|Finland        |  | 30  
|Austria        |  | 24  
|Sweden         |  | 13  
|Czech Republic |  | 12  
|Estonia        |  | 12  
|Other Europe   |  | 9   
|               |  |     
|Total          |  | 100 
|               |  |     



Developing our wood
products product range is one of the key elements of the Group fiber strategy which secures high- quality, cost competitive raw materials from socially and environmentally sustainable sources. The aim of the strategy is to reduce raw material costs,
which currently account for approximately 70 percent of our costs, support our fiber requirements profitably and to serve customers in selected construction and interior decoration market segments worldwide. We will focus on achieving economies of
scale, mill specialization and an increase in on-line, value-added and further processing of our products.



26



---

The following table sets forth selected financial and statistical data regarding our wood products
division for the years indicated:



|                                                                            |  |                                                           |   |  |         |   |  |         |  
|--------------------------------------------------------------------------- |  | --------------------------------------------------------- | - |  | ------- | - |  | ------- | -
|                                                                            |  | For the year ended December 31,                           |  
|                                                                            |  | 2002                                                      |   |  | 2003    |   |  | 2004    |  
|                                                                            |  | ( in millions, except for percentagesand personnel data) |  
|Total sales                                                                 |  | 1,235.2                                                   |   |  | 1,400.0 |   |  | 1,566.8 |  
|of which group internal sales                                               |  | 95.8                                                      |   |  | 105.4   |   |  | 120.0   |  
|Operating profit                                                            |  | 30.1                                                      |   |  | 6.5     |   |  | 29.8    |  
|Operating margin                                                            |  | 2.4                                                       | % |  | 0.5     | % |  | 1.9     | %
|Capital expenditure                                                         |  | 53.5                                                      |   |  | 141.9   |   |  | 68.1    |  
|Average operating capital(1)                                                |  | 408.4                                                     |   |  | 522.8   |   |  | 662.6   |  
|Operating capital, year-end(2)                                              |  | 533.8                                                     |   |  | 811.9   |   |  | 842.5   |  
|ROOC(3)                                                                     |  | 10.9                                                      | % |  | 5.1     | % |  | 5.2     | %
|Operating profit excluding non-recurring items and goodwill amortization(4) |  | 44.5                                                      |   |  | 26.5    |   |  | 34.7    |  
|Operating margin excluding non-recurring items and goodwill amortization(5) |  | 3.6                                                       | % |  | 1.9     | % |  | 2.2     | %
|Average personnel                                                           |  | 3,745                                                     |   |  | 4,626   |   |  | 4,856   |  

---

|(1) |  | Average operating capital excluding goodwill.
|--- |  | ---------------------------------------------

|(2) |  | Operating capital at year-end including goodwill. Operating capital equals capital employed plus net tax liabilities.
|--- |  | ---------------------------------------------------------------------------------------------------------------------

|(3) |  | ROOC is return on operating capital and is calculated by dividing operating profit excluding non-recurring items and goodwill amortization by average operating capital.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Operating profit excluding non-recurring items and goodwill amortization for 2002, 2003 and 2004 excludes non-recurring items of 0.0 million, 0.0 million and 16.4
million, respectively, and goodwill amortization of 14.4 million, 20.0 million and 21.2, respectively.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Operating margin excluding non-recurring items and goodwill amortization for 2002, 2003 and 2004 excludes non-recurring items of 0.0 million, 0.0 million and 16.4
million, respectively, and goodwill amortization of 14.4 million, 20.0 million and 21.2, respectively.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In February 2003, we completed the acquisition of 66 percent of the shares in AS Sylvester, the leading sawmilling and wood procurement company in
Estonia, and 100 percent of the shares in the wood procurement subsidiary of Sylvester for an aggregate purchase price of 122.6 million. Following the completion of the acquisition, the sawmilling operations of AS Sylvester became Stora Enso
Timber AS. Stora Enso Timber AS operates seven sawmills in Estonia, Latvia and Lithuania. We aim to provide further opportunities through these acquisitions for our sawmilling operations to realize the overall development potential of Stora Enso
Timber. In March 2005, we acquired the remaining 34 percent of the Sylvester shares.



We believe that the key strengths of our wood product division include the specialization of our sawmills, each of which concentrates on either spruce or pine milling, and the proximity of many of our sawmills to our
paper and board mills, both of which improve efficiency. Another key element is developing services along the value chain, meaning distribution set-ups and improved information technology solutions for the order-delivery chain.



Products



Our mills produce wood products used for the joinery and construction
industries worldwide. The production of wood products complements our paper and board manufacturing operations as by-products of the sawmill operations are used by other divisions to manufacture paper or as an energy source for manufacturing
processes.



Capital Expenditure



In 2004, we invested 13.1 million under the Sylvester investment
program in the Baltic states, the main investment being a new beam mill at the Imavere sawmill. We also invested 9.4 million into Finnish sawmill upgrades at the Varkaus and Kitee sawmills. Our other principal investments were a production
line upgrade at the Zdirec sawmill in the Czech Republic and building post production lines at the Ybbs mill in Austria.



27



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Our principal projects in 2003 and 2002 were building new sawmills at Pitkäranta and Neblochi in
Russia, as well as modernizing the Ala, Kopparfors and Gruvön sawmills in Sweden and the Varkaus, Kotka and Kitee sawmills in Finland.



Sales



The following table describes our wood products deliveries by production groups for the years indicated:



|                        |  |                                 |  |       |  |      
|----------------------- |  | ------------------------------- |  | ----- |  | -----
|                        |  | For the year ended December 31,
|                        |  | 2002                            |  | 2003  |  | 2004 
|                        |  | (in thousands of cubic meters) 
|Nordic redwood          |  | 1,392                           |  | 1,344 |  | 1,495
|Nordic whitewood        |  | 1,681                           |  | 1,514 |  | 1,645
|Central European timber |  | 2,039                           |  | 2,964 |  | 2,507
|Baltic redwood          |  |                                |  |      |  | 393  
|Baltic whitewood        |  |                                |  |      |  | 624  
|                        |  |                                 |  |       |  |      
|Total                   |  | 5,112                           |  | 5,822 |  | 6,664
|                        |  |                                 |  |       |  |      



Competition



Our principal competitors in the European sawmilling
sector are UPM-Kymmene, Finnforest Oyj, AssiDomän and Svenska Cellulosa. In Japan, we compete with all major forest products groups in wood products.



Wood Supply Europe



General



Stora Ensos wood supply business areas are located in the Baltic States, continental Europe, Finland, Russia and Sweden. Wood Supply Europe procures
and supplies about 43 million cubic meters of wood annually for our own mills in Europe.



Historically, we have satisfied a significant portion of our wood procurement needs from our own forest holdings. However, after the divestment of our forest land in Finland in 2002 and in Sweden in 2004, we currently
procure wood from Finland, Sweden, the Baltic countries and Russia, where we purchase wood and have felling rights, which are contracts permitting us to harvest wood on land owned by third parties.



In 2004, our total wood consumption in Finland, Sweden, continental Europe,
the Baltic States and Russia amounted to 41.6 million solid cubic meters. Sourcing from Russia to Finland, the Baltic states and Sweden totaled 6.9 million cubic meters and from the Baltic States to Sweden and Finland 2.8 million cubic meters. A
total of 1.3 million solid cubic meters of wood, with a stumpage value of 36 million, was obtained from our own forests in Sweden before the restructuring of the forest land in Sweden. For a discussion of our guidelines regarding our wood
procurement activities, see Item 4. Information on the CompanyEnvironmental Matters. In 2004, Wood Supply Europe accounted for four percent of our sales.



The goal of our wood procurement operations is to secure an undisturbed supply of wood raw materials for our operations
using environmentally sustainable methods. As part of this goal, our wood procurement operations seek to develop greater coordination between our wood procurement operations in the Baltic Sea region and continental Europe.



28



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The following table presents financial and statistical data regarding our Wood Supply Europe for the
years indicated:



|                                                                            |  |                                                           |   |  |         |   |  |         |  
|--------------------------------------------------------------------------- |  | --------------------------------------------------------- | - |  | ------- | - |  | ------- | -
|                                                                            |  | For the year ended December 31,                           |  
|                                                                            |  | 2002                                                      |   |  | 2003    |   |  | 2004    |  
|                                                                            |  | ( in millions, except for percentagesand personnel data) |  
|Total sales                                                                 |  | 1,958.7                                                   |   |  | 2,074.3 |   |  | 2,481.5 |  
|of which group internal sales                                               |  | 1,514.7                                                   |   |  | 1,581.7 |   |  | 1,931.8 |  
|Operating profit                                                            |  | 120.5                                                     |   |  | 116.5   |   |  | 158.6   |  
|Operating margin                                                            |  | 6.1                                                       | % |  | 5.6     | % |  | 6.4     | %
|Capital expenditure                                                         |  | 24.9                                                      |   |  | 20.2    |   |  | 21.9    |  
|Average operating capital(1)                                                |  | 1,090.0                                                   |   |  | 1,352.5 |   |  | 585.0   |  
|Operating capital, year-end(2)                                              |  | 906.2                                                     |   |  | 1,798.8 |   |  | 176.5   |  
|ROOC(3)                                                                     |  | 8.7                                                       | % |  | 8.6     | % |  | 5.5     | %
|Operating profit excluding non-recurring items and goodwill amortization(4) |  | 94.6                                                      |   |  | 116.5   |   |  | 32.3    |  
|Operating margin excluding non-recurring items and goodwill amortization(5) |  | 4.8                                                       | % |  | 5.6     | % |  | 1.3     | %
|Average personnel                                                           |  | 2,265                                                     |   |  | 2,599   |   |  | 3,157   |  

---

|(1) |  | Average operating capital excluding goodwill.
|--- |  | ---------------------------------------------

|(2) |  | Operating capital at year-end including goodwill. Operating capital equals capital employed plus net tax liabilities.
|--- |  | ---------------------------------------------------------------------------------------------------------------------

|(3) |  | ROOC is return on operating capital and is calculated by dividing operating profit excluding non-recurring items and goodwill amortization by average operating capital.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Operating profit excluding non-recurring items and goodwill amortization for 2002, 2003 and 2004 excludes non-recurring items of 25.9 million, 0.0 million and
126.3 million, respectively.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Operating margin excluding non-recurring items and goodwill amortization for 2002, 2003 and 2004 excludes non-recurring items of 25.9 million, 0.0 million and
126.3 million, respectively.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We own
approximately 0.1 million hectares (approximately 0.25 million acres) of forest, consisting of limited forest holdings in Canada, Portugal and certain other countries. We lease 0.6 million hectares (approximately 1.5 million acres) of forest land,
mostly in Nova Scotia, Canada.



In July 2002, we transferred a
total of approximately 600,000 hectares (approximately 1.5 million acres) of our forest land and related operations in Finland to a newly-formed company Tornator Oy and reorganized our forest holding subsidiary Tornator Forest Oy. In December 2002,
we transferred the shares in Tornator Forest Oy to Tornator Timberland Oy, a newly-formed company, in exchange for shares in Tornator Timberland Oy. We currently hold 41 percent of the shares in Tornator Timberland Oy and the remaining 59 percent is
held by Finnish institutional investors. In December 2002, we sold Tornator Oy to Tornator Timberland Oy. As a result of the sale, we recorded a gain of 25.9 million. We have entered into a long-term wood procurement agreement with Tornator Oy
and Tornator Forest Oy, according to which they will sell us approximately 1.5 million cubic meters of wood annually.



In December 2002, we sold a total of approximately 125,000 hectares (approximately 300,000 acres) of our forest land in the United States to Plum Creek
Timber Company, Inc. for $141 million (104.2 million). As a result of the sale, we recorded a gain of approximately $46.8 million (34.6 million).



In March 2004, we completed the restructuring of our ownership of forest land in Sweden. Pursuant to the restructuring, a total of approximately 1.5
million hectares (approximately 3.7 million acres) of our Swedish forest land and the Swedish forest land of Korsnäs AB, a Swedish forest industry company controlled by Kinnevik Group, were transferred to a newly-formed company Bergvik Skog AB.
Stora Enso and Korsnäs retained minority shareholdings of 43.3 percent and 5 percent, respectively, in Bergvik Skog. The rest of the companys shares were sold to institutional investors. Bergvik Skog was also financed with a syndicated
bank loan. As a result of the sale, we recorded a gain of 113 million. We have entered into a long-term wood procurement agreement with Bergvik Skog, according to which it will sell us approximately 4.5 million cubic meters of wood annually.



29



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Also in March 2004, we sold 146,000 hectares of our forest land in Ontario, Canada. Approximately
18 million of operating capital was released and the transaction did not have any effect on the results of our operations for 2004.



We also own plantations in Brazil through a 50/50 joint venture and have established plantations in South-East Asia. Stora Enso Celbi, our Portuguese
forest operations, comprises 45,000 hectares (approximately 110,000 acres) of eucalyptus.



Capital Expenditures



In 2003, a major investment program was in progress at all of our mills in Estonia and Latvia, including several projects to add product value by increasing the kiln drying and further processing the capacity of the mills. The total
investment is estimated to be approximately 30 million and, as a result of the investment, the aggregate annual capacity of the mills will be raised to over one million cubic meters of sawn wood products. In 2003, our investments in the Baltic
countries totaled 32.2 million. Our principal projects in 2002 and 2001 were the modernizations of the Ala, Kopparfors and Gruvön sawmills in Sweden.



Seasonality



Demand for our
products does not depend on the seasons in any material way. Seasonal variations affect our manufacturing activities in Finland, due to the seasonal holiday shutdowns in late June and around the Christmas period. Our manufacturing activities outside
of Finland do not substantially fluctuate due to the seasons.



Raw Materials



Pulp



The principal raw material required in the manufacture of paper and board
products is pulp, which is in turn made from wood or recycled fiber. Different types of paper and board products are produced with the appropriate type of pulp and chemicals as their principal raw materials.



We consume internally a majority of the pulp we produce, but we also sell a
portion of it to third parties. Pulp sold to third parties is called market pulp. Because some of our paper mills are not located near our pulp mills, we also purchase market pulp from third parties. We produced 5,130 metric tons of chemical pulp in
2004. We consumed 4,335 metric tons of this amount internally for the production of paper and board and sold the remainder to third parties. We were a net buyer of pulp in 2004, with purchase exceeding sales by four metric tons.



Only a limited portion of the pulp we produce is made with wood from our own
forest lands. Currently, we have limited forest holdings in Canada and Portugal and certain other countries. During the recent past, we have sold our forest lands in Finland and Sweden and part of our forest lands in the United States and Canada.
See Item 5. Operating and Financial Review and ProspectsRecent DevelopmentsRecent Divestitures. We purchase other raw materials on the world market from multiple sources of supply, including various chemicals and minerals,
such as calcium carbonate, kaolin, latex, optical whitener, starch and hydrogen peroxide.



Long-fiber chemical pulp, made of spruce or pine, is used to manufacture paper requiring superior strength such as magazine paper. Short-fiber chemical pulp, made of birch, beech or eucalyptus, is used primarily in
fine papers and boards. Fluff pulp, which is produced by dry defibration and takes on a cotton-like appearance, is used in absorbent materials such as feminine hygiene products and diapers.



30



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The following table presents our total production of pulp, the portion of our production we used
internally and the portion we sold to third parties, our purchases of market pulp and the resulting balance in 2004.



|                          |  |                               |   |  |                  |   |  |            |  |            |  
|------------------------- |  | ----------------------------- | - |  | ---------------- | - |  | ---------- |  | ---------- | -
|                          |  | Long- fiberpulp               |   |  | Short- fiberpulp |   |  | Fluff pulp |  | Total Pulp |  
|                          |  | (in thousands of metric tons) |  
|Production                |  |                               |   |  |                  |   |  |            |  |            |  
|Own mills                 |  | 2,299                         |   |  | 2,444            |   |  | 213        |  | 4,956      |  
|Associated mills (Sunila) |  | 174                           |   |  |                 |   |  |           |  | 174        |  
|                          |  |                               |   |  |                  |   |  |            |  |            |  
|Total                     |  | 2,473                         |   |  | 2,444            |   |  | 213        |  | 5,130      |  
|Deliveries to own mills   |  | (2,150                        | ) |  | (2,185           | ) |  |           |  | (4,335     | )
|                          |  |                               |   |  |                  |   |  |            |  |            |  
|Deliveries externally     |  | 323                           |   |  | 259              |   |  | 209        |  | 791        |  
|Purchases                 |  | (484                          | ) |  | (311             | ) |  |           |  | (795       | )
|                          |  |                               |   |  |                  |   |  |            |  |            |  
|Pulp balance              |  | (161                          | ) |  | (52              | ) |  | 209        |  | (4         | )
|                          |  |                               |   |  |                  |   |  |            |  |            |  



We sold 791 metric
tons of pulp to third parties in 2004 compared to pulp sales of 851,000 metric tons in 2003 and 823,000 metric tons in 2002.



Our pulp mills operate under product areas. The Celbi mill in Portugal and the Skutskär mill in Sweden are currently part of the fine paper product
area, the Norrsundet mill in Sweden, the Kemijärvi mill in Finland and the Sunila joint venture in Finland are part of the publication paper product area and the Enocell mill in Finland is part of the packaging boards product area.



In May 2003, we, together with Aracruz Celulose S.A., announced our
decision to proceed with the construction of an eucalyptus pulp mill with an annual capacity of 900,000 metric tons for Veracel Celulose S.A. in Bahia, Brazil. We will be entitled to one-half of the mills output. The total investment in this
project is estimated at 917 million, of which 45 percent will be financed by an equity investment made by us and Aracruz Celulose S.A. and 55 percent will be financed by loans from a syndicate of development banks. As of December 31, 2004, our
equity investment in this project amounted to  273.0 million. The construction of the pulp mill is proceeding as planned and is scheduled to be completed by mid-2005.



Energy



Electricity is a significant component of our production costs, especially in the production of mechanical pulp where electricity accounts for up to 20
percent of variable costs. As a result, we own power plants located at our mills and hold substantial interests in affiliated power generators to secure a portion of our electricity needs.



The following table sets forth our total electricity procurement and
electricity consumption in 2004:



|                              |  |         |  |        |  |             |  |              |  |      |  |      
|----------------------------- |  | ------- |  | ------ |  | ----------- |  | ------------ |  | ---- |  | -----
|                              |  | Finland |  | Sweden |  | OtherEurope |  | NorthAmerica |  | Asia |  | Total
|                              |  | (Twh)  
|Electricity production:(1)    |  |         |  |        |  |             |  |              |  |      |  |      
|CHP (Combined heat and power) |  | 4.0     |  | 1.1    |  | 1.8         |  | 1.0          |  | 0.03 |  | 7.9  
|Hydropower                    |  | 0.4     |  | 0.0    |  | 0.0         |  | 0.2          |  | 0.0  |  | 0.6  
|Nuclear power                 |  | 1.3     |  | 0.0    |  | 0.0         |  | 0.0          |  | 0.0  |  | 1.3  
|Other sources                 |  | 0.8     |  | 0.0    |  | 0.0         |  | 0.0          |  | 0.0  |  | 0.8  
|                              |  |         |  |        |  |             |  |              |  |      |  |      
|Total                         |  | 6.4     |  | 1.1    |  | 1.8         |  | 1.2          |  | 0.0  |  | 10.5 
|External purchasing           |  | 2.3     |  | 5.1    |  | 3.9         |  | 3.8          |  | 0.1  |  | 15.1 
|                              |  |         |  |        |  |             |  |              |  |      |  |      
|Total procurement             |  | 8.7     |  | 6.2    |  | 5.7         |  | 5.0          |  | 0.1  |  | 25.7 
|                              |  |         |  |        |  |             |  |              |  |      |  |      
|Stora Enso mill consumption   |  | 8.3     |  | 6.2    |  | 5.0         |  | 4.8          |  | 0.12 |  | 24.4 
|External sales                |  | 0.4     |  | 0.04   |  | 0.6         |  | 0.14         |  | 0.0  |  | 1.2  

---

|(1) |  | The electricity supplied by our own power plants or obtained as a result of ownership interests in power companies.
|--- |  | -------------------------------------------------------------------------------------------------------------------



31



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Marketing



We distribute our
products through our own global marketing network with representatives in Europe, North and South America, Asia, Australia and Africa. Our marketing network is made up of more than 30 sales companies and a number of third party sales agents
throughout the world.



Our marketing network markets all of our
products, providing customers with one-stop-shopping. The fine paper and sawn timber product areas also distribute a portion of their products through their own sales channels. Our marketing and sales network consists of customer
representatives, who are stationed in the sales companies and are responsible for day-to-day service contacts with customers, and product specialists, who are stationed at the mills and provide support services to the customer representatives and
facilitate client contacts. Papyrus, our fine paper merchant chain, distributes our fine paper products for use in graphic printing. In addition, our wholly-owned subsidiaries, including Puumerkki Oy and Stora Enso Timber, sell timber products on
both a wholesale and retail basis. We sell market pulp through our wholly-owned subsidiaries.



Intellectual Property



We hold a
number of patents in Finland, Sweden, the United States and other countries, mostly in the areas of bio-bleaching, forestation and liquid and food packaging. We intend to maintain our patents and to file applications for any inventions, which we
deem important to our business operations. Consistent with the industry in which we operate, our operations are not dependent to a significant extent on our patents.



Transportation and Logistics



We
are one of Europes largest consumers of transportation services by volume. While we manage the transport and distribution of our products internally, we utilize services of various suppliers in the transport field. Transportation costs, a
significant portion of which is outsourced, represented approximately 11 percent of our 2004 sales. We select transportation service providers based on long-term cost efficiency, quality, customer requirements, flexibility and environmental
awareness.



Transport from the Nordic region is handled through
various means, including by sea, truck and rail. Goods from our Central European mills are transported and distributed on the European continent primarily by truck. In 2000, we introduced BasePort, a new transport system for our Swedish exports. One
key component of the new system is an intermodal carrier for use in shipments by rail and sea. Another key component on the sea route between Gothenburg, Sweden, and Zeebrugge, Belgium, are the new roll-on/roll-off vessels, which are ships that
permit direct vehicle loading. We are implementing the BasePort system gradually over a five-year period. We expect the system to result in cost-savings in transport efficiency, a reduction in emissions and energy consumption per unit weight of
goods by nearly one-half, and improved customer service.



In
November 2003, we entered into a new long-term agreement with Forth Ports PLC for provision of a new paper terminal facility at the Port of Tilbury, outside of London in the United Kingdom. The 15-year agreement enables us to use the Port of Tilbury
as our southern entry port in the United Kingdom, for handling newsprint and other paper products from Sweden and Finland.



Environmental Matters



Environmental
Regulation



Operation of Production
Facilities.    We operate in an industry which is subject to comprehensive environmental regulation and governmental supervision. Environmental standards are established by regulatory and administrative norms and
environmental permits and licenses. Violations of these regulations and permits could result in fines, injunctions, including orders to cease the violating operations and to improve, or pay for the improvement of, the condition of the environment in
the affected area, or other penalties. Environmental permits



32



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are subject to modification and revocation by the issuing authorities and must be periodically updated. Management believes that we are in substantial
compliance with the environmental laws and regulations applicable to us and that, in general, our discharges and emissions are within or well below levels established by regulation or permits. In those cases where permit limits are exceeded or other
infractions occur, we take prompt action to correct the situation, working cooperatively with the authorities.



We invest substantial capital resources on environmental compliance and monitoring of the environment. In 2004, we spent 261 million on capital
expenditures and operating and maintenance costs relating to environmental compliance, compared to 254 million in 2003 and 250 million in 2002. The variability in our capital expenditure and operating and maintenance costs for
environmental compliance is attributable to the fact that our capital projects for such matters are generally large, although few in number. We expect these amounts generally to decrease over time as capital projects are completed. In addition, we
routinely incur costs for the remediation of environmental conditions at our various facilities. Our major current remediation projects include decommissioning activities at the Falun mine in Sweden, the clean-up of mercury contamination at the
former chloralkali plant at Skoghall in Sweden, the final safe disposal of mercury at the Skutskär harbor in Sweden and the remediation of soil contamination by chlorophenols, dioxins and furanes at the former Pateniemi sawmill in Oulu,
Finland. We currently estimate that our future liabilities relating to our past practices and those of our predecessors will total approximately 45 million.



The U.S. Clean Air Act Amendments of 1990 establish Maximum Achievable Control Technology (MACT) standards to
reduce air emissions of hazardous air pollutants. The MACT standards for different industrial categories are being developed by the U.S. Environmental Protection Agency (EPA). On April 15, 1998, the EPA issued MACT regulations governing
air emissions and water emissions from the pulp and paper industry, known as the Cluster Rules. Compliance with various phases of the Cluster Rules is expected to reduce the industrys toxic air pollutant emissions and virtually eliminate all
dioxin discharged from pulp, paper and paperboard mills into rivers and other surface waters. We are in compliance with the first phase of such rules, which became effective on April 15, 2001. The second phase of such rules will become effective on
April 17, 2006. We are also in compliance with the MACT regulations applicable to kraft pulp mill, lime kiln, recovery boiler and smelt dissolving tank sources which became effective on March 13, 2004. Compliance with the paper and other web coating
MACT standards will be required by December 5, 2005. We are not anticipating significant expenditures to comply with the paper and other web coating MACT standards. On September 13, 2004, EPA finalized the industrial boiler MACT regulations.
Compliance with the regulations is required by September 13, 2007. These regulations impact 11 existing solid fuel boilers at our facilities in the United States. We continue to review compliance options to develop cost effective compliance plans.
The regulations contain significant recordkeeping, monitoring and reporting requirements.



On March 21, 2000, the EPA issued a notice of violation and a finding of violation to our Wisconsin Rapids pulp mill alleging violations of the Prevention of Significant Deterioration and New Source Performance
Standard requirements of the Clean Air Act, relating to projects implemented at the mill between 1983 and 1991. EPA is seeking a penalty of $7.85 million and the installation of additional air pollution control equipment. The mill is continuing to
defend against these allegations.



On July 11, 2002, the EPA
issued a notice of violation and a finding of violation to the Niagara mill alleging violations of the Prevention of Significant Deterioration and New Source Performance Standard requirements of the Clean Air Act, relating to projects implemented at
the mill from 1995 to 1997. The mill has provided the EPA with all information requested and continues to defend against the allegations.



Forestry and Wood Procurement.    Our wood procurement strives for balancing the economic, environmental and social aspects of
sustainability. We believe that our wood procurement operations meet the requirements of all applicable policy, legal and regulatory obligations in the host jurisdiction. Much of the environmental legislation to which we are subject is intended to
preserve natural biodiversity of forests and create a legal framework for long-term sustainability of forest management. We strive to gain acceptance and



33



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recognition for our forest management and wood procurement practices through certification by independent parties. In 2004, approximately 48 percent of all
the wood used by us (excluding externally purchased chips) came from certified forests. Our wood procurement operations in the United States received ISO 14001 certification in 2002, while our Canadian wood procurement has been operating with an ISO
14001 certificate since 1998.



We do not purchase wood from
protected areas or areas in the process of designation for protection, unless purchases are clearly in line with the relevant conservation regulations and goals. We also do not purchase wood from old-growth forests. Our wood traceability system,
which enables us to verify the sustainability and legality of wood sources, covered 98 percent of our wood supply at the end of 2004.



Content of Recycled Fiber.    In recent years, forest products companies have been subject to increasing pressure to use
renewable resources in the manufacture of their products and to manufacture recyclable products. In some jurisdictions where we operate, legislation has been enacted to require minimum levels of recycled fiber in forest industry products. In 2004,
we used approximately 2.4 million metric tons of recycled paper in the manufacture of our products.



Environmental Management



Environmental matters are an integral part of our operations and corporate planning. We have adopted a policy regarding environmental and social responsibility in which we commit ourselves to developing our business in accordance with the
principles of ecological, social and economic sustainability. The policy stresses the importance of renewable and recycled raw materials in production. We are committed to increased transparency and strict adherence with environmental legislation,
as well as to the various other standards and customs in each country where we operate, with an aim to go beyond these norms when possible.



Our Total Quality Management system serves as a link between our environmental policies and environmental protection and acts as an umbrella for a wide
range of management areas, including environmental management systems (EMAS and ISO 14001). By March 2003, 100 percent of our pulp, paper and board production capacity was covered by EMAS environmental management systems (the EU Eco Management and
Audit Scheme) and/or ISO 14001 certification. We believe that attention to environmental issues and introduction of environmental management systems will enhance our interaction with various interest groups, increase employee participation and
generally promote our environmental awareness.



In 2004, most
of our environmental parameters, which generally follow production levels, were lower than in 2003. This was mainly due to the higher utilization rates of our production facilities in 2004. The higher utilization rate resulted from fewer production
curtailments in 2004 compared to 2003 since the curtailments generally result in higher emission levels than what would have occurred if production would continue steadily at full capacity. In 2004, as compared to 2003, significant reductions were
achieved in all discharges into water, with reductions normalized for production volume amounting to approximately 7 percent of nitrogen and approximately 7 to 8 percent of AOX and COD and approximately 16 percent of phosphours. Land filling of
solid waste normalized for production volume, however, increased by approximately 9 percent. Due to our significant improvements in the reduction of land filling in the recent years, including a 25 percent reduction in 2002, the performance on land
filling is currently at a level where annual fluctuations in performance affect the overall performance more than single improvements. The increase in land fillings in 2004 was principally due to specific circumstances at three landfills. At the
Duluth mill in the United States, less waste than previously can be used to cover landfills due to the new limitations set by the State of Minnesota. At the Maxau mill in Germany, the waste generated during the rebuilding of paper machine no. 6 has
resulted in a temporary increase in land fillings. Also, reduced demand for construction material at one of our landfill sites has resulted in increased amounts of waste material being placed in a landfill from our Biron mill in the United States.



We have been included in the Dow Jones Sustainability Indexes
from the year 1999.



34



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Significant Subsidiaries



Stora
Enso Oyj, our parent company, holds approximately 20 percent of the operating assets of the Stora Enso group, including packaging board and fluting mills in Imatra and Heinola in Finland, fine paper mills in Imatra, Oulu, Kemi and Varkaus in
Finland, and a magazine paper mill in Kemi in Finland. Our subsidiaries conduct the substantial majority of the operations of the Stora Enso group and directly own the substantial majority of the assets of the Stora Enso group.



We have the following significant subsidiaries:



| |  |  | Stora Enso North America Inc. is a holding company for our operations in North America. It is incorporated in the United States and has its registered office in Wilmington,
Delaware. It had issued share capital of $1,913 million and paid us no dividends in the year ended December 31, 2004. Our parent company owns 85.8 percent of the issued and outstanding shares of Stora Enso North America Corp, while the remaining
14.2 percent is owned by Stora Enso News AB, a wholly-owned subsidiary of Stora Enso AB.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Stora Enso AB is the holding company for the shares in our Swedish companies. It is incorporated in Sweden and has its registered office in Falun. It has issued share capital
of SEK 1,000 million. It acquired all the remaining assets of Stora Kopparbergs Bergslags AB, a wholly-owned subsidiary of our parent company, in June 2003. Before the acquisition, Stora Kopparbergs Bergslags AB paid us dividends of SEK 15,000
million. Stora Enso AB paid us no dividend in the year ended December 31,2004. Our parent company owns all of the issued and outstanding shares of Stora Enso AB.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Stora Enso Beteiligungen GmbH is a holding company for our operations in Germany. It is incorporated in Germany and has its registered office in Düsseldorf. It has
issued share capital of 106.2 million. Stora Kopparbergs Bergslags AB sold all the outstanding shares of Stora Enso Beteiligungen GmbH to our parent company in June 2003. Stora Enso Beteiligungen GmbH paid no dividends to our parent company in
the year ended December 31, 2004.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Property, Plants and Equipment



We own our registered office located at Kanavaranta 1, Helsinki, Finland. We rent our other principal executive office in Stockholm and our international office in London. We generally own our manufacturing facilities. In addition to
manufacturing facilities, we own a number of other facilities, including warehouses, distribution centers and shipping terminals.



The following table lists our principal manufacturing facilities:



|                  |  |               |  |                                                                |  |                                                            
|----------------- |  | ------------- |  | -------------------------------------------------------------- |  | -----------------------------------------------------------
|Mill              |  | Location      |  | Grade/Product                                                  |  | Capacity as of December 31, 2004 (thousands of metric tons)
|Publication Paper |  |               |  |                                                                |  | 8,155                                                      
|Anjala            |  | Finland       |  | Machine finished coated, improved newsprint, book              |  | 515                                                        
|Biron             |  | United States |  | Light-weight coated                                            |  | 345                                                        
|Corbehem          |  | France        |  | Light-weight coated                                            |  | 555                                                        
|Duluth            |  | United States |  | Supercalendered                                                |  | 235                                                        
|Hylte             |  | Sweden        |  | Newsprint                                                      |  | 830                                                        
|Kabel             |  | Germany       |  | Light-weight coated, medium-weight coated, heavy-weight coated |  | 615                                                        
|Kimberly          |  | United States |  | Light-weight coated                                            |  | 75                                                         
|Kotka             |  | Finland       |  | Machine finished coated                                        |  | 170                                                        
|Kvarnsveden       |  | Sweden        |  | Supercalendered, newsprint                                     |  | 730                                                        
|Langerbrugge      |  | Belgium       |  | Supercalendered, newsprint, improved newsprint                 |  | 560                                                        



35



---

|                                 |  |                 |  |                                                                                    |  |                                                            
|-------------------------------- |  | --------------- |  | ---------------------------------------------------------------------------------- |  | -----------------------------------------------------------
|Mill                             |  | Location        |  | Grade/Product                                                                      |  | Capacity as of December 31, 2004 (thousands of metric tons)
|Maxau                            |  | Germany         |  | Supercalendered, newsprint                                                         |  | 685                                                        
|Niagara                          |  | United States   |  | Light-weight coated                                                                |  | 220                                                        
|Port Hawkesbury                  |  | Canada          |  | Supercalendered, newsprint                                                         |  | 570                                                        
|Reisholz                         |  | Germany         |  | Supercalendered                                                                    |  | 215                                                        
|Sachsen                          |  | Finland         |  | Newsprint, directory                                                               |  | 340                                                        
|Summa                            |  | Finland         |  | Machine finished, newsprint, improved newsprint                                    |  | 405                                                        
|Varkaus                          |  | Finland         |  | Directory, improved newsprint, newsprint                                           |  | 285                                                        
|Veitsiluoto                      |  | Finland         |  | Light-weight coated, medium-weight coated                                          |  | 440                                                        
|Whiting                          |  | United States   |  | Light-weight coated                                                                |  | 210                                                        
|Wolfsheck                        |  | Germany         |  | Supercalendered, wallpaper base                                                    |  | 155                                                        
|                                 |  |                 | 
|Fine Paper                       |  |                 |  |                                                                                    |  | 4,575                                                      
|Berghuizer                       |  | The Netherlands |  | Wood free uncoated                                                                 |  | 235                                                        
|Grycksbo                         |  | Sweden          |  | Wood free coated                                                                   |  | 280                                                        
|Imatra                           |  | Finland         |  | Wood free uncoated, coated specialties                                             |  | 300                                                        
|Kimberly                         |  | United States   |  | Wood free coated, coated specialties                                               |  | 485                                                        
|Nymölla                          |  | Sweden          |  | Wood free uncoated                                                                 |  | 470                                                        
|Oulu                             |  | Finland         |  | Wood free coated                                                                   |  | 970                                                        
|Stevens Point                    |  | United States   |  | Wood free coated, coated specialties                                               |  | 155                                                        
|Suzhou                           |  | China           |  | Wood free coated                                                                   |  | 170                                                        
|Uetersen                         |  | Germany         |  | Wood free coated, coated specialties                                               |  | 270                                                        
|Varkaus                          |  | Finland         |  | Wood free coated, wood free uncoated                                               |  | 325                                                        
|Veitsiluoto                      |  | Finland         |  | Wood free coated                                                                   |  | 550                                                        
|Wisconsin Rapids                 |  | United States   |  | Wood free coated, coated specialties                                               |  | 365                                                        
|                                 |  |                 | 
|Packaging Boards Consumer Boards |  |                 |  |                                                                                    |  | 2,600                                                      
|Baienfurt                        |  | Germany         |  | Folding boxboard                                                                   |  | 205                                                        
|Barcelona                        |  | Spain           |  | White line chipboard                                                               |  | 170                                                        
|Fors                             |  | Sweden          |  | Folding boxboard                                                                   |  | 360                                                        
|Imatra                           |  | Finland         |  | Solid bleached sulphate board, liquid packaging boards, folding boxboard           |  | 895                                                        
|Ingerois                         |  | Finland         |  | Folding boxboard                                                                   |  | 200                                                        
|Pankakoski                       |  | Finland         |  | Folding boxboard, wood pulp board solid bleached sulphate board,                   |  | 95                                                         
|Skoghall                         |  | Sweden          |  | Liquid packaging boards, folding boxboard, white top linerboard, coated craft back |  | 675                                                        
|                                 |  |                 | 
|Industrial papers                |  |                 |  |                                                                                    |  | 715                                                        
|Heinola                          |  | Finland         |  | Fluting                                                                            |  | 280                                                        
|Imatra                           |  | Finland         |  | Laminating papers                                                                  |  | 25                                                         
|Kotka                            |  | Finland         |  | Laminating papers                                                                  |  | 160                                                        
|Ostroleka                        |  | Poland          |  | Testliner, recovered paper, sack and wrapping papers                               |  | 250                                                        
|                                 |  |                 | 
|Coreboard                        |  |                 |  |                                                                                    |  | 330                                                        
|Pori                             |  | Finland         |  | Coreboard                                                                          |  | 120                                                        
|Soustre                          |  | France          |  | Coreboard                                                                          |  | 85                                                         
|Varkaus                          |  | Finland         |  | Coreboard                                                                          |  | 90                                                         
|Wisconsin Rapids                 |  | United States   |  | Coreboard                                                                          |  | 35                                                         
|                                 |  |                 | 
|Total Packaging Paper and Board  |  |                 |  |                                                                                    |  | 3,645                                                      



36



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|                       |  |                 |  |                                  |  |                                                            
|---------------------- |  | --------------- |  | -------------------------------- |  | -----------------------------------------------------------
|Mill                   |  | Location        |  | Grade/Product                    |  | Capacity as of December 31, 2004 (thousands of metric tons)
|Plastic Coating Plants |  |                 |  |                                  |  | 500                                                        
|Forshaga               |  | Sweden          |  | Plastic coating                  |  | 140                                                        
|Hammarby               |  | Sweden          |  | Plastic coating                  |  | 35                                                         
|Imatra                 |  | Finland         |  | Plastic coating                  |  | 280                                                        
|Karhula                |  | Finland         |  | Plastic coating                  |  | 45                                                         
|                       |  |                 | 
|Core Factories         |  |                 |  |                                  |  | 215                                                        
|Hangyhou               |  | China           |  | Cores                            |  | 20                                                         
|Corenso Edam           |  | The Netherlands |  | Cores                            |  | 10                                                         
|Corenso Elfes          |  | Germany         |  | Cores                            |  | 35                                                         
|Corenso Svenska        |  | Sweden          |  | Cores                            |  | 30                                                         
|Corenso Tolosana       |  | Spain           |  | Cores                            |  | 15                                                         
|Corenso UK             |  | United Kingdom  |  | Cores                            |  | 40                                                         
|Imatra                 |  | Finland         |  | Cores                            |  | 5                                                          
|Loviisa                |  | Finland         |  | Cores                            |  | 20                                                         
|Pori                   |  | Finland         |  | Cores                            |  | 15                                                         
|Wisconsin Rapids       |  | United States   |  | Cores                            |  | 25                                                         
|                       |  |                 | 
|Corrugated Packaging   |  |                 |  |                                  |  | 930                                                        
|Arzamas                |  | Russia          |  | Corrugated Packaging             |  |                                                            
|Balabanovo             |  | Russia          |  | Corrugated Packaging             |  |                                                            
|Heinola                |  | Finland         |  | Corrugated Packaging             |  |                                                            
|Jönköping              |  | Sweden          |  | Corrugated Packaging             |  |                                                            
|Kalingrad              |  | Russia          |  | Corrugated Packaging             |  |                                                            
|Kaunas                 |  | Lithuania       |  | Corrugated Packaging             |  |                                                            
|Klaibeda               |  | Lithuania       |  | Corrugated Packaging             |  |                                                            
|Lahti                  |  | Finland         |  | Corrugated Packaging             |  |                                                            
|Páty                   |  | Hungary         |  | Corrugated Packaging             |  |                                                            
|Riga                   |  | Latvia          |  | Corrugated Packaging             |  |                                                            
|Ruovesi                |  | Finland         |  | Corrugated Packaging             |  |                                                            
|Skene                  |  | Sweden          |  | Corrugated Packaging             |  |                                                            
|Tallinn                |  | Estonia         |  | Corrugated Packaging             |  |                                                            
|Tartu                  |  | Estonia         |  | Corrugated Packaging             |  |                                                            
|Tiukka                 |  | Finland         |  | Corrugated Packaging             |  |                                                            
|Vikingstad             |  | Sweden          |  | Corrugated Packaging             |  |                                                            
|                       |  |                 | 
|Chemical Pulp          |  |                 |  |                                  |  | 5,210                                                      
|Celbi                  |  | Portugal        |  | Short-fiber eucalyptus           |  | 305                                                        
|Enocell                |  | Finland         |  | Short and long-fiber             |  | 635                                                        
|Kaukopää               |  | Finland         |  | Short and long-fiber             |  | 860                                                        
|Kemijärvi              |  | Finland         |  | Long-fiber                       |  | 245                                                        
|Kotka                  |  | Finland         |  | Long-fiber                       |  | 170                                                        
|Norrsundet             |  | Sweden          |  | Long-fiber                       |  | 295                                                        
|Nymölla                |  | Sweden          |  | Short and long-fiber             |  | 325                                                        
|Oulu                   |  | Finland         |  | Short and long-fiber             |  | 375                                                        
|Skutskär               |  | Sweden          |  | Short, long-fiber and fluff pulp |  | 550                                                        
|Skoghall               |  | Sweden          |  | Short and long-fiber             |  | 285                                                        
|Tainionkoski           |  | Finland         |  | Long-fiber                       |  | 175                                                        
|Wisconsin Rapids       |  | United States   |  | Short and long-fiber             |  | 415                                                        
|Varkaus                |  | Finland         |  | Short and long-fiber             |  | 215                                                        
|Veitsiluoto            |  | Finland         |  | Short and long-fiber             |  | 360                                                        
|                       |  |                 | 
|Deinked Pulp           |  |                 |  |                                  |  | 1,880                                                      
|Duluth                 |  | United States   |  | Deinked pulp                     |  | 100                                                        
|Hylte                  |  | Sweden          |  | Deinked pulp                     |  | 360                                                        
|Keräyskuitu            |  | Finland         |  | Deinked pulp                     |  | 70                                                         
|Langerbrugge           |  | Belgium         |  | Deinked pulp                     |  | 650                                                        
|Maxau                  |  | Germany         |  | Deinked pulp                     |  | 280                                                        
|Sachsen                |  | Germany         |  | Deinked pulp                     |  | 420                                                        



37



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|                                    |  |                 |  |                         |  |                                                  |  |                                                                   
|----------------------------------- |  | --------------- |  | ----------------------- |  | ------------------------------------------------ |  | ------------------------------------------------------------------
|Mill                                |  | Location        |  | Grade/Product           |  | Capacity as ofDecember 31, 2004(m3 in thousands) |  | Further processingcapacity as ofDecember 31, 2004(m3 in thousands)
|Wood Products                       |  |                 |  |                         |  | 7,720                                            |  | 3,207                                                             
|Ala                                 |  | Sweden          |  | Redwood                 |  | 360                                              |  | 25                                                                
|Alytus (66% interest)               |  | Lithuania       |  | Whitewood, Redwood      |  | 180                                              |  | 90                                                                
|Amsterdam                           |  | The Netherlands |  |                        |  |                                                 |  | 110                                                               
|Bad St. Leonhard                    |  | Austria         |  | Central European Timber |  | 360                                              |  | 240                                                               
|Brand                               |  | Austria         |  | Central European Timber |  | 420                                              |  | 250                                                               
|Gruvön                              |  | Sweden          |  | Whitewood, Redwood      |  | 360                                              |  | 150                                                               
|Honkalahti                          |  | Finland         |  | Whitewood, Redwood      |  | 420                                              |  | 120                                                               
|Imavere (66% interest)              |  | Estonia         |  | Whitewood, Redwood      |  | 400                                              |  | 120                                                               
|Impilahti                           |  | Russia          |  | Whitewood               |  | 100                                              |  |                                                                  
|Kitee                               |  | Finland         |  | Whitewood               |  | 390                                              |  | 120                                                               
|Kopparfors                          |  | Sweden          |  | Whitewood               |  | 270                                              |  | 150                                                               
|Kotka                               |  | Finland         |  | Whitewood               |  | 320                                              |  | 60                                                                
|Lamco (51% interest)                |  | Austria         |  |                        |  |                                                 |  | 85                                                                
|Lauhkalne (66% interest)            |  | Latvia          |  | Whitewood, Redwood      |  | 215                                              |  |                                                                  
|Linghed                             |  | Sweden          |  | Redwood                 |  | 40                                               |  |                                                                  
|Nebolchi                            |  | Russia          |  | Whitewood               |  | 120                                              |  |                                                                  
|Näpi (66% interest)                 |  | Estonia         |  | Whitewood, Redwood      |  | 150                                              |  | 80                                                                
|Paikuse (66% interest)              |  | Estonia         |  | Whitewood               |  | 220                                              |  | 80                                                                
|Plana                               |  | Czech Republic  |  | Central European Timber |  | 350                                              |  | 225                                                               
|Sauga (66% interest)                |  | Estonia         |  | Whitewood, Redwood      |  | 130                                              |  | 90                                                                
|Sollenau                            |  | Austria         |  | Central European Timber |  | 410                                              |  | 310                                                               
|Tolkkinen                           |  | Finland         |  | Whitewood               |  | 270                                              |  |                                                                  
|Uimaharju                           |  | Finland         |  | Redwood                 |  | 300                                              |  |                                                                  
|Varkaus                             |  | Finland         |  | Whitewood               |  | 345                                              |  | 100                                                               
|Veitsiluoto                         |  | Finland         |  | Redwood                 |  | 300                                              |  |                                                                  
|Vilnandi (66% interest)             |  | Estonia         |  |                        |  |                                                 |  | 12                                                                
|Wimmer, Pfarrkirchen (66% interest) |  | Germany         |  |                        |  |                                                 |  | 170                                                               
|Wimmer, Zdirec (49% interest)       |  | Czech Republic  |  |                        |  |                                                 |  | 130                                                               
|Ybbs                                |  | Austria         |  | Central European Timber |  | 700                                              |  | 400                                                               
|Zdirec                              |  | Czech Republic  |  | Central European Timber |  | 590                                              |  | 60                                                                



38



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Item 5.    Operating and Financial Review and Prospects.



Please refer to Forward-Looking Statements and Item 3. Key InformationRisk Factors for a discussion of the factors relevant
to this discussion and other forward-looking statements in this annual report.



General



The information in this
section concerning our financial condition and results of operations refers to our consolidated financial statements beginning on page F-1 of this annual report.



Our consolidated financial statements are prepared in accordance with IFRS, which varies in certain significant respects
from U.S. GAAP. Information relating to the nature and effect of such differences is presented in note 31 to our consolidated financial statements.



Industry Overview



Prices for
paper and board are cyclical, primarily reflecting changes in supply that result from capacity additions and reductions, as well as changes in inventory levels. Changes in prices differ between products and geographic regions. Because paper
producers have a high proportion of fixed costs, these fluctuations in prices for forest products cause corresponding fluctuations in profitability. Profitability in the forest products industry is also affected by changes in raw material costs,
efficiency of operations and prevailing exchange rates between producer and consumer countries.



In the past, consumption of most paper grades by end-users has increased steadily by approximately 2-3 percent per year, and levels of consumption have
not typically followed price fluctuations. In contrast, demand for paper and board products by customers of paper producers has fluctuated significantly, suggesting that customer demand is driven by a combination of end-user consumption and changes
in the levels of inventory that customers maintain. Some customers aim to build inventories in anticipation of increases in paper and board prices and then satisfy end-user demand from their inventories when paper and board prices are high.



Gross domestic product rates have traditionally been a leading
indicator for increases in paper and board consumption, although population growth and urbanization are key elements affecting future consumption in various locations. Ongoing restructuring in both supplier chain and customer base and changing
consumer behavior patterns also influence the market, resulting in a need for greater cost competitiveness and enhanced levels of service.



The following tables set forth estimated global consumption of paper and board in 2004(1):



|                      |  |                |  |               |  |                 
|--------------------- |  | -------------- |  | ------------- |  | ----------------
|                      |  | Western Europe |  | North America |  | Asia and Oceania
|                      |  | (million tons)
|Standard newsprint    |  | 9.0            |  | 11.0          |  | 12.5            
|Uncoated mechanical   |  | 5.9            |  | 6.0           |  | 2.2             
|Coated magazine paper |  | 6.9            |  | 6.0           |  | 2.8             
|Coated fine paper     |  | 8.1            |  | 5.4           |  | 10.5            
|Uncoated fine paper   |  | 9.6            |  | 12.9          |  | 20.5            
|Containerboards       |  | 20.8           |  | 31.5          |  | 40.8            
|Cartonboards          |  | 6.8            |  | 13.4          |  | 15.1            

---

|(1) |  | Source: Resource Information Systems, Inc. (RISI), February 2005 and EMGE & Co Ltd. (EMGE), February 2005.
|--- |  | --------------------------------------------------------------------------------------------------------------



In 2004, the slowdown in the world economy, which began in 2001, continued to
cause uncertainty in the market for forest industry products for the fourth year. However, demand strengthened during 2004 in advertising-driven paper grades and deliveries of publication and fine paper increased by 6-8 percent but the prices
remained at low levels due to overcapacity in the supply. The packaging board market was stable in 2004 with respect to both demand and prices. Demand for products was strong in whitewood but the redwood market was weaker due to European over
capacity.



39



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In 2003, demand for advertising-driven paper grades stayed at a low level. Paper prices in Europe stayed
at a low level during 2003 due to excess capacity in certain paper grades. In North America, the moderate growth that started in late 2002 accelerated towards the end of 2003, resulting in increases in North American prices for newsprint and
magazine paper



Demand for advertising-driven paper grades fell
sharply in 2002. Paper prices in Europe decreased during 2002 due to excess capacity in certain grades. In North America, demand for printing and writing paper increased towards the end of 2002, resulting in increases in North American prices for
newsprint and fine paper.



In 2001, declining market prices for
paper and board, except for newsprint, led to lower profitability in the industry. Weak demand in 2001 was due to the slowdown in the world economy, particularly in North America, and decreasing of inventories by the customers, which began during
the last quarter of 2000. The principal producers in our respective industries made production curtailments in 2001 to avoid inventory increases.



Generally higher paper prices in 2000 resulted in improved profitability in the industry. In 2000, prices for almost all of our products increased as a
result of good general economic conditions and a favorable supply situation. The principal exceptions were magazine paper and newsprint prices in Europe, which remained stable.



In 2004, our principal variable costs related to transport and sales commissions, accounting for approximately 11 percent of
sales; wood, timber and recycling paper, accounting for approximately 19 percent of sales; chemicals and filler, accounting for approximately 11 percent of sales; and energy, accounting for approximately 7 percent of sales. Historically, these
percentages have remained relatively stable and have not varied significantly during the periods under review below. However, prices for wood and timber and for energy may fluctuate significantly, affecting our profitability.



We are an integrated paper producer, meaning that we are able to satisfy a
substantial portion of our pulp needs internally since our purchases and sales of pulp on the market are largely in balance. As an integrated producer, we are less affected by increases in pulp prices than non-integrated producers. To the extent we
produce our own pulp, we may be able to increase the utilization rates of our production facilities.



We intend to continue to reduce production costs and improve the efficiency of our operations and the utilization of our production facilities. We expect
improvement in production efficiencies to result from a combination of synergies resulting from various acquisitions, ongoing investments in existing operations and the discontinuation of under-performing operations. We are implementing productivity
programs in our mills and expect additional cost savings from the elimination of production bottlenecks, modernization of equipment and rebuilding of paper machines.



Among fixed-cost components, personnel costs accounted for approximately 17 percent of sales and depreciation, amortization
and impairment charges amounted to approximately 9 percent of sales in 2004. A 1 percent increase in payroll costs would increase our total personnel costs by approximately 22 million.



Outlook



In Europe, demand for
advertising-driven paper grades is expected to remain healthy in 2005. During the first three months of 2005, prices in local currencies have increased by approximately 5 to 7 percent in newsprint and approximately 3 to 5 percent in magazine paper.
Demand for fine paper is expected to be good, with coated fine paper prices being stable, but uncoated fine paper prices being under pressure partly due to increased competition and the weakening of the U.S. dollar. Demand for packaging board is
expected to 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 the business suffers from overcapacity and weak
currencies in the main export markets.



In North America, print
advertising expenditure has remained robust. However, strong paper demand and increased selling prices are attracting additional imports mainly from Asia, especially in fine paper sheets. Price



40



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increases for magazine paper grades and coated fine paper will be implemented in April 2005. Market conditions are expected to remain favorable and operating
rates high. The profit enhancement plan is expected to continue to improve performance, although the financial results for the first half of 2005 will be affected by downtime due to the rebuilding of paper machine no. 26 at Biron Mill. The shutdown
of this paper machine is estimated to take approximately three weeks and to result in 10,000 tons of production lost.



Asian markets have stabilized and prices increased somewhat during the first three months of 2005.



Although the demand outlook is generally positive, we expect that Group
profits will be adversely affected in 2005 by the continued weakness of the U.S. dollar and costs related to rebuilds at the publication paper mills in Langerbrugge (40 000 tons of production lost), Summa (15 000 tons), Corbehem (31 000 tons) and
Biron (10 000 tons), with the related shutdowns scheduled to take from three to six weeks at each mill. Furthermore, we believe that our financial performance will continue to be adversely affected by rising energy and chemical costs.



The economic consequences of the storms in Northern Europe in
January 2005 cannot yet be accurately estimated, but the wood cost is expected to decrease somewhat for our Nordic mills in 2005. Notwithstanding the near-term challenges to the Groups profitability, we currently expect that our financial
result for the full year 2005 will exceed that of 2004.



Recent Developments



Recent Divestitures



Since the merger of STORA and Enso, we have been actively
streamlining our operations. As part of these efforts, we have divested non-core businesses such as our carbonless copy paper operations and our Tervakoski speciality papers operations. Additionally, we have sold a substantial portion of our power
generation operations that are not located at one of our mills. With these and other selective divestitures, we have increased our focus on our core businesses.



Paper.    In April 2002, we sold our Mölndal mill in Sweden to KLIPPAN AB, a Swedish speciality paper manufacturer, for
a total purchase price of 25 million. We recorded no gain as a result of the sale. The total fine paper capacity of Mölndal mill was 80,000 metric tons. In addition, the mills board sheeting capacity was 40,000 metric tons.
Approximately 400 employees were affected by the transaction.



Packaging Boards.    In November 2000, we established a 50/50 joint venture, Billerud Ab, a Swedish manufacturer of packaging paper, together with AssiDomän Ab, a Swedish manufacturer of timber products and
cartonboard. The assets of Billerud consist of the Gruvön mill as well as the Karlsborg and Skärblacka mills in Sweden, which AssiDomän transferred to Billerud in exchange for 50 percent interest in Billerud. In October 2001, we sold
20 percent of the shares of Billerud to AssiDomän Ab for 62.8 million and, in June 2002, a further 29.5 percent of the shares of Billerud through market transactions for 182 million, reducing our interest in Billerud to 0.5 percent.



Forest Land.    In October 2004, we
sold our majority shareholding in PT Finnantara Intiga, the owner of the Finnantara plantation in West Kalimantan, Indonesia, to Global Forest Ltd., which is part of the Sinar Mas Group. The book value of the plantation at sale was 21.8
million and the disposal resulted in an overall profit of 2.4 million.



In March 2004, we completed the restructuring of our ownership of forest land in Sweden. Pursuant to the restructuring, a total of approximately 1.5 million hectares (approximately 3.7 million acres) of our Swedish
forest land and the Swedish forest land of Korsnäs AB, a Swedish forest industry company controlled by Kinnevik Group, were transferred to a newly-formed company Bergvik Skog AB. Stora Enso and Korsnäs retained minority shareholdings of
43.3 percent and 5 percent, respectively, in Bergvik Skog. The rest of the companys shares were sold to institutional investors. Bergvik Skog was also financed with a syndicated bank



41



---

loan. As a result of the sale, we recorded a gain of 113 million. We have entered into a long-term wood procurement agreement with Bergvik Skog,
according to which it will sell us approximately 4.5 million cubic meters of wood annually.



Also in March 2004, we sold 146,000 hectares of our forest land in Ontario, Canada, for 18 million. In December 2003, we wrote down the book value of our forest land in Ontario by 17.6 million.



In December 2002, we sold a total of approximately 125,000 hectares
(approximately 300,000 acres) of our forest land in the United States to Plum Creek Timber Company, Inc. for $141 million (104.2 million). As a result of the sale, we recorded a gain of approximately $46.8 million (34.6 million).



In July 2002, we transferred a total of approximately 600,000
hectares (approximately 1.5 million acres) of our forest land and related operations in Finland to a newly-formed company Tornator Oy and reorganized our forest holding subsidiary Tornator Forest Oy. In December 2002, we transferred the shares in
Tornator Forest Oy to Tornator Timberland Oy, a newly-formed company, in exchange for shares in Tornator Timberland Oy. We currently hold 41 percent of the shares in Tornator Timberland Oy and the remaining 59 percent is held by Finnish
institutional investors. In December 2002, we sold Tornator Oy to Tornator Timberland Oy. As a result of the sale, we recorded a gain of 25.9 million. We have entered into a long-term wood procurement agreement with Tornator Oy and Tornator
Forest Oy, according to which they will sell us approximately 1.5 million cubic meters of wood annually.



Recent Acquisitions



In
March 2005, we signed an agreement to purchase from UPM-Kymmene Corporation its 29 percent minority holding in Corenso United Oy Ltd. which is a leading producer of coreboard and cores and tubes for industrial use. Corenso has four coreboard mills
and 14 core factories in Europe, China and North America and associated companies in Canada and Spain. The transaction is subject to approval of the competition authorities and it is expected to be completed by the end of June 2005.



In March 2005, we completed an acquisition of a leading French paper
merchant, Papeteries de France (PdF), from International Paper for an aggregate acquisition price of 18 million. PdF, which had annual net sales of approximately 160 million and annual sales volume of approximately 160,000
tons of paper in 2004, became part of our Merchants division, Papyrus.



In December 2004, we completed an acquisition of 65.5 percent of the Polish packaging producer Intercell S.A. from private shareholders and the International Finance Corporation for an aggregate acquisition price of 131.8 million,
including net cash and costs of 37.9 million. The fair value of the net assets acquired amounted to 201.2 million and although there was no goodwill, intangibles amounted to 16.7 million. The acquisition is part of our strategy of
expanding our packaging board operations and will strengthen our presence in the growing Polish market. Intercell is one of Polands biggest corrugated packaging companies, with integrated operations from waste paper collection to corrugated
packaging production, and has three corrugated packaging plants in Poland, as well as one sack factory in Poland and one in Serbia. In 2004, Intercells net sales were 147 million and it had about 1,900 employees as of December 31, 2004.



In September 2004, we completed our acquisition of the Dutch
paper merchant Scaldia Papier BV from International Paper in order to strengthen our presence in the rapidly changing European paper merchant market and to achieve synergies with our existing Dutch merchant operations. Scaldia had net sales of
104.0 million in 2004 and employed 152 employees as of December 31, 2004. The total purchase price may be subject to minor adjustments, but to date it has been 31.1 million of which goodwill accounted for 6.8 million.



We also made various small acquisitions in Russia in 2004 as part of our
Wood Supply Europe plan to reduce supply risk by securing sources of fibre. We invested 12.2 million in Russian acquisitions in 2004 and



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the fair value of the acquired net assets approximates their cost. As a result of these acquisitions, our fibre procurement from Wood Supply Russia increased
substantially in 2004. As of December 31, 2004, Wood Supply Russia had 1,674 employees, compared to 90 as of December 31, 2003.



In February 2003, we completed the acquisition of 66 percent of the shares in AS Sylvester, the leading sawmilling and wood procurement company in
Estonia, and 100 percent of the shares in the wood procurement subsidiary of Sylvester, for an aggregate purchase price of 122.7 million of which 72.0 million represented goodwill. Sylvester operates six sawmills in Estonia and Latvia
and had net sales of approximately 160 million in 2002 and 1,340 employees as of December 31, 2002. In addition, the purchase agreement included an option to buy out the remaining shares for a consideration to be determined by performance
targets. This option was exercised in March 2005 for a purchase price of 42 million, upon which, subject to a small minority of 3.8 percent in the Imavere operation, Stora Enso Timbers Baltic operations will be 100 percent owned.



In January 2002, Corenso United Oy Ltd. completed the
acquisition of Bäcke Emballage AB and Mohed Emballage AB, two Swedish core manufacturers, for an aggregate purchase price of 25.6 million. In 2001, the two companies produced in the aggregate approximately 20,000 metric tons of heavy-duty
cores for the paper and board industry and had a total of 55 employees.



Profit Enhancement Plan and Impairment Charges Related to Our North American Assets



In August 2002, our board of directors adopted a profit enhancement plan for our North American operations to improve the divisions results of
operations and competitiveness. The North American operations have been suffering from poor market conditions since the end of 2000, and, with the profit enhancement plan, we aim to focus increasingly on core assets, improve competitiveness in
coated groundwood and fine papers and secure competitive pulp for our North American operations. The organization of our North American operations has been streamlined to match its requirements and targets.



Due to weakened market conditions in North America, we recorded a pre-tax
impairment charge of $1,081.0 million (798.5 million) in 2002 related to impairment of our North American assets. A total of $868.8 million (642.8 million) of the impairment related to goodwill. As of December 31, 2002, the value of the
remaining goodwill related to our North American assets was $645.9 million (477.1 million). The impairment was calculated with a pre-tax discount rate of 9.5 percent using the value in use method for each cash generating unit. Of the
impairment charges, 1,014.5 million relates to the operations of our magazine paper product area and 128.8 million to the operations of our fine paper product area. In addition, as part of the North American profit enhancement plan, a
further $50.0 million (36.9 million) impairment charge relating to the operations of our fine paper product area was recorded in the third quarter of 2002 to restructure selected manufacturing assets.



In 2003, results of our North American operations remained unsatisfactory due
to the persistently weak market conditions and an increased cost base. Consequently, the profit enhancement plan was expanded in August 2003 by a further $65 million (48 million) to reduce annual costs including further workforce reductions
and additional permanent machine shutdowns. During the past three years, our workforce in North America has been reduced by 25 percent, and the implementation of the earlier announced further reduction of 12 percent, or 700 employees, is under way,
along with negotiations to modify the terms of labor agreements. Implementation of the profit enhancement plan is proceeding according to plan. By the end of 2003, three older, under-performing machines with a total annual capacity of 185,000 metric
tons had been permanently shut down, and two other machines had been modified to improve their productivity.



In 2004, our profit enhancement plan was further expanded so that the total number of our North American maintenance personnel would be reduced by a
target of nearly 200 at a cost of $5.5 million (4.4 million).



As part of the profit enhancement plan, we intend to reduce our North American workforce from a total of 7,300 as of December 31, 2000 to a total of 5,000 by mid-2005. As of December 31, 2004, our North American workforce amounted to 5,266
employees, compared to 5,669 employees as of December 31, 2003.



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Asset Restructuring Plan



In May 2002, we announced our decision to invest approximately 70 million in the rebuilding of a folding boxboard machine at the Baienfurt mill
in Germany to improve productivity and increase annual capacity by 35,000 metric tons to 210,000 metric tons. This rebuilding was completed in February 2004.



In April 2002, we closed down our folding carton operations and pasted chip line at our Wisconsin Rapids mill in the United States. The mills
capacity was 25,000 metric tons. In addition, we decided to close down light-weight coated paper machine no. 23 at our Biron mill in the United States. As part of our asset restructuring plan, we are investing approximately $50 million (37
million) during the years 2003, 2004 and 2005 to modernize selected pulp and paper machines in our magazine paper product area, including rebuilding the light-weight coated paper machine no. 26 at our Biron mill, on which we invested $25 million
(18 million) in 2004.



In the magazine paper division, we
are building a new paper machine at a cost of approximately 467.0 million and closing down paper machine no. 9 at the Kvarnsveden mill in Sweden, both scheduled to be completed in 2005; rebuilding paper machine no. 6 at the Maxau mill in
Germany at a cost of approximately 168 million, 111.4 million of which was invested in 2004; rebuilding paper machine no. 5 at the Corbehem mill in France at a cost of approximately 60 million, 25.7 million of which was
invested in 2004; and investing 30 million at the Kotka mill in Finland to improve its quality and productivity.



In the fine paper division, we invested a total of 118 million to upgrade paper machine no. 3 at the Veitsiluoto mill in Finland, 27.5 million
which was invested in 2004. We are also upgrading and modernizing paper machine no. 1 at the Nymölla mill in Sweden, at a cost of approximately 23 million, 12.1 million of which was invested in 2004.



In the publication paper and fine paper divisions, we are replacing the
existing stone groundwood pulp line at the Varkaus mill in Finland by a new thermomechanical pulping line at a total cost of approximately 50 million, of which 37 million is allocated to the publication paper division and 13
million to the fine paper division. In 2004, the investments amounted to 22.8 million by the publication paper division and to 7.4 million by the fine paper division.



In the forest products product area, we modernized and enhanced the Varkaus and Kotka sawmills in Finland at a cost of
approximately 26 million in 2003. We also invested 11 million in the completion of a new sawmill at Pitkäranta in Russia in 2003 and 10 million in the construction of a second sawmill at Nebolchi in Russia in 2003 and 2004.



In North America, we completed the rebuild of a paper machine
at the Kimberly mill in the United States in 2003 at a cost of approximately $13 million (10 million). We are also making targeted investments at the Wisconsin Rapids, Biron, Niagara and Whiting mills in the United States and expand the
thermomechanical pulp line at the Port Hawkesbury mill in Canada. These investments will be balanced by the closure of unprofitable capacity at the Wisconsin Rapids, Biron, Kimberly and Port Hawkesbury mills.



New Organizational Structure



On March 31, 2005, we announced our new organizational structure, which will
take effect from May 1, 2005. We reviewed our organizational structure as a number of key persons will reach retirement age in the next three years, starting with the forthcoming retirement of our deputy chief executive officer Björn
Hägglund on June 1, 2005. The new organization will focus on broadening the experience of a number of our key managers, reducing the number of management levels within our organization, expanding in emerging markets and developing our global
product divisions. For financial reporting purposes these changes will be effective from the second quarter of 2005.



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The Asia Pacific and Latin America geographical divisions will report to the group staff corporate
strategy function in order to strengthen the efforts to grow in emerging markets, including Eastern Europe. In addition, the product divisions are expected to become more involved in growth projects in these markets as a result of the organizational
changes.



Our publication paper and fine paper divisions and
North American operations will each report to our chief executive officer. The process of identifying and achieving synergies within these divisions by the paper product area will continue and be extended to the relevant divisions or corporate staff
functions such as corporate strategy and market services. This is expected to ensure that some of the successful initiatives by the paper product area are implemented throughout our group.



Our speciality paper product area will be transferred to our packaging boards
product area and the merchant division will report to our fine paper division. Our merchant division will remain independent from our fine paper division in order to preserve the required integrity towards suppliers and customers.



The number of our staff functions, which will report to our chief executive
officer, will be reduced from eight to six, namely: finance, accounting, legal and investor relations; corporate IT, human resources and business excellence; market services (sales network and transport and distribution); corporate communications;
corporate support (environment, energy, procurement and research and development); and corporate strategy, investment and business planning.



We have made the following appointments within our executive management in connection with the introduction of our new organizational structure, also
effective from May 1, 2005:



Kai
Korhonen, currently head of Stora Enso paper, has been appointed as senior executive vice president, Stora Enso packaging boards. He continues as a member of our executive management group.



Pekka Laaksonen, currently head of Stora Enso
packaging boards, has been appointed as senior executive vice president, Stora Enso fine paper. He continues as a member of our executive management group.



Jussi Huttunen, currently head of Stora Enso fine paper, has been appointed as senior executive vice president, market Services. He
continues as a member of our executive management group.



Arno Pelkonen, currently head of Stora Enso Forest Products, has been appointed as senior executive vice president, Corporate Strategy and Emerging Markets. He continues as a member of our executive management
group.



Elisabet Salander
Björklund, currently head of Stora Enso wood supply Europe, has been appointed as senior executive vice president, Stora Enso forest products. She becomes a member of our executive management group.



Christer Ågren, currently head of corporate
human resources and total quality management has been appointed as senior executive vice president, IT, human resources and business excellence. He becomes a member of our executive management group.



Esko Mäkeläinen, chief executive financial officer and senior vice
president, finance, accounting and legal affairs; Lars Bengtsson, senior executive vice president, Stora Enso North America; Bernd Rettig, senior vice president, publication paper; and Yngve Stade, senior executive vice president, executive vice
president, corporate support; will continue as members of our executive management group.



Other Recent Developments



On February 3, 2004, we announced our plan to rebuild the boiler 2 at the Hylte mill in Sweden. The project started immediately and is scheduled to be completed in February 2006 at a cost of 40 million.



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In late 2004, the Finnish Ministry of Social Affairs and Health approved certain changes to the Finnish
TEL scheme for disability pension liabilities, effective from January 1, 2006. Because this change to the TEL scheme, which will result in accounting for the disability benefits as a defined contribution plan under IFRS, we recorded a reduction in
personnel expenses amounting to 179.9 million for our defined benefit obligation related to those benefits in 2004.



Currency Fluctuations



We
changed our accounting currency to the euro on January 1, 1999, the date of the introduction of the euro. Since its introduction, we have increasingly used the euro as a pricing currency, although sales also often take place in the customers
own currency. Additionally, long-fiber chemical pulp is generally priced in U.S. dollars. In general, the introduction of the euro has reduced our exposure to exchange rate fluctuations. We remain subject to currency exchange risk, on the cost side,
mainly related to fluctuations in exchange rates for the Swedish krona, and on the income side, mainly related to fluctuations in exchange rates for the U.S. dollar and British pound sterling.



Transaction risk is the risk that our profit could be affected as a result of
foreign exchange rate movements. In accordance with our policy, we can hedge up to 75 percent of our 12-month currency flows outside the euro area. For a more detailed discussion of our management of exchange rate risks, see Item 11.
Quantitative and Qualitative Disclosures about Market Risk below.



During 2004, the U.S. dollar decreased in value against the euro by a total of 9.0 percent when comparing average rates for the year 2003 and the year 2004. The Swedish krona remained largely at same level against the euro in 2004 as in
2003. The British pound sterling increased in value against the euro by a total of 2.0 percent in 2004. During 2003, the U.S. dollar decreased in value against the euro by a total of 16.5 percent when comparing average rates for the year 2002 and
the year 2003. The Swedish krona increased in value against the euro by 0.3 percent in 2003. The British pound sterling decreased in value against the euro by a total of 9.2 percent in 2003. See Item 3. Key InformationExchange
Rates for information about historical euro/U.S. dollar and Swedish krona/U.S. dollar exchange rates.



Critical Accounting Policies



General



Our principal accounting policies are described in more
detail in note 1 to our consolidated financial statements beginning on page F-1 of this annual report. The preparation of our consolidated financial statements in accordance with IFRS requires our management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable. However, actual results and timing
of recognition could differ from those estimates.



Management
believes that the accounting policies discussed below represent those accounting policies requiring the exercise of judgment where a different set of judgments could result in the greatest changes to our reported results.



Fixed Assets



For fixed assets acquired in an acquisition, management uses an external advisor to perform a fair valuation of the acquired
fixed assets and to assist in determining their remaining useful lives. Management believes that the assigned values and useful lives as well as the assumptions used are reasonable under the circumstances. However, different valuation assumptions
and assigned lives could have a significant impact on the amounts reported through our financial statements.



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The carrying amounts of fixed assets are reviewed at each balance sheet date or whenever events or
changes in circumstances indicate that the carrying amount of an asset may be impaired. Triggering events for impairment reviews include, among others, the following:



| |  |  | material permanent deterioration in the economic or political environment of our customers or our own activity;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | significant under-performance relative to expected historical or projected future performance; and
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | significant changes in our strategic orientations affecting the business plans and previous investment policies.
| | - |  | ----------------------------------------------------------------------------------------------------------------



If any such indication exists, the recoverable amount is estimated as the
higher of the net selling price and the value in use with an impairment charge being recognized whenever the carrying amount exceeds the recoverable amount.



Goodwill



Under IFRS, goodwill is tested periodically for impairment but otherwise has historically been amortized on a straight-line basis over its expected useful
life, which varied from five to 20 years depending on the nature of the acquisition. Expected useful lives were reviewed at each balance sheet date and where these differed from previous estimates, amortization periods were adjusted accordingly.
IFRS 3 came into effect in 2004 whereby amortization of goodwill ceased with effect from April 1, 2004 for new acquisitions and January 1, 2005 for all other existing goodwill. Goodwill will now be tested for impairment at least on an annual basis.



Goodwill impairment is measured using the discounted cash flow
valuation method. This method uses future projections of cash flows from each of the reporting units and includes, among other estimates, projections of future product pricing, production levels, product costs, market supply and demand, projected
maintenance capital expenditures and an assumption of the weighted average cost of capital. A pre-tax discount rate used for the net present value calculation of projected cash flows reflects the weighted average cost of capital.



Under U.S. GAAP, we adopted SFAS No. 142, Goodwill and Other Intangible
Assets, on January 1, 2002. Under SFAS No. 142, goodwill, which represents the excess of purchase price over fair value of net assets acquired, and intangible assets with indefinite useful lives are no longer amortized but tested for impairment
at least on an annual basis in accordance with the provisions of SFAS No. 142.



Our goodwill is tested for impairment at least on an annual basis. The impairment test involves a comparison of the fair value of each of our reporting units, as defined under SFAS No. 142, with its carrying amount.
If an assets carrying amount exceeds its fair value, then such asset is considered to be impaired. The impairment is measured by the amount by which the carrying value of the assets of the reporting unit being measured exceeds their fair
value, up to the total amount of such assets. Fair value is determined based on a discounted cash flow valuation. The method is the same as the method being used for IFRS purposes with the exception of using a post-tax discount rate. Changes in any
of these estimates could have a material effect on the fair value of these assets in future measurement periods. On an ongoing basis, we expect to perform our annual impairment tests during the third quarter of each year.



Derivatives



As an international producer and seller of paper and forest products, we are exposed to foreign exchange rate movements and
commodity price volatility.



In accordance with our policy, in
2004, we hedged a maximum of 75 percent of the upcoming 12 months net exposure in a specific currency. Our translation risk exposure policy aims to minimize this risk by funding investments in the same currency as the net assets, whenever this is
possible and economically viable.



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From July 2001, we have applied hedge accounting under IAS 39, Financial Instruments: Recognition and
Measurement, for cash flow related to external sales and deferred 15.7 million, net of taxes of unrealized gains through other comprehensive income as of December 31, 2004. However, the derivative financial instruments that do not fulfill
the criteria for hedge accounting have been fair valued with the charged or credited to net financial items for the year ended on December 31, 2004.



Prices for our main products have been cyclical in nature and, consequently, our earnings are exposed to commodity price volatility. The group has
implemented a commodity risk management framework in the areas of fiber and energy procurement whereby subsidiaries are responsible for measuring their open commodity price risks and hedging these through the Group Treasury.



Income Taxes



Deferred income taxes are provided using the liability method, as measured with enacted tax rates, to reflect the net tax
effects of all temporary differences between the financial reporting and tax bases of assets and liabilities. Principal temporary differences arise from depreciation on property, plant and equipment, fair valuation of net assets at acquisitions,
fair valuation of available-for-sale investments and derivative financial instruments in accordance with IAS 39, intercompany inventory profits and tax losses carried forward which are recognized as assets to the extent that it is probable that
future taxable profits will be available against which unused tax losses may be utilized.



We evaluate our tax assets and liabilities on a periodic basis and adjust these balances as appropriate. We believe that we have adequately provided for future tax consequences based upon current facts and
circumstances and current tax law. However, should our tax positions be challenged and not prevail, different outcomes could result and have a significant impact on the amounts reported through our consolidated financial statements. The deferred tax
liabilities under IFRS were 1,320.6 million, or 8.0 percent of total assets, as of December 31, 2004; 1,777.3 million, or 9.9 percent of total assets, as of December 31, 2003; and 1,737.4 million, or 9.5 percent of total assets, as
of December 31, 2002.



Pensions



The group operates a number of defined benefit and defined contribution
plans throughout the world, the assets of which are generally held in trustee administered funds.



Contributions to defined contribution pension plans are charged to the income statement in the year to which they relate. For defined benefit plans,
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 each year. The pension obligation is measured as the present value of estimated future cash outflows using interest rates of government securities that have maturity
terms approximating the terms of the related liability. All actuarial gains and losses are spread forward over the average remaining service lives of employees.



The determination of our pension obligation and expense is subject to our selection of certain assumptions used by actuaries in calculating such
amounts, including, among others, the discount rate, the expected rate of return on plan assets and the annual rate of increase in future compensation levels. Actual results that differ from our assumptions are accumulated and amortized over future
periods and therefore may generally affect our recognized expense and recorded obligation in such future periods.



Environmental Remediation Costs



Environmental expenditures resulting from the remediation of an existing condition caused by past operations, and which do not contribute to current or
future revenues, are expensed as incurred. Environmental liabilities are recorded, based on current interpretations of environmental laws and regulations, when it is



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probable that a present obligation has arisen and the amount of such liability can be reliably estimated. Decommissioning costs, which comprise the costs of
closing the site and preparing it for future use, are capitalized at the outset of a development and amortized over its expected life so that the full cost of environmental reinstatement will have been expensed by the end of the project. Total
environmental provisions amounted to 45.4 million as of December 31, 2004, 47.2 million as of December 31, 2003 and 54.5 million as of December 31, 2002.



New Accounting Standards



IFRS Developments



IFRS 2



On February 19, 2004, the International Accounting Standards Board
(IASB) issued IFRS 2, Share-Based Payment (IFRS 2), on accounting for share-based payment transactions, including grants of share options to employees. IFRS 2 requires an entity to reflect in its profit or loss and
financial position the effects of share-based payment transactions, including expenses associated with transactions in which share options are granted to employees. We adopted IFRS 2 on January 1, 2005 and will restate comparative financial
information as a result of this new standard. The adoption of IFRS 2 will result in the recognition of additional remuneration expense in relation to synthetic option grants and share awards. For further information on our employee and equity
compensation benefits, see note 27 to our consolidated financial statements beginning on page F-1 of this annual report.



Improvements Project



On December 18, 2003, IASB published 13 revised IASs and gave notice of the withdrawal of one IAS. We adopted these revised standards on January 1, 2005
but they will not have a material impact on our results of operations and financial condition. The revised standards are:



| |  |  | IAS 1,Presentation of Financial Statements,
| | - |  | -------------------------------------------



| |  |  | IAS 2,Inventories,
| | - |  | ------------------



| |  |  | IAS 8,Accounting Policies, Changes in Accounting Estimates and Errors,
| | - |  | ----------------------------------------------------------------------



| |  |  | IAS 10,Events after the Balance Sheet Date,
| | - |  | -------------------------------------------



| |  |  | IAS 16,Property, Plant and Equipment,
| | - |  | -------------------------------------



| |  |  | IAS 17,Leases,
| | - |  | --------------



| |  |  | IAS 21,The Effects of Changes in Foreign Exchange Rates,
| | - |  | --------------------------------------------------------



| |  |  | IAS 24,Related Party Disclosures,
| | - |  | ---------------------------------



| |  |  | IAS 27,Consolidated and Separate Financial Statements,
| | - |  | ------------------------------------------------------



| |  |  | IAS 28,Investments in Associates,
| | - |  | ---------------------------------



| |  |  | IAS 31,Interests in Joint Ventures,
| | - |  | -----------------------------------



| |  |  | IAS 33,Earnings per Share, and
| | - |  | ------------------------------



| |  |  | IAS 40,Investment Property.
| | - |  | ---------------------------



The withdrawn standard was IAS 15, Information Reflecting the Effects of Changing Prices.



IAS 32 & 39



On December 17, 2003, IASB released its revised standard, IAS 32, Financial Instruments: Disclosure and Presentation(2003). This standard replaces IAS 32, Financial Instruments: Disclosure and Presentation (revised 2000), and should be applied for annual periods beginning on or after January 1, 2005.



49



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The IASB also issued IAS 39, Financial Instruments: Recognition and Measurement (2003) in December
2003. This standard supersedes IAS 39 (revised 2000), Financial Instruments: Recognition and Measurementand should be applied for annual periods beginning on or after January 1, 2005.



We have applied IAS 32 & 39 beginning on January 1, 2005, which did not
have a material impact on our results of operations and financial condition.



IFRS 3 and IAS 36 & 38



On March
31, 2004, IASB issued IFRS 3, Business Combinations(IFRS 3) on accounting for Business Combinations and revised standards IAS 36, Impairment of Assets(IAS 36) and IAS 38, Intangible Assets(IAS
38). The main features of the new and revised standards are that all business combinations within the scope of IFRS 3 must be accounted for using the purchase method. The pooling of interests method is prohibited. The costs expected to be
incurred to restructure an acquired entitys (or the acquirers) activities must be treated as post-combination expenses, unless the acquired entity has a pre-existing liability for restructuring its activities. Intangible items acquired
in a business combination must be recognized as assets separately from goodwill if they meet the definition of an asset, are either separable or arise from contractual or other legal rights, and their fair value can be measure reliably. Identifiable
assets acquired, and liabilities and contingent liabilities incurred or assumed, must be initially measured at fair value. Amortization of goodwill and intangible assets with indefinite useful lives is prohibited. Instead, they must be tested for
impairment annually, or more frequently if events or changes in circumstances indicate a possible impairment. These standards apply to business combinations commenced on or after March 31, 2004. For previously recognized goodwill the standard
applies from the beginning of the first annual period commencing on or after March 31, 2004, which for us is the financial year commenced on January 1, 2005. Based on the current carrying value of goodwill, this change is expected to decrease
operating expense by approximately 90 million in each of the next five years.



IFRS 4



On March 31, 2004, IASB issued
IFRS 4, Insurance Contractsand provided, for the first time, guidance on accounting for insurance contracts (IFRS 4). We adopted IFRS 4 on January 1, 2005 and we do not expect the adoption of this standard to have a material
impact on our financial position, results of operations or cash flows.



IFRS 5



On March 31, 2004, IASB issued
IFRS 5, Non-current Assets Held for Sale and Discontinued Operations(IFRS 5). IFRS 5 requires assets that are expected to be sold and meet specific criteria to be measured at the lower of carrying amount and fair value less costs
to sell. Such assets should not be depreciated and should be presented separately in the balance sheet. IFRS 5 also requires operations that form a major line of business or area of geographical operations to be classified as discontinued when the
assets in the operations are classified as held for sale. We adopted IFRS 5 on January 1, 2005, and we do not expect the adoption of this standard to have a material impact on our financial position, results of operations or cash flows.



IFRS 6

The IASB issued IFRS 6, Exploration for and Evaluation of Mineral Resources (IFRS 6) on December 9, 2004. IFRS 6 provides guidance on
accounting for exploration and evaluation expenditures, including the recognition of exploration and evaluation assets. IFRS 6 is effective for annual periods beginning on or after January 1, 2006. We do not engage in mineral exploration and
therefore, do not expect the adoption of this standard to have a material impact on the Groups financial position, results of operations or cash flow.



U.S. GAAP Developments



FAS 151



In November 2004 the Financial Accounting Standards Board (FASB) issued Financial Accounting Standard No. 151, Inventory Costsan amendment of ARB
No. 43, Chapter 4 (revised) (FAS 151). FAS 151



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amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material (spoilage). FAS 151 requires that those items be recognized as current-period charges. In addition, FAS 151 requires that allocation of fixed production overheads to the costs of conversion be based on
the normal capacity of the production facilities. We will adopt FAS 151 on January 1, 2006. We do not expect the new standard to have a material impact on our results of operations and financial position under U.S. GAAP.



FAS 123R



In December 2004, the FASB issued Financial Accounting Standard No. 123R, Share-Based Payment (FAS 123R). FAS 123R requires
that companies expense the value of employee stock options and other awards. FAS 123R allows companies to choose an option pricing model that appropriately reflects their specific circumstances and the economics of their transactions, and allows
companies to select from three transition methods for adoption of the provisions of the standard. We will adopt FAS 123R on January 1, 2006. We are currently investigating the impact of the revised standard on our results of operations and financial
position under U.S. GAAP.



FAS 153



In December 2004, the FASB issued Financial Accounting Standard No. 153,
Exchanges of Nonmonetary Assets (FAS 153). FAS 153 amends APB Opinion No. 29, Accounting for Nonmonetary Transactions, to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. We will adopt FAS 153 for
nonmonetary exchanges occurring on or after January 1, 2006. We do not expect the new standard to have a material impact on our results of operations and financial position under U.S. GAAP.



EITF 03-01



In June 2004, the Emerging Issues Task Force finalized Issue No. 03-01, The Meaning of Other-Than-Temporary Impairment and
Its Application to Certain Investments (EITF 03-01). The issue was intended to address the meaning of other-than-temporary impairment and its application to certain investments in debt and equity securities. A consensus was reached
regarding disclosure requirements concerning unrealized losses on available-for-sale debt and equity securities accounted for under Financial Accounting Standard No. 115, Accounting for Certain Investments in Debt and Equity Securities (FAS 115) and
Financial Accounting Standard No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations (FAS 124). The guidance for evaluating whether an investment is other-than-temporarily impaired has been applied beginning January 1,
2005. We do not expect application of this guidance to have a material impact on our results of operations. The disclosure requirements of EITF 03-01 have been included in our financial statements for the year ended December 31, 2004, for our
available-for-sale and cost method investments. For all other investments within the scope of EITF 03-01, the disclosures will be effective for the year ending December 31, 2005.



Principal Differences between IFRS and U.S. GAAP



Our consolidated financial statements are prepared in accordance with IFRS, which varies in certain significant respects from U.S. GAAP. Information relating to the nature and effect of such differences is presented
in note 31 to our consolidated financial statements.



The
principal differences between IFRS and U.S. GAAP that affect our net income, as well as our shareholders equity, relate to employee benefit plans, business combination of STORA and Enso, acquisition of Consolidated Papers Inc., provision for
future reforestations costs, derivative financial instruments, impairment of goodwill, impairment of fixed assets, stock based compensation, synthetic option hedge, pension surplus refund, amortization of goodwill, restructuring reserve and forest
calculations.



51



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Results of Operations



The
tables below present sales and operating profit of our various product areas for the years indicated:



Sales by product area



|                                                   |  |                                 |   |  |          |   |  |          |  
|-------------------------------------------------- |  | ------------------------------- | - |  | -------- | - |  | -------- | -
|                                                   |  | For the year ended December 31, |  
|                                                   |  | 2002                            |   |  | 2003     |   |  | 2004     |  
|                                                   |  | ( in millions)                 |  
|Paper                                              |  |                                 |   |  |          |   |  |          |  
|Publication paper                                  |  | 4,715.6                         |   |  | 4,295.7  |   |  | 4,343.3  |  
|Fine paper                                         |  | 3,427.4                         |   |  | 3,197.7  |   |  | 3,173.1  |  
|Merchants                                          |  | 720.6                           |   |  | 627.6    |   |  | 637.9    |  
|Packaging boards                                   |  | 2,720.2                         |   |  | 2,761.6  |   |  | 2,771.5  |  
|Forest products                                    |  |                                 |   |  |          |   |  |          |  
|Wood products                                      |  | 1,235.2                         |   |  | 1,400.0  |   |  | 1,566.8  |  
|Wood supply Europe                                 |  | 1,958.7                         |   |  | 2,074.3  |   |  | 2,481.6  |  
|Elimination of internal sales; other operations(1) |  | (1,995.1                        | ) |  | (2,184.6 | ) |  | (2,578.4 | )
|                                                   |  |                                 |   |  |          |   |  |          |  
|Total                                              |  | 12,782.6                        |   |  | 12,172.3 |   |  | 12,395.8 |  
|                                                   |  |                                 |   |  |          |   |  |          |  

---

|(1) |  | Other operations include the results of units that are not within our product areas, such as separate transportation and sales and distribution companies.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



Operating profit (loss) by product area



|                               |  |                                 |   |  |          |   |  |       |   |  |        |   |  |       |   |  |       |  
|------------------------------ |  | ------------------------------- | - |  | -------- | - |  | ----- | - |  | ------ | - |  | ----- | - |  | ----- | -
|                               |  | For the year ended December 31, |  
|                               |  | 2002                            |   |  | 2003     |   |  | 2004  |  
|                               |  | ( in millions)                 |  
|                               |  |                                 |   |  | (1)      |   |  |       |   |  | (1)    |   |  |       |   |  | (1)   |  
|Paper                          |  |                                 |   |  |          |   |  |       |   |  |        |   |  |       |   |  |       |  
|Publication paper              |  | (762.7                          | ) |  | 313.6    |   |  | 47.2  |   |  | 111.1  |   |  | 144.5 |   |  | 91.3  |  
|Fine paper                     |  | 67.9                            |   |  | 298.3    |   |  | 100.1 |   |  | 153.5  |   |  | 104.0 |   |  | 64.3  |  
|Merchants                      |  | (24.7                           | ) |  | 5.4      |   |  | (8.9  | ) |  | (6.7   | ) |  | 9.9   |   |  | 11.2  |  
|Packaging boards               |  | 332.3                           |   |  | 345.3    |   |  | 280.5 |   |  | 292.4  |   |  | 339.7 |   |  | 277.6 |  
|Forest products                |  |                                 |   |  |          |   |  |       |   |  |        |   |  |       |   |  |       |  
|Wood products                  |  | 30.1                            |   |  | 44.5     |   |  | 6.5   |   |  | 26.5   |   |  | 29.8  |   |  | 34.7  |  
|Wood supply Europe             |  | 120.5                           |   |  | 94.6     |   |  | 116.5 |   |  | 116.5  |   |  | 158.6 |   |  | 32.3  |  
|Other(2)                       |  | 58.9                            |   |  | (52.5    | ) |  | (70.5 | ) |  | (51.5  | ) |  | (80.4 | ) |  | (84.7 | )
|                               |  |                                 |   |  |          |   |  |       |   |  |        |   |  |       |   |  |       |  
|Operating profit (loss), total |  | (177.7                          | ) |  | 1,049.2  |   |  | 471.4 |   |  | 641.8  |   |  | 706.1 |   |  | 426.7 |  
|                               |  |                                 |   |  |          |   |  |       |   |  |        |   |  |       |   |  |       |  
|Goodwill amortization          |  |                                |   |  | (148.8   | ) |  |      |   |  | (116.0 | ) |  |      |   |  | (90.3 | )
|Non-recurring items(3)         |  |                                |   |  | (1,078.1 | ) |  |      |   |  | (54.4  | ) |  |      |   |  | 369.7 |  
|                               |  |                                 |   |  |          |   |  |       |   |  |        |   |  |       |   |  |       |  
|Operating profit (loss), total |  | (177.7                          | ) |  | (177.7   | ) |  | 471.4 |   |  | 471.4  |   |  | 706.1 |   |  | 706.1 |  
|                               |  |                                 |   |  |          |   |  |       |   |  |        |   |  |       |   |  |       |  

---

|(1) |  | The operating profit (loss) presented by product area excludes goodwill amortization and non-recurring items.
|--- |  | -------------------------------------------------------------------------------------------------------------

|(2) |  | Includes non-allocated corporate overhead items and elimination of group internal margin in consolidation.
|--- |  | ----------------------------------------------------------------------------------------------------------

|(3) |  | The non-recurring items for 2002 consist mainly of a one-time impairment charge related to our North American assets and capital gains from the sale of shares of Billerud and forest
land in Finland and in the United States. The non-recurring items for 2003 consist mainly of restructuring charges related to the cost reduction program in North America, a provision related to restructuring costs at the Corbehem Mill in France and
a provision related to the expected capital loss on the sale of forest land in Ontario, Canada. The non-recurring items for 2004 consist mainly of the gain on the restructuring of ownership of our Swedish forest land, a reversal of expenses already
taken in respect of various U.S. retiree healthcare programs, a provision for the future reduction of maintenance personnel in the United States and income relating to the change in our Finnish disability pension liabilities.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



52



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The Year Ended December 31, 2004 Compared to the Year Ended December 31, 2003



Sales



Group.    Our sales were 12,395.8 million in 2004, an increase of 223.5 million, or
1.8 percent, over sales of 12,172.3 million in 2003. The increase was attributable primarily to higher delivery volumes, partly offset by the impact of lower sales prices especially during the first half of the year 2004 and the weakening of
the U.S. dollar relative to the euro in 2004 compared to 2003. In 2004, production curtailments resulting from market conditions amounted to 357,000 metric tons in Europe and 7,000 metric tons in North America, where the curtailments related to
specialty papers, compared to 703,000 tons and 79,000 tons, respectively, in 2003.



Paper.    Sales by the publication paper division were 4,343.3 million in 2004, an increase of 47.6 million, or 1.1 percent, over sales of 4,295.7 million in 2003. The increase was
attributable primarily to higher delivery volumes, partially offset by the impact of lower sales prices and the weakening of the U.S. dollar relative to the euro.



Sales by the fine paper division were 3,173.1 million in 2004, a decrease of 24.6 million, or 0.8 percent, from
sales of 3,197.7 million in 2003. The decrease was attributable primarily to lower sales prices partly offset by the positive impact of higher delivery volumes.



Sales by the merchants division were 637.9 million in 2004, an increase of 10.3 million, or 1.6 percent, over
sales of 627.6 million in 2003. The increase was attributable primarily to higher delivery volumes and the positive impact of our acquisition of the Dutch paper merchants Scaldia Papier BV in September 2004.



Packaging Boards.    Sales by the packaging boards product area were 2,771.5 million in 2004, an increase of 9.9 million, or 0.4 percent, over sales of 2,761.6 million in 2003.
The increase was attributable primarily to increased delivery volumes, partially offset by the impact of lower sales prices due to the weakening of the U.S. dollar relative to the euro.



Forest Products.    Sales by the wood products division amounted to 1,566.8 million in 2004, an increase of 166.8 million, or 11.9 percent, over sales of 1,400 million in 2003.
The increase was attributable primarily to increased delivery volumes.



Sales by the wood supply Europe division amounted to 2,481.6 million in 2004, an increase of 407.3 million, or 19.6 percent, over sales of 2,074.3 million in 2003. The increase was attributable primarily to increased
delivery volumes.



Elimination of Internal Sales; Other
Operations.    Elimination of internal sales, offset by other operations, amounted to a negative 2,578.4 million in 2003, compared to a negative 2,184.6 million in 2003.



Operating Profit (Loss)



Group.    Our operating profit was 706.1
million in 2004, an increase of 234.7 million, or 49.8 percent, over operating profit of 471.4 million in 2003. This improvement was attributable primarily to the non-recurring items with a positive effect of 369.7 million in 2004
compared to a negative effect of 54.4 million in 2003. The non-recurring items in 2004 included a gain on the restructuring of ownership of our Swedish forest land, a reversal of expenses already taken in respect of various U.S. retiree
healthcare programs, a provision for the future reduction of maintenance personnel in the United States and income relating to the change in our Finnish disability pension liabilities. The weakening of the U.S. dollar relative to the euro had a
negative effect on our operating profit in 2004 compared to 2003. Our operating profit in 2004 included gains on cash flow currency hedge contracts, mainly for the U.S. dollar amounting to 16.4 million. Excluding non-recurring items, all of
our divisions, except for merchants and wood supply, reported lower operating profit in 2004 than in 2003, primarily due to lower sales prices, two major rebuild projects in North America, the weakening of the U.S. dollar and the transfer of our
forest land in Sweden to Bergvik Skog AB. The impact of lower sales prices in 2004 was partly offset by higher delivery volumes.



53



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Paper.    Operating profit for the publication paper division was 144.5 million in 2004, an increase of 97.3 million over operating profit of 47.2 million in 2003. This was
attributable primarily to the impact of a reversal of expenses already taken in respect of various U.S. retiree healthcare programs, a provision for the future reduction of maintenance personnel in the United States and income relating to the change
in our Finnish disability pension liabilities. Excluding non-recurring items, operating profit for the publication paper division decreased in 2004 compared to 2003, primarily due to lower sales prices and, to a lesser extent, due to higher energy
costs, fixed costs and depreciation.



Operating profit for the
fine paper division was 104.0 million in 2004, an increase of 3.9 million, or 3.9 percent, over operating profit of 100.1 million in 2003. The increase was attributable primarily to the impact of a reversal of expenses already
taken in respect of various U.S. retiree healthcare programs, a provision for the future reduction of maintenance personnel in the United States and income relating to the change in our Finnish disability pension liabilities. Excluding non-recurring
items, operating profit of the fine paper division decreased in 2004 compared to 2003, primarily due to the negative impact of lower fine paper sales prices, partly offset by the positive impact of higher delivery volumes.



The merchants division had an operating profit of 9.9 million in 2004,
compared to an operating loss of 8.9 million in 2003. This difference was attributable primarily to the impact of a reversal of decreased fixed costs and, to some extent, higher delivery volumes in 2004. Also, excluding non-recurring items,
operating profit of the merchants division increased in 2004 compared to 2003.



Packaging Boards.    Operating profit for the packaging boards product area was 339.7 million in 2004, an increase of 59.2 million, or 21.1 percent, over operating profit of
280.5 million in 2003. This difference was attributable primarily to the impact of the income relating to the change in our Finnish disability pension liabilities. Excluding non-recurring items, operating profit of the packaging boards
division decreased in 2004 compared to 2003, primarily due to the lower sales prices and the impact of the weakening of the U.S. dollar which were partly offset by increased delivery volumes.



Forest Products.    Operating profit for the wood
products division was 29.8 million in 2004, an increase of 23.3 million over operating profit of 6.5 million in 2003. The increase was attributable primarily to increased delivery volumes and, to a lesser extent, higher sales
prices which were partly offset by higher transportation costs and increased fixed costs.



Operating profit for the wood supply Europe division was 158.6 million in 2004, an increase of 42.1 million, or 36.1 percent, over operating profit of 116.5 million in 2003. The increase was
attributable primarily to the gain on the restructuring of ownership of our Swedish forest land. Excluding non-recurring items, operating profit of the wood supply Europe division decreased in 2004 compared to 2003, primarily due to the divestment
of our forest land in Sweden in March 2004, which decreased the operating profit by 80 million, and, to a lesser extent, higher personnel costs.



Other Operations.    Operating loss from our other operations increased to 80.4 million in 2004, compared to operating
loss of 70.5 million in 2003. This included non-allocated corporate overhead items and elimination of group internal margins in consolidation.



Financial Items



Net financial expense amounted to 106.0 million in 2004, a decrease of 131.7 million, or 55.4 percent, compared to net financial expense of
237.7 million in 2003. The decrease was attributable primarily to the negative effect of a provision made in 2003 for the expected losses from the termination of cross-border leasing contracts in the United States and lower interest rates as
well as decreased average indebtedness.



Profit (Loss)



We had a profit before tax and minority interests of
639.0 million in 2004, an increase of 428.3 million over profit before tax and minority interests of 210.7 million in 2003. Income taxes in 2004 amounted to a



54



---

108.8 million, compared to an income tax benefit of 67.0 million in 2003. Our effective tax rate in 2004 was 17.0 percent, compared to 31.8
percent in 2003. The decrease of the effective tax rate resulted mainly from the corporate tax reform in Finland providing for a reduction in corporate tax rate from 29 percent to 26 percent due to which change we adjusted our Finnish deferred tax
balances to the new tax rate. Minority interest income was a negative 8.1 million in 2004 compared to a negative 5.8 million in 2003. We had a net profit of 739.7 million in 2004 compared to a net profit of 137.9
million in 2003.



The Year Ended December 31, 2003 Compared to the Year
Ended December 31, 2002



Sales



Group.    Our sales were 12,172.3 million
in 2003, a decrease of 610.3 million, or 4.8 percent, from sales of 12,782.6 million in 2002. The decrease was attributable primarily to the impact of lower sales prices, especially in paper products, partly offset by increased sales
volumes in all product areas. In addition, the weakening of the U.S. dollar relative to the euro contributed to the decrease in our sales in 2003 compared to 2002. Due to the low order level, we curtailed our production of paper and board by 782,000
metric tons in 2003 compared to the production levels of 2002, thus seeking to avoid any build-up of excessive inventories. Of such curtailments, 79,000 metric tons were taking place in North America. Most of the curtailments were made in the
publication paper division (497,000 metric tons), and the fine paper division (176,000 metric tons). The product area discussions below include internal sales.



Paper.    Sales by the publication paper division were 4,295.7 million in 2003, a decrease of
419.9 million, or 9 percent, from sales of 4,715.6 million in 2002. The decrease was attributable primarily to the weakening of the U.S. dollar relative to the euro and slightly lower sales prices of coated magazine paper, partially
offset by the growth in demand for uncoated and coated magazine paper.



Sales by the fine paper division were 3,197.7 million in 2003, a decrease of 229.7 million, or 7 percent, from sales of 3,427.4 million in 2002. The decrease was attributable primarily to lower sales prices.



Sales by the merchants division were 627.6 million in 2003, a decrease
of 93 million, or 13 percent, from sales of 720.6 million in 2002. The decrease was attributable primarily to lower volumes and lower sales prices.



Packaging Boards.    Sales by the packaging boards product area were 2,761.6 million in 2003, an increase of
41.4 million, or 2 percent, over sales of 2,720.2 million in 2002. The increase was primarily attributable to increased delivery volumes, partially offset by the impact of lower sales prices.



Forest Products.    Sales by the wood products
division amounted to 1,400 million in 2003, an increase of 164.8 million, or 13 percent, over sales of 1,235.2 million in 2002. The increase was attributable primarily to increased delivery volumes.



Sales by the wood supply Europe division amounted to 2,074.3 million in
2003, an increase of 115.6 million, or 6 percent, over sales of 1,958.7 million in 2002. The increase was attributable primarily to increased delivery volumes.



Elimination of Internal Sales; Other Operations.    Elimination of internal sales, offset by
other operations, amounted to (2,184.6) million in 2003, compared to (1,995.1) million in 2002.



Operating Profit (Loss)



Group.    Our operating profit was 471.4 million in 2003, an increase of 649.1 million, from operating loss of 177.7 million in 2002. This improvement was attributable primarily to an impairment
charge made in 2002 relating to our North American assets. The weakening of the U.S. dollar relative to the euro had a negative effect in our operating profit in 2003 compared to 2002. Our operating profit in 2003 included gains on cash flow
currency hedge contracts, mainly for the U.S. dollar and British pound sterling, amounting to 105.1 million.



55



---

Excluding non-recurring items, all of our divisions, except for wood supply Europe, reported lower operating profit in 2003 than in 2002, mainly due to lower
sales prices and the weakening of the U.S. dollar.



Paper.    Operating profit for the publication paper division was 47.2 million in 2003, compared to an operating loss of 762.7 million in 2002. This was attributable primarily to the impact of the
one-time impairment charge made in 2002 in relation to our North American assets. Excluding non-recurring items, operating profit for the publication paper division decreased in 2003 compared to 2002, primarily due to lower sales prices and higher
relative fixed costs.



Operating profit for the fine
paper division was 100.1 million in 2003, an increase of 32.2 million, or 47 percent, over operating profit of 67.9 million in 2002. The increase was attributable primarily to the impact of the one-time impairment charge made
in 2002 related to our North American assets. Excluding non-recurring items, operating profit of the fine paper division decreased in 2003 compared to 2002, primarily due to the negative impact of lower fine paper sales prices, partly offset by the
positive impact of higher delivery volumes.



Operating loss for
the merchants division was 8.9 million in 2003, compared to an operating loss of 24.7 million in 2002. This difference was attributable primarily to the impact of non-recurring closing costs related to the discontinuation of
operations of Papyrus GB Limited in the United Kingdom in 2002. Excluding non-recurring items, operating profit of the merchants division decreased in 2003 compared to 2002, primarily due to the negative impact of lower sales prices and provision
for redundancies in 2003.



Packaging
Boards.    Operating profit for the packaging boards product area was 280.5 million in 2003, a decrease of 51.8 million, or 16 percent, from operating profit of 332.3 million in 2002. The decrease was
attributable primarily to lower sales prices due to the weakening of the U.S. dollar.



Forest Products.    Operating profit for the wood products division was 6.5 million in 2003, a decrease of 23.6 million, or 78 percent, from operating profit of 30.1
million in 2002. The decrease was attributable primarily to somewhat lower sales prices and higher fixed costs.



Operating profit for the wood supply Europe division was 116.5 million in 2003, a decrease of 4.0 million, or 3 percent, from operating
profit of 120.5 million in 2002. The decrease was attributable primarily to the positive effect on the operating profit in 2002 of capital gains realized in connection with the sale of our forest land and related operations in Finland.
Excluding non-recurring items, operating profit of the wood supply Europe division increased in 2003 compared to 2002, primarily due to higher sales prices.



Other Operations.    Operating loss from our other operations amounted to 70.5 million in 2003, compared to operating
profit of 58.9 million in 2002. This included non-allocated corporate overhead items and elimination of group internal margins in consolidation. The change was attributable primarily to the impact of one-time capital gains from the sale of
Billerud shares and our forest land and related operations in the United States in 2002.



Financial Items



Net financial expense amounted to 237.7 million in 2003, an increase of 31.5 million, or 15 percent, compared to net financial expense of 206.2 million in 2002. The increase was attributable primarily to the negative
effect of a provision made in 2003 for the expected losses from the termination of cross-border leasing contracts in the United States.



Profit (Loss)



We had a profit before tax and minority interests of 210.7 million in 2003, an improvement of 580.0 million from loss before tax and minority
interests of 369.3 million in 2002. Income taxes in 2003 amounted to a negative 67.0 million, compared to income taxes of 128.5 million in 2002. Our effective tax rate in 2003 was



56



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31.8 percent, compared to 34.8 percent in 2002. Minority interest income was (5.8) million in 2003 compared to an income of 0.1 million in 2002.
Net profit in 2003 was 137.9 million compared to a net loss of 240.7 million in 2002.



Liquidity and Capital Resources



Our principal source of liquidity is cash generated from operations. Our liquidity requirements arise primarily from the need to fund capital expenditures in order to keep our assets competitive, to expand our business, to fund our working
capital requirements and to make dividend payments. We believe that our working capital is sufficient for our present requirements.



Net cash flow from operating activities was 1,405.4 million in 2004, a decrease of 239.2 million, compared to 1,644.6 million in 2003.
This decrease was caused primarily by the changes in working capital. Net cash flow from operating activities increased by 325.5 million in 2003 over 1,319.1 million in 2002. This increase was caused primarily by decreased net working
capital.



Cash used in investing activities was 1,335.0
million in 2004, an increase of 263.4 million, compared to 1,071.6 million in 2003. This was due principally to the increase in long-term receivables. Cash used in investing activities increased by 814.3 million in 2003 from 257.3
million in 2002. This was due principally to increased capital expenditures.



Cash used in financing activities was 10.8 million in 2004, compared to cash used in financing activities of 525.8 million in 2003. This was due principally to increased long-term borrowings. Cash used in
financial activities was 1,127.3 million in 2002. These changes were due primarily to increased short-term borrowings.



Our total interest-bearing liabilities were 4,028 million as of December 31, 2004, compared to 5,174 million as of December 31, 2003, and
5,176 million as of December 31, 2002. Our total interest-bearing assets were 976 million as of December 31, 2004, compared to 1,255 million as of December 31, 2003, and 1,909 million as of December 31, 2002.



On January 25, 2005, we signed a new five-year 1.75 billion revolving
credit facility agreement with a group of international banks. The facility is for general corporate purposes and replaces an existing 2.5 billion revolving credit facility.



The aggregate unused credit available to us as of December 31, 2004 amounted to approximately 2.7 billion. In general,
our policy is to place long-term debt at the parent company level. However, as of December 31, 2004, Stora Enso North America Corp. (formerly, Consolidated Papers Inc.) had long-term credit facilities with the total principal amount of $356 million
outstanding and certain clauses included in the related agreements restrict Stora Enso North America Corp.s ability to transfer loans to the parent company.



The table below sets forth our contractual obligations as of December 31, 2004:



|                                   |  |                 |  |                        |  |          |  |              |  |        
|---------------------------------- |  | --------------- |  | ---------------------- |  | -------- |  | ------------ |  | -------
|                                   |  | Total           |  | Payments Due by Period
|                                   |  | Less than 1year |  | 1-3years               |  | 4-5years |  | After 5years
|                                   |  | ( in millions)
|Contractual Obligations            |  |                 |  |                        |  |          |  |              |  |        
|Long-term debt                     |  | 3,430.2         |  | 102.1                  |  | 1,159.8  |  | 510.6        |  | 1,657.7
|Capital lease obligations          |  | 263.0           |  | 17.4                   |  | 34.8     |  | 34.8         |  | 176.0  
|Operating leases                   |  | 191.8           |  | 32.6                   |  | 49.9     |  | 36.0         |  | 73.3   
|Purchase obligations               |  | 4,362.0         |  | 1,021.0                |  | 847.0    |  | 616.0        |  | 1,878.0
|                                   |  |                 |  |                        |  |          |  |              |  |        
|Total contractual cash obligations |  | 8,247.0         |  | 1,173.1                |  | 2,091.5  |  | 1,197.4      |  | 3,785.0
|                                   |  |                 |  |                        |  |          |  |              |  |        



57



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We do not believe that we have material funding requirements for our domestic defined benefit pension
plans. In April 2004, we made benefit payments of 118.8 million related to our U.S. pension and health care plans. We do not expect any benefit payments related to our other underfunded foreign defined benefit plans to be material in the
future, and have therefore not included such benefit payments in the table above for any of the periods presented.



On February 15, 2005, Standard & Poors Ratings Services, a Division of the McGraw-Hill Companies, Inc., confirmed our ratings of BBB+ and A-2
for long-term debt and short-term debt, respectively. Also on December 13, 2004, Moodys Investor Services, Inc. confirmed a Baa1 rating to our long-term debt and a P-2 rating to our short-term debt. Both rating agencies have announced that
ratings for our debt are stable. If the ratings were downgraded by the rating agencies, our cost of capital would increase. Any downgrade could also negatively affect our businesses and the availability of future financing. A downgrade of our
long-term credit ratings by Moodys Investor Services below Baa3 or Standard & Poors below BBB- could trigger prepayment clauses in the long-term credit facilities of Stora Enso North America Corp. with the total principal amount of
$356 million and certain lease agreements with a total value of $130 million.



Off-Balance Sheet Arrangements



There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results or operations, liquidity, capital
expenditures or capital resources that is material to investors.



Research and Development



General



We conduct research and development in order to respond
to evolving customer preferences and the demand for higher quality and more economical paper and board grades and packagings. Recently, our research and development efforts have focused on improving the functionality, performance and consistency in
paper and board grades. In 2004, we used 82.2 million, or 0.7 percent of sales, in research and development, compared to 88.8 million in 2003 and 91.6 million in 2002. Research and development costs decreased by 7.4 percent in
2003, compared to a decrease of 3.1 percent in 2002.



In 2003,
our research and development centers were integrated with business units in order to increase the emphasis on research and development in our product areas, to integrate research and development into our business strategy development and to utilize
the scientific and technical expertise of the centers efficiently in customer service and troubleshooting.



We outsource to research institutes and universities a substantial part of our basic research requirements. In addition, we conduct our technology
development research in partnership with equipment and chemical suppliers. We also conduct studies in cooperation with other forest products companies, primarily within Oy Keskuslaboratorio-Central Laboratorium Ab (Keskuslaboratorio),
which we own together with UPM-Kymmene, Metsäliitto group and Myllykoski.



We have five principal research centers located in Imatra, Finland; Falun and Karlstad, Sweden; Düsseldorf, Germany; and Biron, the United States. In 2004, approximately 540 of our employees were engaged full
time in research and development, of whom approximately 410 were employed in our research centers. Our research centers have been of central importance in realizing our goal of using different types of raw materials and modern and innovative
technology to produce high quality products. Research and development centers, together with resources in the mills, constitute an efficient combination of product and process expertise along with advanced scientific and technical resources.



58



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Product Area Specific Research and Development



An essential feature of our research and development strategy is to use our proprietary research and development for
improved competitiveness through achieving preferred supplier position (value leadership and customer service), cost leadership (operational excellence and raw material costs) and innovations (new products, improved production concepts and
applications). One principal function of research and development work is the application of new technologies to our production and enhancement of existing and newly introduced production processes. This type of work is done primarily at our
manufacturing facilities.



In the paper product area, research
and development concentrated on end-use and customer-driven work on printability, improving customer service to printers and preparing for future developments in printing technology. In the publication paper division, research and development work
has focused on the further improvement of the quality of deinked pulp, improving the printability of paper grades for heatset and rotogravure printing and developing paper grades suitable for new printing applications in the book-printing industry.
In the fine paper division, new products are being developed for high resolution copying, color copying and digital printing.



The growth strategy of the packaging boards product area is based on innovation and development. New materials have been developed for cups, trays and
liquid cartons utilizing new approaches to improve barrier properties and converting characteristics. Recent research and development efforts of the packaging board product area include the development of Enso Silver Barr, a paperboard with
aluminum-free high barrier plastic coating. The name Silver originates in the color of the coating. This special coating gives the paperboard enhanced light barrier. Other barrier properties will be tailor-made according to the customers
requirements. This new product helps extend the shelf life of food products. We have also developed the concept of a virtual package to speed up the process of developing new types of packaging and to help customer select packaging that
suits their needs. At the Enocell mill in Finland and the Norrsundet mill in Sweden, product development has focused on softwood kraft paper pulps. We have succeeded in improving the quality of our soft wood kraft pulp through measures taken in wood
material selection and process modifications. Introduction of new pulp grades has resulted in lower costs and improved runnability on the paper machines. In 2003, our consumer boards division set up Innocentre, a packaging research and development
center, to develop new packaging material concepts, undertake research on packaging engineering and test new technology.



In 2003, our wood products division launched a new product called WoodHeart® that exploits the natural durability of Nordic scots pine heartwood to meet the needs of the woodworking industry where
durability and stability are required.



Capital Expenditure



In 2004,
our total capital expenditures were 975.1 million, compared to 1,248.2 million in 2003 and 877.6 million in 2002. Our largest ongoing projects during in 2004 were the 115.0 rebuild of a paper machine at the Maxau mill in
Germany; a new paper machine at the Kvarnsveden mill in Sweden, which cost 86.6 million; the 54.7 million Energy 2005 project at the Skoghall mill in Sweden; the 27.5 million rebuild of a paper machine and a new cut-size line
at the Veitsiluoto mill in Finland; and the 28.1 million folding boxboard asset improvements at the Baienfurt mill in Germany. Our largest projects in 2003 were the completion of the building of the new paper machine at the Langerbrugge mill
in Belgium, which cost 201.1 million; the 82.4 million rebuild of paper machine at the Veitsiluoto mill; the 52.9 million rebuild of paper machine at the Maxau mill; the new boiler at the Kvarnsveden mill, which cost 23.6
million; the completion of phase 1 of the paper machine rebuild at the Biron mill in the United States, which cost 18.9 million; and the 29.8 million folding boxboard asset improvements at the Baienfurt mill. Our largest projects in 2002
were a new newsprint paper machine, which cost 254.1 million; a 28.6 million rebuild of a magazine paper machine at the Langerbrugge mill in Belgium; and a 16.5 million rebuild of a fine paper machine at the Oulu mill in Finland.



Distribution of capital expenditures between product areas and
geographic regions is governed largely by the location of existing capacity.



59



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The following table describes our capital expenditures by product area for the years indicated:



|                   |  |                                 |  |         |  |      
|------------------ |  | ------------------------------- |  | ------- |  | -----
|                   |  | For the year ended December 31,
|                   |  | 2002                            |  | 2003    |  | 2004 
|                   |  | ( in millions)                
|Paper              |  |                                 |  |         |  |      
|Publication paper  |  | 482.2                           |  | 591.6   |  | 486.3
|Fine paper         |  | 134.6                           |  | 219.1   |  | 198.6
|Merchants          |  | 0.0                             |  | 25.6    |  | 3.2  
|Packaging boards   |  | 140.5                           |  | 170.9   |  | 167.3
|Forest products    |  |                                 |  |         |  |      
|Wood products      |  | 53.5                            |  | 141.9   |  | 68.1 
|Wood supply Europe |  | 24.9                            |  | 20.2    |  | 21.9 
|Other operations   |  | 41.9                            |  | 78.9    |  | 29.7 
|                   |  |                                 |  |         |  |      
|Total              |  | 877.6                           |  | 1,248.2 |  | 975.1
|                   |  |                                 |  |         |  |      



The following table
describes our capital expenditures by country in our primary areas of operation for the years indicated:



|              |  |                                 |  |         |  |       |     
|------------- |  | ------------------------------- |  | ------- |  | ----- | ----
|              |  | For the year ended December 31, | 
|              |  | 2002                            |  | 2003    |  | 2004  |     
|              |  | ( in millions)                 | 
|Belgium       |  | 290.6                           |  | 209.7   |  | (11.7 | )(1)
|Finland       |  | 211.7                           |  | 371.5   |  | 239.3 |     
|Sweden        |  | 141.0                           |  | 197.3   |  | 283.8 |     
|United States |  | 74.4                            |  | 109.0   |  | 123.8 |     
|Germany       |  | 55.1                            |  | 126.8   |  | 187.0 |     
|Austria       |  | 22.1                            |  | 18.7    |  | 13.3  |     
|Portugal      |  | 18.5                            |  | 5.8     |  | 4.5   |     
|Canada        |  | 12.7                            |  | 45.3    |  | 29.4  |     
|France        |  | 13.9                            |  | 36.3    |  | 37.7  |     
|Other         |  | 37.6                            |  | 127.8   |  | 68.0  |     
|              |  |                                 |  |         |  |       |     
|Total         |  | 877.6                           |  | 1,248.2 |  | 975.1 |     
|              |  |                                 |  |         |  |       |     

---

|(1) |  | An EU subsidy of 23.5 million was received on the development project at the Langerbrugge mill in Belgium for the total use of recycled paper.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------



In line with our strategy, we expect that the aggregate of our total capital
expenditures on projects in 2005 and scheduled projects in 2006 (excluding acquisitions) will be in line with the level of our aggregate depreciation charges in 2005 and 2006 (excluding goodwill). In 2004, our total capital expenditures amounted to
975.1 million and our total depreciation charges amounted to 1,081.8 million. We intend to finance our capital expenditures through cash flow from operations.



Our largest projects in 2005 are expected to be the new paper machine at the Kvarnsveden mill and the Energy 2005 project at
the Skoghall mill.



Inflation



Inflation in Finland
as measured by the change in the consumer price index was 0.2 percent in 2004, 0.9 percent in 2003 and 1.6 percent in 2002. Inflation in Sweden as measured by the change in the consumer price index was 0.9 percent in 2004, 2.1 percent in 2003 and
2.4 percent in 2002. Inflation in Finland and Sweden did not have a significant impact on our operating results. However, a portion of our operations, sales and production is performed in countries with rates of inflation higher or lower than that
of Finland or Sweden. Changes in rates of exchange may or may not reflect differences in rates of inflation. It is therefore not possible to quantify the individual or combined effects of these factors on reported income.



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Item 6.    Directors, Senior Management and Employees.



Management of Stora Enso



General



Pursuant to the provisions of the Finnish Companies Act
and our articles of association, the control and management of our company is divided between the shareholders (through actions taken at general meetings of shareholders), the board of directors, the chief executive officer and the deputy chief
executive officer. In addition, our executive management group assists the chief executive officer in the day-to-day management of our company.



Our chief executive officer, assisted by our executive management group, is responsible for the day-to-day management of our affairs in accordance with
instructions and directives given by our board of directors. Measures which are not within the ordinary course of our business may be taken by our chief executive officer only if approved by our board of directors, unless the delay required to
obtain board approval would result in a substantial disadvantage. In the latter case, our board of directors must be informed as soon as practicable of the measures which have been taken.



The business address for our directors and executive management is Kanavaranta 1, FI-00160 Helsinki, Finland.



Board of Directors



Currently, our board of directors consists of ten members, each of whom has been elected by the annual general meeting of
shareholders on March 22, 2005. Each board member serves for a one-year term, and may be appointed, or removed, only by a resolution of the general meeting of shareholders.



The following table lists the names of the members of our board of directors, their principal occupation or employment and
their year of birth:



|                  |  |                                                                                                |  |             
|----------------- |  | ---------------------------------------------------------------------------------------------- |  | ------------
|Name              |  | Principal Occupation or Employment                                                             |  | Yearof Birth
|Claes Dahlbäck    |  | Chairman of the boards of directors of Investor AB and Stora Enso                              |  | 1947        
|Ilkka Niemi       |  | Vice chairman of the boards of directors of Stora Enso, Senior advisor, independent consultant |  | 1946        
|Gunnar Brock      |  | President and chief executive officer of Atlas Copco Group                                     |  | 1950        
|Lee A. Chaden     |  | Executive vice president of Sara Lee Corporation                                               |  | 1942        
|Harald Einsmann   |  | Member of the boards of directors of Tesco Ltd.                                                |  | 1934        
|Birgitta Kantola  |  | Partner of Birka Consulting Ab                                                                 |  | 1948        
|Jukka Härmälä     |  | Chief executive officer of Stora Enso                                                          |  | 1946        
|Jan Sjöqvist      |  | Chairman of board of directors of ODEN Anläggningsentreprenad AB                               |  | 1948        
|Matti Vuoria      |  | President and chief executive officer of Varma Mutual Pension Insurance Company                |  | 1951        
|Marcus Wallenberg |  | President and chief executive officer of Investor AB                                           |  | 1956        



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Executive Management Group



The following table lists the names of the members of our executive management group, their responsibilities as of December
31, 2004 with our company and their year of birth:



|                |  |                                                                                                    |  |             
|--------------- |  | -------------------------------------------------------------------------------------------------- |  | ------------
|Name            |  | Responsibility                                                                                     |  | Yearof Birth
|Jukka Härmälä   |  | Chief executive officer                                                                            |  | 1946        
|Björn Hägglund  |  | Deputy chief executive officer                                                                     |  | 1945        
|Esko Mäkeläinen |  | Chief financial officer and senior executive vice president, finance, accounting and legal affairs |  | 1946        
|Lars Bengtsson  |  | Senior executive vice president, Stora Enso North America                                          |  | 1945        
|Jussi Huttunen  |  | Senior executive vice president, Stora Enso fine paper                                             |  | 1954        
|Pekka Laaksonen |  | Senior executive vice president, Stora Enso packaging boards                                       |  | 1956        
|Kai Korhonen    |  | Senior executive vice president, Stora Enso paper                                                  |  | 1951        
|Arno Pelkonen   |  | Senior executive vice president, Stora Enso forest products                                        |  | 1954        
|Bernd Rettig    |  | Senior executive vice president, Stora Enso publication paper                                      |  | 1956        
|Yngve Stade     |  | Senior executive vice president, corporate support and energy                                      |  | 1947        



All of the members of
our executive management group, except for Jussi Huttunen and Arno Pelkonen, have served in their capacities since the merger of STORA and Enso in 1998. As described under Management Biographies below, most of the members of the
executive management group had served as members of either STORA management or Enso management prior to the 1998 merger.



The composition and responsibilities of our executive management group will change in connection with the adoption of our new organizational structure as
from May 1, 2005. See Recent DevelopmentsNew Organizational Structure.



Management Biographies



Board of
Directors



Claes Dahlbäck has acted as the
chairman of our board of directors since December 1998. He is the chairman of the board of directors of Investor AB and the executive vice chairman of W Capital Management AB. Mr. Dahlbäck is also the chairman of the boards of directors of Vin
& Sprit AB, Gambro AB and EQT Funds as well as a member of the board of directors of Goldman & Sachs Co. Prior to the 1998 merger of STORA and Enso, Mr. Dahlbäck served as a member of the STORA board of directors beginning in May 1990
and as chairman of the board of STORA since May 1997. Mr. Dahlbäck holds a Master of Science degree in Economics as well as honorary doctorate degrees in Technology and Arts.



Ilkka Niemi is a senior advisor and independent consultant on international finance and has been a member of our
board of directors since March 2001. He is a chairman of the board of directors of Motiva Oy and a member of the board of directors of Aker Finnyards Inc. He served as a member of the board of World Bank and as a representative for the Nordic and
Baltic countries at the financial institutions of the World Bank Group from August 1997 until August 2000. Prior to that, he served as the chief executive officer and a member of the board of the Finnish State Guarantee Board from September 1989
until July 1997. In addition, he acted as the chairman of Finnish Accounting Standards Board from 1993 to 1996. Mr. Niemi holds a Master of Science degree in Economics and Business Administration.



Gunnar Brockis the president and chief executive officer of Atlas
Copco Group. Mr. Brock has been a member of our board of directors since March 2005. In addition, he is a member of the boards of directors of OMX AB (publ) and Lego A/S. He has previously served as the president and chief executive officer of Tetra
Pak Group and Alfa Laval Group and chief executive officer of Thule AB. Mr. Brock holds a Master of Science degree in Economics.



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Lee A. Chadenis the executive vice president of Sara Lee Corporation and the chief executive
officer of Sara Lee Branded Apparel. Mr. Chaden has been a member of our board of directors since March 2004. Prior to joining Sara Lee Corporation in 1991, Mr. Chaden has held various positions at Marketing Corporation of America from 1979 until
1991 and at Procter & Gamble Company from 1966 until 1979. Mr. Chaden has also served as a member of the board of directors of Delta Galil Industries, Ltd. from 1999 until 2000 and from 2002 until 2003. Mr. Chaden holds a Bachelor of Science
degree in Industrial Engineering and a Masters degree in Business Administration.



Harald Einsmann is the executive chairman of the board of directors of Findus AB and has been a member of our board of directors since December 1998. He is a member of the boards of directors of Tesco Ltd,
Checkpoint Systems, Inc., Carlson Companies, Inc. and several other international corporations. Prior to the 1998 merger of STORA and Enso, he was a member of the STORA board of directors beginning in March 1998. Mr. Einsmann served as the
president of Procter & Gamble Europe from 1984 until 1999 and holds a Doctor of Philosophy degree in Economics.



Jukka Härmälä has acted as our chief executive officer and has been a member of our board of directors since December 1998. Mr.
Härmälä is a vice chairman of the supervisory board of Varma Mutual Pension Insurance Company, the vice chairman of the board of directors of Finnlines Plc and a member of the board of directors of Outokumpu Oyj. He is also a member
of the board of the Finnish Forest Industries Federation and a member of the European Round Table of Industrialists. He was employed by Enso from April 1970 to February 1984, and rejoined Enso in September 1988, having been in the interim the senior
vice president and a member of the board of management of Kansallis-Osake-Pankki, a predecessor of Nordea Bank. Prior to the 1998 merger of STORA and Enso, he was the president and chief operating officer of Enso from September 1988 through December
1991 and the chief executive officer from January 1992 through December 1998. Mr. Härmälä holds a Bachelor of Science degree in Economics and Business Administration as well as honorary doctorate degrees in Engineering and Economics.



Birgitta Kantolais a partner of Birka Consulting Ab
and has been a member of our board of directors since March 2005. She is a member of the boards of directors of Fortum Corporation, Nordea Bank AB (publ.), Varma Mutual Pension Insurance Company, Vasakronan AB and Akademiska Hus AB. Ms. Kantola
served as the chief financial officer of Nordic Investment Bank from 1990 until 1995 and chief financial officer of International Finance Corporation from 1995 until 2000. Ms. Kantola is a graduate from a business college and holds a Master of Laws
degree.



Jan Sjöqvist is the chairman of the board
of directors of ODEN Anläggningsentreprenad AB and has been a member of our board of directors since December 1998. In addition, Mr. Sjöqvist is a member of the boards of directors of Green Cargo AB and Lannebo fonder AB. Prior to the 1998
merger of STORA and Enso, he served as a member of the STORA board of directors from March 1997 until December 1998. Mr. Sjöqvist holds a Masters degree in Business Administration.



Matti Vuoriais the president and chief executive officer of Varma
Mutual Pension Insurance Company. Mr. Vuoria has been a member of our board of directors since March 2005. In addition, he is the deputy chairman of the board of directors of Danisco A/S and a member of the boards of directors of Nokian Tyres
plc and Sampo Bank plc. Mr. Vuoria served as a full-time chairman of the board of directors from Fortum Corporation from 1998 until 2003 and as a Secretary General of the Finnish Ministry of Trade and Industry from 1992 until 1998. Mr. Vuoria holds
a Master of Laws degree.



Marcus Wallenberg is the chief
executive officer and president of Investor AB and has been a member of our board of directors since December 1998. Mr. Wallenberg is a member of the boards of directors of AstraZeneca Plc., Saab AB, Scania AB, Skandinaviska Enskilda Banken AB,
Telefonaktiebolaget LM Ericsson, and the Knut and Alice Wallenberg Foundation. Prior to the 1998 merger of STORA and Enso, Mr. Wallenberg served as a director of STORA beginning in March 1998. From August 1990 until June 1993, Mr. Wallenberg served
as a vice president at Store Feldmühle AG, a subsidiary of STORA. Mr. Wallenberg holds a Bachelor of Science degree in Foreign Service.



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Executive Management Group



Björn Hägglund has acted as our deputy chief executive officer since December 1998. Previously, he was the
chief executive officer of STORA from March 1998 until December 1998 and the president of STORA Forest Timber from January 1991 until March 1998. Mr. Hägglund is also the chairman of the Research Institute of Industrial Economics (IUI) in
Sweden and a member of the boards of the Federation of Swedish Forest Industries and the Confederation of European Paper Industries. In addition, he is a member of the Royal Swedish Academy of Engineering Sciences and the Royal Swedish Academy of
Agriculture and Forestry and a member of the boards of the Federation of Swedish Forest Industries and the Confederation of European Paper Industries. Mr. Hägglund holds a Doctor of Philosophy degree in Forestry.



Lars Bengtsson has acted as the senior executive vice president, Stora
Enso North America, since May 2003. He is also a member of the board of directors of a number of our subsidiaries and associated companies. Previously, he was the senior executive vice president, newsprint, from September 2000 until April 2003 and
the executive vice president, fine paper, from December 1998 until August 2000. He joined STORA in 1986. He holds a Master of Science degree in Technology.



Esko Mäkeläinen is our chief financial officer and has acted as the senior executive vice president, finance, accounting and legal
affairs, since September 2001. Previously, he was the senior executive vice president, accounting and legal affairs, from December 1998 until August 2001 and the executive vice president and a member of the board of directors of Enso from January
1992 until December 1998, the vice president and the head of the corporate accounting department of Enso from November 1983 until December 1991, the head of the budgeting department of Enso from May 1977 until October 1983, the head of accounting
for the wood processing division from December 1976 until April 1977, and the head of the accounting department of the Kotka mills of Enso from November 1970 until December 1976. Mr. Mäkeläinen is a member of the supervisory board of
Mutual Pension Insurance Company Ilmarinen. He joined Enso in 1970 and is a member of the boards of directors of a number of our subsidiaries and associated companies. He holds a Master of Science degree in Economics and Business Administration.



Jussi Huttunenhas acted as the senior executive vice
president, Stora Enso fine paper, since January 2002. Previously, he was the managing director of Stora Enso UK from January 1999 until December 2001, managing director of Enso UK Group from August 1994 until December 1998, vice president of the
fine paper division of Enso from January 1992 until July 1994, managing director of Enso Marketing Co Ltd from January 1990 until January 1992, managing director of Enso Rose Ltd from March 1986 until January 1992 and sales manager at Enso Marketing
Co Ltd from March 1983 until December 1985. He joined Enso in 1979 and is a member of the boards of directors of a number of our subsidiaries and associated companies. He holds a Master of Science degree in Economics.



Kai Korhonen has acted as the senior executive vice president, Stora
Enso paper, since May 2003. Previously, he was the senior executive vice president, North America, from September 2000 until April 2003 and the senior executive vice president, newsprint, from December 1998 until August 2000; the vice president,
marketing, of Enso Publication Papers Oy Ltd from January 1996 until December 1998; managing director of Sachsen Papier Eilenburg GmbH from January 1993 until February 1996; and senior vice president, corporate planning, of Enso from March 1991
until December 1992. He joined the Varkaus Mill of Enso (previously, A. Ahlström Osakeyhtiö) in May 1977 and served there in various positions until February 1991. He is a member of the board of directors of American Forest &
Paper Association. In addition, he is a member of the boards of directors of a number of our subsidiaries and associated companies. He holds a Master of Science degree in Engineering and a Master of Science degree in Business Administration.



Pekka Laaksonen has acted as the senior executive vice
president, Stora Enso packaging boards, since December 1998. Previously, he was the executive vice president of the packaging boards division of Enso from August 1993 until December 1998, managing director of Enso (Deutschland) GmbH & Co. from
January 1989 until August 1993, sales manager at Enso (Deutschland) from January 1986 until December 1988, a vice president of the plywood division of Enso from September 1984 until December 1985, sales manager at Enso



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(Deutschland) from August 1981 until August 1984 and an employee of the plywood division of Enso from March 1979 until July 1981. He was also a member of the
board of directors of Enso from May 1996 until December 1998 and a deputy member of the board of directors of Enso from August 1993 until April 1996. He joined Enso in 1979 and is a member of the boards of directors of a number of our subsidiaries
and associated companies. In addition, he is a member of the board of directors of Suominen Corporation. He holds a Master of Science degree in Economics and Business Administration.



Arno Pelkonen has acted as the senior executive vice president, Stora Enso forest products, since May 2003.
Previously, he was the senior executive vice president, timber, from August 2001 until April 2003 and the executive vice president and managing director of Stora Enso Timber Oy Ltd from December 1998 until August 2001, managing director of Enso
Timber Oy Ltd from September 1995 until December 1998, marketing director of Ensos sawmill industry from January 1990 until September 1995, sales director of Ensos sawmill industry from May 1986 until January 1990, and sales manager of
Ensos sawmill industry from May 1984 until May 1986. Mr. Pelkonen is a member of the board of directors of Kuusakoski Oy and a member of the managing board of CEI-Bois. He joined Enso in 1984 and is a member of the boards of directors of a
number of our subsidiaries and associated companies. He holds a Master of Science degree in Economics and Business Administration.



Bernd Rettig has acted as the senior executive vice president, Stora Enso publication paper, since May 2003. He was the senior executive vice
president, magazine paper, from April 1999 until May 2003 and the managing director of Stora Enso Kabel GmbH from June 1996 until March 1999 and the managing director of Stora Reisholz GmbH from January 1992 until May 1996. He joined STORA in 1982
and is a member of the boards of directors of a number of our subsidiaries and associated companies. He holds a Master of Science degree in Engineering.



Yngve Stade has acted as the senior executive vice president, Stora Enso corporate support and energy, since December 1998. Previously, he was the
senior vice president of STORA and the president of STORA Corporate Research from March 1994 until December 1998. He is a member of the boards of the Swedish Forest Research AB, TAPPI (International slot) and Marcus Wallenberg Foundation. He joined
STORA in 1994 and is a member of the boards of directors of a number of our subsidiaries and associated companies. He holds a Master of Science degree in Engineering.



Corporate Governance



General



Matters pertaining to corporate governance are mainly regulated under the
Finnish Companies Act, the Finnish Securities Market Act and our corporate governance policy. In 2003, we updated our corporate governance policy in response to our reorganization, public interest in governance issues, new rules and recommendations
of the Helsinki Stock Exchange, the Stockholm Stock Exchange and New York Stock Exchange as well as the U.S. Sarbanes-Oxley Act. Our board of directors, our chief executive officer and our deputy chief executive officer manage our company. For
additional information about the provisions of our articles of association relating to certain other corporate governance matters, see Item 10. Additional InformationMemorandum and Articles of Association. The following is a brief
summary of certain relevant provisions of the Finnish Companies Act and our corporate governance policy:



Board of Directors.    It is our policy that the board of directors shall have a majority of independent directors. To be
considered independent, the board must resolve that a director has no material relationship with the Company other than as a director. Our board of directors currently consists of ten ordinary members: nine non-executives, who are
independent and not affiliated with Stora Enso Oyj, and one executive, who is our chief executive officer. The members are appointed by the annual general meeting of shareholders for a one-year term. The board of directors supervises our operation
and management and decides upon significant matters relating to strategy, investments, organization and finance. The board of directors also supervises the accounting



65



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and financial control matters of our company. The board of directors elects the chairman and the vice-chairman of our board of directors from among its
members and appoints our chief executive officer, our deputy chief executive officer and heads of product areas, divisions and staff functions. The board of directors also appoints members of the compensation committee, financial and audit committee
and nomination committee.



Pursuant to the Finnish Companies
Act, members of our board of directors are prohibited from participating in the negotiation or performance, or otherwise having any involvement in connection with, a contract between themselves and Stora Enso Oyj. This prohibition also includes
contracts between Stora Enso Oyj and a third party, if such director would receive a material benefit in conflict with the interests of Stora Enso Oyj.



Chief Executive Officer.    Our chief executive officer leads the day-to-day management of our company in accordance with the
instructions and orders issued by our board of directors. It is the duty of our chief executive officer to ensure that our accounting methods comply with applicable laws, as well as to monitor and coach the paper and packaging boards product areas
and to oversee business strategy, long-range planning and investments, finance and financial planning, corporate communications, investor relations and preparatory work with regard to meetings of our board of directors. In addition, our chief
executive officer supervises decisions regarding key personnel and other important operational matters.



Deputy Chief Executive Officer.    Our deputy chief executive officer leads various operational matters, including monitoring
and coaching the forest products product area, Asia Pacific and Latin America divisions, corporate support functions, such as purchasing, research and development, environmental matters, human resources, energy and information technology.



Executive Management Group.    Our
executive management group is chaired by our chief executive officer and is comprised of our deputy chief executive officer, the three product area heads (paper, packaging boards and forest products), three divisional heads (publication paper, fine
paper and North America) and the heads of finance and corporate support. Our executive management groups duties include 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 meetings of our board of directors and the review of main features of our sales network.



Management Group.    Our management group includes
the members of our executive management group and other members that have been appointed by our chief executive officer. Our chief executive officer may also appoint additional members. Our management group reviews the budget, strategy and daily
business development matters.



Board Committees



Financial and Audit Committee.    Our board of
directors established in August 2003 a financial and audit committee that comprises three to five non-executive members of our board of directors who are independent and not affiliated with the Company. At least one committee member must be a
financial expert who has significant knowledge and experience in accounting and accounting principles applicable to Stora Enso. The financial and audit committee meets regularly at least twice a year. The members of the financial and audit committee
meet the Companys external auditor without the management being present in connection with its meetings. Currently, the financial and audit committee consists of Mr. Jan Sjöqvist as the chairman and the financial expert of the audit
committee and Ms. Birgitta Kantola and Messrs. Claes Dahlbäck, Ilkka Niemi and Lee A. Chaden as members. The financial and audit committee reviews our systems of internal control, management and reporting of financial risks and manages both the
internal and external audit process. The financial and audit committee reports to our board of directors. The financial and audit committee met six times in 2004.



Compensation Committee.    Our board of directors has appointed a compensation committee that
currently consists of Mr. Claes Dahlbäck as the chairman and Messrs Harald Einsmann, Ilkka Niemi and Matti Vuoria as members. The compensation committee is responsible for recommending, evaluating and approving executive



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(other than the chief executive officer) nominations and compensations, evaluating the performance of the chief executive officer and making recommendations
to the board of directors relating to management compensation generally, including equity incentive compensation plans. The board of directors approves the compensation of the chief executive officer.



Shareholders Nomination Committee



The annual general meeting of our shareholders held on March 22, 2005
established a nomination committee, which will consist of four members: the representatives of our two largest shareholders as of October 1, 2005 as well as the chairman and the vice chairman of our board of directors. The nomination committee
shall be convened by the chairman of the board of directors and the committee shall elect one of its members as its chairman. The nomination committee shall give its proposals to the board of directors concerning the number of members of our board
of directors, nomination of the members of our board of directors, remuneration for the members of our boards of directors and remuneration of the committees of our board of directors.



Operating Committees



Investment Committee.    Our investment committee is chaired by the head of our corporate strategy, investments and business
planning. Committee members are appointed by our chief executive officer. The duties of the investment committee are as follows: the coordination of investment planning projects, coordination of the investment completion audit and follow-up process,
participation in the planning and execution of large investment projects and making recommendations regarding funds available for investments.



Research and Development Committee.    Our research and development committee is chaired by our deputy chief executive officer
and members of the committee are appointed by our chief executive officer. The purpose and tasks of the research and development committee are as follows: to secure a group perspective on research and development in Stora Enso with regard to the
relevance of research and development and its quality and efficiency, to initiate research and development policy and strategy at the group level, to monitor Stora Enso group research and development and to supervise company-financed research and
development undertaken externally. In order to facilitate these tasks, the research and development committee must monitor technology and future-oriented product development.



Disclosure Committee.    Our disclosure committee is chaired by our group controller and the head
of our internal auditing and our general counsel serve as its permanent members. Other members are nominated by our chief executive officer as needed. The duties of the disclosure committee include supervising the reliability of financial reporting
and disclosure processes of the Company.



Sustainability
Committee.    Our sustainability committee is chaired by our deputy chief executive officer, and its members are appointed by our chief executive officer. The duties of the sustainability committee are to formulate corporate
policy and strategy in environmental and corporate social responsibility matters, to ensure that these policies and strategies are well established and respected throughout the company, to co-ordinate and follow-up on relations and communication
with stakeholders such as governmental and non-governmental organizations, to take initiatives for the development of relevant management procedures and to produce the annual Sustainability Report.



Compensation of Directors and Executive Management Group



In 2004, we paid aggregate remuneration of approximately 5.4 million to members of our board of directors and executive management group, as a group (19 persons). This figure includes benefits in kind and
bonuses determined by the compensation committee of our board of directors based on our performance. In the case of executive officers who are members of the executive management group, this compensation was primarily in the form of salary. In the
case of non-executive directors, this compensation was in the form of directors fees. In addition, we accrued an aggregate of 1.8 million in 2004 for pension, retirement and similar benefits for the directors and members of our executive
management group.



67



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In 2004, we paid our chief executive officer a salary, including benefits, of 1,166.9 thousand and
a bonus of 253.9 thousand. Members of our executive management group received a total of 280,000 synthetic options in 2004. Members of our board of directors did not receive any options in 2004.



Equity-Based Programs



In 1999,
we established a synthetic option program, which is an integrated part of the top management compensation structure. Approximately 200 employees, primarily from senior management and selected specialist areas, participate in the program. Under this
program, we have issued approximately 2.9 million options with a strike price of 11.75 per share, equal to 110 percent of the average share price from May through July 1999. These 1999 synthetic options are exercisable from July 15, 2002,
until July 15, 2006. On March 21, 2000, our board of directors approved the issuance of up to 3,000,000 additional synthetic options with a strike price of 12.25 per share, equal to 110 percent of the average share price over the three-day
period prior to the annual general meeting on March 21, 2000. These 2000 synthetic options are exercisable from April 1, 2003, until March 31, 2007. On March 20, 2001, our board of directors decided to continue the annual incentive program initiated
in 1999 and increased the number of key employees eligible to receive synthetic options to 500 and approved the issuance of up to 4.8 million additional synthetic options. The strike price for the 2001 synthetic options is 11.70, equal to 110
percent of the average share price from February 2 through February 14, 2001. These 2001 synthetic options will be exercisable from April 1, 2004, until March 31, 2008. In January 2002, our board of directors decided on the principles of continuing
the rolling incentive program, increased the number of key employees eligible to receive synthetic options to 1,000 and approved the issuance of up to 5.9 million additional synthetic options. The strike price for the 2002 synthetic options is
16.50, equal to 110 percent of the average share price from January 31 through February 7, 2002. These 2002 synthetic options will be exercisable from February 8, 2005, until February 7, 2009. In January 2003, our board of directors decided on
the principles of continuing the rolling incentive program initiated in 1999, kept the number of key employees eligible to receive synthetic options at 1,000 and approved the issuance of up to 6.0 million additional synthetic options. The strike
price for the 2003 synthetic options is 10.00, equal to 110 percent of the average share price from January 31 through February 7, 2003. These 2003 synthetic options will be exercisable from February 8, 2006, until February 7, 2010. In
February 2004, our board of directors decided on the principles of continuing the rolling incentive program initiated in 1999, kept the number of key employees eligible to receive synthetic options at 1,000 and approved the issuance of up to 4.5
million additional synthetic options. The strike price for the 2004 synthetic options is 11.15, equal to 110 percent of the average share price from February 5 through February 12, 2004. These 2004 synthetic options will be exercisable from
March 1, 2007, until February 28, 2011. In March 2005, our board of directors decided on the principles of continuing the rolling incentive program initiated in 1999, kept the number of key employees eligible to receive synthetic options at 1,000
and approved the issuance of up to 3.1 million additional synthetic options. The strike price for the 2005 synthetic options is 12.20, equal to 110 percent of the average share price from February 4 through February 11, 2005. These 2005
synthetic options will be exercisable from March 1, 2008, until February 28, 2012.



Depending on local circumstances, synthetic options entitle the holders to receive either a cash payment equal to the difference between the strike price and the share price at the time of exercise or an option to
purchase Series R shares already issued. We have financially hedged our obligations under the option program against any increases in the share price. The options are non-transferable and their exercise will not dilute existing ownership interests.



In addition, in 2004, we established a restricted share award
plan and a performance share award plan for 191 members of our top senior management. Under the restricted share award plan, a total of 261,000 Series R shares will be allocated to the participants during the years 2005 to 2007. Of the total amount
of Series R shares, 40 percent will be allocated on March 1, 2005, 30 percent will be allocated on March 1, 2006, and 30 percent will be allocated on March 1, 2007. Under the performance share award plan, participants were notified on March 1, 2004
that, depending on whether we, at the group level, meet the performance criteria determined by the compensation committee of our board of directors, an estimated target amount of 261,000 Series R shares will be allocated to the participants during
the years 2005 to 2007. Of the total amount of allocations, 40 percent was



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made on March 1, 2005, 30 percent will be made on March 1, 2006, and 30 percent will be made on March 1, 2007. Pursuant to the performance criteria
determined by the compensation committee of our board of directors for the year 2005, participants will be allocated 156,000 Series R shares, representing 150 percent of the target amount for 2005, if our return on capital employed in 2004 is 4
percent higher than weighted average cost of capital of 8.7 percent. If our return on capital employed in 2004 equals weighted average cost of capital of 8.7 percent, participants will receive 104,400 Series R shares held by us, representing 100
percent of the target amount for 2005. If our return on capital employed in 2004 is lower than weighted average cost of capital of 8.7 percent, no Series R shares will be allocated. On March 1, 2005, 103,140 Series R Shares were awarded under the
restricted plan and no Series R Shares were allocated under the performance plan.



In 2005, the restricted and performance share plans were extended to 1000 employees. Under the restricted share plan a total of 645,603 R Series shares may be allocated over the period March 1, 2006 through March 1,
2008. The performance plan target amount is 372,178 R Series shares over the period March 1, 2006 through March 1, 2008 with a maximum number of 558,267 R Series shares available if the company meets the performance criteria as determined by the
compensation committee of our board of directors.



The
following table sets forth the total number of synthetic options beneficially held by each of the members of our executive management group as of April 5, 2005:



|                |  |         |  |         |  |         |  |         |  |         |  |        |  |       
|--------------- |  | ------- |  | ------- |  | ------- |  | ------- |  | ------- |  | ------ |  | ------
|                |  | 1999    |  | 2000    |  | 2001    |  | 2002    |  | 2003    |  | 2004   |  | 2005  
|Jukka Härmälä   |  | 112,500 |  | 110,000 |  | 110,000 |  | 110,000 |  | 110,000 |  | 60,000 |  | 60,000
|Björn Hägglund  |  | 93,750  |  | 90,000  |  | 90,000  |  | 90,000  |  | 90,000  |  | 45,000 |  | 20,000
|Esko Mäkeläinen |  | 46,900  |  | 45,000  |  | 45,000  |  | 45,000  |  | 45,000  |  | 22,500 |  | 22,500
|Lars Bengstsson |  | 46,900  |  | 30,000  |  | 45,000  |  | 45,000  |  | 45,000  |  | 22,500 |  | 22,500
|Jussi Huttunen  |  | 16,800  |  | 15,000  |  | 15,000  |  | 45,000  |  | 45,000  |  | 22,500 |  | 22,500
|Kai Korhonen    |  | 46,900  |  | 45,000  |  | 45,000  |  | 45,000  |  | 45,000  |  | 22,500 |  | 22,500
|Pekka Laaksonen |  | 46,900  |  | 45,000  |  | 45,000  |  | 45,000  |  | 45,000  |  | 22,500 |  | 22,500
|Arno Pelkonen   |  | 46,900  |  | 30,000  |  | 30,000  |  | 45,000  |  | 45,000  |  | 22,500 |  | 22,500
|Bernd Rettig    |  | 46,900  |  | 45,000  |  | 45,000  |  | 45,000  |  | 45,000  |  | 22,500 |  | 22,500
|Yngve Stade     |  | 46,900  |  | 45,000  |  | 45,000  |  | 45,000  |  | 45,000  |  | 22,500 |  | 22,500



In addition, as set
out in the following table, our executive management group, were awarded R Series shares on March 1, 2004 under the 2004 restricted share plan. No awards were made under the 2004 performance share plan.



|                |  |                                            |  |                      
|--------------- |  | ------------------------------------------ |  | ---------------------
|                |  | Series R Shares Awardedas of March 1, 2005
|                |  | RestrictedShare Plan                       |  | PerformanceShare Plan
|Jukka Härmälä   |  | 4,000                                      |  | 0                    
|Björn Hägglund  |  | 3,000                                      |  | 0                    
|Esko Mäkeläinen |  | 1,500                                      |  | 0                    
|Lars Bengstsson |  | 1,500                                      |  | 0                    
|Jussi Huttunen  |  | 1,500                                      |  | 0                    
|Kai Korhonen    |  | 1,500                                      |  | 0                    
|Pekka Laaksonen |  | 1,500                                      |  | 0                    
|Arno Pelkonen   |  | 1,500                                      |  | 0                    
|Bernd Rettig    |  | 1,500                                      |  | 0                    
|Yngve Stade     |  | 1,500                                      |  | 0                    



In connection with the
Consolidated Papers acquisition, our board of directors decided to convert the Consolidated Papers share option plans (1989 Stock Option Plan and 1998 Incentive Compensation Plan) into share option plans of Stora Enso. The maximum number of new
Series R shares in the form of ADRs that may be subscribed for is 5,680,000. Before October 16, 2001, we had issued 2,001,733 Series R shares in connection



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with the conversion of the share option plans, increasing our share capital by 3.4 million. On October 16, 2001, our board of directors decided to
amend these share option plans. As a result, no new Series R shares will be issued pursuant to these share option plans. Instead, under the amended terms of the share option plans, a maximum of 4 million repurchased Series R shares was reserved for
distribution pursuant to these share option plans. As of April 5, 2005, a total of 1,220,624 repurchased Series R shares was held in reserve for distribution pursuant to these share option plans. The exercise period is from September 11, 2000 to
February 4, 2010 (depending on the date of grant) and the weighted average subscription price is $6.9687.



Share Ownership by Directors and Executive Management Group



The following table sets forth the total number of shares beneficially held by each of our directors and members of our executive management group as of April 5, 2005:



|                              |  |                                |  |                                 |  |                                |  |                                
|----------------------------- |  | ------------------------------ |  | ------------------------------- |  | ------------------------------ |  | -------------------------------
|                              |  | Number of Shares              
|                              |  | Series A shares                |  | Series R shares                
|                              |  | SoleVoting or Investment Power |  | Beneficially SharedVoting Power |  | SoleVoting or Investment Power |  | Beneficially SharedVoting Power
|Directors                     |  |                                |  |                                 |  |                                |  |                                
|Claes Dahlbäck                |  | 2,541                          |  |                                |  | 19,529                         |  |                               
|Ilkka Niemi                   |  |                               |  |                                |  |                               |  |                               
|Gunnar Brock                  |  |                               |  |                                |  | 4,000                          |  |                               
|Lee A. Chaden                 |  |                               |  |                                |  | 3,500                          |  |                               
|Harald Einsmann(1)            |  |                               |  |                                |  | 4,800                          |  |                               
|Jukka Härmälä                 |  |                               |  |                                |  | 8,932                          |  |                               
|Birgitta Kantola              |  |                               |  |                                |  | 1,000                          |  |                               
|Jan Sjöqvist                  |  |                               |  |                                |  | 1,943                          |  |                               
|Matti Vuoria(2)               |  | 508                            |  | 8,922,117                       |  | 1,000                          |  | 140,874                        
|Marcus Wallenberg(3)          |  | 2,795                          |  | 58,379,194                      |  | 5,367                          |  |                               
|Executive Management Group(4) |  |                                |  |                                 |  |                                |  |                                
|Björn Hägglund                |  | 7,877                          |  |                                |  | 16,376                         |  |                               
|Esko Mäkeläinen               |  | 1,900                          |  |                                |  | 6,169                          |  |                               
|Lars Bengstsson               |  |                               |  |                                |  | 1,006                          |  |                               
|Jussi Huttunen                |  |                               |  |                                |  | 885                            |  |                               
|Kai Korhonen                  |  |                               |  |                                |  | 885                            |  |                               
|Pekka Laaksonen               |  | 15,000                         |  |                                |  |                               |  |                               
|Arno Pelkonen                 |  |                               |  |                                |  | 1,500                          |  |                               
|Bernd Rettig                  |  |                               |  |                                |  | 1,500                          |  |                               
|Yngve Stade                   |  |                               |  |                                |  | 2,225                          |  |                               

---

|(1) |  | Series R shares in form of American Depositary Receipts.
|--- |  | --------------------------------------------------------

|(2) |  | Varma Mutual Pension Insurance Company owns 8,922,117 Series A shares and 140,874 Series R shares. Mr. Vuoria is the president and chief executive officer and a member of the board
of directors of Varma Mutual Pension Insurance Company, and as a result may be deemed to share voting power with respect to the Series A shares and Series R shares owned by Varma Mutual Pension Insurance Company within the meaning of Rule 13d-3
under the Exchange Act. Mr. Vuoria does not believe that he has the power to direct the voting of shares held by Varma Mutual Pension Insurance Company and disclaims beneficial ownership of these shares.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | In Addition, the Knut and Alice Wallenberg Foundation owns 58,379,194 Series A shares. Mr. Wallenberg is a member of the board of directors of the Knut and Alice Wallenberg
Foundation and as a result may be deemed to share voting power with respect to the Series A shares owned by the Knut and Alice Wallenberg Foundation within the meaning of Rule 13d-3 under the Exchange Act. Mr. Wallenberg does not believe that he has
the power to direct the voting of shares held by the Knut and Alice Wallenberg Foundation and disclaims beneficial ownership of these shares.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Excludes members of the executive management group who are also members of our board of directors.
|--- |  | --------------------------------------------------------------------------------------------------



Employment Agreements



Members
of our executive management group and other executive officers have entered into employment agreements with us, which, among other things, provide standard employment terms, including compensation



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and termination provisions. Under these agreements, our executive officers receive a base salary and are eligible for a performance-based bonus on an annual
basis. In addition, all our executive officers receive certain fringe benefits. Under the employment agreements, employment can typically be terminated upon six months notice, after which each executive remains subject to a non-competition
clause. Several of our executive officers, including Messrs. Härmälä and Hägglund, are parties to employment agreements that provide for a fixed severance payment of 12 months salary and, under specified circumstances, an
additional 12 months salary.



Presently, there are no
service contracts between any non-executive members of our board of directors and Stora Enso or any of its subsidiaries which provide for benefits upon termination.



Share Repurchases



At our annual
general meeting of shareholders held on March 22, 2005, our shareholders authorized our board of directors to repurchase up to 17,900,000 Series A shares and up to 62,150,000 Series R shares on the Helsinki Stock Exchange and the Stockholm Stock
Exchange. Pursuant to the authorization, the repurchased shares may not exceed 10 percent of the votes or the share capital of our company. The authorization is valid until March 21, 2006.



At such annual general meeting of shareholders, our shareholders also
authorized our board of directors to dispose of not more than 17,900,000 Series A shares and not more than 62,150,000 Series R shares held by us. Our board of directors was authorized to decide to whom and in what manner these shares will be
disposed of. The shares can be disposed of in deviation from the pre-emptive rights of our existing shareholders as consideration in possible corporate acquisitions or other arrangements, or sold in the public market. Our board of directors was also
authorized to decide on the terms of the disposals, including the sales price or other consideration to be paid for such shares. The authorization is valid until March 21, 2006.



Pursuant to an authorization to our board of directors granted by our annual general meeting of shareholders held on March
17, 2004, a total of 16,300 Series A shares and 23,582,600 Series R shares were repurchased during the period from March 31, 2004 to March 11, 2005. The average price paid for the Series A shares was 10.90 and for the Series R shares
11.00. Such shares have been cancelled pursuant to the decision of our annual general meeting of shareholders.



Home Country Practices



Foreign
private issuers with securities listed on the New York Stock Exchange must disclose any significant ways in which their corporate governance practices differ from those followed by U.S. domestic companies under the listing standards of the New York
Stock Exchange (the NYSE listing standards).



As a
result of a comparison of Stora Ensos corporate governance practices to those requirements of Section 303A of the NYSE listing standards that are currently applicable to U.S. domestic companies, the following significant differences have been
identified:



| |  |  | The annual general meeting of our shareholders held on March 22, 2005 established a nomination committee, which consists of four members: the representatives of our two biggest
shareholders as well as the chairman and the vice chairman of our board of directors. The nomination committee will prepare proposals in respect of the composition of our board of directors and the director remuneration for the following annual
general meeting of our shareholders. Pursuant to Section 303A.04 of the NYSE listing standards, domestic companies listed on the New York Stock Exchange must have a nominating or corporate governance committee composed entirely of independent
directors.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our compensation committee makes recommendations to our board of directors with respect to the compensation of our president and chief executive officer. In accordance with the
Finnish Companies Act, the compensation of our president and chief executive officer is approved by our entire board of directors. Section 303A.05 of the NYSE listing standards requires that the compensation committee of the Company must determine
and approve the compensation of the chief executive officer.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Under the Finnish Companies Act, a general meeting of shareholders of a Finnish company appoints the independent auditor(s) of a Finnish company. Similarly, only a general meeting
of shareholders can remove the independent auditor(s) and appoint their successor. Section 303.06 of the NYSE listing standards requires, pursuant to Rule 10A-3 of the U.S. Securities Exchange Act of 1934, that the audit committee of the company
must be directly responsible for the appointment and retention of the independent auditor of the company.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Finnish laws and regulations do not mandatorily require companies to have an internal audit function which is required by the Section 303.07 of the NYSE listing standards. Stora
Enso has covered this requirement by comprehensive risk management and internal control processes.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Employees



As of December 31,
2004, we had approximately 45,307 employees, an increase of 2,493 employees from December 31, 2003. The increase was due primarily to the acquisition of Sylvester in the Baltic States and new sawmills in Russia, partly offset by reductions of work
force in Finland and North America. The average number of employees by product area and by region for the years ended December 31, 2002, 2003 and 2004 and the number of employees as of December 31, 2004 were as follows:



|                                                                                                                                                                                                                                                        |  |                                 |  |                         |  |        |     |        |     |  |    
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- |  | ----------------------- |  | ------ | --- | ------ | --- |  | ---
|                                                                                                                                                                                                                                                        |  | For the year ended December 31, |  | As of December 31, 2004 |  |        |    
|                                                                                                                                                                                                                                                        |  | 2002                            |  | 2003                    |  | 2004   |     |       
|                                                                                                                                                                                                                                                        |  | (average number of employees)   |  | (number ofemployees)    |  |        |    
|Paper                                                                                                                                                                                                                                                   |  |                                 |  |                         |  |        |     |        |     |  |    
|Publication paper                                                                                                                                                                                                                                       |  | 13,241                          |  | 12,903                  |  | 12,317 |     | 11,872 |     |  |    
|Fine paper                                                                                                                                                                                                                                              |  | 9,872                           |  | 9,521                   |  | 8,921  |     | 8,612  |     |  |    
|Merchants                                                                                                                                                                                                                                               |  | 1,411                           |  | 1,254                   |  | 1,296  |     | 1,289  |     |  |    
|Packaging boards                                                                                                                                                                                                                                        |  | 9,949                           |  | 10,068                  |  | 10,113 |     | 11,730 |     |  |    
|Forest products                                                                                                                                                                                                                                         |  |                                 |  |                         |  |        |     |        |     |  |    
|Wood products                                                                                                                                                                                                                                           |  | 3,745                           |  | 4,626                   |  | 4,856  |     | 5,069  |     |  |    
|Wood supply Europe                                                                                                                                                                                                                                      |  | 2,265                           |  | 2,599                   |  | 3,157  |     | 3,614  |     |  |    
|Other                                                                                                                                                                                                                                                   |  | 3,370                           |  | 3,293                   |  | 3,119  |     | 3,121  |     |  |    
|                                                                                                                                                                                                                                                        |  |                                 |  |                         |  |        |     |        |     |  |    
|Total                                                                                                                                                                                                                                                   |  | 43,853                          |  | 44,264                  |  | 43,779 |     | 45,307 | (1) |  |    
|                                                                                                                                                                                                                                                        |  |                                 |  |                         |  |        |     |        |     |  |    
|(1)    As a result of acquisitions in Poland and Russia in late 2004 with a number of employees of 1,979 and 2,196, respectively, the number of employees as of December 31, 2004 is materially different from the average
number of employees in 2004.
|                                                                                                                                                                                                                                                        |  | For the year ended December 31, |  | As of December 31, 2004
|                                                                                                                                                                                                                                                        |  | 2002                            |  | 2003                    |  | 2004   |    
|                                                                                                                                                                                                                                                        |  | (average number of employees)   |  | (number ofemployees)    |  |        | (%)
|Finland                                                                                                                                                                                                                                                 |  | 14,676                          |  | 14,479                  |  | 13,820 |     | 13,117 |     |  | 30 
|Sweden                                                                                                                                                                                                                                                  |  | 9,187                           |  | 9,068                   |  | 8,848  |     | 8,633  |     |  | 19 
|Germany                                                                                                                                                                                                                                                 |  | 4,761                           |  | 4,785                   |  | 4,734  |     | 4,681  |     |  | 10 
|United States                                                                                                                                                                                                                                           |  | 5,731                           |  | 5,182                   |  | 4,664  |     | 4,588  |     |  | 10 
|Russia                                                                                                                                                                                                                                                  |  | 581                             |  | 741                     |  | 1,710  |     | 2,196  |     |  | 5  
|Austria                                                                                                                                                                                                                                                 |  | 1,189                           |  | 1,226                   |  | 1,261  |     | 1,299  |     |  | 3  
|France                                                                                                                                                                                                                                                  |  | 1,333                           |  | 1,312                   |  | 1,260  |     | 1,236  |     |  | 3  
|Estonia                                                                                                                                                                                                                                                 |  | 132                             |  | 1,140                   |  | 970    |     | 1,030  |     |  | 2  
|The Netherlands                                                                                                                                                                                                                                         |  | 858                             |  | 829                     |  | 954    |     | 947    |     |  | 2  
|China                                                                                                                                                                                                                                                   |  | 816                             |  | 811                     |  | 849    |     | 857    |     |  | 2  
|Canada                                                                                                                                                                                                                                                  |  | 850                             |  | 849                     |  | 775    |     | 678    |     |  | 1  
|Belgium                                                                                                                                                                                                                                                 |  | 645                             |  | 623                     |  | 603    |     | 596    |     |  | 1  
|Other countries                                                                                                                                                                                                                                         |  | 3,094                           |  | 3,219                   |  | 3,351  |     | 5,449  |     |  | 12 
|                                                                                                                                                                                                                                                        |  |                                 |  |                         |  |        |     |        |     |  |    
|Total                                                                                                                                                                                                                                                   |  | 43,853                          |  | 44,264                  |  | 43,779 |     | 45,307 |     |  | 100
|                                                                                                                                                                                                                                                        |  |                                 |  |                         |  |        |     |        |     |  |    



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The forest products industry is highly unionized, particularly in Finland and Sweden, two of the primary
jurisdictions where we operate. In Finland and Sweden, most of our employees who are directly involved in production, and approximately one-half of the employees in lower to mid-level management belong to labor unions. Customarily, collective
bargaining agreements are negotiated between the unions and the forest products industry.



In Finland, the collective bargaining agreements between the Finnish Forest Industries Federation, an organization collectively representing us and other employers in our industry, and the relevant labor unions
expired on February 28, 2005. In connection with the currently pending negotiations regarding new Finnish collective bargaining agreements, the Finnish labor unions for the forest industry and the electric industry announced that their members will
refuse to work any over-time as from March 30, 2005, and the Swedish labor union for the forest industry has announced that its members will refuse to undertake any work related to the production in Finland as from April 7, 2005.



In Sweden, we have entered into three-year collective bargaining agreements
covering the period until March 2007 with all unions. The agreements provide for average salary increases of 3.0 percent for 2004, 2.7 percent for the 12 months starting March 1, 2005 and 2.6 percent for the last 12 months. In Germany, we have
collective bargaining agreements covering the period from May 2004 until April 2005, which provided for average salary increases of approximately 1.5 percent in May 2004. Negotiations on new collective bargaining agreements in Germany will start
during April 2005.



In North America, most of our employees
involved in production as well as office and professional employees are represented by labor unions, with different unions representing various groups of employees. All major agreements with labor unions in North America were scheduled to expire
during the year 2004 or later and provide for average salary increases of approximately 3 percent in each of 2002 and 2003.



Management believes that our company has good relations with employees and their representatives. For additional information, see the relevant risk factor
under Item 3. Key InformationRisk Factors.



Our employees participate in a performance-oriented incentive bonus plan based on, among other factors, profitability and achievement of key business targets set by management. Bonuses under the new incentive plan are calculated as a
percentage of each employees annual base salary, capped in the case of non-management employees at 7 percent. All bonuses are discretionary and will not be partially triggered unless our results exceed specified levels. The plan currently
covers 70 to 80 percent of our employees, mostly in Europe. We plan to implement the plan in all countries. However, this implementation will take time due to local practices, contracts and legislation.



Members of our middle and top management participate in an annual bonus
arrangement calculated on the basis of our target return on capital employed ratio and the achievement of personal targets. The maximum bonus available under the management bonus plan ranges from 20 percent to 50 percent of annual base salary,
depending on seniority. In addition, some key employees participate in our synthetic option programs. See Item 6. Directors, Senior Management and EmployeesEquity-Based Programs.



73



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Item 7.    Major Shareholders and Related Party Transactions.



Ownership of Stora Ensos Securities by Management and Significant Shareholders



The following table sets forth information concerning the beneficial ownership of Series A shares and Series R shares as of April 5, 2004 for the
following:



| |  |  | each person or entity who is known by us to own beneficially at least 5 percent of our outstanding share capital or voting power; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | all our directors and members of our executive management group, as a group.
| | - |  | ----------------------------------------------------------------------------



The calculation of percentages in the Percentage of Outstanding Shares column in the table below is based upon the number of our ordinary
shares issued and outstanding as of April 5, 2005, plus our shares subject to warrants and options held by the respective persons as of the date of April 5, 2005 and exercisable within 60 days.



|                                                                                       |  |                                 |  |                                 |  |                    |  |                               
|-------------------------------------------------------------------------------------- |  | ------------------------------- |  | ------------------------------- |  | ------------------ |  | ------------------------------
|Name                                                                                   |  | Series ASharesBeneficiallyOwned |  | Series RSharesBeneficiallyOwned |  | Percentageof Votes |  | Percentage ofOutstandingShares
|Finnish State                                                                          |  | 55,595,937                      |  | 41,483,501                      |  | 24.6               |  | 11.9                          
|Knut and Alice Wallenberg Foundation                                                   |  | 58,379,194                      |  |                                |  | 24.1               |  | 7.2                           
|Social Insurance Institution of Finland                                                |  | 23,825,086                      |  | 3,738,965                       |  | 10.0               |  | 3.4                           
|Varma Mutual Pension Insurance Company                                                 |  | 8,922,117                       |  | 140,874                         |  | 3.7                |  | 1.1                           
|Directors and members of the executive management group, as a group (19 persons)(1)(2) |  | 67,301,311                      |  | 140,874                         |  | 27.5               |  | 8.1                           

---

|(1) |  | Includes 58,379,194 Series A shares owned by the Knut and Alice Wallenberg Foundation. Marcus Wallenberg, a member of our board of directors, is a member of the board of directors
of the Knut and Alice Wallenberg Foundation. Mr. Wallenberg may be deemed to have an interest in the Series A shares owned by the Knut and Alice Wallenberg Foundation within the meaning of Rule 13d-3 under the Exchange Act. Mr. Wallenberg believes
that he does not possess the power to direct the voting of these shares and disclaim beneficial ownership of the Series A shares held by the Knut and Alice Wallenberg Foundation.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Includes 8,922,117 Series A shares and 140,874 Series R shares owned by Varma Mutual Pension Insurance Company. Matti Vuoria, a member of our board of directors, is the president
and chief executive officer and a member of the board of directors of Varma Mutual Pension Insurance Company. Mr. Vuoria may be deemed to have an interest in the Series A shares and Series R shares owned by Varma Mutual Pension Insurance Company
within the meaning of Rule 13d-3 under the Exchange Act. Mr. Vuoria believes that he does not possess the power to direct the voting of these shares and disclaims beneficial ownership of the Series A shares and Series R shares held by Varma Mutual
Pension Insurance Company.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Changes in the Percentage of Ownership of Significant Shareholders



Prior to the merger of STORA and Enso in 1998, the Finnish State owned approximately 40 percent of Ensos share capital and Investor AB, a Swedish
industrial investment company, owned approximately 16.4 percent of STORAs share capital. Immediately following the merger, the Finnish State held approximately 21.6 percent of the voting power in Stora Enso and Investor AB held approximately
10.9 percent. In June 2001, Investor AB sold its total shareholdings in Stora Enso to the Knut and Alice Wallenberg Foundation and Marianne and Marcus Wallenberg Foundation. In April 2002, the Finnish State sold approximately 23 million Series R
shares and, in June 2002, an additional 17 million Series R shares through a series of market transactions. As of the date of this annual report, the Finnish State controls approximately 24.6 percent and the Knut and Alice Wallenberg Foundation
controls approximately 24.1 percent of our voting rights. We have been informed that, as of February 17, 2004, the ownership of our shares by the mutual funds managed by Franklin Resources, Inc. had exceeded 5 percent of our outstanding shares.
Based on the announcement made by Franklin Resources, Inc. on February 20, 2004, mutual funds managed by Franklin Resources, Inc. held 45,391,907 Series R shares as of February 17, 2004, representing approximately 5.25 percent of our outstanding
share capital and approximately 1.82 percent of our voting rights.



74



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Ownership of Our Securities in the United States



As of April 5, 2005, there were (i) 16 record holders of our Series A shares with a registered address in the United States, representing 6,447 of a total of 179,030,345 issued and outstanding Series A shares, and
(ii) 41 record holders of our Series R shares with a registered address in the United States, representing 47,057 of a total of 633,946,754 issued and outstanding Series R shares. In addition, 20,690,502 Series R shares were held in the form of ADSs
by 2,755 record holders, representing 3.3 percent of our issued and outstanding Series R shares.



As of April 5, 2005, a total of 74,979,326, or 41.9 percent, of our Series A shares and a total of 503,076,298, or 79.4 percent, of our Series R shares
were held in nominee registered form in the Finnish book-entry system. As a result of Finnish law and regulations, we believe that substantially all holders of such shares are domiciled outside of Finland. However, other than in respect of
shareholders attending a meeting of our shareholders, we do not receive information on the jurisdiction of the domicile of such shareholders unless such holders notify us that they have obtained ownership of shares representing at least 5 percent of
our outstanding share capital or voting power. Other than as indicated above under Ownership of Stora Ensos Securities by Management and Significant Shareholders, we have not received any such notification in respect of our
current shareholders.



Related Party Transactions



General



During the last three years, we have not been involved in
any material transactions with any of our directors or executive officers, any of our 10 percent shareholders, or any relative or spouse of any of these persons. With certain limitations, the Finnish Companies Act permits members of our board of
directors to borrow money from us, so long as such loan is secured and is within the limits of our distributable equity. However, none of our directors or executive officers and none of our 10 percent shareholders owes any significant amount of debt
to us. We have 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 our directors or executive officers in violation of
the Exchange Act.



Together with our subsidiaries, we engage in
ordinary course transactions on commercial terms and conditions with affiliated companies and other related parties that are on no less favorable terms than would be available to unaffiliated third parties. We intend to continue to engage in
transactions on a similar basis with affiliated businesses. For additional discussion, see note 13 to our consolidated financial statements beginning on page F-1 of this annual report.



Chemical Pulp



Although most of our chemical pulp is produced internally, we purchase chemical pulp from the pulp mill of Sunila Oy, a 50 percent owned joint venture
corporation with Myllykoski. Sunila sells us pulp at market prices. In 2004, we purchased 156,696 metric tons of chemical pulp from Sunila for a total purchase price of 66.5 million.



Energy



We hold a 15.7 percent interest in Pohjolan Voima Oy, a power producer and a majority shareholder in Teollisuuden Voima Oy,
one of Finlands two nuclear power companies. Prices that we pay to Pohjolan Voima for electricity are based on production costs, which are generally lower than market prices. We have the right to appoint a director to the board of directors of
Pohjolan Voima.



Financial Arrangements



We have borrowings from, or financial arrangements with, several financial
institutions. Some of the members of our board of directors or executive management group are also members of the board of directors, supervisory board or executive management of one or more of those financial institutions, including Nordea Bank AB
(publ.) in the case of Birgitta Kantola, Sampo Bank plc in the case of Matti Vuoria, Skandinaviska Enskilda Banken AB in the case of Marcus Wallenberg, Varma Mutual Pension Insurance Company in the case of Jukka Härmälä and Matti
Vuoria and Mutual Pension Insurance Company Ilmarinen in the case of Esko Mäkeläinen. All of our borrowings and financial arrangements have been negotiated on arms-length terms and several have existed for a number of years and prior
to the current overlap in board membership.



75



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Research and Development



We conduct research and development activities through Keskuslaboratorio, in which we have a 30 percent interest. We source part of our basic research
requirements from Keskuslaboratorio, which also performs research for us on a contract basis at cost. In 2004, our total payments to Keskuslaboratorio amounted to 5.0 million. Discoveries made in the process of its research activities are the
property of Keskuslaboratorio, which makes a decision whether or not to apply for a patent for each discovery on a case-by-case basis. If a patent is granted, the four corporate owners of Keskuslaboratorio (in addition to ourselves, UPM-Kymmene,
Metsäliitto group and Myllykoski) have a right to practice the patent. If, however, Keskuslaboratorio decides not to apply for a patent, the discovery is auctioned to the corporate owners or, if they are not interested, to unrelated third
parties.



Recycled Paper



We have a minority interest in several paper recyclers from whom we purchase
recycled paper at market prices. Purchases of recycled paper from these companies totaled approximately 36.9 million in 2004.



Restructuring of Our Forest Assets



In July 2002, in connection with the restructuring of our Finnish forest assets, we transferred a total of approximately 600,000 hectares (approximately
1.5 million acres) of our forest land and related operations in Finland to a newly-formed company Tornator Oy. In December 2002, we sold Tornator Oy to Tornator Timberland Oy, of which we own 41 percent. The remaining 59 percent of the shares in
Tornator Timberland Oy is held by Finnish institutional investors. As a result of the sale, we recorded a gain of 25.9 million.



In March 2004, in connection with the restructuring of our Swedish forest assets, we transferred a total of approximately 1.5 million hectares
(approximately 3.7 million acres) of our forest land and related operations in Sweden to a newly-formed company Bergvik Skog AB, of which we own 43.3 percent and 5.0 percent is held by Korsnäs AB, a Swedish forest industry company controlled by
Kinnevik Group. The remaining 51.7 percent of the shares in Bergvik Skog AB is held by institutional investors. Item 5. Operating and Financial Review and ProspectsRecent DevelopmentsRecent Divestitures.



Stevedoring



We own 34.3 percent of the shares of Steveco Oy, a Finnish company engaged in loading and unloading vessels. Stevecos
other shareholders are UPM-Kymmene, Finnlines, Ahlström and Myllykoski Paper. Stevedoring services provided by Steveco to us and the other shareholders are priced at market prices and, in 2004, our total payments to Steveco Oy amounted to
21.9 million. We also own 50 percent interest in Kemi Shipping Oy and 100 percent in Herman Andersson Oy, each, a Finnish company.



Wood Procurement



In connection with the divestiture of our Finnish forest land and related operations in 2002, we entered into a long-term wood procurement agreement with
Tornator Oy and Tornator Forest Oy, according to which they will sell us approximately 1.5 million cubic meters of wood annually. Both Tornator Oy and Tornator Forest Oy are, directly or indirectly, wholly-owned subsidiaries of Tornator Timberland
Oy. Currently, we are holding 41 percent and Varma Mutual Pension Insurance Company is holding 13.3 percent of the shares in Tornator Timberland Oy. Our chief executive officer is the vice chairman of Varmas supervisory board and another
member of our board is the president and chief executive officer and a member of the board of Varma.



In connection with the divestiture of our Swedish forest land and related operations in 2004, we entered into a long-term wood procurement agreement with
Bergvik Skog AB, according to which it will sell us approximately 4.5 million cubic meters of wood annually. Currently, we are holding 43.3 percent and the Knud and Alice Wallenberg Foundation is holding 8.2 percent of the shares in Bergvik Skog AB.
As of the date of this annual report, the Knut and Alice Wallenberg Foundation controls approximately 23.7 percent of our voting rights. In 2004, we procured 3.98 million cubic meters of wood for 140.5 million from Bergsvik Skog AB while our
sales to Bergvik Skog AB amounted to 76.2 million.



76



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Item 8.    Financial Information.



Consolidated Financial Statements



See Item 18. Financial Statements.



Export Sales



The following
table sets forth our sales by destination for the years indicated:



|                                   |  |                                 |  |          |  |         
|---------------------------------- |  | ------------------------------- |  | -------- |  | --------
|                                   |  | For the year ended December 31,
|                                   |  | 2002                            |  | 2003     |  | 2004    
|                                   |  | ( in millions)                
|Austria                            |  | 195.4                           |  | 222.0    |  | 238.6   
|Baltic States                      |  | 28.3                            |  | 89.3     |  | 135.5   
|Belgium                            |  | 301.3                           |  | 267.2    |  | 258.4   
|Czech Republic                     |  | 121.7                           |  | 118.9    |  | 111.1   
|Denmark                            |  | 297.9                           |  | 276.1    |  | 262.2   
|Finland                            |  | 780.6                           |  | 786.9    |  | 808.5   
|France                             |  | 965.5                           |  | 862.7    |  | 835.2   
|Germany                            |  | 1,673.6                         |  | 1,616.1  |  | 1,624.6 
|Italy                              |  | 391.5                           |  | 380.7    |  | 369.1   
|The Netherlands                    |  | 488.4                           |  | 491.9    |  | 508.8   
|Portugal                           |  | 60.9                            |  | 64.9     |  | 83.2    
|Spain                              |  | 463.4                           |  | 499.4    |  | 488.8   
|Sweden                             |  | 1,034.2                         |  | 994.4    |  | 1,040.5 
|United Kingdom                     |  | 1,053.4                         |  | 979.3    |  | 963.8   
|Russia                             |  | 112.8                           |  | 130.7    |  | 151.8   
|Other Europe                       |  | 916.0                           |  | 762.8    |  | 777.4   
|                                   |  |                                 |  |          |  |         
|Total Europe                       |  | 8,884.9                         |  | 8,543.3  |  | 8,657.5 
|Africa                             |  | 118.2                           |  | 146.8    |  | 149.9   
|Australia and New Zealand          |  | 115.6                           |  | 122.9    |  | 124.3   
|Canada                             |  | 160.0                           |  | 143.7    |  | 127.5   
|China (incl. Hong Kong)            |  | 257.3                           |  | 267.0    |  | 281.4   
|Japan                              |  | 340.6                           |  | 323.2    |  | 346.2   
|Other Far East and South East Asia |  | 272.6                           |  | 310.6    |  | 382.5   
|Middle East                        |  | 176.1                           |  | 185.5    |  | 201.4   
|United States                      |  | 2,267.3                         |  | 1,918.3  |  | 1,904.9 
|Latin America                      |  | 128.4                           |  | 126.0    |  | 162.9   
|Others                             |  | 61.6                            |  | 85.0     |  | 57.3    
|                                   |  |                                 |  |          |  |         
|Total                              |  | 12,782.6                        |  | 12,172.3 |  | 12,395.8
|                                   |  |                                 |  |          |  |         



In 2004, approximately
3,169.9 million, or 80 percent, of our sales from Finland; approximately 1,917.6 million, or 67 percent, of our sales from Sweden; approximately 756.4 million, or 54 percent, of our sales from Germany; and 140.9 million, or 8
percent, of our sales from the United States were exported to other countries.



Legal Proceedings



Competition Law
Proceedings



Inspections of the European and U.S.
Competition Authorities and Class-action Lawsuits in the United States.    In May 2004, we became a subject of inspections carried out by the European Commission and the



77



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Finnish Competition Authority at certain locations in Europe and received subpoenas issued by the U.S. Department of Justice as part of preliminary
anti-trust investigations into the paper industry in Europe and the United States. The investigations by the authorities in both Europe and the United States are at a fact-finding stage only and no formal allegations have been made against us or any
of our employees.



Subsequent to the
commencement of these antitrust investigations in May 2004, we and certain of our subsidiaries have been named, along with other producers of paper and forestry products, as defendants in a number of class-action lawsuits brought in U.S. federal and
state courts by direct and indirect purchasers of publication paper. They allege, generally, that the defendants have agreed to fix, increase or maintain the price of publication paper in the United States. They seek unspecified treble damages and,
in some cases, restitution for the alleged overcharges resulting from the alleged violations, including interest and legal costs. There can be no assurances that we will prevail in our efforts to defend against these claims. We do not carry
liability insurance which would cover any adverse judgments or losses resulting from these lawsuits.



No provision has been made with respect to these antitrust investigations by the European and U.S. competition authorities and class-action lawsuits in
U.S. federal and state courts. There can be no assurances that such investigations or lawsuits, if determined adversely to us, would not have a material adverse effect on our business, results of operations and financial condition.



Carbonless Paper Case.     In 2001, the European
Commission issued a decision in which it found companies in the carbonless paper industry, including our affiliated company, Mitsubishi HiTech Paper Bielefeld GmbH, guilty of illegal price-fixing and market sharing between 1992 and 1997. Mitsubishi
HiTech Paper was formerly our wholly-owned subsidiary and was called Stora Carbonless Paper GmbH. Pursuant to the decision of the European Commission, a fine of 21.2 million was imposed on Mitsubishi HiTech Paper. The entire balance of this
penalty was paid by the Company in 2002. Further in 2002, Mitsubishi HiTech Paper appealed the Commissions decision to the European Court of First Instance. As of December 31, 2004, the case and any adjustment to the penalty originally imposed
was still pending with the Court of First Instance.



Inspections of the European and U.S. Competition Authorities and Class-action Lawsuits in the United States.     In May 2004, we became a subject of inspections carried out by the European Commission and the
Finnish Competition Authority at certain locations in Europe and received subpoenas issued by the U.S. Department of Justice as part of preliminary anti-trust investigations into the paper industry in Europe and the United States. The investigations
by the authorities in both Europe and the United States are at a fact-finding stage only and no formal allegations have been made against us or any of our employees.



Subsequent to the commencement of these antitrust investigations in May 2004, we and certain of our subsidiaries have been
named, along with other producers of paper and forestry products, as defendants in a number of class-action lawsuits brought in U.S. federal and state courts by direct and indirect purchasers of publication paper. They allege, generally, that the
defendants have agreed to fix, increase or maintain the price of publication paper in the United States. They seek unspecified treble damages and, in some cases, restitution for the alleged overcharges resulting from the alleged violations,
including interest and legal costs. There can be no assurances that we will prevail in our efforts to defend against these claims. We do not carry liability insurance which would cover any adverse judgments or losses resulting from these lawsuits.



Due to the considerable uncertainties associated with these
matters, it is not possible to estimate the potential loss contingency, if any. No provision has been made with respect to these antitrust investigations by the European and U.S. competition authorities and class-action lawsuits in U.S. federal and
state courts. There can be no assurances that such investigations or lawsuits, if determined adversely to us, would not have a material adverse effect on our business, results of operations and financial condition.



78



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Other Proceedings



Wisconsin Rapids Emissions Case.    The EPA has issued a notice of violation to our Wisconsin Rapids pulp mill alleging that
expansions and other capital projects at the mill between 1983 and 1991 violated the U.S. Clean Air Act. The EPA is seeking a penalty of $7.85 million and the installation of additional air pollution control equipment. See Item 4. Information
on the CompanyEnvironmental Matters. We believe that we can assert a number of defenses to these allegations. We have recorded an immaterial provision which represents our best estimate within a range of possible outcomes for this loss
contingency.



Niagara Emissions
Case.    The EPA has issued a notice of violation and a finding of violation to our Niagara mill alleging that projects at the mill between 1995 and 1997 violated the U.S. Clean Air Act. No demand has been received from the
EPA, but we expect that the EPA will seek a monetary penalty and the installation of additional control equipment. See Item 4. Information on the CompanyEnvironmental Matters. We intend to defend any case brought by the EPA based
upon these allegations. We have recorded an immaterial provision which represents our best estimate within a range of possible outcomes for this loss contingency.



Port of Amsterdam.     Stora Timber Finance B.V. has been found responsible for soil pollution at
the Port of Amsterdam. As of December 31, 2003 we had a provision of 2.4 million relating to this loss contingency. We are currently negotiating a settlement with the Municipality of Amsterdam. There are no indications the final cost for such
a settlement will go beyond the amount we have accrued. Accordingly, we believe the provision is reasonable.



Appleton Facility Case.    Stora Enso North America, Inc. is being sued by M-I, L.L.C. to recover environmental response costs
associated with our operations at our former facility at Appleton in the United States and indemnity provisions contained in agreements between the parties. M-I, L.L.C. most recently operated the drilling fluid business at the site and alleges to
have spent $10 million on investigation and remediation at the site. We are unable to reasonably estimate the amount of potential loss relating to this matter.



General



Except for the proceedings described above, we are not involved in any legal, administrative or arbitration proceedings which we would expect to have a
material adverse effect on our business, financial condition or results of operations. In addition, we are not aware that any such legal, administrative or arbitration proceedings are threatened. However, we can not rule out the possibility of
additional claims by competitors or other proceedings. Such claims or proceedings could have a material adverse effect on our business, financial condition and results of operations.



Dividend Policy



We pay annual
dividends to our shareholders based on the long-term outlook for our consolidated profitability and financial position. The timing and amount of future dividend payments, if any, will depend on our future earnings, financial condition, results of
operations, cash flows, working capital requirements and such other factors that our board of directors considers relevant. The objective of our dividend policy is to distribute at least one-half of our earnings as dividends over the cycle.



For companies domiciled in Finland and incorporated under
Finnish law, dividends on shares are generally only paid annually after shareholder approval of both a companys financial results and of the amount of the dividend proposed by the board of directors. Subject to certain exceptions relating to
the right of minority shareholders to request otherwise, the dividend may not exceed the amount recommended by the board of directors. Under Finnish law, the amount of any dividend is limited to the amount of profits or distributable equity
available at the end of the preceding fiscal year on a consolidated or unconsolidated basis, whichever is



79



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lower. As of December 31, 2004, our consolidated distributable equity, including our consolidated subsidiaries, totaled 3,674.6 million and the
distributable equity in our parent company totaled 4,560.2 million. The difference between the parent companys distributable equity and our consolidated distributable equity is caused by profits and losses related to our parent
companys subsidiaries that are reflected in our consolidated accounts but not in the accounts of the company.



Dividends paid to holders of ADSs who are non-residents of Finland will generally be subject to Finnish withholding tax at a rate of 28 percent. Such ADS
holders may, however, be subject to a lower withholding tax rate and may be allowed an imputation tax credit to reduce the tax on dividends where there is a double taxation treaty with Finland that contains appropriate provisions. The current
convention between the United States and Finland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital does not contain provisions that extend such imputation credits to U.S. holders
of our shares or ADSs. See Item 10. Additional InformationTaxation.



At the annual general meeting of our shareholders held on March 22, 2005, our shareholders declared a dividend of 0.45 per share for the fiscal year ended December 31, 2004, representing total dividends of
376.6 million. The dividend was paid on April 8, 2005 to shareholders entered in the register of shareholders on March 29, 2005.



Significant Changes



Other than
as described herein, no significant change has occurred since the date of the annual financial statements included in this annual report.



80



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Item 9.    The Offer and Listing.



Nature of Trading Markets



Our
Series R shares are registered for trading on the Helsinki Securities and Derivatives Exchange, Clearing House Ltd. (the Helsinki Stock Exchange) under the symbol STERV and on the Stockholm Stock Exchange under the symbol
STER.



The tables below set forth, for the periods
indicated, the high and low sales prices of our Series R shares on the Helsinki Stock Exchange, as reported in euro by the Helsinki Stock Exchange, and on the Stockholm Stock Exchange, as reported in Swedish kronor by the Stockholm Stock Exchange.



|                       |  |                          |  |                         |  |        |  |      
|---------------------- |  | ------------------------ |  | ----------------------- |  | ------ |  | -----
|                       |  | Price per Series R Share
|                       |  | Helsinki StockExchange   |  | Stockholm StockExchange
|Calendar Period        |  | High                     |  | Low                     |  | High   |  | Low  
|                       |  |                         |  | SEK                    
|2000                   |  | 19.00                    |  | 8.70                    |  | 160.00 |  | 72.00
|2001                   |  | 15.67                    |  | 10.12                   |  | 146.50 |  | 90.50
|2002                   |  | 16.13                    |  | 8.41                    |  | 148.00 |  | 77.00
|2003                   |  | 12.42                    |  | 8.30                    |  | 113.50 |  | 77.50
|2004                   |  | 12.11                    |  | 9.60                    |  | 108.00 |  | 90.00
|2005 (through April 5) |  | 12.17                    |  | 10.55                   |  | 110.00 |  | 96.75



|                                 |  |                          |  |                         |  |        |  |       
|-------------------------------- |  | ------------------------ |  | ----------------------- |  | ------ |  | ------
|                                 |  | Price per Series R Share
|                                 |  | Helsinki StockExchange   |  | Stockholm StockExchange
|Calendar Period                  |  | High                     |  | Low                     |  | High   |  | Low   
|                                 |  |                         |  | SEK                    
|2003                             |  |                          |  |                         |  |        |  |       
|First Quarter                    |  | 11.17                    |  | 8.39                    |  | 102.50 |  | 77.50 
|Second Quarter                   |  | 10.18                    |  | 8.30                    |  | 92.50  |  | 78.00 
|Third Quarter                    |  | 12.42                    |  | 9.32                    |  | 113.50 |  | 86.00 
|Fourth Quarter                   |  | 11.95                    |  | 10.24                   |  | 108.00 |  | 92.50 
|2004                             |  |                          |  |                         |  |        |  |       
|First Quarter                    |  | 11.53                    |  | 9.60                    |  | 106.50 |  | 90.00 
|Second Quarter                   |  | 11.80                    |  | 10.25                   |  | 107.50 |  | 93.50 
|Third Quarter                    |  | 11.75                    |  | 10.45                   |  | 107.50 |  | 95.50 
|Fourth Quarter                   |  | 12.11                    |  | 10.91                   |  | 108.00 |  | 98.50 
|2005                             |  |                          |  |                         |  |        |  |       
|First Quarter                    |  | 12.17                    |  | 10.67                   |  | 110.00 |  | 96.75 
|Second Quarter (through April 5) |  | 10.88                    |  | 10.55                   |  | 99.75  |  | 97.00 
|                                 | 
|                                 |  | Price per Series R Share
|                                 |  | Helsinki StockExchange   |  | Stockholm StockExchange
|Calendar Period                  |  | High                     |  | Low                     |  | High   |  | Low   
|                                 |  |                         |  | SEK                    
|2004                             |  |                          |  |                         |  |        |  |       
|October                          |  | 11.53                    |  | 10.91                   |  | 105.00 |  | 98.50 
|November                         |  | 12.11                    |  | 11.06                   |  | 108.00 |  | 100.50
|December                         |  | 11.94                    |  | 11.23                   |  | 107.00 |  | 100.50
|2005                             |  |                          |  |                         |  |        |  |       
|January                          |  | 11.50                    |  | 10.73                   |  | 104.00 |  | 97.50 
|February                         |  | 11.59                    |  | 10.67                   |  | 105.50 |  | 96.75 
|March                            |  | 12.17                    |  | 10.70                   |  | 110.00 |  | 97.50 
|April (through April 5)          |  | 10.88                    |  | 10.55                   |  | 99.75  |  | 97.00 



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Since September 13, 2000, our Series R shares have been traded in the United States on the New York Stock
Exchange under the symbol SEO in the form of ADSs which are evidenced by American Depositary Receipts. Each ADS represents one of our Series R shares.



The tables below set forth, for each of the periods indicated, the reported high and low closing prices per Stora Enso ADSs
on the New York Stock Exchange Composite Tape as reported in U.S. dollars by the New York Stock Exchange:



|                       |  |               |  |      
|---------------------- |  | ------------- |  | -----
|                       |  | Price per ADS
|Calendar Period        |  | High          |  | Low  
|                       |  | $            
|2001                   |  | 13.40         |  | 9.21 
|2002                   |  | 14.32         |  | 8.37 
|2003                   |  | 14.05         |  | 9.16 
|2004                   |  | 16.08         |  | 12.10
|2005 (through April 5) |  | 15.99         |  | 13.68



|                                 |  |               |  |      
|-------------------------------- |  | ------------- |  | -----
|                                 |  | Price per ADS
|Calendar Period                  |  | High          |  | Low  
|                                 |  | $            
|2003                             |  |               |  |      
|First Quarter                    |  | 11.77         |  | 9.16 
|Second Quarter                   |  | 11.85         |  | 9.16 
|Third Quarter                    |  | 13.45         |  | 10.76
|Fourth Quarter                   |  | 14.05         |  | 12.03
|2004                             |  |               |  |      
|First Quarter                    |  | 14.10         |  | 12.20
|Second Quarter                   |  | 13.88         |  | 12.10
|Third Quarter                    |  | 14.09         |  | 12.60
|Fourth Quarter                   |  | 16.08         |  | 13.45
|2005                             |  |               |  |      
|First Quarter                    |  | 15.99         |  | 13.84
|Second Quarter (through April 5) |  | 13.79         |  | 13.68
|                                 | 
|                                 |  | Price per ADS
|Calendar Period                  |  | High          |  | Low  
|                                 |  | $            
|2004                             |  |               |  |      
|October                          |  | 14.47         |  | 13.45
|November                         |  | 16.08         |  | 14.18
|December                         |  | 15.87         |  | 14.97
|2005                             |  |               |  |      
|January                          |  | 15.24         |  | 14.18
|February                         |  | 15.40         |  | 13.95
|March                            |  | 15.99         |  | 13.84
|April (through April 5)          |  | 15.79         |  | 13.68



Trading and Settlement on the Helsinki Stock Exchange



Trading in, and clearing of, securities on the Helsinki Stock Exchange, part of the OMX Exchanges, takes place in euro, with the minimum tick size for trading quotations being one euro cent. All price information is
produced and published only in euro.



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The trading system of the Helsinki Stock Exchange is based on an electronic trading system SAXESS (Saxess). Saxess is an order-based system
in which orders are matched to trade when price and volume match. Trading is conducted on the basis of trading lots, which are fixed separately for each share series.



The trading phases consist of a pre-trading session, continuous trading and a post-trading session. For shares, pre-trading
begins at 8:30 a.m. and ends at 9:45 a.m. at the prices established during the previous trading day. Trading with calls and continuous trading takes place from 9:45 a.m. to 6:30 p.m. Opening call begins at 9:45 a.m. and ends at 10:00 a.m. Round lot
orders entered during the pre-trading session and existing orders with several days validity are automatically transferred into the opening call. Continuous trading begins sequentially after the opening call ends at 10:00 a.m. when the first
share is assigned its opening price and then becomes subject to continuous trading. After approximately ten minutes, the opening prices for all the shares have been established and trading continues at prices based on market demand until 6:20 p.m.
when the closing call is initiated. The closing call ends at approximately 6:30 p.m. when the closing prices are determined. Post-trading, during which only contract transactions for shares can be registered at the prices established during the
trading day, takes place from 6:40 p.m. to 7:00 p.m.



Trades
are normally cleared in the Finnish Central Securities Depositorys (the FCSD) automated clearing and settlement system on the third banking day after the trade date unless otherwise agreed by the parties.



Regulation of the Finnish Securities Market



The Finnish Financial Supervision Authority supervises the securities market in Finland. The principal statute governing the securities market is the Finnish Securities Market Act of 1989, which contains regulations
with respect to company and shareholder disclosure obligations, admission to listing and trading of listed securities and public tender offers and insider obligations, among other things. The Finnish Financial Supervision Authority monitors
compliance with these regulations.



The Finnish Securities
Market Act specifies minimum disclosure requirements for Finnish companies applying for listing on the Helsinki Stock Exchange or making a public offering of securities in Finland. The information provided must be sufficient to enable investors to
make a sound evaluation of the securities being offered and the issuing company. Finnish listed companies have a continuing obligation to publish regular financial information, and to inform the market of any matters likely to have a material impact
on the value of their securities.



A shareholder is required,
without undue delay, to notify a Finnish listed company and the Finnish Financial Supervision Authority when its voting participation in, or its percentage ownership of, the issued share capital of such Finnish listed company reaches, exceeds or
falls below 5 percent, 10 percent, 15 percent, 20 percent, 25 percent, 331/3percent, 50 percent or 662/3percent, calculated in accordance with the Finnish Securities Market Act, or when it enters into an agreement or
other arrangement that, when effective, has such consequence. If a Finnish listed company receives information indicating that a voting interest or ownership interest has reached, exceeded or fallen below these thresholds, it must disclose such
information to the public and to the Helsinki Stock Exchange.



Pursuant to the Finnish Securities Market Act, a shareholder whose holding in a Finnish listed company increases above two-thirds of the total voting rights attached to the shares of the listed company, calculated in
accordance with the Finnish Securities Market Act, after the commencement of a public quotation of such shares must offer to purchase the remaining shares and other securities entitling their holders to shares of such company for fair market value.
Under the Finnish Companies Act, a shareholder holding shares representing more than 90 percent of all the share capital in a company and more than 90 percent of the shares and the votes entitled to be cast at a general meeting of shareholders has
the right to require the minority shareholders to sell the remaining shares of such company to such shareholder for fair market value. In addition, any minority shareholder that possesses shares that may be so purchased by a majority shareholder is
entitled to require such majority shareholder to purchase its shares. Detailed rules apply for the calculation of the above proportions of shares and votes.



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The Finnish Criminal Code also contains provisions relating to breach of disclosure requirements, misuse
of privileged or inside information and market manipulation. Breach of these provisions constitutes a criminal offense.



The Finnish Book-Entry Securities System



General



Finland has made a gradual changeover
from a certificated securities system to a book-entry securities system since August 1, 1991, when the relevant legislation came into effect. Use of the book-entry securities system is mandatory for shares listed on the Helsinki Stock Exchange. Our
shares were entered into the Finnish book-entry system on May 2, 1996.



The Finnish book-entry securities system is centralized at the FCSD, which provides national clearing and registration services for securities. The FCSD maintains a central book-entry securities system for both equity and debt securities.



The FCSD maintains a register of the shareholders of listed
companies and book-entry accounts for shareholders who do not wish to utilize the services of a commercial account operator. The issuers participating in the Finnish book-entry securities system and the account operators pay for the expenses
incurred by the FCSD in connection with maintaining the central book-entry securities system. The account operators, which consist of credit institutions, investment service companies and other institutions licensed to act as account operators by
the FCSD (each, an Account Operator), are entitled to make entries in the book-entry register and administer the book-entry accounts.



Registration



In order to effect entries in the Finnish book-entry securities system, a security holder or its nominee must establish a book-entry account with the FCSD
or an Account Operator or register its securities through nominee registration. Finnish shareholders may not register their securities through nominee registration. For shareholders who have not transferred their shares into book-entries, a joint
book-entry account shall be opened with the FCSD, the registered holder of which shall be the issuing company. All transactions in securities registered with the Finnish book-entry securities system are executed as computerized book-entry transfers.
The Account Operator confirms book-entry transfers by sending notifications of transactions to the holder of the respective book-entry account. The account holders also receive an annual statement of their holdings as of the end of each calendar
year.



Each book-entry account is required to contain specified
information with respect to the account holder or the custodian administering the assets of a nominee account. Such information includes the type and number of book-entry securities registered and the rights and restrictions pertaining to the
account and to the book-entry securities registered in the account. A possible nominee account is identified as such on the entry. The FCSD and the Account Operators are required to observe strict confidentiality, although certain information (for
example, the name, nationality and address of each account holder) contained in the register of shareholders maintained by the FCSD must be made available to the public by the FCSD and the issuer, except in the case of nominee registration.



Each Account Operator is strictly liable for errors and
omissions on the registers maintained by it and for any unauthorized disclosure of information. However, if an account holder has suffered a loss as a result of a faulty registration or an amendment to, or deletion of, rights with respect to
registered securities and the Account Operator is unable to compensate for such loss, such account holder is entitled to receive compensation from the FCSD. To cover for this contingency, the FCSD maintains a statutory registration fund. The capital
of the fund must be at least 0.000048 percent of the average of the total market value of the book-entries kept in the Finnish book-entry securities system during the last five calendar years, and it must not be less than 20 million. The



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compensation to be paid to one injured party shall be equal to the amount of damages suffered by such injured party from a single Account Operator subject to
a maximum amount of 25,000. Furthermore, the liability of the registration fund is limited to 10 million per incident.



Custody of the Shares and Nominees



A non-Finnish shareholder may appoint an account operator (or certain non-Finnish organizations approved by the FCSD) to act as a custodial nominee
account holder on its behalf. A nominee shareholder is entitled to receive dividends and exercise all share subscription rights and other financial and administrative rights attached to the shares, such as the right to attend and vote at general
meetings of the company. A beneficial owner wishing to attend and vote at a general meeting must seek a temporary registration and be registered in the register of shareholders not later than ten days prior to the relevant general meeting. A
custodial nominee account holder is required to disclose to the Finnish Financial Supervision Authority and the relevant company upon request the name of the beneficial owner of any shares registered in the name of such custodial nominee account
holder, where the beneficial owner is known, as well as the number of shares owned by such beneficial owner. If the name of the beneficial owner is not known, the custodial nominee account holder is required to disclose said information on the
representative acting on behalf of the beneficial owner and to submit a written declaration to the effect that the beneficial owner of the shares is not a Finnish natural person or legal entity.



Finnish Depositories for both Clearstream Banking S.A., Luxembourg and
Euroclear Bank, S.A./N.V., as operator of the Euroclear System, have nominee accounts within the Finnish book-entry securities system and, accordingly, non-Finnish shareholders may hold their shares through their accounts with Clearstream Banking or
Euroclear.



Shareholders wishing to hold their shares in the
Finnish book-entry securities system in their name and who do not maintain a book-entry account in Finland are required to open a book-entry account at an authorized account operator in Finland and a convertible euro account at a bank operating in
Finland.



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Item 10.    Additional Information.



Memorandum and Articles of Association



Organization and Field of Operations



We are
organized under the laws of the Republic of Finland and domiciled in the City of Helsinki. Our business identity code is 1039050-8. Pursuant to Section 2 of our articles of association, we may operate directly or through our subsidiaries and
associated companies in the forest, engineering, chemical and mining industries and other manufacturing industries and may engage in agriculture, forestry and merchant shipping, as well as supply hydro-power, build of hydro-electric facilities and
obtain financing in connection with the foregoing. We may also provide services in our own field of operations and carry out construction, operational, marketing and other corresponding assignments both in Finland and abroad.



Share Capital



Our minimum share capital is 850,000,000, and the maximum is 3,400,000,000. Our share capital may be increased
or decreased within this range without seeking shareholder approval to amend the articles of association. The minimum number of shares may not be less than 500,000,000, and the maximum number may not be more than 2,000,000,000 shares, which shares
shall be divided into Series A shares and Series R shares. The number of Series A shares may not be more than 500,000,000, and the number of Series R shares may not more than 1,600,000,000 shares. Our shares are in the Finnish book-entry securities
system.



Preemptive Rights and Receipt of Funds



Under Finnish law, existing shareholders of Finnish companies have
preferential rights to subscribe, in proportion to their shareholdings, for new shares of such companies as well as for issues of subscription warrants or debt instruments convertible into shares or carrying warrants to subscribe for shares, unless
the corporate resolution approving such issue provides otherwise. Under the Finnish Companies Act, a resolution waiving pre-emptive rights must be approved by at least two-thirds of all votes cast and all shares represented at the general meeting of
shareholders.



The right to receive funds distributed by our
company and to subscribe for shares when increasing the share capital shall be restricted to persons: (i) who are registered as shareholders in our shareholders register on the record date, (ii) whose right to payment has been registered in
the book-entry account and entered into our shareholders register on the record date or (iii) in case of shares registered in the name of a nominee, on whose book-entry account the shares have been registered on the record date and whose
nominee has been registered in our shareholders register on the record date as the nominee of the shares.



Audit Procedures



Our financial year is the calendar year. Our 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. We shall have one or two auditors, who shall be certified public accountants or individuals approved by the Finnish Central Chamber of Commerce. The auditors shall be appointed at the 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 no later than two weeks prior to the annual
general meeting of shareholders.



General Meeting of Shareholders



Under the Finnish Companies Act, shareholders exercise
their power to decide on corporate matters at the general meetings of shareholders. Our articles of association require that an annual general meeting of shareholders be held in Helsinki, Finland within six months from the end of each financial
year. Shareholders present at an annual general meeting of shareholders, or their legally qualified representatives or proxies, shall



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have the right to exercise their power to decide on matters pertaining to our company, including: (i) the review and adoption of our financial statements and
auditors report, (ii) the date and manner for a possible distribution of dividends, (iii) indemnification of the members of the board of directors and the chief executive officer (iii) the number and composition of the board of directors, (iv)
the selection of auditors, (v) remuneration for members of the board of directors and the auditors and (vi) any other matters notified separately in the notice of the meeting.



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 months and not less than 17 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 manner. A shareholder wishing to attend a general meeting of shareholders must notify us by the date mentioned in the notice to the meeting, which may not be more than ten days before the
meeting.



Because our shares are part of the FCSD, in order to
have the right to attend and vote at a general meeting, a shareholder must be registered on the relevant record date in the register of shareholders kept by the FCSD in accordance with the Finnish Companies Act and the Finnish Act on the Book-Entry
Securities System. The record date is ten days prior to the relevant general meeting. There are no quorum requirements for general meetings in the Finnish Companies Act or in our articles of association. Thus, it is possible that, depending on the
attendance at any particular shareholders meeting, a relatively limited number of shareholders may approve resolutions put forward at a meeting.



An extraordinary general meeting of shareholders may 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 10 percent of all shares.



Liquidation



Pursuant to the Finnish Companies
Act, if we were to be liquidated, any liquidation proceeds remaining after all of our liabilities were paid would be distributed to our shareholders in proportion to their shareholdings.



Voting



For purposes of voting on general corporate matters and elections, each Series A share has one vote and every ten Series R shares have one vote. However,
each shareholder shall have at least one vote. At a general meeting of shareholders, resolutions generally require the approval of a majority of the votes cast. However, certain resolutions, such as a resolution to amend the articles of association,
a resolution to issue shares in deviation from the shareholders preferential subscription rights and, in certain cases, a resolution regarding a merger or liquidation of the company, require a majority of two-thirds of the votes cast and of
the shares represented at the general meeting of shareholders. Certain decisions require, in addition to the above majority requirement, the consent of shareholders representing at least two-thirds of the shares of each class of shares. Further, if
an amendment of our articles of association would diminish the rights of an entire class of shares, the resolution, in addition to the above majority requirement, requires the consent of shareholders representing at least one-half of all the shares
of such class and a majority of two-thirds of the shares of such class represented at the general meeting of shareholders.



Conversion of Series A Shares



Each Series A share may be converted into one Series R share at the request of the holder or its nominee. No monetary consideration shall be payable for
the conversion.



A shareholders request for the
conversion of Series A shares must be presented to us in writing. A request for the conversion of shares may be made at any time, with the exception of the period beginning with the passing of a resolution by the board of directors to convene a
general meeting of shareholders. Any conversion



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request made during the time falling between such resolution and the following general meeting of shareholders is deemed to have arrived, and is processed,
after such general meeting of shareholders and, where applicable, the record date that follows. The request shall state 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. We may request that an entry be made on the shareholders book-entry account restricting the shareholders right of transfer with respect to its shares during the conversion period. We shall promptly notify the Finnish Trade
Register of the changes in the number of shares following the conversion. A request for conversion of shares may be cancelled before the Finnish Trade Register has been notified. Upon cancellation, we 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 Series A shares into Series R shares shall become effective upon registration in the Finnish Trade Register. The party requesting the
conversion and the book-entry registrar shall be notified of the registration. In the event a general meeting of shareholders is convened during the conversion period specified 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 event, the board of directors may decide upon extension of the conversion period to end after the general meeting of shareholders, when necessary.
Our 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.



Control of Foreign Ownership



Restrictions on foreign ownership of Finnish companies were abolished as of January 1, 1993. However, under the Act on the Control of Foreigners Acquisition of Finnish Companies of 1992, clearance by the Finnish Ministry of Trade and
Industry would be required if a foreign person or entity, other than a person or entity from another member state of the European Economic Area or the Organization for Economic Cooperation and Development, or a Finnish entity controlled by one or
more such foreign persons or entities, were to acquire a holding of one-third or more of the voting power of our company. The Ministry of Trade and Industry could refuse clearance where the acquisition would jeopardize important national interests,
in which case the matter would be referred to the government of Finland.



Exchange Controls



Our shares
may be bought by non-residents of Finland on the Helsinki Stock Exchange without any separate Finnish exchange control consent. Non-residents may receive dividends without separate Finnish exchange control consent, the transfer out of Finland being
subject to payment by the Company of withholding taxes. Non-residents that have acquired our shares may receive shares pursuant to a bonus issue or through participation in a new issue without a separate Finnish exchange control consent. Shares may
be sold in Finland by non-residents, and the proceeds of such sale may be transferred out of Finland in any convertible currency. There are no Finnish exchange control regulations applying to the sale of shares of the Company by non-residents to
other non-residents.



Material Contracts



Neither we
nor any of our consolidated subsidiaries have entered into any contracts in the last two years outside of the ordinary course of business that have had or will have a material effect on our business.



Taxation



The following
description is based on tax laws of Finland and the United States as in effect on the date of this annual report and is subject to changes in the Finnish and U.S. law, including changes that could have retroactive effect. Prospective investors
should consult their professional advisors as to the tax consequences of the purchase, ownership and disposition of shares or ADSs, including, in particular, the effect of tax laws of any other jurisdiction.



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Finnish Taxation



General



The following is a description of the material
Finnish income tax consequences of the purchase, ownership, and disposition of shares or ADSs by a holder who is not a resident of Finland (a non-resident). It does not purport to be a complete analysis of all potential Finnish tax
consequences to holders of the shares and ADSs. Prospective investors should consult their own advisers as to the consequences of the purchase, ownership, and disposition of shares or ADSs in light of their particular circumstances, including the
effect of any foreign, state, or local tax laws. Statements regarding Finnish tax laws set forth below are based on the laws in force and as interpreted by the relevant taxation authorities as of the date hereof and are subject to any changes in
Finnish law, or in the interpretation thereof by the relevant taxation authorities.



A beneficial owner of an ADS should be treated as the owner of the underlying share for purposes of the current Convention between the Government of the United States of America and the Government of the Republic of
Finland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital and for Finnish tax purposes. Accordingly, the Finnish tax consequences to owners of shares discussed below apply also
to beneficial owners of ADSs.



Companies



Finnish companies are subject to national corporate income tax on their
worldwide income. With effect from January 1, 2005, the rate of such tax was 26 percent.



Shareholders and Holders of ADSs



Tax Credit on Dividends



The Finnish avoir fiscal system has been abolished as of January 1, 2005. The taxation of dividends distributed by a company listed on the Helsinki Stock Exchange varies depending on whether a shareholder that is a resident in
Finland is a company listed on the Helsinki Stock Exchange, a privately held company or a natural person. When the shareholder is a company listed on the Helsinki Stock Exchange, dividends received by such shareholder are 75 percent taxable in case
the underlying shares are included in the investment assets of the shareholder. If the dividend is paid based on shares that are not included in the investment assets of the shareholder (listed company), the dividend income is not taxable income. If
the shareholder is a privately held company, dividends received by such shareholder are 75 percent taxable in case the underlying shares are included in the investment assets of the shareholder. If the shares are not part of the investment assets of
the respective shareholder, only 75 percent of the dividends received is taxable income, provided that the respective shareholder does not directly own at least 10 percent of the share capital of the distributing company. If the 10 percent ownership
threshold is met, the dividend income is not treated as taxable income of the respective shareholder (privately held company). If the shareholder is a natural person, 70 percent of the dividends received by such shareholder is taxable as capital
income.



The applicable tax rate is 28 percent. The rest of the
dividend income received by such a shareholder from a listed company is not treated as taxable income.



Year 2005 serves as a transition period and lower percentages than those described above shall be used in the taxation of dividends. If the shareholder is
a privately held company or if the underlying shares are included in the investment assets of the shareholder, 60 percent (instead of 75 percent) of the dividends received by such shareholder will be taxable income in such shareholders
taxation in tax year 2005. Similarly, if the shareholder is a natural person, 57 percent (instead of 70 percent) of the dividends received by such shareholder will be taxable as capital income in such shareholders taxation of year 2005.



Withholding Tax on Dividends



Non-residents of Finland are subject to Finnish withholding tax on dividends
paid by a Finnish company. In the absence of any applicable treaty, the rate of withholding tax is 28 percent as from January 1, 2005. Finland



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has entered into double taxation treaties with many countries pursuant to which the withholding tax is reduced on dividends paid to persons entitled to the
benefits under such treaties, unless the shares from which such dividends derive are effectively connected with a permanent establishment or a fixed base in Finland, in which case Finnish income taxes are levied on the dividends so derived. In the
case of the treaty with the United States, the withholding tax rates are reduced to 15 percent. The Finnish company paying the dividend is responsible for deducting any applicable Finnish withholding tax.



A reduction of such withholding tax rate can be obtained at source upon the
submission of a Source Tax Card or the required information (name, date of birth and address) to the payer prior to the payment of dividends. If such a Source Tax Card or such information is not submitted in a timely manner, a refund of tax withheld
in excess of the applicable treaty rate can be obtained upon application to the local tax authority. The Bank of New York as Depositary for the ADSs has agreed to use reasonable efforts to make and maintain arrangements enabling holders to receive
tax credits, reduction in Finnish withholding tax or other benefits (pursuant to treaty or otherwise) relating to dividend payments on the ADSs at the time the dividend is paid.



No withholding tax is levied under Finnish law on dividends paid to corporate entities that reside in the EU and directly
hold at least 20 percent of the capital of the distributing Finnish company. In addition, due to the abolishment of the Finnish avoir fiscal system the requirement of a minimum tax relating to avoir fiscal shall no longer apply.



Finnish Transfer Tax



There is no transfer tax payable in Finland on share transfers made on the
Helsinki Stock Exchange. If the transfer is not made on the Helsinki Stock Exchange, a transfer tax at the rate of 1.6 percent of the relevant sales price is payable by the buyer. However, if the buyer is neither a resident of Finland nor a Finnish
branch of a foreign credit institution nor a Finnish branch of a foreign brokerage firm, the seller must collect the tax from the buyer. If neither the buyer nor the seller is a resident of Finland or a Finnish branch of a foreign credit institution
or a Finnish branch of a foreign brokerage firm and it is not a question of transfer of shares in a housing or real estate company, the transfer of shares will be exempt from Finnish transfer tax. No transfer tax is payable in connection with newly
issued shares.



Finnish Capital Gains and Other Taxes



Shareholders who are not resident in Finland, and who do
not engage in trade or business through a permanent establishment or fixed base in Finland which could be regarded as the holder of the relevant shares or ADSs, will normally not be subject to Finnish taxes on capital gains realized on the transfer
of shares. Transfers of shares by a non-resident of Finland by way of gift or by reason of the death of the owner are subject to Finnish gift or inheritance tax respectively if either the transferor or the transferee was a resident of Finland at the
time of death or when the gift was given, unless Finland has waived its rights in a tax treaty to impose tax.



U.S. Federal Income Taxation



General



The following is a summary of the principal U.S.
federal income tax consequences that may be relevant with respect to the acquisition, ownership and disposition of shares or ADSs, which are evidenced by American Depositary Receipts. This summary addresses only the U.S. federal income tax
considerations of holders that are initial purchasers of the shares or ADSs at the initial issue price and that will hold shares or ADSs as capital assets. This summary does not address tax considerations applicable to holders that may be subject to
special tax rules, such as financial institutions, insurance companies, real estate investment trusts, grantor trusts, regulated investment companies, dealers or traders in securities or currencies, tax-exempt entities, persons that received shares
or ADSs as compensation for the performance of services, certain expatriates, persons that will hold shares or ADSs as part of a hedging or conversion transaction or as a position in a straddle for U.S. federal
income tax purposes, persons that have a functional currency other than the U.S. dollar or holders that own (or



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are deemed to own) ten percent or more (by voting power or value) of the stock of the Company. This summary does not address any state, local or foreign tax
consequences of the acquisition, ownership and disposition of shares or ADSs.



Moreover, this summary does not address the U.S. federal estate and gift or alternative minimum tax consequences of the acquisition, ownership and disposition of shares or ADSs. This summary is based (i) on the
Internal Revenue Code of 1986, as amended (the Code), U.S. Treasury Regulations and judicial and administrative interpretations thereof, in each case as in effect and available on the date hereof, and (ii) in part, on the representations
of the depositary and the assumption that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms. All of the foregoing are subject to change, which change could apply retroactively and could
affect the tax consequences described below.



For purposes of
this summary, a U.S. Holder is a beneficial owner of shares or ADSs that, for U.S. federal income tax purposes, is: (i) a citizen or resident of the United States, (ii) a partnership or corporation created or organized in or under the
laws of the United States or any state thereof (including the District of Columbia), (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust, if such trust validly elects to be
treated as a U.S. person for U.S. federal income tax purposes or if (A) a court within the United States is able to exercise primary supervision over its administration and (B) one or more U.S. persons have the authority to control all of the
substantial decisions of such trust. A Non-U.S. Holder is a beneficial owner of shares or ADSs that is not a U.S. holder.



If a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds shares or ADSs, the tax treatment of the
partnership or a partner in such partnership generally will depend on the status of the partner and the activities of the partnership. Such partner or partnership should consult its own tax advisor as to its tax consequences.



Ownership of ADSs in General



For U.S. federal income tax purposes, a holder of ADSs generally will be
treated as the owner of the shares represented by such ADSs.



The U.S. Treasury Department has expressed concern that depositaries for American Depositary Receipts, or other intermediaries between the holders of shares of an issuer and the issuer, may be taking actions that are inconsistent with the
claiming of U.S. foreign tax credits by U.S. holders of such receipts or shares. Accordingly, the analysis regarding the availability of a U.S. foreign tax credit for Finnish taxes and sourcing rules described below could be affected by future
actions that may be taken by the U.S. Treasury Department.



Distributions



The gross amount of any distribution by the Company
of cash or property (other than certain distributions, if any, of shares or ADSs distributed pro rata to all shareholders of the Company including holders of ADSs) with respect to shares or ADSs, before reduction for any Finnish taxes
withheld therefrom, will be includible in income by a U.S. Holder as dividend income to the extent such distributions are paid out of the current or accumulated earnings and profits of the Company as determined under U.S. federal income tax
principles. Non-corporate U.S. Holders may be taxed on such dividends at the lower rates applicable to long-term capital gains (i.e., generally, gains from the sale or exchange of capital assets held for more than one year) for taxable years
beginning on or before December 31, 2008. A U.S. holders eligibility for such preferential rate would be subject to certain holding period requirements and the non-existence of certain risk reduction transactions with respect to the shares.
However, such dividends will not be eligible for the dividends received deduction generally allowed to corporate U.S. Holders. To the extent, if any, that the amount of any distribution by the Company exceeds the Companys current and
accumulated earnings and profits as determined under U.S. federal income tax principles, it will be treated first as a tax-free return of the U.S. Holders adjusted tax basis in the shares or ADSs and thereafter as capital gain. The Company
does not maintain calculations of its earnings and profits under U.S. federal income tax principles.



91



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Any such dividend paid in euro (or any currency other than U.S. dollars) will be included in the gross
income of a U.S. Holder in an amount equal to the U.S. dollar value of the euro (or, if not euro, the currency in which the dividend was paid) on the date of receipt, which in the case of ADSs, is the date they are received by the depositary. The
amount of any distribution of property other than cash will be the fair market value of such property on the date of distribution. Any gain or loss realized by a U.S. Holder that subsequently sells or otherwise disposes of euro (or, any currency
other than U.S. dollars) will be ordinary gain or loss.



Dividends received by a U.S. Holder with respect to shares or ADSs will be treated as foreign source income, which may be relevant in calculating such holders foreign tax credit limitation. Subject to certain conditions and
limitations, any Finnish tax withheld on dividends may be deducted from taxable income or credited against a U.S. Holders U.S. federal income tax liability. The limitation on foreign taxes eligible for credit is calculated separately with
respect to specific classes of income. For this purpose, dividends distributed by the Company generally will constitute passive income, or, in the case of certain U.S. Holders, financial services income.



U.S. holders should note that recently enacted legislation eliminates the
financial services income category with respect to taxable years beginning after December 31, 2006. Under the new legislation, the foreign tax credit limitation categories would be limited to passive category income and
general category income.



Subject to the discussion
below under Backup Withholding Tax and Information Reporting Requirements, a Non-U.S. Holder of shares or ADSs generally will not be subject to U.S. federal income or withholding tax on dividends received on shares or ADSs, unless such
income is effectively connected with the conduct by such Non-U.S. Holder of a trade or business in the United States.



Sale or Exchange of Shares or ADSs



A U.S. Holder generally will recognize gain or loss on the sale or exchange of shares or ADSs equal to the difference between the amount realized on such
sale or exchange and the U.S. Holders adjusted tax basis in the shares or ADSs. Such gain or loss will be capital gain or loss. In the case of a non-corporate U.S. Holder, the maximum marginal U.S. federal income tax rate applicable to such
gain will be lower than the maximum marginal U.S. federal income tax rate applicable to ordinary income (other than certain dividends) if such U.S. Holders holding period for such shares or ADSs exceeds one year. Gain or loss, if any,
recognized by a U.S. Holder generally will be treated as U.S. source income or loss for U.S. foreign tax credit purposes. The deductibility of capital losses is subject to limitations.



The initial tax basis of shares or ADSs to a U.S. Holder will be the U.S. dollar value of the euro denominated purchase
price determined on the date of purchase. If the shares or ADSs are treated as traded on an established securities market, a cash basis U.S. Holder (or, if it elects, an accrual basis U.S. Holder) will determine the dollar value of the
cost of such shares or ADSs by translating the amount paid at the spot rate of exchange on the settlement date of the purchase. The conversion of U.S. dollars to euro and the immediate use of that currency to purchase shares or ADSs generally will
not result in taxable gain or loss for a U.S. Holder.



With
respect to the sale or exchange of shares or ADSs, the amount realized generally will be the U.S. dollar value of the payment received determined on (i) the date of receipt of payment in the case of a cash basis U.S. Holder and (ii) the date of
disposition in the case of an accrual basis U.S. Holder. If the shares or ADSs are treated as traded on an established securities market, a cash basis taxpayer (or, if it elects, an accrual basis taxpayer) will determine the U.S. dollar
value of the amount realized by translating the amount received at the spot rate of exchange on the settlement date of the sale.



Subject to the discussion below under Backup Withholding Tax and Information Reporting Requirements, a Non-U.S. Holder of shares or ADSs
generally will not be subject to U.S. federal income or withholding tax on any gain realized on the sale or exchange of such shares or ADSs unless (i) such gain is effectively connected with the conduct by such Non-U.S. Holder of a trade or business
in the United States or (ii) in the case of any



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gain realized by an individual Non-U.S. Holder, such holder is present in the United States for 183 days or more in the taxable year of such sale or exchange
and certain other conditions are met.



Backup Withholding Tax and
Information Reporting Requirements



U.S. backup
withholding tax and information reporting requirements generally apply to certain payments to certain noncorporate holders of stock. Information reporting generally will apply to payments of dividends on, and to proceeds from the sale or redemption
of, shares or ADSs made within the United States, or by a U.S. payor or U.S. middleman, to a holder of shares or ADSs (other than an exempt recipient, including a corporation, a payee that is not a U.S. person that provides an
appropriate certification and certain other persons). A payor will be required to withhold backup withholding tax from any payments of dividends on, or the proceeds from the sale or redemption of, shares or ADSs within the United States, or by a
U.S. payor or U.S. middleman, to a holder (other than an exempt recipient) if such holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption from, such backup
withholding tax requirements. The backup withholding tax rate is 28 percent through 2010.



In the case of such payments made within the United States to a foreign simple trust, foreign grantor trust or foreign partnership (other than a payment to a foreign simple trust, foreign grantor trust or foreign
partnership that qualifies as a withholding foreign trust or a withholding foreign partnership within the meaning of the applicable U.S. Treasury Regulations and a payment to a foreign simple trust, foreign grantor trust or
foreign partnership that is effectively connected with the conduct of a trade or business in the United States), the beneficiaries of the foreign simple trust, the persons treated as the owners of the foreign grantor trust or the partners of the
foreign partnership, as the case may be, will be required to provide the certification discussed above in order to establish an exemption from backup withholding tax and information reporting requirements. Moreover, a payer may rely on a
certification provided by a payee that is not a U.S. person only if such payer does not have actual knowledge or a reason to know that any information or certification stated in such certificate is incorrect.



The above description is not intended to constitute a complete analysis of
all tax consequences relating to acquisition, ownership and disposition of shares or ADSs. You should consult your own tax advisor concerning the tax consequences of your particular situation.



Documents on Display



We are
subject to the informational requirements of the Exchange Act. In accordance with these requirements, we file reports and other information with the SEC. These materials, including this annual report and the exhibits thereto, may be inspected and
copied at the SECs Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the SECs Public Reference Room by calling the SEC in the United States at 1-800-SEC-0330.
The SEC also maintains a web site at http://www.sec.gov that contains any reports, statements and other information that have been filed electronically with the SEC. We have made electronic filings with the SEC since July 25, 2002. In addition,
material submitted by us may be inspected at the offices of the New York Stock Exchange at 20 Broad Street, New York, New York 10005.



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Item 11.    Quantitative and Qualitative Disclosures About Market Risk.



The following discussion about our financial risk-management activities includes forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those projected in the forward-looking statements.



Operational Risk



Our operating
profit is affected by changes in price and volume, although the effect on operating profit depends varies among our product areas. The table below sets forth the operating profit sensitivity to a +/- 10 percent change in either price or volume for
our different product areas.



|                  |  |                 |  |       
|----------------- |  | --------------- |  | ------
|                  |  | Price           |  | Volume
|                  |  | ( in millions)
|Publication paper |  | 410             |  | 160   
|Fine paper        |  | 320             |  | 120   
|Packaging boards  |  | 260             |  | 110   
|Wood products     |  | 140             |  | 30    



The price and volume
of different cost components also have an impact on our operating profit. The table below sets forth the most important items relative to our total costs and sales.



|                                  |  |            |  |           
|--------------------------------- |  | ---------- |  | ----------
|                                  |  | % of costs |  | % of sales
|Variable costs                    |  |            |  |           
|Transport and sales commission    |  | 12         |  | 11        
|Logs, pulpwood and recycled fiber |  | 19         |  | 19        
|Chemicals and fillers             |  | 11         |  | 11        
|Energy                            |  | 7          |  | 7         
|Other                             |  | 16         |  | 16        
|                                  |  |            |  |           
|                                  |  | 65         |  | 64        
|                                  |  |            |  |           
|Fixed costs                       |  |            |  |           
|Personnel                         |  | 18         |  | 17        
|Other                             |  | 7          |  | 7         
|                                  |  |            |  |           
|                                  |  | 25         |  | 24        
|                                  |  |            |  |           
|Depreciation and amortization     |  | 10         |  | 9         
|                                  |  |            |  |           
|Total costs                       |  | 100        |  | 97        
|                                  |  |            |  |           



The main items are
personnel costs and the sourcing of logs, pulpwood and recycled fiber. For example, a 1 percent change in our personnel costs equals 22 million and a 1 percent change in our fiber costs represents 23 million. In order to mitigate the
impact of these on earnings, we have started to hedge some of our open commodity and energy exposure.



Financial Risk Management



As a
global market participant, we are exposed to different kinds of market risks such as currency risk, funding risk, interest rate risk, commodity risk and financial credit risk. The continuously evolving financial and business environment creates a
challenge for our treasury function.



The objective of our
financial risk management is to limit volatility of our earnings by utilizing financial instruments. We have defined objectives and principles for the management of the financial risk policy for Stora Enso. The policy is reviewed and re-approved
regularly by the financial and audit committee of our board of directors. Compliance is monitored by our internal control and internal audit.



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We aim to optimize internal cash flows in order to minimize the number of external transactions we must
make. We subsequently manage our groups net exposure in the financial markets.



Our treasury works together with the operating units to determine the best hedging strategy for the respective units within the framework set out in the financial risk policy.



In accordance with our financial risk policy, our treasury uses a variety of
financial instruments to hedge net financial risk exposures. Foreign currency exchange derivatives used are forwards, swaps, bought and sold options. Interest rate derivatives used are interest rate futures, interest rate swaps and futures,
cross-currency interest rate swaps and interest rate swaptions. Commodity derivatives used are oil swaps and futures, oil options, electricity swaps, pulp and paper swaps, recycled paper swaps and lumber futures.



Foreign Exchange Risk



We
operate globally and are thus exposed to foreign exchange risk arising from fluctuations in exchange rates of various currencies and currency combinations.



Many of our production facilities are located outside the euro currency area, mainly in Sweden and the United States. Production facilities in question
are owned by the local subsidiaries. The geographical location of the production facilities, the purchases of raw material, and the sales outside the euro area lead to principal foreign exchange transaction exposure in the Swedish krona, U.S. dollar
and British pound sterling against the euro, the functional currency of our parent company.



We use a Value-at-Risk (VaR) methodology to assess our foreign exchange risk. The VaR calculates the potential profit or loss from a stochastic change in the prices of items contained in the analyzed
portfolio. The risk of the net foreign currency position is estimated against our base currency euro with a VaR-methodology developed by Risk Metrics Group, which uses historical volatilities and correlations. The calculation measures the potential
change in the fair value of outstanding financial contracts over a one-day period on a specified confidence interval. Because the VaR method is not reliable in extreme situations, we also use other risk measures in the daily monitoring of foreign
exchange risk, including stress tests and scenario analysis.



In 2004, in accordance with our financial risk policy, the foreign exchange net cash flow arising from forecasted sales and purchases could be hedged to a maximum of 75 percent of the net exposure in a specific currency.



The divisions can hedge up to 75 percent of their forecasted transaction
exposure based on divisional financial risk policy. In addition to divisional hedges, remaining group exposures may be hedged under the authority of senior management.



For this purpose a number of financial instruments are used, including foreign exchange forward contracts and foreign
exchange options.



The financial instruments used for the
hedging of net foreign exchange exposure arising from sales and purchases have, on average, a maturity of less than one year.



The overnight VaR for the net cash flow hedges of foreign exchange transactions was, at a 95 percent confidence level, a loss of 2.1 million as of
December 31, 2004 compared to 4.6 million as of December 31, 2003, while the average of over the year 2004 was 2.7 million compared to 5.3 million over the year 2003. The decrease in VaR was mainly due to the decrease in hedges
during 2004.



The balance sheets of our foreign subsidiaries
are translated into euro using the exchange rates prevailing at the balance sheet date thus exposing us to fluctuations in foreign exchange rates (i.e., translation risk). We record the resulting translation differences directly to consolidated
shareholders equity.



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The financial risk policy requires our treasury to minimize the exposure by funding assets (i.e., net
investments in foreign entities) in the same currency whenever economically viable. If matching of assets and liabilities in the same currency is not possible, hedging of the remaining translation risk may take place.



During 2004, material translation exposures in U.S. dollars, Canadian dollars
and British pound sterlings were hedged, while Swedish krona and Danish krona exposures were partially hedged. Hedges were hedge accounted for in accordance with IAS 39 hedge accounting criteria for net investment in foreign entity. As of December
31, 2004, we had 257 million (U.S. dollar equivalent) of forward contracts and 646 million (U.S. dollar equivalent) of borrowings designated as hedge of our net investment in the United States compared to 657 million of borrowings
as of December 31, 2003. As of December 31, 2004, 426 million (Canadian dollar equivalent) of forward contracts were designated as hedges of the net investment in Canada, compared to 462 million as of December 31, 2003, while our net
investment in the United Kingdom, as of December 31, 2004, had designated forward contracts of 39 million (GBP equivalent), compared to 40 million as of December 31, 2003. As of December 31, 2004, we had no forward contracts designated
as a hedge of our Swedish net investment exposure, compared to of 479 million (Swedish krona equivalent) as of December 31, 2003. Instead, we had 592 million (Swedish krona equivalent) of borrowings designated as hedge of our net
investment in the Sweden which hedge we did not have as of December 31, 2003. As of December 31, 2004, our net investment in Denmark had designated forward contracts of 100 million (Danish krona equivalent), compared to none as of December 31,
2003.



As of December 31, 2004, the translation risk on the net
exposure after hedging measured with overnight VaR was a loss of 8.5 million at a 95 percent confidence level, compared with 5.5 million as of December 31, 2003. The respective annual averages were 7.4 million in 2004 and 6.2
million in 2003. The increase in risk was mainly due to the longer durations of our funding as well as the increases in equity denominated in the Swedish krona and the U.S. dollar.



Funding and Interest Rate Risk



We are also exposed to interest rate risk, in which we are mainly exposed to fluctuations in euro, Swedish krona and U.S. dollar interest rates. Fluctuations in interest rates affect our interest expenses. Our treasury is responsible for
the funding of our business operations and managing of interest rate risk.



The financial risk policy states that the average maturity of outstanding loans and committed credit facilities covering short-term borrowing should be at least four years. Target maturity should be between five and
seven years, while combined duration of the loans and the swaps should be between three months and two years. Furthermore, the group must have committed credit facilities to cover planned funding needs, the current portion of long-term debt,
commercial paper borrowings and other uncommitted short-term loans.



In order to achieve the targets set in the financial risk policy, our treasury manages a number of loan programs and credit facilities. In order to manage interest rate risk and earnings fluctuations, our treasury uses financial
derivatives, such as interest rate futures, interest rate swaps, options and swaptions. Interest rate risk is usually managed by swapping fixed interest rates to floating interest rates.



As of December 31, 2004, the basis point value of our liability portfolio was 1.20 million. The average maturity for
the loan portfolio was 5.3 years (excluding committed credit facilities) and the duration for the loan portfolio was 3.4 years. Duration for the loan portfolio together with swaps was 1.9 years. The corresponding values as of December 31, 2003 were
basis point value of 1.06 million, with an average maturity of 4.0 years; loan portfolio duration of 2.5 years and duration of loan portfolio together with swaps of 1.2 years.



Outstanding Foreign Exchange and Interest Rate Derivatives



As of December 31, 2004, we had outstanding risk management contracts regarding foreign exchange in a nominal amount of 3,170.8 million compared with 3,450.1 million as of December 31, 2003.



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Of interest rate derivatives, the nominal value outstanding as of December 31, 2004 was 2 688.2
million compared with 2,657.1 million as of December 31, 2003.



Market
Risk of Total Return Swaps



We utilize total return swaps
(TRS) to partially hedge our exposure to changes in the share price of synthetic options granted under our Option Programmes for Management (see note 27 to our consolidated financial statements begining on page F-1 of this annual
report), which are settled with cash payments. While these TRS instruments allow us to partially stabilize our future cash flows related to the settlement of outstanding synthetic options, they expose us to certain market risks. Our TRS instruments
do not qualify for hedge accounting; therefore periodic changes to their fair value are recorded in the income statement.



As of December 31, 2004, we had TRS instruments outstanding covering 31,196,400 underlying shares of Stora Enso Oyj R ordinary shares (Ordinary R
Shares) recorded at a net fair value of  (11.4) million. The fair values of the TRS instruments outstanding at December 31, 2003 and 2004 are disclosed in note 23 to our consolidated financial statements begining on page F-1 of this
annual report. The settlement periods of the TRS instruments outstanding at December 31, 2004 match the life of the associated synthetic options, mature between 2006 and 2011 and allow for earlier settlement at our election. A ten percent fall in
the share price of Ordinary R Shares would result in a decrease in the net fair value of the TRS instruments of  (35.2) million, based on a closing share price as of December 31, 2004 of  11.27 on the Helsinki Stock Exchange.



As of December 31, 2003, we had TRS instruments outstanding covering
26,196,400 underlying shares of Ordinary R Shares recorded at a net fair value of  (36.0) million. A ten percent fall in the share price of Ordinary R Shares would have resulted in a decrease in the net fair value of the TRS instruments of
 (28.0) million, based on a closing price as of December 31, 2003 of  10.68 on the Helsinki Stock Exchange.



Commodity and Energy Risk



We
are exposed to price fluctuations in raw material, energy and end product prices. Future fluctuations in raw material, energy and end product prices could have a substantial effect on our earnings. We have implemented commodity and energy risk
management operations as an integral part of our treasury. The operating units are responsible for measuring and hedging commodity and energy risks and entering into derivative contracts with our treasury to hedge those risks.



Parts of our raw material energy, and end product exposures have been hedged
with commodity and energy derivatives. All financial derivatives used in hedging of our exposure to commodity and energy price risk are accounted for under IAS 39 and, where possible, hedge accounting is applied.



As of December 31, 2004, we had total outstanding commodity derivative
contracts hedging exposures on purchase of energy and other raw materials and on sales of paper and lumber in the form of commodity and energy swaps, options and futures of a total nominal value of 442.7 million, with a net positive fair value
of 23.6 million, compared with total outstanding commodity contracts of 477.0 million, with a net positive fair value of 71.5 million, as of December 31, 2003. A 10 percent decrease in the energy prices would result in a negative
2.1 million change in the fair value of the energy hedging contracts and a 10 percent increase in the end products prices would result in a negative 0.2 million change in the fair value of the end product hedging contracts. The
maturity of our commodity contracts is between one month and four years.



The table below sets forth our outstanding commodity derivative contracts as of December 31, 2004.



|                      |  |                 |  |       |  |       |  |      |  |      |  |      
|--------------------- |  | --------------- |  | ----- |  | ----- |  | ---- |  | ---- |  | -----
|                      |  | Maturity        |  | Total
|                      |  | 2005            |  | 2006  |  | 2007  |  | 2008 |  | 2009 | 
|                      |  | ( in millions)
|Commodity derivatives |  | 182.9           |  | 116.6 |  | 107.6 |  | 35.6 |  | 0.0  |  | 442.7



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Equity Price Risk



We have
certain investments in publicly traded companies. The market value of the equity investments was 220.1 million as of December 31, 2004. These securities have exposure to fluctuations in equity prices. The equities in the portfolio are traded
on the Helsinki Stock Exchange, the Stockholm Stock Exchange, the New York Stock Exchange, the Australian Stock Exchange, and the Stock Exchange of Thailand. A 10 percent fall in equity prices would result in a 22.0 million loss in the equity
value of these securities. As of December 31, 2004, there were no outstanding financial derivative contracts designated as hedges of the investments in publicly traded companies in our equity portfolio.



As of December 31, 2003, the market value of equity investments was
227.7 million, where a 10 percent fall in equity prices would have resulted in a 22.8 million loss in the equity value of these securities.



Item 12.    Description of Securities Other than Equity Securities.



Not applicable.



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PART II



Item 13.    Defaults, Dividend Arrearages and Delinquencies.



None.



Item 14.    Material Modifications to the Rights of Security Holders and Use of Proceeds.



None.



Item 15.    Controls and Procedures.



In connection with the preparation of our annual report on Form 20-F, we detected an error in respect of our accounting for derivative instruments under U.S. GAAP. Consequently, we have restated our net income under
U.S. GAAP for the years ended December 31, 2002 and 2003. The restatement relates to the correction of previously reported unrealized gains and resulted in a reduction of our net income under U.S. GAAP for the years ended December 31, 2002 and 2003.
See note 31 to our consolidated financial statements beginning on page F-1 of this annual report. This restatement did not affect our shareholders equity under U.S. GAAP. Our financial statements under IFRS did not change as a result of this
restatement.



To remedy the situation and to avoid similar
weaknesses in future, prior to the filing of our annual report on Form 20-F in April 2005, we reviewed our controls related to our reporting for derivative instruments both for content and for purposes of preparing a reconciliation of our financial
statements in accordance with IFRS to U.S. GAAP. We believe that we remedied the material weakness in our internal control over financial reporting in respect of our accounting for derivative instruments under U.S. GAAP prior to April 2005 by
improving our review process, strengthening our understanding of the underlying data for derivative instruments to avoid misinterpretations of such data, and devoting greater review time than previously allocated for such review processes.



After evaluating the effectiveness of our disclosure controls
and procedures (as defined in Rules 13a-15(e) under the Exchange Act) as of December 31, 2004, our president and chief executive officer and our senior executive vice president and chief financial officer have concluded that, as of such date, our
disclosure controls and procedures were not effective to ensure that material information relating to the Company was made known to them by others within the Company, in light of the U.S. GAAP reporting for derivative instruments described above
(which we have identified as a material weakness and which has been corrected since that evaluation).



Other than as discussed above, there were no changes in the Companys internal control over financial reporting that occurred during the fiscal year
ended December 31, 2004 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



Item 16.    [Reserved]



Item 16A.    Audit Committee Financial Expert.



Our board of directors has determined that Mr. Jan Sjöqvist is an audit committee financial expert, as defined in the instructions to Item 16A of
Form 20-F. Mr. Sjöqvist and each of the other members of our financial and audit committee is an independent director as defined in Section 303A.02 of the New York Stock Exchanges Listed Company Manual.



Item 16B.    Code of Ethics.



In April 2004, we adopted a code of ethics that applies to all of our employees, including our chief executive officer, our chief financial officer and our group controller. This code of ethics can be viewed on our
Internet pages at www.storaenso.com -> Sustainability -> Policies -> Code of Ethics.



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Item 16C.    Principal Accountant Fees and Services.



Audit Fees



During the
financial years ended December 31, 2003 and December 31, 2004, our principal accountant, PricewaterhouseCoopers Oy, billed us aggregate amounts of 2.5 million and 2.7 million, respectively, for the audit of our annual financial
statements and services normally provided in connection with statutory and regulatory filings.



Audit Related Fees



During the financial years ended December 31, 2003 and December 31, 2004, our principal accountant, PricewaterhouseCoopers Oy, billed us aggregate amounts of 1.0 million and 1.0 million, respectively, for assurance and related
services that are reasonably related to the performance of the audit or review of financial statements.



Tax Fees



During the
financial years ended December 31, 2003 and December 31, 2004, our principal accountant, PricewaterhouseCoopers Oy, billed us aggregate amounts of 0.5 million and 1.1 million, respectively, for services related to tax compliance, tax
advice and tax planning.



All Other Fees



During the financial years ended December 31, 2003 and 2004, our principal
accountant, PricewaterhouseCoopers Oy, billed us aggregate amounts of 0.4 million and 0.1 million, respectively, for other services.



Audit Committee Pre-Approval Policies And Procedures



The financial and audit committee of our board of directors has adopted a policy requiring pre-approval of audit, audit-related, tax and other non-audit
services provided by our independent auditors. Under this policy, the financial and audit committee shall annually pre-approve an audit plan containing the types of services to be performed by our principal auditor, including an estimate of fees
grouped by the type of service.



Item 16D.    Exemptions from the Listing Standards for Audit Committees.



Not applicable.



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Item 16E.    Purchases of Equity Securities by the Issuer and Affiliated Purchasers.



The following table sets forth certain information concerning purchases of Series A shares by us and our affiliates during the year ended December 31,
2004:



|               |  |                                         |  |                                           |  |                                                                                        |        |  |                                                                                     
|-------------- |  | --------------------------------------- |  | ----------------------------------------- |  | -------------------------------------------------------------------------------------- | ------ |  | ------------------------------------------------------------------------------------
|Period         |  | Total Number ofSeries A SharesPurchased |  | Average Price Paidper Series A Share(EUR) |  | Total Number of Series AShares Purchased as Partof Publicly AnnouncedPlans or Programs |        |  | Maximum Number of SeriesA Shares that May Yet BePurchased Under the Plansor Programs
|January 2004   |  |                                        |  |                                          |  |                                                                                       | (1)    |  |                                                                                    
|February 2004  |  |                                        |  |                                          |  |                                                                                       | (1)    |  |                                                                                    
|March 2004     |  |                                        |  |                                          |  |                                                                                       | (1)(2) |  |                                                                                    
|April 2004     |  | 500                                     |  | 10.88                                     |  | 500                                                                                    | (2)    |  |                                                                                    
|May 2004       |  | 4,300                                   |  | 10.53                                     |  | 4,300                                                                                  | (2)    |  |                                                                                    
|June 2004      |  | 4,900                                   |  | 10.67                                     |  | 4,900                                                                                  | (2)    |  |                                                                                    
|July 2004      |  | 100                                     |  | 10.79                                     |  | 100                                                                                    | (2)    |  |                                                                                    
|August 2004    |  | 500                                     |  | 11.01                                     |  | 500                                                                                    | (2)    |  |                                                                                    
|September 2004 |  | 2,000                                   |  | 10.81                                     |  | 2,000                                                                                  | (2)    |  |                                                                                    
|October 2004   |  |                                        |  |                                          |  |                                                                                       | (2)    |  |                                                                                    
|November 2004  |  |                                        |  |                                          |  |                                                                                       | (2)    |  |                                                                                    
|December 2004  |  |                                        |  |                                          |  |                                                                                       | (2)    |  |                                                                                    
|               |  |                                         |  |                                           |  |                                                                                        |        |  |                                                                                     
|Total          |  | 12,300                                  |  | 10.66                                     |  | 12,300                                                                                 |        |  |                                                                                     
|               |  |                                         |  |                                           |  |                                                                                        |        |  |                                                                                     

---

|(1) |  | On March 20, 2003, our annual general meeting of shareholders authorized our board of directors to repurchase our board of directors to repurchase up to 9,100,000 Series A shares on
the Helsinki Stock Exchange and the Stockholm Stock Exchange. The authorization was valid until March 19, 2004.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | On March 18, 2004, our annual general meeting of shareholders authorized our board of directors to repurchase our board of directors to repurchase up to 9,000,000 Series A shares on
the Helsinki Stock Exchange and the Stockholm Stock Exchange. The authorization was valid until March 17, 2005.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following table sets forth certain information concerning purchases of Series R shares by us and our affiliates during the year ended December 31,
2004:



|               |  |                                         |  |                                           |  |                                                                                        |     |  |                                                                                     
|-------------- |  | --------------------------------------- |  | ----------------------------------------- |  | -------------------------------------------------------------------------------------- | --- |  | ------------------------------------------------------------------------------------
|Period         |  | Total Number ofSeries R SharesPurchased |  | Average Price Paidper Series R Share(EUR) |  | Total Number of Series RShares Purchased as Part ofPublicly Announced Plansor Programs |     |  | Maximum Number of SeriesR Shares that May Yet BePurchased Under the Plansor Programs
|January 2004   |  | 2,922,200                               |  | 10.85                                     |  | 2,922,200                                                                              | (1) |  |                                                                                    
|February 2004  |  | 650,000                                 |  | 10.17                                     |  | 650,000                                                                                | (1) |  |                                                                                    
|March 2004     |  | 439,000                                 |  | 10.28                                     |  | 439,000                                                                                | (2) |  |                                                                                    
|April 2004     |  | 1,369,400                               |  | 10.72                                     |  | 1,369,400                                                                              | (2) |  |                                                                                    
|May 2004       |  | 3,306,100                               |  | 10.55                                     |  | 3,306,100                                                                              | (2) |  |                                                                                    
|June 2004      |  | 1,892,100                               |  | 10.72                                     |  | 1,892,100                                                                              | (2) |  |                                                                                    
|July 2004      |  | 1,233,000                               |  | 10.81                                     |  | 1,233,000                                                                              | (2) |  |                                                                                    
|August 2004    |  | 1,033,200                               |  | 10.98                                     |  | 1,033,200                                                                              | (2) |  |                                                                                    
|September 2004 |  | 3,553,800                               |  | 10.71                                     |  | 3,553,800                                                                              | (2) |  |                                                                                    
|October 2004   |  | 100,000                                 |  | 11.03                                     |  | 100,000                                                                                | (2) |  |                                                                                    
|November 2004  |  | 278,700                                 |  | 11.42                                     |  | 278,700                                                                                | (2) |  |                                                                                    
|December 2004  |  | 1,684,100                               |  | 11.39                                     |  | 1,684,100                                                                              | (2) |  |                                                                                    
|               |  |                                         |  |                                           |  |                                                                                        |     |  |                                                                                     
|Total          |  | 18,461,600                              |  | 10.77                                     |  | 18,461,600                                                                             |     |  |                                                                                     
|               |  |                                         |  |                                           |  |                                                                                        |     |  |                                                                                     

---

|(1) |  | On March 20, 2003, our annual general meeting of shareholders authorized our board of directors to repurchase our board of directors to repurchase up to 34,000,000 Series R shares
on the Helsinki Stock Exchange and the Stockholm Stock Exchange. The authorization was valid until March 19, 2004.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | On March 18, 2004, our annual general meeting of shareholders authorized our board of directors to repurchase our board of directors to repurchase up to 32,700,000 Series R shares
on the Helsinki Stock Exchange and the Stockholm Stock Exchange. The authorization was valid until March 17, 2005.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On March 22, 2005, our annual general meeting of shareholders authorized our board of directors to repurchase our board of directors to repurchase up to
17,900,000 Series A shares and up to 62,150,000 Series R shares on the Helsinki Stock Exchange and the Stockholm Stock Exchange. The authorization is valid until March 21, 2006.



101



---

PART III



Item 17.    Financial Statements.



Not applicable.



Item 18.    Financial Statements.



See Item 8. Financial Information and our financial statements beginning on page F-1 of this annual report.



Item 19.    Exhibits.



Documents filed as exhibits to this annual report:



|     |  |                                                                                                                                                                                                      
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.1  |  | Articles of Association of Stora Enso Corporation.*                                                                                                                                                  
|8.1  |  | Subsidiaries of Stora Enso Corporation.**                                                                                                                                                            
|12.1 |  | Certification by the chief executive officer of Stora Enso Corporation pursuant to Rule 13a-14(a) under the Exchange Act.                                                                            
|12.2 |  | Certification by the senior executive vice president and chief financial officer of Stora Enso Corporation pursuant to Rule 13a-14(a) under the Exchange Act.                                        
|13.1 |  | Certification by the chief executive officer of Stora Enso Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to the Sarbanes-Oxley Act of 2002.                                    
|13.2 |  | Certification by the senior executive vice president and chief financial officer of Stora Enso Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to the Sarbanes-Oxley Act of
2002.

---

|* |  | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2002, filed with the SEC on June 25, 2003.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------

|** |  | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2004, filed with the SEC on April 8, 2005.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------



102



---

SIGNATURES



The registrant certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to
sign this annual report on its behalf.



Date: October 7, 2005



STORA ENSO OYJBy:

/s/ ESKO MÄKELÄINENName:

Esko MäkeläinenTitle:

Senior Executive Vice President, Finance, Accounting and Legal Affairs, and Chief Financial OfficerBy:

/s/ JYRKI KURKINENName:

Jyrki KurkinenTitle:

Senior Vice President, Legal Affairs, and General Counsel




103



---





[This page has been left blank intentionally.]











---

INDEX TO STORA ENSO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                 |  |    
|------------------------------------------------------------------------------------------------ |  | ---
|                                                                                                 | 
|Report of Independent Registered Public Accounting Firm                                          |  | F-2
|                                                                                                 | 
|Consolidated Income Statements for the years ended December 31, 2002, 2003 and 2004              |  | F-3
|                                                                                                 | 
|Consolidated Balance Sheets as of December 31, 2003 and 2004                                     |  | F-4
|                                                                                                 | 
|Consolidated Statement of Changes in Shareholders Equity as of December 31, 2002, 2003 and 2004 |  | F-5
|                                                                                                 | 
|Consolidated Cash Flow Statements for the years ended December 31, 2002, 2003 and 2004           |  | F-6
|                                                                                                 | 
|Notes to the Consolidated Financial Statements                                                   |  | F-8



F-1



---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Shareholders of Stora Enso Oyj



In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of cash flows and of changes in
shareholders equity present fairly, in all material respects, the financial position of Stora Enso Oyj and its subsidiaries (Stora Enso) at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2004, in conformity with International Financial Reporting Standards. These financial statements are the responsibility of Stora Ensos management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Oversight Board (United States) and auditing standards generally accepted in Finland, which 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 management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



As discussed in Note 1, Stora Enso adopted International
Accounting Standard 41, Agriculture, in 2003.



International Financial Reporting Standards vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented
in note 31, as restated, to the consolidated financial statements.



Helsinki, Finland

February 28, 2005

(except for the matters disclosed in Note 31, Summary of differences between International Financial Reporting Standards and Generally Accepted Accounting Principles in
the United States of America, as to which the date is April 6, 2005)



PRICEWATERHOUSECOOPERS OY

Authorized Public
Accountants



F-2



---

STORA ENSO OYJ AND SUBSIDIARIES



CONSOLIDATED INCOME STATEMENT

(in millions, except per share amounts)



|                                                              |  |      |  |                                 |   |  |          |   |  |          |   |  |          |  
|------------------------------------------------------------- |  | ---- |  | ------------------------------- | - |  | -------- | - |  | -------- | - |  | -------- | -
|                                                              |  |      |  | For the year ended December 31, |  
|                                                              |  | Note |  | 2002                            |   |  | 2003     |   |  | 2004     |   |  | 2004     |  
|                                                              |  |      |  |                                |   |  |         |   |  |         |   |  | $        |  
|Sales                                                         |  | 3    |  | 12,782.6                        |   |  | 12,172.3 |   |  | 12,395.8 |   |  | 16,781.4 |  
|Other operating income                                        |  | 5    |  | 218.6                           |   |  | 39.3     |   |  | 146.7    |   |  | 198.6    |  
|Changes in inventories of finished goods and work in progress |  |      |  | 30.3                            |   |  | 63.5     |   |  | 39.0     |   |  | 52.8     |  
|Change in net value of biological assets                      |  | 12   |  |                                |   |  | 11.6     |   |  | 7.1      |   |  | 9.6      |  
|Materials and services                                        |  |      |  | (6,415.7                        | ) |  | (6,202.5 | ) |  | (6,573.6 | ) |  | (8,899.3 | )
|Freight and sales commissions                                 |  |      |  | (1,240.9                        | ) |  | (1,286.8 | ) |  | (1,367.8 | ) |  | (1,851.7 | )
|Personnel expenses                                            |  | 6,20 |  | (2,308.1                        | ) |  | (2,297.6 | ) |  | (1,937.3 | ) |  | (2,622.7 | )
|Other operating expenses                                      |  | 5    |  | (802.6                          | ) |  | (828.0   | ) |  | (831.8   | ) |  | (1,126.1 | )
|Depreciation, amortization and impairment charges             |  | 10   |  | (2,441.9                        | ) |  | (1,200.4 | ) |  | (1,172.0 | ) |  | (1,586.7 | )
|                                                              |  |      |  |                                 |   |  |          |   |  |          |   |  |          |  
|Operating profit (loss)                                       |  | 3    |  | (177.7                          | ) |  | 471.4    |   |  | 706.1    |   |  | 955.9    |  
|Share of results in associated companies                      |  | 13   |  | 14.6                            |   |  | (23.0    | ) |  | 38.9     |   |  | 52.7     |  
|Net financial items                                           |  | 7    |  | (206.2                          | ) |  | (237.7   | ) |  | (106.0   | ) |  | (143.5   | )
|                                                              |  |      |  |                                 |   |  |          |   |  |          |   |  |          |  
|Profit (loss) before tax and minority interests               |  |      |  | (369.3                          | ) |  | 210.7    |   |  | 639.0    |   |  | 865.1    |  
|Income tax expense                                            |  | 8    |  | 128.5                           |   |  | (67.0    | ) |  | 108.8    |   |  | 147.3    |  
|                                                              |  |      |  |                                 |   |  |          |   |  |          |   |  |          |  
|Profit (loss) after tax                                       |  |      |  | (240.8                          | ) |  | 143.7    |   |  | 747.8    |   |  | 1,012.4  |  
|Minority interests                                            |  | 19   |  | 0.1                             |   |  | (5.8     | ) |  | (8.1     | ) |  | (11.0    | )
|                                                              |  |      |  |                                 |   |  |          |   |  |          |   |  |          |  
|Net profit (loss) for the period                              |  |      |  | (240.7                          | ) |  | 137.9    |   |  | 739.7    |   |  | 1,001.4  |  
|                                                              |  |      |  |                                 |   |  |          |   |  |          |   |  |          |  
|Earnings (loss) per share                                     |  |      |  |                                 |   |  |          |   |  |          |   |  |          |  
|Basic earnings (loss) per share                               |  | 29   |  | (0.27                           | ) |  | 0.16     |   |  | 0.89     |   |  | 1.20     |  
|Diluted earnings (loss) per share                             |  | 29   |  | (0.27                           | ) |  | 0.16     |   |  | 0.89     |   |  | 1.20     |  





The accompanying notes are an integral part of these consolidated financial statements.



F-3



---

STORA ENSO OYJ AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEET

(in millions)



|                                               |  |       |  |                    |   |  |          |   |  |          |  
|---------------------------------------------- |  | ----- |  | ------------------ | - |  | -------- | - |  | -------- | -
|                                               |  |       |  | As of December 31, |  
|                                               |  | Notes |  | 2003               |   |  | 2004     |   |  | 2004     |  
|                                               |  |       |  |                   |   |  |         |   |  | $        |  
|Assets                                         |  |       |  |                    |   |  |          |   |  |          |  
|Fixed Assets and Other Long-term Investments   |  |       |  |                    |   |  |          |   |  |          |  
|Goodwill                                       |  | 11    |  | 902.6              |   |  | 787.9    |   |  | 1,066.7  |  
|Intangible fixed assets                        |  | 11    |  | 80.4               |   |  | 108.1    |   |  | 146.3    |  
|Property, plant and equipment                  |  | 11    |  | 9,964.5            |   |  | 9,754.8  |   |  | 13,206.0 |  
|Biological assets                              |  | 12    |  | 1,587.8            |   |  | 64.6     |   |  | 87.5     |  
|Investments in associated companies            |  | 13    |  | 319.0              |   |  | 568.1    |   |  | 769.1    |  
|Listed securities                              |  | 14    |  | 227.7              |   |  | 220.1    |   |  | 298.0    |  
|Unlisted shares                                |  | 14    |  | 140.8              |   |  | 132.8    |   |  | 179.8    |  
|Non-current loan receivables                   |  | 17    |  | 44.3               |   |  | 233.1    |   |  | 315.6    |  
|Deferred tax assets                            |  | 8     |  | 12.1               |   |  | 11.4     |   |  | 15.4     |  
|Other non-current assets                       |  | 15    |  | 170.3              |   |  | 210.5    |   |  | 285.0    |  
|                                               |  |       |  |                    |   |  |          |   |  |          |  
|                                               |  |       |  | 13,449.5           |   |  | 12,091.4 |   |  | 16,369.4 |  
|                                               |  |       |  |                    |   |  |          |   |  |          |  
|Current Assets                                 |  |       |  |                    |   |  |          |   |  |          |  
|Inventories                                    |  | 16    |  | 1,623.5            |   |  | 1,771.3  |   |  | 2,398.0  |  
|Tax receivables                                |  |       |  | 182.5              |   |  | 160.9    |   |  | 217.8    |  
|Short-term receivables                         |  | 17    |  | 1,703.3            |   |  | 1,865.3  |   |  | 2,525.2  |  
|Current portion of loan receivables            |  | 17    |  | 781.8              |   |  | 248.7    |   |  | 336.7    |  
|Cash and cash equivalents                      |  |       |  | 201.5              |   |  | 274.3    |   |  | 371.3    |  
|                                               |  |       |  |                    |   |  |          |   |  |          |  
|                                               |  |       |  | 4,492.6            |   |  | 4,320.5  |   |  | 5,849.0  |  
|                                               |  |       |  |                    |   |  |          |   |  |          |  
|Total Assets                                   |  |       |  | 17,942.1           |   |  | 16,411.9 |   |  | 22,218.4 |  
|                                               |  |       |  |                    |   |  |          |   |  |          |  
|Shareholders Equity and Liabilities           |  |       |  |                    |   |  |          |   |  |          |  
|Shareholders Equity                           |  | 18    |  |                    |   |  |          |   |  |          |  
|Share capital                                  |  |       |  | 1,469.3            |   |  | 1,423.3  |   |  | 1,926.9  |  
|Share premium fund                             |  |       |  | 1,237.4            |   |  | 1,009.2  |   |  | 1,366.3  |  
|Treasury shares                                |  |       |  | (258.0             | ) |  | (180.8   | ) |  | (244.8   | )
|Other comprehensive income                     |  |       |  | 114.6              |   |  | 67.6     |   |  | 91.5     |  
|Cumulative translation adjustment              |  |       |  | (197.1             | ) |  | (218.9   | ) |  | (296.3   | )
|Retained earnings                              |  |       |  | 5,448.8            |   |  | 5,211.0  |   |  | 7,054.7  |  
|Net profit (loss) for the period               |  |       |  | 137.9              |   |  | 739.7    |   |  | 1,001.4  |  
|                                               |  |       |  |                    |   |  |          |   |  |          |  
|                                               |  |       |  | 7,952.9            |   |  | 8,051.1  |   |  | 10,899.7 |  
|                                               |  |       |  |                    |   |  |          |   |  |          |  
|Minority Interests                             |  |       |  | 60.3               |   |  | 136.1    |   |  | 184.3    |  
|                                               |  |       |  |                    |   |  |          |   |  |          |  
|Long-term Liabilities                          |  |       |  |                    |   |  |          |   |  |          |  
|Pension and post-employment benefit provisions |  | 20    |  | 911.9              |   |  | 637.8    |   |  | 863.5    |  
|Other provisions                               |  | 22    |  | 97.1               |   |  | 60.9     |   |  | 82.4     |  
|Deferred tax liabilities                       |  | 8     |  | 1,777.3            |   |  | 1,320.6  |   |  | 1,787.8  |  
|Long-term debt                                 |  | 21    |  | 3,404.6            |   |  | 3,328,1  |   |  | 4,505.6  |  
|Other long-term liabilities                    |  |       |  | 77.7               |   |  | 153.2    |   |  | 207.4    |  
|                                               |  |       |  |                    |   |  |          |   |  |          |  
|                                               |  |       |  | 6,268.6            |   |  | 5,500.6  |   |  | 7,446.7  |  
|                                               |  |       |  |                    |   |  |          |   |  |          |  
|Current Liabilities                            |  |       |  |                    |   |  |          |   |  |          |  
|Current portion of long-term debt              |  | 21    |  | 359.5              |   |  | 102.1    |   |  | 138.2    |  
|Short-term borrowings                          |  | 21    |  | 1,410.1            |   |  | 597.4    |   |  | 808.8    |  
|Other current liabilities                      |  | 22    |  | 1,538.3            |   |  | 1,673.1  |   |  | 2,265.0  |  
|Tax liabilities                                |  |       |  | 352.4              |   |  | 351.5    |   |  | 475.9    |  
|                                               |  |       |  |                    |   |  |          |   |  |          |  
|                                               |  |       |  | 3,660.3            |   |  | 2,724.1  |   |  | 3,687.9  |  
|Commitments and contingencies                  |  | 25    |  |                   |   |  |         |   |  |         |  
|Total Shareholders Equity and Liabilities     |  |       |  | 17,942.1           |   |  | 16,411.9 |   |  | 22,218.6 |  
|                                               |  |       |  |                    |   |  |          |   |  |          |  



The accompanying notes
are an integral part of these consolidated financial statements.



F-4



---

STORA ENSO OYJ AND SUBSIDIARIES



CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY

(in millions except per share amounts)



|                                      |  |              |   |  |              |   |  |                |   |  |        |   |  |        |   |  |                  |   |  |         |  
|------------------------------------- |  | ------------ | - |  | ------------ | - |  | -------------- | - |  | ------ | - |  | ------ | - |  | ---------------- | - |  | ------- | -
|                                      |  | ShareCapital |   |  | SharePremium |   |  | TreasuryShares |   |  | OCI    |   |  | CTA    |   |  | RetainedEarnings |   |  | Total   |  
|                                      |  |             |   |  |             |   |  |               |   |  |       |   |  |       |   |  |                 |   |  |        |  
|Balance as of January 1, 2002         |  | 1,541.5      |   |  | 1,639.5      |   |  | (125.5         | ) |  | 58.6   |   |  | (50.1  | ) |  | 5,821.4          |   |  | 8,885.4 |  
|Repurchase of Stora Enso Oyj shares   |  |             |   |  |             |   |  | (286.8         | ) |  |       |   |  |       |   |  |                 |   |  | (286.8  | )
|Cancellation of Stora Enso Oyj shares |  | (13.8        | ) |  | (83.6        | ) |  | 97.4           |   |  |       |   |  |       |   |  |                 |   |  |        |  
|Dividends paid (0.45 per share)      |  |             |   |  |             |   |  |               |   |  |       |   |  |       |   |  | (403.6           | ) |  | (403.6  | )
|Options exercised                     |  | 1.9          |   |  | (1.9         | ) |  |               |   |  |       |   |  |       |   |  |                 |   |  |        |  
|Net loss for the period               |  |             |   |  |             |   |  |               |   |  |       |   |  |       |   |  | (240.7           | ) |  | (240.7  | )
|OCI entries                           |  |             |   |  |             |   |  |               |   |  | 174.8  |   |  |       |   |  |                 |   |  | 174.8   |  
|Translation adjustment                |  |             |   |  |             |   |  |               |   |  |       |   |  | (94.3  | ) |  |                 |   |  | (94.3   | )
|                                      |  |              |   |  |              |   |  |                |   |  |        |   |  |        |   |  |                  |   |  |         |  
|Balance as of December 31, 2002       |  | 1,529.6      |   |  | 1,554.0      |   |  | (314.9         | ) |  | 233.4  |   |  | (144.4 | ) |  | 5,177.1          |   |  | 8,034.8 |  
|Effect of adopting IAS 41 Agriculture |  |              |   |  |              |   |  |                |   |  |        |   |  |        |   |  |                  |   |  |         |  
|Subsidiaries                          |  |             |   |  |             |   |  |               |   |  |       |   |  |       |   |  | 615.4            |   |  | 615.4   |  
|Associated companies                  |  |             |   |  |             |   |  |               |   |  |       |   |  |       |   |  | 44.0             |   |  | 44.0    |  
|                                      |  |              |   |  |              |   |  |                |   |  |        |   |  |        |   |  |                  |   |  |         |  
|Balance as of January 1, 2003         |  | 1,529.6      |   |  | 1,554.0      |   |  | (314.9         | ) |  | 233.4  |   |  | (144.4 | ) |  | 5,836.5          |   |  | 8,694.2 |  
|Repurchase of Stora Enso Oyj shares   |  |             |   |  |             |   |  | (319.1         | ) |  |       |   |  |       |   |  |                 |   |  | (319.1  | )
|Cancellation of Stora Enso Oyj shares |  | (60.5        | ) |  | (315.5       | ) |  | 376.0          |   |  |       |   |  |       |   |  |                 |   |  |        |  
|Dividends paid (0.45 per share)      |  |             |   |  |             |   |  |               |   |  |       |   |  |       |   |  | (387.7           | ) |  | (387.7  | )
|Options exercised                     |  | 0.2          |   |  | (1.1         | ) |  |               |   |  |       |   |  |       |   |  |                 |   |  | (0.9    | )
|Net profit for the period             |  |             |   |  |             |   |  |               |   |  |       |   |  |       |   |  | 137.9            |   |  | 137.9   |  
|OCI entries                           |  |             |   |  |             |   |  |               |   |  | (118.8 | ) |  |       |   |  |                 |   |  | (118.8  | )
|Translation adjustment                |  |             |   |  |             |   |  |               |   |  |       |   |  | (52.7  | ) |  |                 |   |  | (52.7   | )
|                                      |  |              |   |  |              |   |  |                |   |  |        |   |  |        |   |  |                  |   |  |         |  
|Balance as of December 31, 2003       |  | 1,469.3      |   |  | 1,237.4      |   |  | (258.0         | ) |  | 114.6  |   |  | (197.1 | ) |  | 5,586.7          |   |  | 7,952.9 |  
|Repurchase of Stora Enso Oyj shares   |  |             |   |  |             |   |  | (198.6         | ) |  |       |   |  |       |   |  |                 |   |  | (198.6  | )
|Cancellation of Stora Enso Oyj shares |  | (47.3        | ) |  | (228.5       | ) |  | 275.8          |   |  |       |   |  |       |   |  |                 |   |  | 0.0     |  
|Dividends paid (0.45 per share)      |  |             |   |  |             |   |  |               |   |  |       |   |  |       |   |  | (375.7           | ) |  | (375.7  | )
|Options exercised                     |  | 1.3          |   |  | 0.3          |   |  |               |   |  |       |   |  |       |   |  |                 |   |  | 1.6     |  
|Net profit for the period             |  |             |   |  |             |   |  |               |   |  |       |   |  | (11.7  | ) |  | 739.7            |   |  | 728.0   |  
|OCI entries                           |  |             |   |  |             |   |  |               |   |  | (47.0  | ) |  |       |   |  |                 |   |  | (47.0   | )
|Translation adjustment                |  |             |   |  |             |   |  |               |   |  |       |   |  | (10.1  | ) |  |                 |   |  | (10.1   | )
|                                      |  |              |   |  |              |   |  |                |   |  |        |   |  |        |   |  |                  |   |  |         |  
|Balance as of December 31, 2004       |  | 1,423.3      |   |  | 1,009.2      |   |  | (180.8         | ) |  | 67.6   |   |  | (218.9 | ) |  | 5,950.7          |   |  | 8,051.1 |  
|                                      |  |              |   |  |              |   |  |                |   |  |        |   |  |        |   |  |                  |   |  |         |  

OCI = Other Comprehensive Income  see note 23

CTA = Cumulative Translation Adjustment  see note 24





The accompanying notes are an integral part of these consolidated financial statements.



F-5



---

STORA ENSO OYJ AND SUBSIDIARIES



CONSOLIDATED CASH FLOW STATEMENTS

(in millions)



|                                                                  |  |                                 |   |  |          |   |  |          |   |  |          |  
|----------------------------------------------------------------- |  | ------------------------------- | - |  | -------- | - |  | -------- | - |  | -------- | -
|                                                                  |  | For the year ended December 31, |  
|                                                                  |  | 2002                            |   |  | 2003     |   |  | 2004     |   |  | 2004     |  
|                                                                  |  |                                |   |  |         |   |  |         |   |  | $        |  
|Cash flow from operating activities                               |  |                                 |   |  |          |   |  |          |   |  |          |  
|Net profit (loss) for the period                                  |  | (240.7                          | ) |  | 137.9    |   |  | 739.7    |   |  | 1,001.4  |  
|Reversal of non-cash items:                                       |  |                                 |   |  |          |   |  |          |   |  |          |  
|Minority interests                                                |  | (0.1                            | ) |  | 5.8      |   |  | 8.1      |   |  | 11.0     |  
|Taxes                                                             |  | (128.5                          | ) |  | 67.0     |   |  | (108.8   | ) |  | (147.3   | )
|Depreciation, amortization and impairment charges                 |  | 2,441.9                         |   |  | 1,200.4  |   |  | 1,172.0  |   |  | 1,586.7  |  
|Changes in value of biological assets                             |  |                                |   |  | (11.6    | ) |  | (7.1     | ) |  | (9.6     | )
|Share of results of associated companies                          |  | (14.6                           | ) |  | 23.0     |   |  | (38.9    | ) |  | (52.7    | )
|Profits and losses on sale of fixed assets and investments        |  | (159.1                          | ) |  | (10.5    | ) |  | (125.8   | ) |  | (170.3   | )
|Net financial income                                              |  | 206.2                           |   |  | 237.7    |   |  | 106.0    |   |  | 143.5    |  
|Interest received                                                 |  | 46.5                            |   |  | 24.6     |   |  | 15.6     |   |  | 21.1     |  
|Interest paid, net of amounts capitalized                         |  | (321.4                          | ) |  | (228.1   | ) |  | (182.3   | ) |  | (246.8   | )
|Dividends received                                                |  | 9.2                             |   |  | 5.8      |   |  | 24.6     |   |  | 33.3     |  
|Other financial items, net                                        |  | 170.0                           |   |  | (0.4     | ) |  | 17.3     |   |  | 23.4     |  
|Income taxes paid                                                 |  | (169.2                          | ) |  | (278.0   | ) |  | (114.2   | ) |  | (154.6   | )
|Change in net working capital, net of businesses acquired or sold |  | (521.1                          | ) |  | 471.0    |   |  | (100.8   | ) |  | (136.5   | )
|                                                                  |  |                                 |   |  |          |   |  |          |   |  |          |  
|Net cash provided by operating activities                         |  | 1,319.1                         |   |  | 1,644.6  |   |  | 1,405.4  |   |  | 1,902.6  |  
|                                                                  |  |                                 |   |  |          |   |  |          |   |  |          |  
|Cash flow from investing activities                               |  |                                 |   |  |          |   |  |          |   |  |          |  
|Acquisition of subsidiary shares, net of cash                     |  | (56.3                           | ) |  | (125.2   | ) |  | (176.4   | ) |  | (238.8   | )
|Acquisition of shares in associated companies                     |  | (1.5                            | ) |  | (103.5   | ) |  | (250.4   | ) |  | (339.0   | )
|Acquisition of available-for-sale investments                     |  | (12.8                           | ) |  | (12.6    | ) |  | (13.2    | ) |  | (17.9    | )
|Capital expenditure                                               |  | (877.6                          | ) |  | (1,226.7 | ) |  | (975.1   | ) |  | (1,320.1 | )
|Investment in biological assets                                   |  |                                |   |  | (6.2     | ) |  | (4.5     | ) |  | (6.1     | )
|Proceeds from disposal of subsidiary shares, net of cash          |  | 360.6                           |   |  |         |   |  | 197.9    |   |  | 267.9    |  
|Proceeds from disposal of shares in associated companies          |  | 185.5                           |   |  | 0.4      |   |  |         |   |  |         |  
|Proceeds from disposal of available-for-sale investments          |  | 16.8                            |   |  | 18.5     |   |  | 32.8     |   |  | 44.4     |  
|Proceeds from sale of fixed assets                                |  | 202.4                           |   |  | 47.5     |   |  | 36.4     |   |  | 49.3     |  
|Proceeds from (payment of) long-term receivables, net             |  | (74.4                           | ) |  | 336.2    |   |  | (182.5   | ) |  | (247.1   | )
|                                                                  |  |                                 |   |  |          |   |  |          |   |  |          |  
|Net cash used in investing activities                             |  | (257.3                          | ) |  | (1,071.6 | ) |  | (1,335.0 | ) |  | (1,807.4 |  
|                                                                  |  |                                 |   |  |          |   |  |          |   |  |          |  
|Cash flow from financing activities                               |  |                                 |   |  |          |   |  |          |   |  |          |  
|Proceeds from (payment of) long-term liabilities, net             |  | (487.3                          | ) |  | (957.4   | ) |  | 1,261.2  |   |  | 1,707.4  |  
|Proceeds from (payment of) short-term borrowings, net             |  | 50.8                            |   |  | 1,141.2  |   |  | (697.4   | ) |  | (944.1   | )
|Dividends paid                                                    |  | (403.6                          | ) |  | (387.7   | ) |  | (375.7   | ) |  | (508.6   | )
|Minority dividends                                                |  | (0.3                            | ) |  | (1.9     | ) |  | (1.9     | ) |  | (2.6     | )
|Options exercised                                                 |  |                                |   |  | (0.9     | ) |  | 1.6      |   |  | 2.2      |  
|Repurchase of own shares                                          |  | (286.9                          | ) |  | (319.1   | ) |  | (198.6   | ) |  | (268.9   | )
|                                                                  |  |                                 |   |  |          |   |  |          |   |  |          |  
|Net cash used in financing activities                             |  | (1,127.3                        | ) |  | (525.8   | ) |  | (10.8    | ) |  | (14.6    | )
|                                                                  |  |                                 |   |  |          |   |  |          |   |  |          |  
|Net increase (decrease) in cash and cash equivalents              |  | (65.5                           | ) |  | 47.2     |   |  | 59.6     |   |  | 80.7     |  
|Cash and bank in acquired companies                               |  |                                |   |  | 3.0      |   |  | 45.9     |   |  | 62.1     |  
|Cash and bank in divested companies                               |  |                                |   |  |         |   |  | (29.5    | ) |  | (39.9    | )
|Translation adjustment                                            |  | (13.0                           | ) |  | (17.2    | ) |  | (3.2     | ) |  | (4.3     | )
|Cash and cash equivalents at beginning of year                    |  | 247.0                           |   |  | 168.5    |   |  | 201.5    |   |  | 272.8    |  
|                                                                  |  |                                 |   |  |          |   |  |          |   |  |          |  
|Cash and cash equivalents at year-end                             |  | 168.5                           |   |  | 201.5    |   |  | 274.3    |   |  | 371.4    |  
|                                                                  |  |                                 |   |  |          |   |  |          |   |  |          |  



The accompanying notes
are an integral part of these consolidated financial statements.



F-6



---

STORA ENSO OYJ AND SUBSIDIARIES



CONSOLIDATED CASH FLOW STATEMENTS

(in millions)



Supplemental cash flow
information



|                                                       |  |                                 |   |  |         |   |  |          |   |  |          |  
|------------------------------------------------------ |  | ------------------------------- | - |  | ------- | - |  | -------- | - |  | -------- | -
|                                                       |  | For the year ended December 31, |  
|                                                       |  | 2002                            |   |  | 2003    |   |  | 2004     |   |  | 2004     |  
|                                                       |  |                                |   |  |        |   |  |         |   |  | $        |  
|Change in net working capital consists of:             |  |                                 |   |  |         |   |  |          |   |  |          |  
|Change in inventories                                  |  | (17.0                           | ) |  | (63.5   | ) |  | (106.8   | ) |  | (144.6   | )
|Change in interest-free receivables                    |  | 31.1                            |   |  | 214.9   |   |  | (226.2   | ) |  | (306.2   | )
|Change in interest-free liabilities                    |  | (40.1                           | ) |  | 6.5     |   |  | (212.1   | ) |  | (287.1   | )
|Proceeds from (payments of) short-term receivables     |  | (495.1                          | ) |  | 313.1   |   |  | 444.3    |   |  | 601.5    |  
|                                                       |  |                                 |   |  |         |   |  |          |   |  |          |  
|                                                       |  | (521.1                          | ) |  | 471.0   |   |  | (100.8   | ) |  | (136.4   | )
|                                                       |  |                                 |   |  |         |   |  |          |   |  |          |  
|Non-cash investing and financing activities:           |  |                                 |   |  |         |   |  |          |   |  |          |  
|Total capital expenditure                              |  | 877.6                           |   |  | 1,248.2 |   |  | 975.1    |   |  | 1,320.1  |  
|Amounts paid                                           |  | 877.6                           |   |  | 1,226.7 |   |  | 975.1    |   |  | 1,320.1  |  
|                                                       |  |                                 |   |  |         |   |  |          |   |  |          |  
|Finance lease obligations incurred                     |  |                                |   |  | 21.5    |   |  |         |   |  |         |  
|                                                       |  |                                 |   |  |         |   |  |          |   |  |          |  
|Acquisition of group companies                         |  |                                 |   |  |         |   |  |          |   |  |          |  
|Cash flow on acquisitions                              |  |                                 |   |  |         |   |  |          |   |  |          |  
|Purchase consideration on acquisitions                 |  | 56.3                            |   |  | 128.2   |   |  | 176.4    |   |  | 238.8    |  
|Cash and cash equivalents in acquired companies        |  |                                |   |  | (3.0    | ) |  | (45.9    | ) |  | (62.1    | )
|                                                       |  |                                 |   |  |         |   |  |          |   |  |          |  
|                                                       |  | 56.3                            |   |  | 125.2   |   |  | 130.5    |   |  | 176.7    |  
|Non-cash transaction                                   |  |                                 |   |  |         |   |  |          |   |  |          |  
|Unlisted share exchange                                |  | 27.6                            |   |  |        |   |  | 3.9      |   |  | 5.3      |  
|                                                       |  |                                 |   |  |         |   |  |          |   |  |          |  
|Total purchase consideration                           |  | 83.9                            |   |  | 125.2   |   |  | 134.4    |   |  | 182.0    |  
|                                                       |  |                                 |   |  |         |   |  |          |   |  |          |  
|Acquired net assets                                    |  |                                 |   |  |         |   |  |          |   |  |          |  
|Working capital                                        |  | (8.9                            | ) |  | 31.2    |   |  | 44.0     |   |  | 59.6     |  
|Fixed assets                                           |  | 150.4                           |   |  | 206.4   |   |  | 190.2    |   |  | 257.5    |  
|Interest-bearing assets less cash and cash equivalents |  | 5.6                             |   |  | 5.7     |   |  | 0.7      |   |  | 0.9      |  
|Tax liabilities                                        |  | (0.8                            | ) |  | (0.2    | ) |  | (19.2    | ) |  | (26.0    | )
|Interest-bearing liabilities                           |  | (79.8                           | ) |  | (90.3   | ) |  | (11.4    | ) |  | (15.4    | )
|Minority interests                                     |  | 17.4                            |   |  | (27.6   | ) |  | (69.9    | ) |  | (94.6    | )
|                                                       |  |                                 |   |  |         |   |  |          |   |  |          |  
|                                                       |  | 83.9                            |   |  | 125.2   |   |  | 134.4    |   |  | 182.0    |  
|                                                       |  |                                 |   |  |         |   |  |          |   |  |          |  
|Disposal of group companies                            |  |                                 |   |  |         |   |  |          |   |  |          |  
|Cash flow on disposals                                 |  |                                 |   |  |         |   |  |          |   |  |          |  
|Cash flow on disposal                                  |  | 360.6                           |   |  |        |   |  | 197.9    |   |  | 267.9    |  
|Cash and cash equivalents in divested companies        |  |                                |   |  |        |   |  | (29.5    | ) |  | (39.9    | )
|                                                       |  |                                 |   |  |         |   |  |          |   |  |          |  
|                                                       |  | 360.6                           |   |  |        |   |  | 168.4    |   |  | 228.0    |  
|Non-cash transaction                                   |  |                                 |   |  |         |   |  |          |   |  |          |  
|Associate company shares received                      |  | 36.8                            |   |  |        |   |  |         |   |  |         |  
|                                                       |  |                                 |   |  |         |   |  |          |   |  |          |  
|                                                       |  | 397.4                           |   |  |        |   |  | 168.4    |   |  | 228.0    |  
|                                                       |  |                                 |   |  |         |   |  |          |   |  |          |  
|Net assets sold                                        |  |                                 |   |  |         |   |  |          |   |  |          |  
|Operating working capital                              |  | 42.3                            |   |  |        |   |  | 62.2     |   |  | 84.2     |  
|Operating fixed assets                                 |  | 441.0                           |   |  |        |   |  | 94.1     |   |  | 127.4    |  
|Biological assets                                      |  |                                |   |  |        |   |  | 1,541.2  |   |  | 2,086.5  |  
|Interest-bearing assets less cash and cash equivalents |  | 5.3                             |   |  |        |   |  | 23.1     |   |  | 31.3     |  
|Tax liabilities                                        |  | (0.2                            | ) |  |        |   |  | (222.9   | ) |  | (301.8   | )
|Interest-bearing liabilities                           |  | (161.1                          | ) |  |        |   |  | (1,518.8 | ) |  | (2,056.2 | )
|Gain on sale                                           |  | 25.9                            |   |  |        |   |  | 113.0    |   |  | 153.0    |  
|                                                       |  |                                 |   |  |         |   |  |          |   |  |          |  
|                                                       |  | 353.2                           |   |  |        |   |  | 91.9     |   |  | 124.4    |  
|Provision for unrealized gain                          |  | 44.2                            |   |  |        |   |  | 76.5     |   |  | 103.6    |  
|                                                       |  |                                 |   |  |         |   |  |          |   |  |          |  
|                                                       |  | 397.4                           |   |  |        |   |  | 168.4    |   |  | 228.0    |  
|                                                       |  |                                 |   |  |         |   |  |          |   |  |          |  



The accompanying notes
are an integral part of these consolidated financial statements.



F-7



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



Note
1Accounting Principles



Principal Activities



Stora Enso Oyj (the Company) is a Finnish
limited liability company organized under the laws of the Republic of Finland, domiciled in Helsinki. The operations of Stora Enso Oyj and its subsidiaries (together Stora Enso or the Group) are organized into core product
areas and supporting areas. The core product areas are paper, incorporating publication paper, fine paper and merchants, packaging boards and forest products, incorporating wood products and wood supply Europe. Supporting areas in segment other
comprise energy and head office, together with other corporate functions. The Groups main market is Europe, though it has an expanding presence in the Americas.



Basis of Preparation



The consolidated financial statements of Stora Enso have been prepared in accordance with International Financial Reporting Standards (IFRS),
including International Accounting Standards (IAS) and Interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC). They include the financial statements of Stora Enso Oyj and its
subsidiaries and have been prepared under the historical cost convention except as disclosed in the accounting policies below; for example, available-for-sale investments and derivative financial instruments are shown at fair value. The carrying
amount of recognized assets and liabilities that are hedged is adjusted to record changes in the fair value attributable to the risks being hedged. In addition, the Group consistently applies trade date accounting.



Stora Enso maintains its accounting records and prepares its financial
statements in euro. Solely for the convenience of the reader, the December 31, 2004 consolidated financial statements have been translated from euro at the noon buying rate in New York City for cable transfers in foreign currencies as certified for
customs purposes by the Federal Reserve Bank of New York (the Noon Buying Rate) on December 31, 2004 of $ 1.00 =  0.7387. Such translation should not be construed as representations that the euro amounts represent, or
have been or could be so converted into US dollars at that rate or at any other rate.



Use of Estimates



The
preparation of consolidated financial statements in conformity with IFRS 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 revenues and expenses during the reporting period. Actual results may differ from these estimates.



Consolidation Principles



Stora Enso was formed as a combination of Enso Oyj and Stora Kopparbergs Bergslags Aktiebolag (publ) in December 1998 and, as a result of the merger, the
latter became a subsidiary of Stora Enso Oyj (formerly Enso Oyj). The Stora Enso merger was accounted for as a uniting of interests under IAS. The business of Stora Kopparbergs Bergslags Aktiebolag was subsequently transferred in 2003 to Stora Enso
AB and the company was dissolved.



The consolidated financial
statements include the parent company, Stora Enso Oyj, and all companies in which it holds, directly or indirectly, over 50 percent of the voting rights. The financial statements of some companies, which Stora Enso controls through management
agreements with majority shareholders, but in which Stora Enso holds less than 50 percent of the voting rights, are also consolidated. The principal subsidiaries are listed in note 26.



F-8



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Associated companies, where Stora Enso holds voting rights of between 20 percent and 50 percent, are
accounted for using the equity method, which involves recognizing in the income statement the Groups share of the associates profit or loss for the year less any amortized goodwill. These companies represent undertakings in which the
Group has significant influence, but which it does not control; the most significant such companies are listed in note 13. The Groups interest in an associated company is carried in the balance sheet at an amount that reflects its share of the
net assets of the associate together with goodwill on acquisition, as amortized, less any impairment. When the Group share of losses exceeds the carrying amount of an investment, the carrying amount is reduced to nil and any recognition of further
losses ceases unless the Group is obliged to satisfy obligations of the investee which it has guaranteed or is otherwise committed to.



Acquired companies are accounted for under the purchase method whereby they are included in the consolidated financial statements from their acquisition
date, whereas, conversely, divestments are included up to their date of sale.



All intercompany transactions, receivables, liabilities and unrealized profits, as well as intragroup profit distributions, are eliminated. Accounting policies for subsidiaries and all equity accounted investments
have been adjusted where necessary to ensure consistency with the policies adopted by Stora Enso. Minority interests have been disclosed separately from the consolidated shareholders equity and are recorded as a separate deduction in the
consolidated income statement.



Foreign Currency
Transactions



Transactions in foreign currencies are
recorded at the rate of exchange prevailing at the transaction date. An approximate exchange rate is used for transactions entered into during a month, but at the end of the month, foreign currency-denominated receivables and liabilities are
translated using the month end exchange rate. Foreign exchange differences for operating business items are recorded in the appropriate income statement account before operating profit, and, for financial assets and liabilities, are entered as a net
amount in the financial items of the income statement.



Foreign Currency TranslationsSubsidiaries



The income statements of subsidiaries, whose measurement and reporting currencies are not euros, are translated into the Group reporting currency using the average exchange rates for the year, whereas the balance sheets of such subsidiaries
are translated using the exchange rates ruling on December 31. Exchange differences arising from the retranslation of the net investments in foreign entities, being non-Euro area foreign subsidiary and associated undertakings, and of financial
instruments, which are designated as and are hedges of such investments, are recorded directly in shareholders equity in the cumulative translation adjustment (CTA). The cumulative translation differences of divestments are
combined with their gain or loss on disposal.



Derivative
Financial Instruments



Financial derivatives are initially
recognized in the balance sheet at cost and subsequently measured at their fair value on each balance sheet date, though the method of recognizing the resulting gains or losses is dependent on the nature of the item being hedged. When derivative
contracts are entered into, the Group designates them as either hedges of the fair value of recognized assets or liabilities (fair value hedge), hedges of forecast transactions or firm commitments (cash flow hedge), hedges of net investments in
foreign entities or as derivative financial instruments not meeting the hedge accounting criteria.



Changes in the fair value of derivatives designated and qualifying as fair value hedges, and which are highly effective, are recorded in the income
statement, alongside any changes in the fair value of the hedged assets or liabilities attributable to the hedged risk.



F-9



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STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Changes in the fair value of derivatives designated and qualifying as cash flow hedges, and which are
effective, are recognized in equity to the hedging reserve within other comprehensive income (OCI). The cumulative gain or loss of a derivative deferred in equity is transferred to the income statement and classified as revenue or
expense in the same period in which the hedged item affects the income statement.



When a hedging instrument no longer meets the criteria for hedge accounting under IAS 39, any cumulative gain or loss deferred in equity at that time remains in equity and is accounted for as an adjustment to revenue
or expense when the committed or forecast transaction is ultimately recognized in the income statement. However, if a committed or forecast transaction is no longer expected to occur, the cumulative gain or loss reported in equity is immediately
transferred to the income statement under financial items.



Certain derivative transactions, while providing effective economic hedges under Group risk management policies, do not qualify for hedge accounting under the specific rules in IAS 39 and therefore changes in the fair value of such
non-qualifying hedge instruments are immediately recognized in the income statement under financial items. All derivatives not qualifying for hedge accounting are considered to be speculative and are also fair valued at each balance sheet date with
the result immediately recognized in the income statement under financial items.



Hedges of net investments in foreign entities are accounted for similarly to cash flow hedges. Where the hedging instrument is a derivative, any gain or loss thereon relating to the effective portion of the hedge is
recognized in equity in cumulative translation adjustment (CTA); the gain or loss relating to the ineffective portion is immediately recognized in the income statement. However, the exchange gains and losses arising on the translation of
a borrowing that hedges such an investment, including any ineffective portion of the hedge, are also recognized in the CTA.



At the inception of a transaction the Group documents the relationship between hedging instruments and hedged items, as well as its risk management
objective and strategy for undertaking various hedge transactions. This process includes linking all financial instruments designated as hedges to specific assets and liabilities or to specific firm commitments or forecast transactions. The Group
also documents its assessment, both at the hedge inception and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting changes in fair value or cash flows of hedged items.



The fair values of publicly traded derivatives, along with trading and
available-for-sale securities, are based on quoted market prices at the balance sheet date; the fair values of interest rate swaps are calculated as the present value of the estimated future cash flows while the fair values of forward foreign
exchange contracts are determined using forward exchange market rates at the balance sheet date. In assessing the fair values of non-traded derivatives and other financial instruments, the Group uses a variety of methods and makes assumptions based
on market conditions at each balance sheet date. Quoted market prices or dealer quotes for identical or similar instruments are used for long-term debt. Other techniques, such as option pricing models and estimated discounted value of future cash
flows, are used to determine fair values for the remaining financial instruments. The face values, less any estimated credit adjustments, for financial assets and liabilities with a maturity of less than one year are assumed to approximate their
fair values. The fair values of financial liabilities for disclosure purposes are estimated by discounting the future contractual cash flows at the current market interest rates available to the Group for similar financial instruments.



Revenue Recognition



Sales comprise products, raw materials, energy and services, less indirect
sales tax, discounts and exchange differences on sales in foreign currency. Sales are recognized after Stora Enso has transferred the decisive risks



F-10



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STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



and rewards connected with ownership of the goods sold to the buyer and the Group retains neither a continuing right to dispose of the goods, nor effective
control of those goods; in the great majority of cases, this means that sales are recorded upon delivery of goods to customers in accordance with agreed terms of sale.



Stora Enso terms of delivery are based on Incoterms 2000, being the official rules for the interpretation of trade terms as
issued by the International Chamber of Commerce. The main categories of terms covering Group sales are:



| |  |  | D terms, under which the Group is obliged to deliver the goods to the agreed destination, usually the buyers premises, in which case the point of sale is the
moment of delivery to the buyer.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | C terms, whereby the Group arranges and pays for the external carriage and certain other costs, though the Group ceases to be responsible for the goods once they have
been handed over to the carrier in accordance with the relevant term; the point of sale is thus the delivery of the goods to the external carrier contracted by the Group.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | F terms, being where the buyer arranges and pays for the carriage, thus the point of sale is the handing over of goods to the carrier contracted by the buyer.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



Where local rules may result in invoices being
raised in advance of the above, the effect is of this revenue advancement is quantified and adjusted for.



Shipping and Handling Costs



The Company includes shipping fees billed to customers in revenues and shipping costs incurred in cost of sales.



Research and Development



Research and development costs are expensed as incurred and included in
other operating expenses in the consolidated income statement.



Advertising Costs



Advertising costs are
expensed as incurred.



Computer Software Development Costs



Development costs or acquisition costs of new software
clearly associated with an identifiable and unique product, which will be controlled by the Group and has probable benefit exceeding its cost beyond one year, are recognized as an intangible asset and depreciated over the softwares expected
useful life. Associated costs include staff costs of the development team and an appropriate portion of overhead, but exclude the cost of maintaining the software, which is expensed as incurred. Website costs are expensed as incurred.



Environmental Remediation Costs



Environmental expenditures resulting from the remediation of an existing
condition caused by past operations, and which do not contribute to current or future revenues, are expensed as incurred. Environmental liabilities are recorded, based on current interpretations of environmental laws and regulations, when it is
probable that a present obligation has arisen and the amount of such liability can be reliably estimated. Amounts accrued do not include third-party recoveries. Decommissioning costs, being the costs of closing the site and preparing it for future
use, are capitalized at the outset of a development and amortized over its expected life so that the full cost of environmental reinstatement will have been expensed by the end of the project.



F-11



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STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Discontinuing Operations



A discontinuing operation results from a decision, pursuant to a single disposal plan, to divest an operation comprising a
separate major line of business for which the assets less liabilities and net financial results may be distinguished physically, operationally and for financial reporting purposes. The pre-tax gain or loss on disposal of discontinuing operations is
shown as a separate item in the consolidated income statement.



Income Taxes



The Group income tax expense
includes taxes of Group companies based on taxable profit for the period, together with tax adjustments for previous periods, the change in deferred income taxes and share of tax of associated companies.



Deferred income taxes are provided using the liability method, as measured
with enacted tax rates, to reflect the net tax effects of all temporary differences between the financial reporting and tax bases of assets and liabilities. Principal temporary differences arise from depreciation on property plant and equipment,
revaluation of net assets in acquired companies, fair valuation of available-for-sale investments and financial derivatives, intercompany inventory profits, untaxed reserves and tax losses carried forward; the latter is recognized as an asset to the
extent that it is probable that future taxable profits will be available against which unused tax losses can be utilized.



Temporary differences for accumulated depreciation and untaxed reserves (appropriations) are recorded in shareholders equity and deferred tax
liability in the consolidated balance sheet, but under the Companies Act, such items in equity are excluded from distributable funds.



Goodwill



Goodwill represents the excess of the cost of an acquisition over the fair value of the Group share of net assets of the acquired subsidiary/associated
undertaking at the acquisition date. Goodwill arising on the acquisition of foreign entities is treated as an asset of the foreign entity and translated at the closing rate.



Goodwill is tested periodically for impairment but otherwise has historically been amortized on a straight-line basis over
its expected useful life, which varied from 5 to 20 years depending on the nature of the acquisition. New rules however came into effect in 2004 whereby amortization of goodwill ceased with effect from April 1 for new acquisitions and December 31
for all other existing goodwill. In future, the only value adjustments to the carrying value of goodwill will be as a result of the annual impairment testing.



Intangible Assets



Intangible assets include trademarks, patents, copyrights and software licenses; they are stated at historical cost and are amortized on a straight-line
basis over expected useful lives which usually vary from 3 to 10 years, though up to 20 years for patents. Intangible items acquired must be recognized as assets separately from goodwill if they meet the definition of an asset, are either separable
or arise from contractual or other legal rights and their fair value can be measured reliably.



Intangible assets recognized separately from goodwill in acquisitions consist of marketing and customer related or contract and technology based intangible assets. Typical marketing and customer related assets are
trademarks, trade names, service marks, collective marks, certification marks, customer lists, order or production backlogs, customer contracts and the related customer relationships. The contract and technology based intangible assets are normally
licensing and royalty agreements or patented technology and trade secrets such as confidential formulas, processes or recipes.



F-12



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Investment Properties



Investment properties are deemed to be those held for long-term rental yields or capital appreciation, but at present Stora
Enso considers that it holds no such property.



Property,
Plant and Equipment



Property, plant and equipment
acquired by Group companies are stated at historical cost, augmented where appropriate by terminal environmental reinstatement costs; assets coming into the Group on the acquisition of a new subsidiary are stated at their fair values at the date of
acquisition. Depreciation is computed on a straight-line basis, as adjusted for any impairment and disposal charges; the balance sheet value represents cost less accumulated depreciation and any impairment charges. Interest costs on borrowings to
finance the construction of these assets are capitalized as part of the cost during the period required to complete and prepare the property for its intended use.



Land is not depreciated as it is deemed to have an indefinite life, but otherwise depreciation is based on the following
expected useful lives:



|                           |  |                  
|-------------------------- |  | -----------------
|Asset class                |  | DepreciationYears
|Buildings, industrial      |  | 10-50            
|Buildings, residential     |  | 20-50            
|Buildings, office          |  | 20-50            
|Groundwood mills           |  | 15-20            
|Hydro-electric power       |  | 40               
|Paper mills, main machines |  | 20               
|Board mills, main machines |  | 20               
|Pulp mills, main machines  |  | 20               
|Heavy machinery            |  | 10-20            
|Converting factories       |  | 10-15            
|Sawmills                   |  | 10-15            
|Computers                  |  | 3-5              
|Vehicles                   |  | 5                
|Office equipment           |  | 3-5              
|Railway, harbours          |  | 20-25            
|Forest roads               |  | 10-35            
|Roads, fields, bridges     |  | 15-20            
|Intangible assets          |  | 3-10             



Ordinary maintenance
and repair charges are expensed as incurred, however, the costs of significant renewals and improvements are capitalized and depreciated over the remaining useful lives of the related assets. Retirements, sales and disposals of property, plant and
equipment are recorded by removing the cost and accumulated depreciation from the accounting records with any resulting terminal depreciation adjustments reflected in impairment charges in the income statement; capital gains are shown in other
operating income.



Assets to be disposed of are reported at the
lower of the carrying amount and the fair value less selling costs.



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 with an impairment loss
being recognized whenever the carrying amount exceeds the recoverable amount.



F-13



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



A previously recognized impairment loss on plant and equipment 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 prior years. For goodwill, a recognized impairment loss is
not reversed unless the impairment loss was caused by a specific external event of an exceptional nature that is not expected to recur and subsequent external events have occurred which reverse the effect of that event.



Accounting for Leases



Leases of property, plant and equipment where the Group has substantially
all the rewards and risks of ownership are classified as finance leases. Finance leases are capitalized at the inception of the lease at the lower of the fair value of the leased property or the estimated present value of the underlying lease
payments. Each lease payment is allocated between the capital liability and finance charges, so as to achieve a constant interest rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in
interest-bearing liabilities with the interest element of the finance charge being taken to the income statement over the lease period. Property, plant and equipment acquired under finance leasing contracts are depreciated over the lesser of the
useful life of the asset or lease period.



Leases of assets,
where the lessor retains all the risks and benefits of ownership, are classified as operating leases and payments made there under, and under rental agreements, are expensed on a straight-line basis over the lease periods. When an operating lease is
terminated before the expiry of the lease period, any obligatory payment to the lessor by way of penalty is recognized as an expense in the period in which termination takes place. Lease termination benefits are recognized on a discounted basis.



Government Grants



Government grants relating to the purchase of property, plant and equipment
are deducted from the carrying value of the asset, the net cost being capitalized.



Biological Assets



IAS
41 Agriculture, requires that biological assets in the form of standing trees are shown on the balance sheet at market value. Group forests are thus accounted for at fair value less estimated point-of-sale costs at harvest, there being a presumption
that fair values can be measured for these assets.



The
valuation of Stora Ensos forest assets is based on discounted cash flow models whereby the fair value of the biological assets is calculated using cash flows from continuous operations, that is, based on sustainable forest management plans
taking into account growth potential. The yearly harvest made from the forecasted tree growth is multiplied by actual wood prices and the cost of fertilizer and harvesting is then deducted. The fair value of the biological asset is measured as the
present value of the harvest from one growth cycle based on the productive forestland, taking into consideration environmental restrictions and other reservations. Biological assets that are physically attached to land are recognized and measured at
their fair value separately from the land.



Inventories



Inventories are reported at the lower of cost and net
realizable value with cost being determined by the first-in first-out (FIFO) method or, alternatively, weighted average cost where it approximates FIFO. The cost of finished goods and work in progress comprises raw material, direct labor,
depreciation, other direct costs and related production overhead but excludes interest expenses. Net realizable value is the estimated selling price in the ordinary course of business, less costs of completion and sale.



F-14



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Trade Receivables



Trade receivables are reported at their anticipated realizable value, an estimate being made for doubtful receivables based
on a review of all outstanding amounts at year-end.



Cash
and Cash Equivalents



Cash and cash equivalents comprise
cash in hand, deposits held at call with banks and other liquid investments with original maturity of less than three months. Bank overdrafts are included in short-term borrowings under current liabilities.



Investments



The Group classifies its investments into three categories of trading,
held-to-maturity and available-for-sale. Investments acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments, to be classified as current assets, whereas investments
with fixed maturity, which management has the intent and ability to hold to maturity, are classified as held-to-maturity, to be disclosed in non-current assets; during the period the Group held no investments in these categories. Investments
intended to be held for an indefinite period of time, but which may be sold in response to liquidity needs or changes in interest rates, are classified as available-for-sale; these are included in non-current assets unless management has the express
intention of holding the investment for less than 12 months from the balance sheet, in which case they are included in current assets. Management determines the appropriate classification of its investments at the time of the purchase and
re-evaluates such designation on a regular basis.



Loan
Receivables



Loan receivables are recorded at cost and are
subject to regular and systematic review as to collectibility and available guarantees. If any loan receivable is estimated to be unrecoverable, a provision is made for the shortfall between the carrying amount and the present value of the expected
cash flows. Interest income on loan receivables is included within net financial items.



Borrowings



Borrowings
are recognized initially as proceeds received, net of transaction costs incurred. In subsequent periods, they are stated at amortized cost using the effective yield method; any difference between proceeds, net of transaction costs, and redemption
value is recognized in the income statement over the period of the borrowings. Interest expenses are accrued for and recorded in the income statement for each period.



Provisions



Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of
resources will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Environmental provisions for site reinstatement are made when a project starts production, the capitalized cost of the
provision, along with the historic cost of the asset, being amortized over the useful life of the asset.



A provision for restructuring is recognized in the period in which the Group becomes legally or constructively committed to the plan. The costs included
in a provision for restructuring are only those costs that are either incremental and incurred as a direct result of the exit plan or are the result of a continuing contractual obligation with no continuing economic benefit or a penalty incurred to
cancel the contractual obligation.



Employee Benefits



The Group operates a number of defined benefit and
contribution plans throughout the world, the assets of which are generally held in separate trustee administered funds. The pension plans are generally funded by



F-15



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



payments from employees and by the relevant Group companies, taking into account the recommendations of independent qualified actuaries. Group contributions
to the defined contribution pension plans are charged to the income statement in the year to which they relate.



For defined benefit plans, 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 maturity terms approximating the terms of the related liability. All actuarial gains and losses are spread forward over the average remaining
service lives of employees.



Executive Share Options



The costs of all option plans, synthetic option plans and
other executive remuneration or incentive plans, are charged to the income statement as personnel expenses in the period in which the options are exercised or the costs are incurred. The synthetic option programmes 1999-2004 are hedged by total
return swaps (TRS) which are settled with cash payments, allowing the Company to receive cash compensation to partially offset any change in share price between the grant date and the settlement date.



Restricted Equity



The components of restricted equity include the share premium account, the
translation adjustment for foreign subsidiaries (CTA), other comprehensive income (OCI) and the legal reserves required by law in certain countries where subsidiaries are incorporated.



Earnings per Share



Basic earnings per share is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares in issue
during the year, excluding ordinary shares purchased by the Group and held as treasury shares. Diluted earnings per share has been computed by applying the treasury stock method, under which earnings per share data is computed as if the
warrants and options were exercised at the beginning of the period, or if later, on issue and as if the funds obtained thereby were used to purchase common stock at the average market price during the period. In addition to the weighted average
number of shares outstanding, the denominator includes the incremental shares obtained through the assumed exercise of the warrants and options.



The assumption of exercise is not reflected in earnings per share when the exercise price of the warrants and options exceeds the average market price of
the common stock during the period. The warrants and options have a dilutive effect only when the average market price of the common stock during the period exceeds the exercise price of the warrants and options.



Dividend



The dividend proposed by the board of directors is not deducted from
distributable shareholders equity until approved by the shareholders at the Annual General Meeting.



Reclassification



Certain reclassifications have been made to prior year amounts to conform with current year presentation.





F-16



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



New Accounting Standards



In 2004 the IASB issued IFRS 3, Business Combinations and revised standards IAS 36, Impairment of Assets and
IAS 38, Intangible Assets, the main features being that business combinations must be accounted for using the purchase method. These standards have been applied to acquisitions after March 31 and, for existing goodwill, December 31; see
Goodwill and Intangible Assets above.



Note 2Risk Management



Stora Enso is exposed to a number of financial market
risks that the Group is responsible for managing under policies approved by the financial and audit committee of the board of directors. The overall objective is to have cost-effective funding in Group companies as well as to manage financial risks
in order to decrease earnings volatility with the use of financial instruments. The main exposures for the Group are funding risk, interest rate risk, currency risk and commodity risk.



Funding Risk



Funding risk arises from the difficulty of obtaining finance for operations at a given point in time. In order to minimize the cost of refinancing the
Group loan portfolio and to ensure that funding is obtainable, the Group Treasury must have committed credit facilities to cover planned funding needs, the current portion of long-term debt, commercial paper borrowings and other short-term loans.
The average maturity of outstanding loans and committed credit facilities should be at least four years and not more than seven.



Interest Rate Risk



Fluctuations in interest rates affect the interest expense of the Group. As a result of the cyclical nature of the economy, the Group has an interest rate
risk policy to synchronize interest costs with earnings over the business cycle by swapping long-term fixed interest rates to short-term floating interest rates. The Groups duration benchmark is 12 months and the Treasury has a deviation
mandate of between 3 and 24 months.



Currency Risk



The Group operates internationally and is thus exposed to
currency risk arising from exchange rate fluctuations. Transaction risk, being foreign currency-denominated sales and purchases together with foreign currency balance sheet items, as well as translation risk, being net investments in foreign
subsidiaries, in aggregate comprise the foreign currency exchange risk of Stora Enso. The Group policy for transaction risk is to hedge a maximum 75 percent of the next 12 months net exposure in a specific currency. The policy relating to
translation risk exposure is to minimize this risk by funding investments in the same currency as the net assets whenever this is possible and economically viable.



Commodity Risk



Group earnings are exposed to commodity price volatility. The Group has implemented a commodity risk management framework in the areas of fibre and energy
procurement whereby subsidiaries are responsible for measuring their open commodity price risks and hedging these through the Group Treasury.



Credit Risk



Credit insurance has been obtained for customers in the main market areas of Western Europe, Canada and the United States. In other market areas, measures
to reduce credit risks include letters of credit, prepayments and bank guarantees. The Group has also obtained export guarantees, covering both political and commercial risks,



F-17



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



which are used in connection with individual customers outside the OECD area. Management considers that no significant concentration of credit risk with any
individual customer, counterparty or geographical region exists for Stora Enso.



Supply Risk



Group
manufacturing operations depend on obtaining adequate and timely supplies of raw materials, principally of wood, energy and chemicals. The result of operations could be adversely affected if the Group were unable to obtain adequate supplies of raw
materials in a timely manner or if there were significant increases in the costs of raw materials.



Group companies may at times be substantially dependent on a limited number of key resource suppliers due to availability, locality, price, quality and
other constraints; additionally, suppliers may sometimes extend lead times, limit supplies or increase prices due to capacity constraints or other factors. In an attempt to mitigate supply risk, the Group works closely with its key suppliers around
the world and also produces some of its key resources in-house.



Note
3Segment Information



The accounting policies of the
reportable segments are the same as those set out in note 1 to the consolidated financial statements. Segment sales include intersegment sales valued at arms length prices. The Group evaluates the performance of its operating segments and
allocates resources to them based on their operating performance, which is equivalent to the segment result.



Stora Enso changed its organizational structure in 2003 to reflect its strategic principle of being operated and managed as one industrial group, the new
structure being streamlined around the core product areas of paper, packaging boards and forest products. For management purposes, Stora Ensos business segments are organized worldwide by product area into operating divisions, these being the
basis on which the Group reports its primary segment information.



| |  |  | The paper product area comprises publication paper, fine paper, and merchants. The former newsprint and magazine paper divisions were merged to form the publication paper segment,
whilst speciality papers, which was part of packaging boards, formed a new business unit within fine paper.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The packaging boards product area remained largely unchanged and comprises consumer boards, corrugated packaging, industrial papers and cores plus coreboard.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Wood products (formerly timber), the pulp competence centre and wood supply Europe (formerly forest) were brought together as the new forest products.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



Market services, consisting of the sales network and transport and
distribution, along with energy and head office functions, comprise segment other.



The activities of the reportable segments are:



Paper



| |  |  | Publication paper develops and manufactures both magazine paper and newsprint. It supplies uncoated and coated magazine paper grades to printers and publishers for use in magazines,
catalogues, brochures and other printed advertising products. As for newsprint, it supplies standard and speciality grades to printers and publishers to be used in newspapers, supplements, advertising, directories and paperback books.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-18



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



| |  |  | Fine paper develops, manufactures and supplies graphic coated and office uncoated fine paper grades for publishers and paper merchants. Graphic coated fine paper is used for
advertising material, brochures, high quality books and magazines, whereas office uncoated fine paper products are copy and offset paper, envelopes, writing paper and continuous stationery paper.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Merchants distribute paper to printers, merchants, offices and other agencies, acting as the link in the distribution of the Groups fine paper products to the graphic
industry.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Packaging Boards



| |  |  | Packaging operations are split into business units for consumer board, corrugated packaging, industrial paper and cores and coreboard, all of which the Group develops, manufactures
and supplies to industrial customers, the food industry in particular.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Forest Products



| |  |  | Wood products develops, manufactures and supplies sawn goods used in the joinery, furniture and construction industry, including prefabricated houses; it also has an increasing
amount of value added capacity for further processing of the basic sawn timber.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Wood supply Europe not only manages Stora Ensos timberlands, but it also procures and supplies timber to Group mills.
| | - |  | ----------------------------------------------------------------------------------------------------------------------



Information on Stora Ensos reportable segments as at and for the years
ended December 31, 2002, 2003 and 2004 is shown in the following tables.



Sales by Segment



|                              |  |                                 |  |          |                 |  |          |                 |  |          |  |          |   |  |          |   |  |          |  |          |   |  |          |  
|----------------------------- |  | ------------------------------- |  | -------- | --------------- |  | -------- | --------------- |  | -------- |  | -------- | - |  | -------- | - |  | -------- |  | -------- | - |  | -------- | -
|                              |  | For the year ended December 31, | 
|                              |  | 2002                            |  |          | 2003            |  |          | 2004            | 
|                              |  | External                        |  | Internal |                 |  | Total    |                 |  | External |  | Internal |   |  | Total    |   |  | External |  | Internal |   |  | Total    |  
|                              |  | ( in millions)                 |  |          | ( in millions) |  |          | ( in millions) | 
|Publication paper             |  | 4,599.2                         |  | 116.4    |                 |  | 4,715.6  |                 |  | 4,179.3  |  | 116.4    |   |  | 4,295.7  |   |  | 4,222.3  |  | 121.0    |   |  | 4,343.3  |  
|Fine paper                    |  | 3,140.0                         |  | 287.4    |                 |  | 3,427.4  |                 |  | 2,923.2  |  | 274.5    |   |  | 3,197.7  |   |  | 2,906.5  |  | 266.6    |   |  | 3,173.1  |  
|Merchants                     |  | 718.8                           |  | 1.8      |                 |  | 720.6    |                 |  | 625.8    |  | 1.8      |   |  | 627.6    |   |  | 628.3    |  | 9.6      |   |  | 637.9    |  
|Packaging boards              |  | 2,571.9                         |  | 148.3    |                 |  | 2,720.2  |                 |  | 2,562.5  |  | 199.1    |   |  | 2,761.6  |   |  | 2,552.5  |  | 219.0    |   |  | 2,771.5  |  
|Wood products                 |  | 1,139.4                         |  | 95.8     |                 |  | 1,235.2  |                 |  | 1,294.6  |  | 105.4    |   |  | 1,400.0  |   |  | 1,446.8  |  | 120.0    |   |  | 1,566.8  |  
|Wood supply Europe            |  | 444.0                           |  | 1,514.7  |                 |  | 1,958.7  |                 |  | 492.6    |  | 1,581.7  |   |  | 2,074.3  |   |  | 549.7    |  | 1,931.8  |   |  | 2,481.5  |  
|Other                         |  | 169.3                           |  | 663.9    |                 |  | 833.2    |                 |  | 94.3     |  | 469.9    |   |  | 564.2    |   |  | 89.7     |  | 453.4    |   |  | 543.1    |  
|Elimination of internal sales |  |                                |  | (2,828.3 | )               |  | (2,828.3 | )               |  |         |  | (2,748.8 | ) |  | (2,748.8 | ) |  |         |  | (3,121.4 | ) |  | (3,121.4 | )
|                              |  |                                 |  |          |                 |  |          |                 |  |          |  |          |   |  |          |   |  |          |  |          |   |  |          |  
|Group Total                   |  | 12,782.6                        |  |         |                 |  | 12,782.6 |                 |  | 12,172.3 |  |         |   |  | 12,172.3 |   |  | 12,395.8 |  |         |   |  | 12,395.8 |  
|                              |  |                                 |  |          |                 |  |          |                 |  |          |  |          |   |  |          |   |  |          |  |          |   |  |          |  



Segment Share of
Operating Profit and Results and Investments in Associated Companies



|                   |  |                                             |   |  |                                         |   |  |                                    |   |  |      |   |  |       |   |  |      |   |  |       |  |       |  |      
|------------------ |  | ------------------------------------------- | - |  | --------------------------------------- | - |  | ---------------------------------- | - |  | ---- | - |  | ----- | - |  | ---- | - |  | ----- |  | ----- |  | -----
|                   |  | Share of Results in Operating Profit (Loss) |   |  | Share of Results inAssociated Companies |   |  | Investment in Associated Companies
|                   |  | For the year ended December 31,             |   |  | As of December 31,                     
|                   |  | 2002                                        |   |  | 2003                                    |   |  | 2004                               |   |  | 2002 |   |  | 2003  |   |  | 2004 |   |  | 2002  |  | 2003  |  | 2004 
|                   |  | ( in millions)                             |   |  | ( in millions)                         |   |  | ( in millions)                   
|Publication paper  |  | (762.7                                      | ) |  | 47.2                                    |   |  | 144.5                              |   |  |     |   |  | (16.3 | ) |  | 5.1  |   |  | 67.5  |  | 57.2  |  | 61.5 
|Fine paper         |  | 67.9                                        |   |  | 100.1                                   |   |  | 104.0                              |   |  | (1.0 | ) |  | (0.2  | ) |  | 0.2  |   |  |      |  | 3.3   |  | 0.2  
|Merchants          |  | (24.7                                       | ) |  | (8.9                                    | ) |  | 9.9                                |   |  |     |   |  |      |   |  |     |   |  |      |  |      |  |     
|Packaging boards   |  | 332.3                                       |   |  | 280.5                                   |   |  | 339.7                              |   |  | 5.3  |   |  |      |   |  | (0.5 | ) |  |      |  | 4.2   |  | 4.3  
|Wood products      |  | 30.1                                        |   |  | 6.5                                     |   |  | 29.8                               |   |  | 3.1  |   |  | (0.9  | ) |  | 1.3  |   |  | 13.4  |  | 7.6   |  | 8.1  
|Wood supply Europe |  | 120.5                                       |   |  | 116.5                                   |   |  | 158.6                              |   |  | (5.5 | ) |  | 13.7  |   |  | 22.5 |   |  | 29.2  |  | 83.0  |  | 249.6
|Other              |  | 58.9                                        |   |  | (70.5                                   | ) |  | (80.4                              | ) |  | 12.7 |   |  | (19.3 | ) |  | 10.3 |   |  | 101.6 |  | 163.7 |  | 244.4
|                   |  |                                             |   |  |                                         |   |  |                                    |   |  |      |   |  |       |   |  |      |   |  |       |  |       |  |      
|Group Total        |  | (177.7                                      | ) |  | 471.4                                   |   |  | 706.1                              |   |  | 14.6 |   |  | (23.0 | ) |  | 38.9 |   |  | 211.7 |  | 319.0 |  | 568.1
|                   |  |                                             |   |  |                                         |   |  |                                    |   |  |      |   |  |       |   |  |      |   |  |       |  |       |  |      



F-19



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Fixed Assets, Capital Expenditure and Depreciation & Impairment by Segment



|                   |  |                    |  |                                 |  |                         |  |       |  |         |  |       |  |         |  |         |  |        
|------------------ |  | ------------------ |  | ------------------------------- |  | ----------------------- |  | ----- |  | ------- |  | ----- |  | ------- |  | ------- |  | -------
|                   |  | Fixed Assets       |  | Capital Expenditure             |  | Depreciation/Impairment
|                   |  | As of December 31, |  | For the year ended December 31,
|                   |  | 2002               |  | 2003                            |  | 2004                    |  | 2002  |  | 2003    |  | 2004  |  | 2002    |  | 2003    |  | 2004   
|                   |  | ( in millions)    |  | ( in millions)                 |  | ( in millions)        
|Publication paper  |  | 3,954.5            |  | 3,898.7                         |  | 3,818.2                 |  | 482.2 |  | 591.6   |  | 486.3 |  | 1,522.6 |  | 447.6   |  | 436.1  
|Fine paper         |  | 4,005.9            |  | 3,569.7                         |  | 3,366.7                 |  | 134.6 |  | 219.1   |  | 198.6 |  | 532.8   |  | 340.5   |  | 356.1  
|Merchants          |  | 59.6               |  | 66.5                            |  | 76.3                    |  |      |  | 25.6    |  | 3.2   |  | 11.5    |  | 8.1     |  | 8.5    
|Packaging boards   |  | 2,265.8            |  | 2,230.8                         |  | 2,323.9                 |  | 140.5 |  | 170.9   |  | 167.3 |  | 235.5   |  | 239.4   |  | 240.4  
|Wood products      |  | 376.7              |  | 685.4                           |  | 674.8                   |  | 53.5  |  | 141.9   |  | 68.1  |  | 54.6    |  | 74.4    |  | 78.2   
|Wood supply Europe |  | 796.5              |  | 158.5                           |  | 99.9                    |  | 24.9  |  | 20.2    |  | 21.9  |  | 39.0    |  | 16.2    |  | 12.9   
|Other              |  | 481.8              |  | 337.9                           |  | 291.0                   |  | 41.9  |  | 78.9    |  | 29.7  |  | 45.9    |  | 74.2    |  | 39.8   
|                   |  |                    |  |                                 |  |                         |  |       |  |         |  |       |  |         |  |         |  |        
|Group Total        |  | 11,940.8           |  | 10,947.5                        |  | 10,650.8                |  | 877.6 |  | 1,248.2 |  | 975.1 |  | 2,441.9 |  | 1,200.4 |  | 1,172.0
|                   |  |                    |  |                                 |  |                         |  |       |  |         |  |       |  |         |  |         |  |        



Goodwill by Segment
(included in Fixed Assets above)



|                  |  |                    |  |                                 |  |                         |  |      |  |      |  |      |  |         |  |       |  |     
|----------------- |  | ------------------ |  | ------------------------------- |  | ----------------------- |  | ---- |  | ---- |  | ---- |  | ------- |  | ----- |  | ----
|                  |  | Goodwill           |  | Acquisitions                    |  | Amortization/Impairment
|                  |  | As of December 31, |  | For the year ended December 31,
|                  |  | 2002               |  | 2003                            |  | 2004                    |  | 2002 |  | 2003 |  | 2004 |  | 2002    |  | 2003  |  | 2004
|                  |  | ( in millions)    |  | ( in millions)                 |  | ( in millions)        
|Publication paper |  | 176.4              |  | 153.0                           |  | 130.0                   |  |     |  |     |  |     |  | 851.9   |  | 34.4  |  | 23.2
|Fine paper        |  | 678.9              |  | 531.3                           |  | 458.4                   |  |     |  |     |  |     |  | 177.7   |  | 43.1  |  | 38.7
|Merchants         |  | 16.0               |  | 9.1                             |  | 13.8                    |  |     |  |     |  | 6.8  |  | 5.2     |  | 2.2   |  | 2.2 
|Packaging boards  |  | 44.3               |  | 36.0                            |  | 30.7                    |  | 25.1 |  | 2.5  |  | 0.1  |  | 12.9    |  | 11.9  |  | 4.9 
|Wood products     |  | 123.7              |  | 173.2                           |  | 155.0                   |  |     |  | 71.1 |  |     |  | 14.5    |  | 20.0  |  | 21.2
|Other             |  | 16.2               |  |                                |  |                        |  | 1.6  |  | 0.2  |  |     |  | 5.5     |  | 4.5   |  |    
|                  |  |                    |  |                                 |  |                         |  |      |  |      |  |      |  |         |  |       |  |     
|Group Total       |  | 1,055.5            |  | 902.6                           |  | 787.9                   |  | 26.7 |  | 73.8 |  | 6.9  |  | 1,067.7 |  | 116.1 |  | 90.2
|                  |  |                    |  |                                 |  |                         |  |      |  |      |  |      |  |         |  |       |  |     



Assets and
Liabilities by Segment



|                   |  |                    |  |                 |  |         |  |        
|------------------ |  | ------------------ |  | --------------- |  | ------- |  | -------
|                   |  | Assets             |  | Liabilities    
|                   |  | As of December 31,
|                   |  | 2003               |  | 2004            |  | 2003    |  | 2004   
|                   |  | ( in millions)    |  | ( in millions)
|Publication paper  |  | 5,018.6            |  | 5,082.9         |  | 886.5   |  | 817.2  
|Fine paper         |  | 4,421.9            |  | 4,347.2         |  | 547.0   |  | 509.9  
|Merchants          |  | 237.9              |  | 279.0           |  | 78.5    |  | 86.3   
|Packaging boards   |  | 2,981.0            |  | 3,175.3         |  | 450.9   |  | 422.0  
|Wood products      |  | 1,018.9            |  | 1,038.0         |  | 208.1   |  | 195.4  
|Wood supply Europe |  | 2,030.4            |  | 562.0           |  | 231.7   |  | 385.5  
|Other              |  | 2,233.4            |  | 1,927.5         |  | 7,526.2 |  | 5,808.4
|                   |  |                    |  |                 |  |         |  |        
|Total              |  | 17,942.1           |  | 16,411.9        |  | 9,928.9 |  | 8,224.7
|                   |  |                    |  |                 |  |         |  |        



F-20



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Operating Capital by Segment



|                   |  |                    |  |         
|------------------ |  | ------------------ |  | --------
|                   |  | As of December 31,
|                   |  | 2003               |  | 2004    
|                   |  | ( in millions)   
|Publication paper  |  | 4,132.1            |  | 4,265.7 
|Fine paper         |  | 3,874.9            |  | 3,837.2 
|Merchants          |  | 159.5              |  | 192.7   
|Packaging boards   |  | 2,530.0            |  | 2,753.3 
|Wood products      |  | 811.9              |  | 842.5   
|Wood supply Europe |  | 1,798.8            |  | 176.5   
|Other              |  | 241.2              |  | 102.4   
|                   |  |                    |  |         
|Total              |  | 13,548.4           |  | 12,170.3
|                   |  |                    |  |         



Reconciliation of
Operating Capital to Total Assets



|                                   |  |                    |  |         
|---------------------------------- |  | ------------------ |  | --------
|                                   |  | As of December 31,
|                                   |  | 2003               |  | 2004    
|                                   |  | ( in millions)   
|Operating Capital                  |  | 13,548.4           |  | 12,170.3
|Gross-up for operating liabilities |  | 2,624.9            |  | 2,525.0 
|Interest-bearing receivables       |  | 1,255.3            |  | 976.3   
|Associate companies                |  | 319.0              |  | 568.1   
|Tax receivables                    |  | 194.5              |  | 172.2   
|                                   |  |                    |  |         
|Total Assets                       |  | 17,942.1           |  | 16,411.9
|                                   |  |                    |  |         



Operating capital
represents the sum of fixed and biological assets, unlisted shares, other non-current assets, inventories, short-term receivables and liabilities, provisions and other long-term liabilities.



Average Personnel (unaudited)



|                   |  |                                |  |       
|------------------ |  | ------------------------------ |  | ------
|                   |  | Segment                       
|                   |  | For the year endedDecember 31,
|                   |  | 2003                           |  | 2004  
|Publication paper  |  | 12,903                         |  | 12,317
|Fine paper         |  | 9,521                          |  | 8,921 
|Merchants          |  | 1,254                          |  | 1,296 
|Packaging boards   |  | 10,068                         |  | 10,113
|Wood products      |  | 4,626                          |  | 4,856 
|Wood supply Europe |  | 2,599                          |  | 3,157 
|Other              |  | 3,293                          |  | 3,119 
|                   |  |                                |  |       
|Total              |  | 44,264                         |  | 43,779
|                   |  |                                |  |       



F-21



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|                   |  |                                |  |        
|------------------ |  | ------------------------------ |  | -------
|                   |  | Location                      
|                   |  | For the year endedDecember 31,
|                   |  | 2003                           |  | 2004   
|Baltic States      |  | 1,561                          |  | 1,630  
|Finland            |  | 14,479                         |  | 13,820 
|Sweden             |  | 9,068                          |  | 8,848  
|Germany            |  | 4,785                          |  | 4,734  
|France             |  | 1,312                          |  | 1,260  
|Russia             |  | 741                            |  | 1,710  
|Other Europe       |  | 5,267                          |  | 5,349  
|                   |  |                                |  |        
|Europe             |  | 37,213                         |  | 37,351 
|Canada             |  | 849                            |  | 775    
|China              |  | 811                            |  | 849    
|USA                |  | 5,182                          |  | 4,644  
|Other              |  | 209                            |  | 160    
|                   |  |                                |  |        
|Total              |  | 44,264                         |  | 43,779 
|                   |  |                                |  |        
|Year-end personnel |  | 42,814                         |  | *45,307
|                   |  |                                |  |        

---

|*) |  | As a result of acquisitions in Poland and Russia in late 2004, which had year end personnel of 1,979 and 2,196 respectively, the number of employees at December 31, 2004 is
materially different from the average figure.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-22



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



External Sales by Destination and Origin



|                                 |  |                                 |  |                         |  |          |  |          |  |          |  |         
|-------------------------------- |  | ------------------------------- |  | ----------------------- |  | -------- |  | -------- |  | -------- |  | --------
|                                 |  | Sales By Destination            |  | Sales By Invoice Origin
|                                 |  | For the year ended December 31,
|                                 |  | 2002                            |  | 2003                    |  | 2004     |  | 2002     |  | 2003     |  | 2004    
|                                 |  | ( in millions)                 |  | ( in millions)        
|Austria                          |  | 195.4                           |  | 222.0                   |  | 238.6    |  | 266.9    |  | 324.8    |  | 390.4   
|Belgium                          |  | 301.3                           |  | 267.2                   |  | 258.4    |  | 244.3    |  | 182.7    |  | 263.4   
|Baltic States                    |  | 28.3                            |  | 89.3                    |  | 135.5    |  | 163.6    |  | 280.1    |  | 310.7   
|Czech Republic                   |  | 121.7                           |  | 118.9                   |  | 111.1    |  | 129.3    |  | 136.5    |  | 143.8   
|Denmark                          |  | 297.9                           |  | 276.1                   |  | 262.2    |  | 79.0     |  | 68.6     |  | 66.8    
|Finland                          |  | 780.6                           |  | 786.9                   |  | 808.5    |  | 4,205.5  |  | 4,048.9  |  | 4,085.5 
|France                           |  | 965.5                           |  | 862.7                   |  | 835.2    |  | 432.6    |  | 378.6    |  | 347.1   
|Germany                          |  | 1,673.6                         |  | 1,616.1                 |  | 1,624.6  |  | 1,505.1  |  | 1,475.6  |  | 1,500.9 
|Italy                            |  | 391.5                           |  | 380.7                   |  | 369.1    |  | 0.1      |  | 0.1      |  | 0.1     
|Netherlands                      |  | 488.4                           |  | 491.9                   |  | 508.8    |  | 209.2    |  | 187.7    |  | 211.2   
|Portugal                         |  | 60.9                            |  | 64.9                    |  | 83.2     |  | 128.0    |  | 124.9    |  | 131.1   
|Spain                            |  | 463.4                           |  | 499.4                   |  | 488.8    |  | 114.4    |  | 118.0    |  | 114.0   
|Sweden                           |  | 1,034.2                         |  | 994.4                   |  | 1,040.5  |  | 2,870.1  |  | 2,814.1  |  | 2,820.3 
|UK                               |  | 1,053.4                         |  | 979.3                   |  | 963.8    |  | 59.1     |  | 23.4     |  | 24.4    
|Russia                           |  | 112.8                           |  | 130.7                   |  | 151.8    |  | 45.3     |  | 59.8     |  | 118.3   
|Other Europe                     |  | 916.0                           |  | 762.8                   |  | 777.4    |  | 78.7     |  | 71.8     |  | 66.9    
|                                 |  |                                 |  |                         |  |          |  |          |  |          |  |         
|Total Europe                     |  | 8,884.9                         |  | 8,543.3                 |  | 8,657.5  |  | 10,531.2 |  | 10,295.6 |  | 10,594.9
|Africa                           |  | 118.2                           |  | 146.8                   |  | 149.9    |  |         |  |         |  |        
|Australia/New Zealand            |  | 115.6                           |  | 122.9                   |  | 124.3    |  | 39.7     |  | 20.2     |  | 5.6     
|Canada                           |  | 160.0                           |  | 143.7                   |  | 127.5    |  | 286.4    |  | 285.6    |  | 275.5   
|China (inc Hong Kong)            |  | 257.3                           |  | 267.0                   |  | 281.4    |  | 120.1    |  | 107.4    |  | 107.8   
|Japan                            |  | 340.6                           |  | 323.2                   |  | 346.2    |  | 1.1      |  | 0.5      |  |        
|Other Far East & South East Asia |  | 272.6                           |  | 310.6                   |  | 382.5    |  | 14.2     |  | 11.5     |  | 12.6    
|Middle East                      |  | 176.1                           |  | 185.5                   |  | 201.4    |  | 0.1      |  |         |  | 0.2     
|USA                              |  | 2,267.3                         |  | 1,918.3                 |  | 1,904.9  |  | 1,789.7  |  | 1,451.5  |  | 1,398.7 
|Latin America                    |  | 128.4                           |  | 126.0                   |  | 162.9    |  | 0.1      |  |         |  |        
|Others                           |  | 61.6                            |  | 85.0                    |  | 57.3     |  |         |  |         |  | 0.5     
|                                 |  |                                 |  |                         |  |          |  |          |  |          |  |         
|Total                            |  | 12,782.6                        |  | 12,172.3                |  | 12,395.8 |  | 12,782.6 |  | 12,172.3 |  | 12,395.8
|                                 |  |                                 |  |                         |  |          |  |          |  |          |  |         



F-23



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Total Assets, Capital Employed and Equity by Location



|                      |  |                    |  |                  |  |                      |  |          |  |         |  |        
|--------------------- |  | ------------------ |  | ---------------- |  | -------------------- |  | -------- |  | ------- |  | -------
|                      |  | Total Assets       |  | Capital Employed |  | Shareholders Equity
|                      |  | As of December 31,
|                      |  | 2003               |  | 2004             |  | 2003                 |  | 2004     |  | 2003    |  | 2004   
|                      |  | ( in millions)    |  | ( in millions)  |  | ( in millions)     
|Austria               |  | 238.5              |  | 235.1            |  | 175.6                |  | 165.1    |  | 134.2   |  | 141.1  
|Baltic States         |  | 302.0              |  | 296.4            |  | 255.5                |  | 275.4    |  | 154.7   |  | 150.2  
|Belgium               |  | 650.0              |  | 625.1            |  | 584.6                |  | 570.2    |  | 255.0   |  | 258.8  
|Czech Republic        |  | 117.8              |  | 121.7            |  | 105.8                |  | 110.6    |  | 114.4   |  | 128.0  
|Denmark               |  | 89.5               |  | 53.1             |  | 46.8                 |  | 44.5     |  | 126.7   |  | 200.8  
|Finland               |  | 5,219.4            |  | 5,056.9          |  | 3,384.8              |  | 3,356.9  |  | 2,931.6 |  | 2,106.8
|France                |  | 364.5              |  | 389.0            |  | 245.6                |  | 275.7    |  | 185.3   |  | 138.1  
|Germany               |  | 1,750.7            |  | 1,778.6          |  | 893.4                |  | 878.2    |  | 642.5   |  | 648.6  
|Netherlands           |  | 121.1              |  | 181.7            |  | 87.6                 |  | 130.9    |  | 272.5   |  | 195.7  
|Portugal              |  | 227.5              |  | 216.8            |  | 214.8                |  | 202.0    |  | 320.7   |  | 243.8  
|Spain                 |  | 127.1              |  | 121.1            |  | 91.1                 |  | 84.2     |  | 70.4    |  | 73.7   
|Sweden                |  | 4,328.9            |  | 3,270.0          |  | 2,582.4              |  | 1,571.1  |  | 1,396.3 |  | 1,865.7
|Russia                |  | 96.6               |  | 127.8            |  | 82.0                 |  | 119.3    |  | 25.7    |  | 33.5   
|Other Europe          |  | 83.4               |  | 326.1            |  | 42.0                 |  | 174.4    |  | 61.4    |  | 209.0  
|                      |  |                    |  |                  |  |                      |  |          |  |         |  |        
|Total Europe          |  | 13,717.0           |  | 12,799.4         |  | 8,792.0              |  | 7,958.5  |  | 6,691.4 |  | 6,393.8
|Canada                |  | 488.1              |  | 484.2            |  | 491.7                |  | 475.1    |  | 472.2   |  | 445.6  
|China (inc Hong Kong) |  | 180.8              |  | 174.4            |  | 157.3                |  | 147.8    |  | 28.1    |  | 39.2   
|USA                   |  | 3,385.1            |  | 2,725.2          |  | 2,143.6              |  | 2,079.2  |  | 665.4   |  | 984.5  
|Other                 |  | 171.1              |  | 228.7            |  | 28.6                 |  | 9.9      |  | 95.8    |  | 188.0  
|                      |  |                    |  |                  |  |                      |  |          |  |         |  |        
|Total                 |  | 17,942.1           |  | 16,411.9         |  | 11,613.2             |  | 10,670.5 |  | 7,952.9 |  | 8,051.1
|                      |  |                    |  |                  |  |                      |  |          |  |         |  |        

---

|Total |  | capital employed represents operating capital less net tax liabilities
|----- |  | ----------------------------------------------------------------------

|The |  | increase in Other Europe in 2004 was as a result of the year end acquisition of the Intercell Group in Poland
|--- |  | ---------------------------------------------------------------------------------------------------------------



F-24



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Fixed Assets, Capital Expenditure and Depreciation & Impairment by Location



|                      |  |                    |  |                                 |  |         |                         |       |      |  |         |   |  |         |  
|--------------------- |  | ------------------ |  | ------------------------------- |  | ------- | ----------------------- | ----- | ---- |  | ------- | - |  | ------- | -
|                      |  | Fixed Assets       |  | Capital Expenditure             |  |         | Depreciation/Impairment |      
|                      |  | As of December 31, |  | For the year ended December 31, | 
|                      |  | 2003               |  | 2004                            |  | 2003    |                         | 2004  |      |  | 2003    |   |  | 2004    |  
|Austria               |  | 147.7              |  | 139.9                           |  | 18.7    |                         | 13.3  |      |  | 18.2    |   |  | 16.6    |  
|Baltic States         |  | 207.2              |  | 208.2                           |  | 39.7    |                         | 28.9  |      |  | 22.0    |   |  | 24.8    |  
|Belgium               |  | 557.1              |  | 506.0                           |  | 209.7   |                         | (11.7 | )(1) |  | 29.5    |   |  | 39.8    |  
|Czech Republic        |  | 97.2               |  | 100.2                           |  | 2.8     |                         | 10.5  |      |  | (13.0   | ) |  | (13.0   | )
|Finland               |  | 3,224.9            |  | 3,086.3                         |  | 371.5   |                         | 239.3 |      |  | 367.0   |   |  | 369.2   |  
|France                |  | 187.8              |  | 199.6                           |  | 36.3    |                         | 37.7  |      |  | 34.9    |   |  | 24.0    |  
|Germany               |  | 1,154.6            |  | 1,177.9                         |  | 126.8   |                         | 187.0 |      |  | 155.2   |   |  | 163.1   |  
|Netherlands           |  | 55.7               |  | 80.6                            |  | 4.3     |                         | 5.2   |      |  | 9.7     |   |  | 9.9     |  
|Portugal              |  | 133.3              |  | 127.3                           |  | 5.8     |                         | 4.5   |      |  | 11.9    |   |  | 9.9     |  
|Spain                 |  | 73.4               |  | 69.0                            |  | 2.5     |                         | 2.4   |      |  | 5.1     |   |  | 6.7     |  
|Sweden                |  | 1,965.0            |  | 1,959.8                         |  | 197.3   |                         | 283.8 |      |  | 220.6   |   |  | 207.9   |  
|Russia                |  | 63.9               |  | 82.2                            |  | 45.5    |                         | 12.3  |      |  | 3.2     |   |  | 5.4     |  
|Other Europe(2)       |  | 56.5               |  | 195.7                           |  | 28.4    |                         | 3.0   |      |  | 35.2    |   |  | 36.3    |  
|                      |  |                    |  |                                 |  |         |                         |       |      |  |         |   |  |         |  
|Total Europe          |  | 7,924.3            |  | 7,932.7                         |  | 1,089.3 |                         | 816.2 |      |  | 899.5   |   |  | 900.6   |  
|Canada                |  | 422.5              |  | 404.4                           |  | 45.3    |                         | 29.4  |      |  | 45.0    |   |  | 28.9    |  
|China (inc Hong Kong) |  | 138.1              |  | 121.5                           |  | 1.3     |                         | 3.7   |      |  | 13.1    |   |  | 11.1    |  
|USA                   |  | 2,449.8            |  | 2,185.1                         |  | 109.0   |                         | 123.8 |      |  | 240.4   |   |  | 229.9   |  
|Other                 |  | 12.8               |  | 7.1                             |  | 3.3     |                         | 2.0   |      |  | 2.4     |   |  | 1.5     |  
|                      |  |                    |  |                                 |  |         |                         |       |      |  |         |   |  |         |  
|Total                 |  | 10,947.5           |  | 10,650.8                        |  | 1,248.2 |                         | 975.1 |      |  | 1,200.4 |   |  | 1,172.0 |  
|                      |  |                    |  |                                 |  |         |                         |       |      |  |         |   |  |         |  

---

|(1) |  | An EU subsidy of 23.5 million was received on the Langerbrugge development for the total use of recycled paper.
|--- |  | ----------------------------------------------------------------------------------------------------------------

|(2) |  | Fixed assets amounting to 147.2 million were acquired in the Intercell Group in Poland in 2004.
|--- |  | ------------------------------------------------------------------------------------------------



Goodwill, Acquisition and Amortization by Location



|                      |  |                                 |  |                 |  |                         |  |      |  |      |  |      |  |         |  |       |  |     
|--------------------- |  | ------------------------------- |  | --------------- |  | ----------------------- |  | ---- |  | ---- |  | ---- |  | ------- |  | ----- |  | ----
|                      |  | Goodwill                        |  | Acquisitions    |  | Amortization/Impairment
|                      |  | For the year ended December 31,
|                      |  | 2002                            |  | 2003            |  | 2004                    |  | 2002 |  | 2003 |  | 2004 |  | 2002    |  | 2003  |  | 2004
|                      |  | ( in millions)                 |  | ( in millions) |  | ( in millions)        
|Austria               |  | 52.4                            |  | 49.3            |  | 43.0                    |  |     |  |     |  |     |  | 6.3     |  | 6.4   |  | 6.3 
|Baltic States         |  |                                |  | 65.2            |  | 57.8                    |  |     |  | 71.1 |  |     |  | 0.6     |  | 6.0   |  | 7.0 
|Belgium               |  | 18.3                            |  | 14.0            |  | 12.0                    |  |     |  |     |  |     |  | 4.5     |  | 4.2   |  | 2.4 
|Czech Republic        |  | 71.3                            |  | 58.7            |  | 54.2                    |  |     |  |     |  |     |  | 8.1     |  | 7.7   |  | 7.9 
|Finland               |  | 12.6                            |  | 5.0             |  | 4.0                     |  | 0.7  |  |     |  | 0.1  |  | 8.2     |  | 4.5   |  | 1.1 
|Germany               |  | 138.1                           |  | 174.0           |  | 146.0                   |  | 1.6  |  | 2.1  |  |     |  | 18.1    |  | 21.0  |  | 27.6
|Sweden                |  | 74.8                            |  | 15.9            |  | 13.9                    |  | 22.6 |  |     |  |     |  | 10.2    |  | 15.1  |  | 2.1 
|Other Europe          |  | 24.7                            |  | 4.1             |  | 9.8                     |  | 1.8  |  | 0.6  |  | 6.8  |  | 13.5    |  | 12.9  |  | 1.2 
|                      |  |                                 |  |                 |  |                         |  |      |  |      |  |      |  |         |  |       |  |     
|Total Europe          |  | 392.2                           |  | 386.2           |  | 340.7                   |  | 26.7 |  | 73.8 |  | 6.9  |  | 69.5    |  | 77.8  |  | 55.6
|China (inc Hong Kong) |  | 34.4                            |  | 23.9            |  | 17.7                    |  |     |  |     |  |     |  | 5.4     |  | 5.2   |  | 4.9 
|USA                   |  | 628.9                           |  | 492.5           |  | 429.5                   |  |     |  |     |  |     |  | 992.8   |  | 33.1  |  | 29.7
|                      |  |                                 |  |                 |  |                         |  |      |  |      |  |      |  |         |  |       |  |     
|Total                 |  | 1,055.5                         |  | 902.6           |  | 787.9                   |  | 26.7 |  | 73.8 |  | 6.9  |  | 1,067.7 |  | 116.1 |  | 90.2
|                      |  |                                 |  |                 |  |                         |  |      |  |      |  |      |  |         |  |       |  |     



F-25



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Note 4Acquisitions and Disposals



There have been no major changes to the Group since the substantial acquisition of Consolidated Papers, Inc. in 2000. Since
then the Group has concentrated on restructuring its existing assets consistent with the strategy to release capital and enhance financial flexibility in order to develop its core business, along with an emphasis on asset quality (see note
11Fixed Assets).



The results of operations of acquired
entities are included within the consolidated income statement since the date of acquisition.



Acquisitions



In
December 2004 Stora Enso closed its acquisition of 65.5 percent of the Polish packaging producer Intercell S.A. from private shareholders and the International Finance Corporation, the total acquisition price of 131.8 million including net
cash and costs of 37.9 million. The fair value of the net assets acquired amounted to 201.2 million and although there was no goodwill, intangibles amounted to 16.7 million representing customer relationships which will be
amortized over 6-7 years. The acquisition is part of the Group strategy of expanding its packaging board operations and will strengthen its presence in the fast growing Polish market. Intercell is one of Polands biggest corrugated packaging
companies, with integrated operations from waste paper collection to corrugated packaging production, having three corrugated packaging plants in Poland, as well as one sack factory in Poland and one in Serbia. In 2004 its net sales were 147
million and at December 31, 2004 it had about 1,900 employees.



In September 2004 Stora Enso completed its 100 percent acquisition of the Dutch paper merchant Scaldia Papier BV from International Paper Corp in order to strengthen its presence in the rapidly changing European paper merchant market and to
achieve synergies with its existing Dutch merchant operations. Scaldia had net sales in 2004 of 104.0 million and at December 31 employed 152 people. The total purchase price may be subject to small final adjustments, but to date has been
31.1 million, of which goodwill accounted for 6.8 million.



Stora Enso also made various small acquisitions in Russia in 2004 as part of its wood supply Europe programme to reduce supply risk by securing sources of fibre; 12.2 million was invested in Russian acquisitions during the year, the
fair value of the acquired net assets approximating their cost. As a result of these acquisitions, fibre procurement from wood supply Russia increased substantially in 2004, employees increasing from 90 at December 31, 2003 to 1,674 in 2004.



In February 2003 Stora Enso completed the acquisition of AS
Sylvester, Estonias largest sawmilling and wood procurement company, for 122.7 million, of which 72.0 million represented goodwill; the Group previously had a 34 percent associated interest worth 7.1 million in
Sylvesters largest Estonian mill at Imavere. Letters of Intent had been signed in 2002 and the deal was subsequently finalized in February 2003 after the competition authorities had accepted Stora Enso Timbers 66 percent ownership of
Sylvesters sawmilling operations and Stora Enso Mets 100 percent ownership of Sylvesters wood procurement operations in the Baltic States. Sylvester sawmilling operations then became Stora Enso Timber AS and at December 31, 2004
had a workforce of 1,248. The original purchase agreement included an option to buy out the remaining shares for a consideration to be determined by performance targets; this option has been exercised and the purchase is expected to be completed in
early 2005 upon which, subject to a small minority of 3.8 percent in the Imavere operation, Stora Enso Timbers Baltic operations will become 100 percent owned. The value of the existing minority at December 31, 2004 amounted to 29.0
million (2003: 27.5 million) (see note 19).



F-26



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Fair Value of the assets and liabilities acquired



|                                                       |  |                                   |   |  |       |  
|------------------------------------------------------ |  | --------------------------------- | - |  | ----- | -
|                                                       |  | During the yearended December 31, |  
|                                                       |  | 2003                              |   |  | 2004  |  
|                                                       |  | ( in millions)                   |  
|Acquired Net Assets                                    |  |                                   |  
|Cash and cash equivalents                              |  | 3.0                               |   |  | 45.9  |  
|Other operating working capital                        |  | 31.2                              |   |  | 44.0  |  
|Tangible fixed assets                                  |  | 132.2                             |   |  | 160.8 |  
|Intangible fixed assets                                |  | 0.4                               |   |  | 22.5  |  
|Interest-bearing assets less cash and cash equivalents |  | 5.7                               |   |  | 0.7   |  
|Tax liabilities                                        |  | (0.2                              | ) |  | (19.2 | )
|Interest-bearing liabilities                           |  | (94.1                             | ) |  | (11.4 | )
|Minority interests                                     |  | (23.8                             | ) |  | (69.9 | )
|                                                       |  |                                   |   |  |       |  
|Fair Value of Net Assets in Acquired Companies         |  | 54.4                              |   |  | 173.4 |  
|Goodwill                                               |  | 73.8                              |   |  | 6.9   |  
|                                                       |  |                                   |   |  |       |  
|Total Purchase Consideration                           |  | 128.2                             |   |  | 180.3 |  
|                                                       |  |                                   |   |  |       |  



Disposals



In October 2004 Stora Enso divested its majority
shareholding in PT Finnantara Intiga, its Borneo eucalyptus plantation company. The book value of the plantation at sale was 21.8 million and the disposal resulted in a profit of 2.4 million.



Stora Enso launched its forest restructuring programme in 2002 and this
culminated in March 2004 with the divestment of the Groups Swedish forest interests. In December 2003 the Group announced plans to restructure its forest lands in Sweden in conjunction with Korsnäs AB, a Swedish forest industry company
controlled by the Kinnevik Group. The Swedish forests of both companies were transferred to a new entity, Bergvik Skog AB, in which the two partners retained minority shareholdings of 43.3 percent and 5 percent respectively; the Groups forest
interests at December 31, 2003 had a book value of 1,598.0 million. Although the capital gain on disposal amounted to 113.9 million, the sale also triggered the release of deferred tax provisions of a further 240.5 million that had
been provided in the event of an asset sale as opposed to the company divestment that ultimately occurred. Stora Ensos on-going stake in Bergvik Skog AB, amounting to SEK 1,515 million (167.9 million), is now accounted for as an
associate whereby the Group includes in its balance sheet its share of Bergvik Skogs net assets (see note 13). An unrealized gain of 75.6 million in excess of the reported profit was also generated on this transaction and is shown in
balance sheet liabilities (see note 22).



There were no
disposals in 2003, though steps were being taken to divest most of Stora Ensos Swedish forestry interests. The rest of the Groups forest restructuring programme took place in 2002:



| | 1. |  | In September 2002 Stora Enso North America Corp. signed an agreement to sell some 125,000 hectares of its forest land to Plum Creek Timber Company, Inc; the sale was finalized on
December 3, 2002 in the sum of $141.0 million (149.1 million) and realized a capital gain of $46.8 million (49.5 million).
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. |  | In December 2002 the Group completed the disposal of the greater part of its Finnish forest holdings to a new company, Tornator Timberland Oy, established by
Finnish institutional investors. The sale of shares amounted to 364.5 million and a capital gain of 25.9 million was credited to income; a further capital gain of 44.2 million resulted from this transaction, but this has not been
released to income yet and is shown on the balance sheet as an unrealized gain (see note 22). Stora Enso owns 41 percent of
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-27



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



| | the shares in the new company following the sale and this is shown as an associate company on the balance sheet (see note 13). Stora Enso Forest, the
Groups Finnish wood procurement arm, has entered into a longterm wood procurement agreement at market rates with Tornator Timberland Oy.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Also in 2002, Stora Enso closed its UK merchant arm, Papyrus GB Ltd, as it had not proved possible to reach a satisfactory level of profitability in
recent years despite extensive rationalization. A charge of 24.8 million was made to cover closure costs.



In March 2002 the Group divested its Mölndal mill in Sweden to Klippan AB, a speciality paper maker. The total transaction price approximated book
value and amounted to SEK 254.3 million (27.8 million).



Aggregate Assets and liabilities disposed



|                                                       |  |                                    |   |  |      |  |          |  
|------------------------------------------------------ |  | ---------------------------------- | - |  | ---- |  | -------- | -
|                                                       |  | During the year ended December 31, |  
|                                                       |  | 2002                               |   |  | 2003 |  | 2004     |  
|                                                       |  | ( in millions)                    |  
|Net Assets Sold                                        |  |                                    |   |  |      |  |          |  
|Cash and cash equivalents                              |  |                                   |   |  |     |  | 29.5     |  
|Other operating working capital                        |  | 42.3                               |   |  |     |  | 62.2     |  
|Fixed assets                                           |  | 441.0                              |   |  |     |  | 94.1     |  
|Biological assets                                      |  |                                   |   |  |     |  | 1,541.2  |  
|Interest-bearing assets less cash and cash equivalents |  | 5.3                                |   |  |     |  | 23.1     |  
|Tax liabilities                                        |  | (0.2                               | ) |  |     |  | (222.9   | )
|Interest-bearing liabilities                           |  | (161.1                             | ) |  |     |  | (1,518.8 | )
|                                                       |  |                                    |   |  |      |  |          |  
|Net Assets in Divested Companies                       |  | 327.3                              |   |  |     |  | 8.4      |  
|Income Statement capital gain (goodwill realized)      |  | 25.9                               |   |  |     |  | 113.0    |  
|Provision for unrealized gain                          |  | 44.2                               |   |  |     |  | 76.5     |  
|                                                       |  |                                    |   |  |      |  |          |  
|Total Disposal Consideration                           |  | 397.4                              |   |  |     |  | 197.9    |  
|                                                       |  |                                    |   |  |      |  |          |  
|Received as to                                         |  |                                    |   |  |      |  |          |  
|Cash                                                   |  | 360.6                              |   |  |     |  | 197.9    |  
|Associated Company shares                              |  | 36.8                               |   |  |     |  |         |  
|                                                       |  |                                    |   |  |      |  |          |  
|Total Disposal Consideration                           |  | 397.4                              |   |  |     |  | 197.9    |  
|                                                       |  |                                    |   |  |      |  |          |  



Assets held for
Sale



There were no assets held for sale as of December
31, 2004. As of December 31, 2003, assets held for sale included forest interests in Sweden and forest land in Canada, the sales of which were completed during 2004. The major classes of assets and liabilities included as part of these disposal
Groups as of December 31, 2003 were as follows:



|                                             |  |                        
|-------------------------------------------- |  | -----------------------
|                                             |  | As of December 31, 2003
|                                             |  | ( in millions)        
|Fixed assets and other long-term investments |  | 1,625.4                
|Current assets                               |  | 3.0                    
|                                             |  |                        
|Total assets                                 |  | 1,628.4                
|Long-term liabilities                        |  | 479.4                  
|Current liabilities                          |  | 15.9                   
|                                             |  |                        
|Total liabilities                            |  | 495.3                  
|                                             |  |                        



F-28



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Note 5Other Operating Income



In 2004 the Group divested its Swedish forest holdings company, Bergvik Skog AB (see note 4) and generated a capital gain of
SEK 978.0 million (107.3 million) on the fixed assets therein. Cumulative translation adjustments (CTA) relating to divested companies amounted to 11.7 million, of which 6.5 million related to Bergvik Skog and 5.2 million to
the Groups former Borneo plantation business.



In 2003
there were no material gains on the disposal of long-term investments and fixed assets, whereas in 2002 these items included respectively a profit of SEK 702.5 million (76.7 million) on the sale of the greater part of the Group holding in its
associate company, Billerud AB (see note 13), and 75.4 relating to its forest holdings in Finland and the USA.



Other Operating Income



|                                                         |  |                                |  |      |  |      
|-------------------------------------------------------- |  | ------------------------------ |  | ---- |  | -----
|                                                         |  | For the year endedDecember 31,
|                                                         |  | 2002                           |  | 2003 |  | 2004 
|                                                         |  | ( in millions)               
|Capital gain on sale of fixed assets                     |  | 79.6                           |  | 12.4 |  | 113.0
|CTA on disposals, net of hedging                         |  |                               |  |     |  | 11.7 
|Gain on sale of long-term investments                    |  | 79.5                           |  | 2.6  |  | 1.4  
|Insurance compensation                                   |  | 42.5                           |  | 9.7  |  | 4.8  
|Rent                                                     |  | 10.0                           |  | 8.3  |  | 8.4  
|Subsidies                                                |  | 7.0                            |  | 6.3  |  | 7.4  
|                                                         |  |                                |  |      |  |      
|Total                                                    |  | 218.6                          |  | 39.3 |  | 146.7
|                                                         |  |                                |  |      |  |      
|Other operating expenses include                         |  |                                |  |      |  |      
|Research and development                                 |  | 91.6                           |  | 88.8 |  | 82.1 
|Operating lease expense                                  |  | 95.7                           |  | 93.2 |  | 93.4 
|Losses on sale of fixed assets and long-term investments |  |                               |  | 4.5  |  | 0.3  



Aggregate fees for
professional services rendered to the Group by the principal independent auditor, PricewaterhouseCoopers, are shown below. Audit fees relate to the audit of the annual financial statements or ancillary services normally provided in connection with
statutory and regulatory filings. Audit-related fees are incurred for assurance and associated services that are reasonably related to the performance of the audit or review of financial statements. Tax fees are incurred on account of tax
compliance, advice and planning.



Principal Independent
Auditors Fees



|                   |  |                                |  |     
|------------------ |  | ------------------------------ |  | ----
|                   |  | For the year endedDecember 31,
|                   |  | 2003                           |  | 2004
|                   |  | ( in millions)               
|Audit fees         |  | 2.5                            |  | 2.7 
|Audit-related fees |  | 1.0                            |  | 1.0 
|Tax fees           |  | 0.5                            |  | 1.1 
|Other fees         |  | 0.4                            |  | 0.1 
|                   |  |                                |  |     
|Total              |  | 4.4                            |  | 4.9 
|                   |  |                                |  |     



F-29



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Note 6Staff Costs



Personnel Expenses



|                               |  |                                 |  |         |  |        
|------------------------------ |  | ------------------------------- |  | ------- |  | -------
|                               |  | For the year ended December 31,
|                               |  | 2002                            |  | 2003    |  | 2004   
|                               |  | ( in millions)                
|Wages and salaries             |  | 1,656.3                         |  | 1,662.3 |  | 1,595.5
|Pensions                       |  | 335.1                           |  | 345.1   |  | 52.3   
|Other statutory employer costs |  | 176.4                           |  | 272.2   |  | 271.9  
|Other voluntary costs          |  | 140.3                           |  | 18.0    |  | 17.6   
|                               |  |                                 |  |         |  |        
|Total                          |  | 2,308.1                         |  | 2,297.6 |  | 1,937.3
|                               |  |                                 |  |         |  |        



Pensions



|                               |  |                                 |  |       |  |        |  
|------------------------------ |  | ------------------------------- |  | ----- |  | ------ | -
|                               |  | For the year ended December 31, | 
|                               |  | 2002                            |  | 2003  |  | 2004   |  
|                               |  | ( in millions)                 | 
|Defined benefit plans          |  | 88.5                            |  | 104.5 |  | (116.6 | )
|Defined contribution plans     |  | 211.4                           |  | 209.2 |  | 201.8  |  
|Other post-employment benefits |  | 35.2                            |  | 31.4  |  | (32.9  | )
|                               |  |                                 |  |       |  |        |  
|Total pension costs            |  | 335.1                           |  | 345.1 |  | 52.3   |  
|                               |  |                                 |  |       |  |        |  



As a result of the
change in rules for calculating disability pension liabilities in Finland, there was a pre-tax credit to the income statement relating to defined benefit plans of 179.9 million. Details of pension costs are shown in note 20.



Board Remuneration



|                                          |  |                                 |  |       |  |      
|----------------------------------------- |  | ------------------------------- |  | ----- |  | -----
|                                          |  | For the year ended December 31,
|                                          |  | 2002                            |  | 2003  |  | 2004 
|                                          |  | ( in thousands)               
|Claes Dahlbäck, Chairman                  |  | 135.0                           |  | 135.0 |  | 141.0
|Krister Ahlström, Vice Chairman           |  | 85.0                            |  | 85.0  |  | 91.0 
|Josef Ackermann (resigned March 20, 2003) |  | 60.0                            |  | 15.0  |  |     
|Harald Einsmann                           |  | 60.0                            |  | 60.0  |  | 64.5 
|Björn Hägglund, Deputy CEO                |  |                                |  |      |  |     
|Jukka Härmälä, CEO                        |  |                                |  |      |  |     
|Barbara Kux (appointed March 20, 2003)    |  |                                |  | 45.0  |  | 65.3 
|George W. Mead (resigned March 20, 2004)  |  | 60.0                            |  | 60.0  |  | 15.0 
|Ilkka Niemi                               |  | 60.0                            |  | 60.0  |  | 69.7 
|Paavo Pitkänen                            |  | 60.0                            |  | 60.0  |  | 65.3 
|Jan Sjöqvist                              |  | 60.0                            |  | 60.0  |  | 67.5 
|Lee A. Chaden (appointed March 18, 2004)  |  |                                |  |      |  | 45.0 
|Marcus Wallenberg                         |  | 60.0                            |  | 60.0  |  | 65.2 
|                                          |  |                                 |  |       |  |      
|Total board of directors remuneration     |  | 640.0                           |  | 640.0 |  | 689.5
|                                          |  |                                 |  |       |  |      



Executive
Management Group (EMG) Remuneration



EMG
annual salaries are normally reviewed once a year with new salaries valid from March 1. Basic annual salaries totaled 4.7 million in 2004 (2003: 4.5 million; 2002: 4.5 million), of which 1.1 million (2003: 1.1 million;
2002: 1.1 million) related to the CEO as detailed below.



F-30



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Executive Remuneration: Chief Executive Officer



|                        |  |                                 |  |         |  |        
|----------------------- |  | ------------------------------- |  | ------- |  | -------
|                        |  | For the year ended December 31,
|                        |  | 2002                            |  | 2003    |  | 2004   
|                        |  | ( in thousands)               
|Annual salary           |  | 1,142.3                         |  | 1,063.1 |  | 1,102.8
|Benefits                |  | 76.3                            |  | 114.8   |  | 64.1   
|Bonus (variable salary) |  | 220.2                           |  | 197.1   |  | 253.9  
|                        |  |                                 |  |         |  |        
|Total remuneration      |  | 1,438.8                         |  | 1,375.0 |  | 1,420.8
|                        |  |                                 |  |         |  |        



Chief Executive
Officer: Jukka Härmälä



In addition to his
basic salary, the CEO is also entitled to a short-term incentive plan, decided on by the board each year, giving a maximum 50 percent of annual fixed salary. The plan for 2004 was 20 percent related to Stora Ensos return on capital employed
(ROCE), 20 percent to the North America profit enhancement plan and 60 percent to personal key targets.



The retirement age for the CEO has been set at 60 years. The CEOs pension arises from the compulsory Finnish TEL scheme and a Stora Enso voluntary
plan amounting to 66 percent of the average of the last four years Finnish remuneration preceding retirement. Pensionable remuneration in 2004 was 963,634 (2003: 930,350; 2002: 912,295), thus the cost to the Company of the compulsory TEL
plan was 161,890 in 2004 (2003: 174,083; 2002: 178,633). A contribution of 332,935 in 2004 (2003: NIL) was needed for the Stora Enso voluntary plan, this funding being required following a review of the policy and the
accumulated fund; it does not represent any change in the benefits themselves.



Executive Management Group



EMG members, including the deputy CEO have short-term incentive plans up to a maximum 50 percent of annual fixed salary, with up to 50 percent tied to the Groups return on capital employed; the payout in 2004, relating to 2003, was
636,582 (2003: 610,020; 2002: 584,266). Benefits amounting to 347,544 in 2004 (2003: 263,172; 2002: 175,847) were provided, though additional sums relating to the foreign assignments of five members were paid at a
cost of 282,791 in 2004 (2003: 326,233; 2002: 262,787).



EMG members have a retirement age of 60 with pensions consistent with local practices within their respective home countries; pension costs totaled 1,611,431 in 2004 (2003: 1,367,397; 2002: 908,829).



Contracts of employment for the CEO, Deputy CEO and other EMG
members provide for notice of six months prior to termination with compensation being twelve months basic salary and a further optional twelve months salary depending on employment. They are also entitled to a certain number of shares through
options/synthetic options, full details of which are shown in note 27.



F-31



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Note 7Net Financial Items



|                                                 |  |                                |   |  |        |   |  |        |  
|------------------------------------------------ |  | ------------------------------ | - |  | ------ | - |  | ------ | -
|                                                 |  | For the year endedDecember 31, |  
|                                                 |  | 2002                           |   |  | 2003   |   |  | 2004   |  
|                                                 |  | ( in millions)                |  
|Interest expense                                 |  |                                |   |  |        |   |  |        |  
|Bank borrowings                                  |  | (242.5                         | ) |  | (188.9 | ) |  | (149.3 | )
|Finance leases                                   |  | (34.3                          | ) |  | (30.2  | ) |  | (17.3  | )
|Interest capitalized                             |  | 9.0                            |   |  | 5.2    |   |  | 2.5    |  
|Interest income                                  |  | 38.3                           |   |  | 27.8   |   |  | 22.7   |  
|Dividend income                                  |  | 9.2                            |   |  | 5.8    |   |  | 17.1   |  
|Exchange gains and losses                        |  |                                |   |  |        |   |  |        |  
|Currency derivatives                             |  | 271.2                          |   |  | 236.0  |   |  | (59.2  | )
|Borrowings and deposits                          |  | (226.3                         | ) |  | (223.5 | ) |  | 58.1   |  
|Other financial income                           |  |                                |   |  |        |   |  |        |  
|Fair value change of hedge-accounted derivatives |  | 1.8                            |   |  | 1.5    |   |  | 13.8   |  
|Other fair value changes                         |  | 26.3                           |   |  | 20.8   |   |  | 18.7   |  
|Others                                           |  | 20.0                           |   |  | 14.4   |   |  | 8.1    |  
|Other financial expense                          |  |                                |   |  |        |   |  |        |  
|Fair value change of hedge-accounted derivatives |  |                               |   |  | (11.3  | ) |  | (0.2   | )
|Other fair value changes                         |  | (78.5                          | ) |  | (11.2  | ) |  | (0.2   | )
|Others                                           |  | (0.4                           | ) |  | (84.1  | ) |  | (20.8  | )
|                                                 |  |                                |   |  |        |   |  |        |  
|Total                                            |  | (206.2                         | ) |  | (237.7 | ) |  | (106.0 | )
|                                                 |  |                                |   |  |        |   |  |        |  



Gains and losses on
derivative financial instruments are shown in note 23.



A
provision of 53.9 million ($61.1 million) for additional leasing costs arising from the early termination of finance leases was included in other financial expense in 2003. Stora Enso North America Inc had terminated a portfolio of 1996 UK
finance leases which had been due to expire in 2011, but as a consequence of changes in the interpretation of UK leasing tax rules, early termination of the leases became appropriate. The transaction was closed on March 2, 2004 and the remaining
provision of $3.5 (2.8) million was credited back to the income statement.



Aggregate foreign exchange gains and losses included in the consolidated income statement are:



|                    |  |                                |   |  |       |   |  |       |  
|------------------- |  | ------------------------------ | - |  | ----- | - |  | ----- | -
|                    |  | For the year endedDecember 31, |  
|                    |  | 2002                           |   |  | 2003  |   |  | 2004  |  
|                    |  | ( in millions)                |  
|Sales               |  | (19.0                          | ) |  | (47.9 | ) |  | (19.2 | )
|Costs and expenses  |  | 2.5                            |   |  | 5.2   |   |  | 3.2   |  
|Net financial items |  | 44.9                           |   |  | 12.5  |   |  | (1.1  | )
|                    |  |                                |   |  |       |   |  |       |  
|Total               |  | 28.4                           |   |  | (30.2 | ) |  | (17.1 | )
|                    |  |                                |   |  |       |   |  |       |  



F-32



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Note 8Income Taxes



Profit (Loss) before Tax and Minority Interests



|                  |  |                                 |   |  |        |   |  |       |  
|----------------- |  | ------------------------------- | - |  | ------ | - |  | ----- | -
|                  |  | For the year ended December 31, |  
|                  |  | 2002                            |   |  | 2003   |   |  | 2004  |  
|                  |  | ( in millions)                 |  
|Finnish companies |  | 327.6                           |   |  | 174.6  |   |  | 310.3 |  
|Swedish companies |  | 539.4                           |   |  | 329.5  |   |  | 337.2 |  
|German companies  |  | 107.9                           |   |  | 25.8   |   |  | (6.3  | )
|Other companies   |  | (1,344.2                        | ) |  | (319.2 | ) |  | (2.2  | )
|                  |  |                                 |   |  |        |   |  |       |  
|Total             |  | (369.3                          | ) |  | 210.7  |   |  | 639.0 |  
|                  |  |                                 |   |  |        |   |  |       |  



Income Tax Expense



|                         |  |                                |   |  |        |   |  |        |  
|------------------------ |  | ------------------------------ | - |  | ------ | - |  | ------ | -
|                         |  | For the year endedDecember 31, |  
|                         |  | 2002                           |   |  | 2003   |   |  | 2004   |  
|                         |  | ( in millions)                |  
|Current tax expense      |  |                                |   |  |        |   |  |        |  
|Finnish companies        |  | (98.6                          | ) |  | 5.2    |   |  | 13.4   |  
|Swedish companies        |  | 106.4                          |   |  | 77.5   |   |  | 32.0   |  
|German companies         |  | 50.0                           |   |  | 1.1    |   |  | 13.9   |  
|Other companies          |  | 58.6                           |   |  | 31.4   |   |  | 41.7   |  
|Change in deferred taxes |  |                                |   |  |        |   |  |        |  
|Finnish companies        |  | (110.8                         | ) |  | 48.6   |   |  | 49.6   |  
|Swedish companies        |  | 47.7                           |   |  | 14.4   |   |  | (225.7 | )
|German companies         |  | (2.1                           | ) |  | 11.1   |   |  | (8.8   | )
|Other companies          |  | (179.4                         | ) |  | (120.6 | ) |  | (33.3  | )
|Associated company taxes |  | (0.3                           | ) |  | (1.7   | ) |  | 8.4    |  
|                         |  |                                |   |  |        |   |  |        |  
|Total                    |  | (128.5                         | ) |  | 67.0   |   |  | (108.8 | )
|                         |  |                                |   |  |        |   |  |        |  



Income Tax
Reconciliation



|                                                                     |  |                                |   |  |      |   |  |        |  
|-------------------------------------------------------------------- |  | ------------------------------ | - |  | ---- | - |  | ------ | -
|                                                                     |  | For the year endedDecember 31, |  
|                                                                     |  | 2002                           |   |  | 2003 |   |  | 2004   |  
|                                                                     |  | ( in millions)                |  
|Tax at domestic rates applicable to profits in the country concerned |  | (257.2                         | ) |  | 22.2 |   |  | 164.8  |  
|Non-deductible expenses and tax exempt income                        |  | 34.5                           |   |  | (6.8 | ) |  | (45.6  | )
|Losses where no deferred tax benefit is recognized                   |  | 33.7                           |   |  | 48.9 |   |  | 34.8   |  
|Impairment of North American assets                                  |  | 363.2                          |   |  |     |   |  |       |  
|Write-down of shares in Stora Enso North America Corp.               |  | (298.4                         | ) |  |     |   |  |       |  
|Sale of Swedish forests                                              |  |                               |   |  |     |   |  | (240.5 | )
|Other items                                                          |  | (4.3                           | ) |  | 2.7  |   |  | (22.3  | )
|                                                                     |  |                                |   |  |      |   |  |        |  
|Income taxes in the consolidated income statement                    |  | (128.5                         | ) |  | 67.0 |   |  | (108.8 | )
|                                                                     |  |                                |   |  |      |   |  |        |  
|Effective tax rate                                                   |  | 34.8                           | % |  | 31.8 | % |  | 17.0   | %



F-33



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Components of Income Tax Provision



|                         |  |                                 |   |  |                 |   |  |                 |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |  
|------------------------ |  | ------------------------------- | - |  | --------------- | - |  | --------------- | - |  | ------- | - |  | ------- | - |  | ------- | - |  | ------- | - |  | ------- | - |  | ------- | -
|                         |  | Current Tax                     |   |  | Deferred Tax    |   |  | Total Tax       |  
|                         |  | For the year ended December 31, |  
|                         |  | 2002                            |   |  | 2003            |   |  | 2004            |   |  | 2002    |   |  | 2003    |   |  | 2004    |   |  | 2002    |   |  | 2003    |   |  | 2004    |  
|                         |  | ( in millions)                 |   |  | ( in millions) |   |  | ( in millions) |  
|As of December 31,       |  | 264.4                           |   |  | 294.6           |   |  | 169.9           |   |  | 1,940.6 |   |  | 1,684.7 |   |  | 1,765.2 |   |  | 2,205.0 |   |  | 1,979.3 |   |  | 1,935.1 |  
|IAS 41 Agriculture       |  |                                |   |  |                |   |  |                |   |  |        |   |  | 240.4   |   |  |        |   |  |        |   |  | 240.4   |   |  |        |  
|                         |  |                                 |   |  |                 |   |  |                 |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |  
|As of January 1,         |  | 264.4                           |   |  | 294.6           |   |  | 169.9           |   |  | 1,940.6 |   |  | 1,925.1 |   |  | 1,765.2 |   |  | 2,205.0 |   |  | 2,219.7 |   |  | 1,935.1 |  
|Translation difference   |  | 1.3                             |   |  | 1.1             |   |  | 2.4             |   |  | (91.7   | ) |  | (71.5   | ) |  | (17.1   | ) |  | (90.4   | ) |  | (70.4   | ) |  | (14.7   | )
|Companies acquired       |  | (3.0                            | ) |  | (5.4            | ) |  | 1.7             |   |  | 2.2     |   |  | 5.2     |   |  | 17.5    |   |  | (0.8    | ) |  | (0.2    | ) |  | 19.2    |  
|Companies divested       |  | (4.6                            | ) |  |                |   |  | 8.8             |   |  | 4.4     |   |  |        |   |  | (231.7  | ) |  | (0.2    | ) |  |        |   |  | (222.9  | )
|OCI                      |  |                                |   |  |                |   |  |                |   |  | 73.8    |   |  | (47.1   | ) |  | (6.6    | ) |  | 73.8    |   |  | (47.1   | ) |  | (6.6    | )
|Equity hedging (note 24) |  | 89.3                            |   |  | 42.4            |   |  | 21.0            |   |  |        |   |  |        |   |  |        |   |  | 89.3    |   |  | 42.4    |   |  | 21.0    |  
|Income Statement         |  |                                 |   |  |                 |   |  |                 |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |  
|Current year             |  | 92.3                            |   |  | 138.8           |   |  | 106.8           |   |  | (240.9  | ) |  | (51.6   | ) |  | 18.5    |   |  | (148.6  | ) |  | 87.2    |   |  | 125.3   |  
|Prior year adjustments   |  | 24.1                            |   |  | (23.6           | ) |  | (5.8            | ) |  | (3.7    | ) |  | 5.1     |   |  | (236.6  | ) |  | 20.4    |   |  | (18.5   | ) |  | (242.4  | )
|Tax paid                 |  | (169.2                          | ) |  | (278.0          | ) |  | (114.2          | ) |  |        |   |  |        |   |  |        |   |  | (169.2  | ) |  | (278.0  | ) |  | (114.2  | )
|                         |  |                                 |   |  |                 |   |  |                 |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |  
|As of December 31,       |  | 294.6                           |   |  | 169.9           |   |  | 190.6           |   |  | 1,684.7 |   |  | 1,765.2 |   |  | 1,309.2 |   |  | 1,979.3 |   |  | 1,935.1 |   |  | 1,499.8 |  
|                         |  |                                 |   |  |                 |   |  |                 |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |  
|Liabilities              |  | 537.7                           |   |  | 352.4           |   |  | 351.5           |   |  | 1,737.4 |   |  | 1,777.3 |   |  | 1,320.6 |   |  | 2,275.1 |   |  | 2,129.7 |   |  | 1,672.1 |  
|Assets                   |  | (243.1                          | ) |  | (182.5          | ) |  | (160.9          | ) |  | (52.7   | ) |  | (12.1   | ) |  | (11.4   | ) |  | (295.8  | ) |  | (194.6  | ) |  | (172.3  | )
|                         |  |                                 |   |  |                 |   |  |                 |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |  
|Net Tax                  |  | 294.6                           |   |  | 169.9           |   |  | 190.6           |   |  | 1,684.7 |   |  | 1,765.2 |   |  | 1,309.2 |   |  | 1,979.3 |   |  | 1,935.1 |   |  | 1,499.8 |  
|                         |  |                                 |   |  |                 |   |  |                 |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |  



When IAS 41
Agriculture came into effect on January 1, 2003, the opening balance in deferred tax for fair value adjustments was adjusted to take into account deferred tax of 240.4 million relating to the initial valuation surplus of the Groups
forest assets; this tax would have been payable had the forest holdings been subject to an asset sale. However, in 2004 the company owning the Swedish assets was divested, thus the tax provision on those assets was not required and SEK 2,195
(240.5) million was credited to the income statement.



Also in 2004, Finland passed new tax legislation providing for a reduction in corporate tax rates and changes in capital gains tax. Whilst the reduction in the tax rate from 29 percent to 26 percent had a beneficial effect of 44.3
million as at December 31, 2004 when the Groups Finnish deferred tax balances were adjusted to give effect to the new rate, the other changes resulted in a loss of deferred tax assets in 2004 of 24.1 million. Group tax excluding these
effects represented an underlying tax rate of 28.9 percent.



In
2002 Stora Enso wrote down the surplus acquisition value of its North American assets by $1,081.0 million (1,143.3 million), and a related write-down of 1,028.8 million was also made in the books of Stora Enso Oyj in respect of the
reduced value of its investment in Stora Enso North America Corp. Tax relief on this amounted to 298.4 million, of which 253.4 million was utilized in 2002 and the balance of 45.0 million in 2003. Group tax excluding these effects
represented a tax rate of 31.5 percent in 2002.



The Group has
recognized a deferred tax asset for its net operating loss carry-forwards and established a valuation allowance against this amount based on an analysis of the probability for set-off against future profits in the relevant tax jurisdictions. At
December 31, 2004 Stora Enso had losses carried forward, mainly attributable to foreign subsidiaries, of 1,227 million (2003: 982 million) of which some 440 million (2003: 509 million) had no expiry date, 76 million
(2003: 52 million) expire during the years 2005-2009 and the remainder expire thereafter. Tax loss carry-forwards are netted against deferred tax liabilities within each jointly taxed group of companies and are only shown separately as an
asset to the extent that they exceed such liabilities.



F-34



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



No deferred tax liability has been recognized for the undistributed earnings of Finnish subsidiaries
as such earnings may be transferred to the parent company without any tax consequences. The Group does not provide for deferred taxes on undistributed earnings of non-Finnish subsidiaries to the extent that such earnings are intended to be
permanently reinvested in those operations.



Reconciliation
of Deferred Tax Balances in 2004



|                                               |  |                  |   |  |                       |   |  |                          |   |  |                            |   |  |       |   |  |                   |  
|---------------------------------------------- |  | ---------------- | - |  | --------------------- | - |  | ------------------------ | - |  | -------------------------- | - |  | ----- | - |  | ----------------- | -
|                                               |  | As ofJan 1, 2004 |   |  | TranslationDifference |   |  | AcquisitionsandDisposals |   |  | Charge in Income Statement |   |  | OCI   |   |  | As ofDec 31, 2004 |  
|                                               |  | ( in million)   |  
|Fixed asset depreciation differences           |  | 1,377.4          |   |  | (31.7                 | ) |  | 1.1                      |   |  | (20.4                      | ) |  |      |   |  | 1,326.4           |  
|Untaxed reserves                               |  | 169.1            |   |  | 1.1                   |   |  | (66.8                    | ) |  | 13.0                       |   |  |      |   |  | 116.4             |  
|Pension provisions(1)                          |  | 4.9              |   |  | (6.0                  | ) |  | (0.7                     | ) |  | 53.0                       |   |  |      |   |  | 51.2              |  
|Other provisions                               |  | (3.9             | ) |  |                      |   |  |                         |   |  | (4.0                       | ) |  |      |   |  | (7.9              | )
|Fair value gains less losses(2)                |  | 416.4            |   |  | (0.2                  | ) |  | (159.8                   | ) |  | (241.4                     | ) |  |      |   |  | 15.0              |  
|Unrealized internal profits                    |  | (23.1            | ) |  |                      |   |  |                         |   |  | 17.6                       |   |  |      |   |  | (5.5              | )
|Tax losses carried forward                     |  | (339.5           | ) |  | 19.0                  |   |  | (0.2                     | ) |  | (42.2                      | ) |  |      |   |  | (362.9            | )
|Other                                          |  | 7.0              |   |  | 0.7                   |   |  | 12.2                     |   |  | (15.1                      | ) |  |      |   |  | 4.8               |  
|Less valuation allowance (note 9)              |  | 107.9            |   |  |                      |   |  |                         |   |  | 21.4                       |   |  |      |   |  | 129.3             |  
|                                               |  |                  |   |  |                       |   |  |                          |   |  |                            |   |  |       |   |  |                   |  
|                                               |  | 1,716.2          |   |  | (17.1                 | ) |  | (214.2                   | ) |  | (218.1                     | ) |  |      |   |  | 1,266.8           |  
|Fair value of available-for-sale investments   |  | 24.1             |   |  |                      |   |  |                         |   |  |                           |   |  | 4.1   |   |  | 28.2              |  
|Fair value of derivative financial instruments |  | 24.9             |   |  |                      |   |  | 5.3                      |   |  |                           |   |  | (16.0 | ) |  | 14.2              |  
|                                               |  |                  |   |  |                       |   |  |                          |   |  |                            |   |  |       |   |  |                   |  
|Change in Net Deferred Tax                     |  | 1,765.2          |   |  | (17.1                 | ) |  | (208.9                   | ) |  | (218.1                     | ) |  | (11.9 | ) |  | 1,309.2           |  
|                                               |  |                  |   |  |                       |   |  |                          |   |  |                            |   |  |       |   |  |                   |  
|Shown on the Balance Sheet as                  |  |                  |   |  |                       |   |  |                          |   |  |                            |   |  |       |   |  |                   |  
|Liabilities                                    |  | 1,777.3          |   |  | (17.1                 | ) |  | (208.9                   | ) |  | (218.8                     | ) |  | (11.9 | ) |  | 1,320.6           |  
|Assets                                         |  | (12.1            | ) |  |                      |   |  |                         |   |  | 0.7                        |   |  |      |   |  | (11.4             | )
|                                               |  |                  |   |  |                       |   |  |                          |   |  |                            |   |  |       |   |  |                   |  
|                                               |  | 1,765.2          |   |  | (17.1                 | ) |  | (208.9                   | ) |  | (218.1                     | ) |  | (11.9 | ) |  | 1,309.2           |  
|                                               |  |                  |   |  |                       |   |  |                          |   |  |                            |   |  |       |   |  |                   |  

---

OCI = Other Comprehensive Income statement  see
note 23

|(1) |  | The opening balance for pension provisions has been restated to take into account deferred tax of 53.5 million relating to the restatement of prior years in respect of the
Finnish Statutory Pension Scheme.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | The income statement credit includes 240.5 million relating to the disposal of Swedish forest interests, of which 240.4 million related to the adjustment to the 2003
opening balance for the deferred tax on the fair value surplus on the adoption of IAS 41 Agriculture.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-35



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Reconciliation of Deferred Tax Balances in 2003



|                                               |  |                   |   |  |                       |   |  |                          |   |  |                            |   |  |       |   |  |                    |  
|---------------------------------------------- |  | ----------------- | - |  | --------------------- | - |  | ------------------------ | - |  | -------------------------- | - |  | ----- | - |  | ------------------ | -
|                                               |  | As of Jan 1, 2003 |   |  | TranslationDifference |   |  | AcquisitionsandDisposals |   |  | Charge in Income Statement |   |  | OCI   |   |  | As of Dec 31, 2003 |  
|                                               |  | ( in millions)   |  
|Fixed asset depreciation differences           |  | 1,625.3           |   |  | (104.8                | ) |  | 23.8                     |   |  | (166.9                     | ) |  |      |   |  | 1,377.4            |  
|Untaxed reserves                               |  | 156.4             |   |  | 1.2                   |   |  |                         |   |  | 11.5                       |   |  |      |   |  | 169.1              |  
|Pension provisions                             |  | (0.3              | ) |  | (11.3                 | ) |  |                         |   |  | 16.5                       |   |  |      |   |  | 4.9                |  
|Other provisions                               |  | (37.0             | ) |  |                      |   |  |                         |   |  | 33.1                       |   |  |      |   |  | (3.9               | )
|Fair value gains less losses(1)                |  | 411.3             |   |  | 2.7                   |   |  |                         |   |  | 2.4                        |   |  |      |   |  | 416.4              |  
|Unrealized internal profits                    |  | (17.1             | ) |  |                      |   |  |                         |   |  | (6.0                       | ) |  |      |   |  | (23.1              | )
|Tax losses carried forward                     |  | (351.5            | ) |  | 29.5                  |   |  | (2.9                     | ) |  | (14.6                      | ) |  |      |   |  | (339.5             | )
|Other                                          |  | (50.3             | ) |  | 11.2                  |   |  | (15.7                    | ) |  | 61.8                       |   |  |      |   |  | 7.0                |  
|Less valuation allowance (note 9)              |  | 92.2              |   |  |                      |   |  |                         |   |  | 15.7                       |   |  |      |   |  | 107.9              |  
|                                               |  |                   |   |  |                       |   |  |                          |   |  |                            |   |  |       |   |  |                    |  
|                                               |  | 1,829.0           |   |  | (71.5                 | ) |  | 5.2                      |   |  | (46.5                      | ) |  |      |   |  | 1,716.2            |  
|Fair value of available-for-sale investments   |  | 7.6               |   |  |                      |   |  |                         |   |  |                           |   |  | 16.5  |   |  | 24.1               |  
|Fair value of derivative financial instruments |  | 88.5              |   |  |                      |   |  |                         |   |  |                           |   |  | (63.6 | ) |  | 24.9               |  
|                                               |  |                   |   |  |                       |   |  |                          |   |  |                            |   |  |       |   |  |                    |  
|Change in Net Deferred Tax                     |  | 1,925.1           |   |  | (71.5                 | ) |  | 5.2                      |   |  | (46.5                      | ) |  | (47.1 | ) |  | 1,765.2            |  
|Shown on the Balance Sheet as                  |  |                   |   |  |                       |   |  |                          |   |  |                            |   |  |       |   |  |                    |  
|Liabilities                                    |  | 1,977.8           |   |  | (70.7                 | ) |  | 5.2                      |   |  | (87.9                      | ) |  | (47.1 | ) |  | 1,777.3            |  
|Assets                                         |  | (52.7             | ) |  | (0.8                  | ) |  |                         |   |  | 41.4                       |   |  |      |   |  | (12.1              | )
|                                               |  |                   |   |  |                       |   |  |                          |   |  |                            |   |  |       |   |  |                    |  
|                                               |  | 1,925.1           |   |  | (71.5                 | ) |  | 5.2                      |   |  | (46.5                      | ) |  | (47.1 | ) |  | 1,765.2            |  
|                                               |  |                   |   |  |                       |   |  |                          |   |  |                            |   |  |       |   |  |                    |  

---

|OCI |  | = Other Comprehensive Income statement  see 23
|--- |  | -----------------------------------------------

|(1) |  | The opening balance for Fair Value Gains Less Losses has been adjusted for the addition of deferred tax of 240.4 million relating to the initial valuation surplus on the
adoption of IAS 41 Agriculture; the revised total thus differs from the balance sheet by this amount.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Under IFRS, all deferred tax is shown as non-current even though a proportion will be reversed within twelve months; the table below shows the deferred
tax considered to be current and non-current.



Deferred Tax
Allocated into Current & Non-Current Balances



|                             |  |                    |   |  |         |   |  |                    |   |  |       |   |  |       |   |  |       |   |  |         |   |  |         |   |  |         |  
|---------------------------- |  | ------------------ | - |  | ------- | - |  | ------------------ | - |  | ----- | - |  | ----- | - |  | ----- | - |  | ------- | - |  | ------- | - |  | ------- | -
|                             |  | Non-Current        |   |  | Current |   |  | Total Deferred Tax |  
|                             |  | As of December 31, |  
|                             |  | 2002               |   |  | 2003    |   |  | 2004               |   |  | 2002  |   |  | 2003  |   |  | 2004  |   |  | 2002    |   |  | 2003    |   |  | 2004    |  
|                             |  | ( in millions)    |  
|Depreciation differences     |  | 1,656.5            |   |  | 1,389.7 |   |  | 1,311.4            |   |  | (31.2 | ) |  | (12.3 | ) |  | 15.0  |   |  | 1,625.3 |   |  | 1,377.4 |   |  | 1,326.4 |  
|Untaxed reserves             |  | 151.5              |   |  | 35.3    |   |  | 116.4              |   |  | 4.9   |   |  | 133.8 |   |  |      |   |  | 156.4   |   |  | 169.1   |   |  | 116.4   |  
|Pension provisions           |  | 13.2               |   |  | 14.3    |   |  | 61.1               |   |  | (13.5 | ) |  | (9.4  | ) |  | (9.9  | ) |  | (0.3    | ) |  | 4.9     |   |  | 51.2    |  
|Other provisions             |  | (37.0              | ) |  | (3.9    | ) |  | (5.0               | ) |  |      |   |  |      |   |  | (2.9  | ) |  | (37.0   | ) |  | (3.9    | ) |  | (7.9    | )
|Fair value gains less losses |  | 411.3              |   |  | 15.9    |   |  | 15.0               |   |  |      |   |  | 400.5 |   |  |      |   |  | 411.3   |   |  | 416.4   |   |  | 15.0    |  
|Unrealized internal profits  |  | (7.3               | ) |  | (13.7   | ) |  |                   |   |  | (9.8  | ) |  | (9.4  | ) |  | (5.5  | ) |  | (17.1   | ) |  | (23.1   | ) |  | (5.5    | )
|Tax losses carried forward   |  | (291.9             | ) |  | (334.2  | ) |  | (354.1             | ) |  | (59.6 | ) |  | (5.3  | ) |  | (8.8  | ) |  | (351.5  | ) |  | (339.5  | ) |  | (362.9  | )
|Other                        |  | (71.0              | ) |  | (33.6   | ) |  | 16.0               |   |  | 20.7  |   |  | 40.6  |   |  | (11.2 | ) |  | (50.3   | ) |  | 7.0     |   |  | 4.8     |  
|Less valuation allowance     |  | 92.2               |   |  | 107.9   |   |  | 129.3              |   |  |      |   |  |      |   |  |      |   |  | 92.2    |   |  | 107.9   |   |  | 129.3   |  
|                             |  |                    |   |  |         |   |  |                    |   |  |       |   |  |       |   |  |       |   |  |         |   |  |         |   |  |         |  
|                             |  | 1,917.5            |   |  | 1,177.7 |   |  | 1,290.1            |   |  | (88.5 | ) |  | 538.5 |   |  | (23.3 | ) |  | 1,829.0 |   |  | 1,716.2 |   |  | 1,266.8 |  
|OCI                          |  | 21.9               |   |  | 33.0    |   |  | 35.4               |   |  | 74.2  |   |  | 16.0  |   |  | 7.0   |   |  | 96.1    |   |  | 49.0    |   |  | 42.4    |  
|                             |  |                    |   |  |         |   |  |                    |   |  |       |   |  |       |   |  |       |   |  |         |   |  |         |   |  |         |  
|Total                        |  | 1,939.4            |   |  | 1,210.7 |   |  | 1,325.5            |   |  | (14.3 | ) |  | 554.5 |   |  | (16.3 | ) |  | 1,925.1 |   |  | 1,765.2 |   |  | 1,309.2 |  
|                             |  |                    |   |  |         |   |  |                    |   |  |       |   |  |       |   |  |       |   |  |         |   |  |         |   |  |         |  



F-36



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Note 9Valuation and Qualifying Accounts



Provisions for doubtful accounts, obsolete inventories, low inventory market values and valuation allowance for deferred tax
assets are as follows:



Valuation and Qualifying Accounts



|                                       |  |                   |   |  |                    |   |  |                 |   |  |              |  |                  |  
|-------------------------------------- |  | ----------------- | - |  | ------------------ | - |  | --------------- | - |  | ------------ |  | ---------------- | -
|                                       |  | Doubtful Accounts |   |  | Stock Obsolescence |   |  | Stock Valuation |   |  | Deferred Tax |  | Total Allowances |  
|                                       |  | ( in millions)   |  
|Carrying value as of January 1, 2002   |  | 30.5              |   |  | 21.7               |   |  |                |   |  | 75.1         |  | 127.3            |  
|Translation difference                 |  | (1.0              | ) |  | (2.2               | ) |  |                |   |  |             |  | (3.2             | )
|Charge in income statement             |  | 11.7              |   |  | 26.4               |   |  | 1.5             |   |  | 17.1         |  | 56.7             |  
|Deductions                             |  | (4.7              | ) |  | (20.3              | ) |  |                |   |  |             |  | (25.0            | )
|                                       |  |                   |   |  |                    |   |  |                 |   |  |              |  |                  |  
|Carrying value as of December 31, 2002 |  | 36.5              |   |  | 25.6               |   |  | 1.5             |   |  | 92.2         |  | 155.8            |  
|                                       |  |                   |   |  |                    |   |  |                 |   |  |              |  |                  |  
|Translation difference                 |  | (0.9              | ) |  | (0.9               | ) |  |                |   |  |             |  | (1.8             | )
|Charge in income statement             |  | 10.1              |   |  | 7.5                |   |  | 4.8             |   |  | 15.7         |  | 38.1             |  
|Deductions                             |  | (5.1              | ) |  | (3.6               | ) |  |                |   |  |             |  | (8.7             | )
|                                       |  |                   |   |  |                    |   |  |                 |   |  |              |  |                  |  
|Carrying value as of December 31, 2003 |  | 40.6              |   |  | 28.6               |   |  | 6.3             |   |  | 107.9        |  | 183.4            |  
|                                       |  |                   |   |  |                    |   |  |                 |   |  |              |  |                  |  
|Translation difference                 |  | (0.1              | ) |  | (0.2               | ) |  | (0.2            | ) |  |             |  | (0.5             | )
|Charge in income statement             |  | 10.1              |   |  | 7.6                |   |  | 2.9             |   |  | 21.4         |  | 42.0             |  
|Deductions                             |  | (10.9             | ) |  | (5.8               | ) |  | (1.8            | ) |  |             |  | (18.5            | )
|                                       |  |                   |   |  |                    |   |  |                 |   |  |              |  |                  |  
|Carrying value as of December 31, 2004 |  | 39.7              |   |  | 30.2               |   |  | 7.2             |   |  | 129.3        |  | 206.4            |  
|                                       |  |                   |   |  |                    |   |  |                 |   |  |              |  |                  |  



Note 10Depreciation,
Amortization and Impairment Charges



|                                                  |  |                                 |  |         |  |        
|------------------------------------------------- |  | ------------------------------- |  | ------- |  | -------
|                                                  |  | For the year ended December 31,
|                                                  |  | 2002                            |  | 2003    |  | 2004   
|                                                  |  | ( in millions)                
|Depreciation and amortization                     |  |                                
|Intangible fixed assets                           |  | 16.4                            |  | 17.0    |  | 20.2   
|Buildings and structures                          |  | 98.0                            |  | 109.3   |  | 112.9  
|Plant and equipment                               |  | 932.5                           |  | 904.9   |  | 910.8  
|Other tangible fixed assets                       |  | 42.6                            |  | 25.1    |  | 23.9   
|Goodwill                                          |  | 148.8                           |  | 116.1   |  | 90.2   
|                                                  |  |                                 |  |         |  |        
|Total                                             |  | 1,238.3                         |  | 1,172.4 |  | 1,158.0
|                                                  |  |                                 |  |         |  |        
|Impairment and disposal losses                    |  |                                 |  |         |  |        
|Plant and equipment                               |  | 267.3                           |  | 12.1    |  | 14.0   
|Other fixed assets                                |  | 17.4                            |  | 15.9    |  |       
|Goodwill                                          |  | 918.9                           |  |        |  |       
|                                                  |  |                                 |  |         |  |        
|Total                                             |  | 1,203.6                         |  | 28.0    |  | 14.0   
|                                                  |  |                                 |  |         |  |        
|Depreciation, amortization and impairment charges |  | 2,441.9                         |  | 1,200.4 |  | 1,172.0
|                                                  |  |                                 |  |         |  |        



Total depreciation,
amortization and impairment charges in the income statement amounted 1,172.0 million in 2004 (2003: 1,200.4 million) against which there are capital gains on the disposal of fixed assets,



F-37



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



shown in other operating income, amounting to 113.0 million (2003: 12.3 million), principally relating to land and a few buildings. The main part
of the capital gain in 2004 related to the Groups divestment of its Swedish forest holdings company, Bergvik Skog AB (see note 4), which generated a capital gain of SEK 978 million (107.3 million) on the fixed assets therein.



In December 2003 the Group contracted to sell its forest lands in Ontario,
Canada, simultaneously writing down the asset by 17.6 million. In 2002 net losses on the disposal of fixed assets amounted to 42.4 million, whilst capital gains on the disposal of fixed assets amounted to 79.6 million, principally
relating to the sale of US forests and other land.



In
September 2002, as a result of weakened market conditions in North America, the Groups North American assets were subject to impairment in the sum of $1,081.0 million (1,143.3 million), of which $868.8 million (918.9 million)
related to goodwill; the value of the remaining Stora Enso North America Inc goodwill at December 31, 2002 amounted to $645.9 million (615.9 million). The impairment was calculated with a discount rate of 9.5 percent using the value in use
method for each cash generating unit, the resulting charges relating to the segments as to 1,014.5 million for magazine paper and 128.8 million for fine paper. In addition, as a result of the North American profit enhancement plan, a
further $50.0 million (52.9 million) impairment charge was made to restructure selected manufacturing assets.



Note 11Fixed Assets



Fixed Asset Summary



|                                          |  |                            |   |  |                         |   |  |          |   |  |                    |  
|----------------------------------------- |  | -------------------------- | - |  | ----------------------- | - |  | -------- | - |  | ------------------ | -
|                                          |  | Property Plant & Equipment |   |  | Intangible Fixed Assets |   |  | Goodwill |   |  | Total Fixed Assets |  
|                                          |  | ( in millions)            |  
|Acquisition Cost                          |  |                            |   |  |                         |   |  |          |   |  |                    |  
|As of January 1, 2004                     |  | 19,971.3                   |   |  | 208.5                   |   |  | 2,559.0  |   |  | 22,738.8           |  
|Translation difference                    |  | (188.4                     | ) |  | (0.5                    | ) |  | (97.0    | ) |  | (285.9             | )
|Reclassifications                         |  | (32.9                      | ) |  | 32.9                    |   |  |         |   |  |                   |  
|Companies acquired                        |  | 290.0                      |   |  | 22.8                    |   |  | 6.9      |   |  | 319.7              |  
|Additions                                 |  | 956.0                      |   |  | 19.1                    |   |  |         |   |  | 975.1              |  
|Disposals                                 |  | (288.2                     | ) |  | (0.9                    | ) |  | (2.9     | ) |  | (292.0             | )
|                                          |  |                            |   |  |                         |   |  |          |   |  |                    |  
|As of December 31,2004                    |  | 20,707.8                   |   |  | 281.9                   |   |  | 2,466.0  |   |  | 23,455.7           |  
|                                          |  |                            |   |  |                         |   |  |          |   |  |                    |  
|Accumulated Depreciation and Amortization |  |                            |   |  |                         |   |  |          |   |  |                    |  
|As of January 1, 2004                     |  | 10,006.8                   |   |  | 128.1                   |   |  | 1,656.4  |   |  | 11,791.3           |  
|Translation difference                    |  | (60.6                      | ) |  | (0.2                    | ) |  | (65.6    | ) |  | (126.4             | )
|Reclassifications                         |  | (24.0                      | ) |  | 24.0                    |   |  |         |   |  |                   |  
|Companies acquired                        |  | 127.1                      |   |  | 2.4                     |   |  |         |   |  | 129.5              |  
|Disposals                                 |  | (157.9                     | ) |  | (0.7                    | ) |  | (2.9     | ) |  | (161.5             | )
|Charge for the year                       |  | 1,047.6                    |   |  | 20.2                    |   |  | 90.2     |   |  | 1,158.0            |  
|Impairment charges                        |  | 14.0                       |   |  |                        |   |  |         |   |  | 14.0               |  
|                                          |  |                            |   |  |                         |   |  |          |   |  |                    |  
|As of December 31, 2004                   |  | 10,953.0                   |   |  | 173.8                   |   |  | 1,678.1  |   |  | 12,804.9           |  
|                                          |  |                            |   |  |                         |   |  |          |   |  |                    |  
|Net Book Value as of December 31, 2004    |  | 9,754.8                    |   |  | 108.1                   |   |  | 787.9    |   |  | 10,650.8           |  
|                                          |  |                            |   |  |                         |   |  |          |   |  |                    |  
|Net Book Value as of December 31, 2003    |  | 9,964.5                    |   |  | 80.4                    |   |  | 902.6    |   |  | 10,947.5           |  
|                                          |  |                            |   |  |                         |   |  |          |   |  |                    |  



F-38



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Property, Plant & Equipment



|                                          |  |                 |   |  |                          |   |  |                     |   |  |                       |   |  |                    |   |  |          |  
|----------------------------------------- |  | --------------- | - |  | ------------------------ | - |  | ------------------- | - |  | --------------------- | - |  | ------------------ | - |  | -------- | -
|                                          |  | Land and Water  |   |  | Buildings and Structures |   |  | Plant and Equipment |   |  | Other Tangible Assets |   |  | Assets in Progress |   |  | Total    |  
|                                          |  | ( in millions) |  
|Acquisition Cost                          |  |                 |   |  |                          |   |  |                     |   |  |                       |   |  |                    |   |  |          |  
|As of January 1, 2004                     |  | 351.2           |   |  | 2,901.5                  |   |  | 15,680.7            |   |  | 569.1                 |   |  | 468.8              |   |  | 19,971.3 |  
|Translation difference                    |  | (1.1            | ) |  | (12.5                    | ) |  | (170.9              | ) |  | (0.2                  | ) |  | (3.7               | ) |  | (188.4   | )
|Reclassifications                         |  | 3.0             |   |  | 116.8                    |   |  | 354.3               |   |  | (0.7                  | ) |  | (506.3             | ) |  | (32.9    | )
|Companies acquired                        |  | 15.5            |   |  | 54.3                     |   |  | 205.0               |   |  | 9.8                   |   |  | 5.4                |   |  | 290.0    |  
|Additions                                 |  | 3.6             |   |  | 45.4                     |   |  | 472.7               |   |  | 9.8                   |   |  | 424.5              |   |  | 956.0    |  
|Disposals                                 |  | (82.9           | ) |  | (17.2                    | ) |  | (149.3              | ) |  | (37.8                 | ) |  | (1.0               | ) |  | (288.2   | )
|                                          |  |                 |   |  |                          |   |  |                     |   |  |                       |   |  |                    |   |  |          |  
|As of December 31, 2004                   |  | 289.3           |   |  | 3,088.3                  |   |  | 16,392.5            |   |  | 550.0                 |   |  | 387.7              |   |  | 20,707.8 |  
|                                          |  |                 |   |  |                          |   |  |                     |   |  |                       |   |  |                    |   |  |          |  
|Accumulated Depreciation and Amortization |  |                 |   |  |                          |   |  |                     |   |  |                       |   |  |                    |   |  |          |  
|As of January 1, 2004                     |  |                |   |  | 1,230.1                  |   |  | 8,453.7             |   |  | 323.0                 |   |  |                   |   |  | 10,006.8 |  
|Translation difference                    |  |                |   |  | (1.0                     | ) |  | (59.6               | ) |  |                      |   |  |                   |   |  | (60.6    | )
|Reclassifications                         |  |                |   |  | 22.2                     |   |  | (41.9               | ) |  | (4.3                  | ) |  |                   |   |  | (24.0    | )
|Companies acquired                        |  |                |   |  | 13.8                     |   |  | 113.3               |   |  |                      |   |  |                   |   |  | 127.1    |  
|Disposals                                 |  |                |   |  | (7.4                     | ) |  | (132.1              | ) |  | (18.4                 | ) |  |                   |   |  | (157.9   | )
|Charge for the year                       |  |                |   |  | 112.9                    |   |  | 910.8               |   |  | 23.9                  |   |  |                   |   |  | 1 047.6  |  
|Impairment charges                        |  |                |   |  |                         |   |  | 14.0                |   |  |                      |   |  |                   |   |  | 14.0     |  
|                                          |  |                 |   |  |                          |   |  |                     |   |  |                       |   |  |                    |   |  |          |  
|As of December 31, 2004                   |  |                |   |  | 1,370.6                  |   |  | 9,258.2             |   |  | 324.2                 |   |  |                   |   |  | 10,953.0 |  
|                                          |  |                 |   |  |                          |   |  |                     |   |  |                       |   |  |                    |   |  |          |  
|Net Book Value as of December 31, 2004    |  | 289.3           |   |  | 1,717.7                  |   |  | 7,134.3             |   |  | 225.8                 |   |  | 387.7              |   |  | 9,754.8  |  
|                                          |  |                 |   |  |                          |   |  |                     |   |  |                       |   |  |                    |   |  |          |  
|Net Book Value as of December 31, 2003    |  | 351.2           |   |  | 1,671.4                  |   |  | 7,227.0             |   |  | 246.1                 |   |  | 468.8              |   |  | 9,964.5  |  
|                                          |  |                 |   |  |                          |   |  |                     |   |  |                       |   |  |                    |   |  |          |  



The new rules
contained in IFRS 3 came into effect in 2004 whereby amortization of goodwill ceased with effect from April 1 for new acquisitions and December 31 for all other existing goodwill. In future, the only value adjustments to the carrying value of
goodwill will be as a result of the annual impairment testing. Based on the current carrying value of goodwill, this change is expected to have a beneficial effect of some 90 million over each of the next five years, subject only to any
impairments that may be found appropriate.



Stora Enso performs
annual impairment tests for all fixed assets, including goodwill, though in the years 2003 and 2004 it was determined that no impairment existed in asset carrying values. In 2002, however, as disclosed in note 10, weakened market conditions in North
America resulted in the Groups North American assets being subject to impairment in the sum of $1,081.0 million (1,143.3 million). Over the past three years, the same external valuer has been used to prepare the projections in the cash
generating units holding most of the Group goodwill.



Impairment tests are carried out on each separate cash generating unit and are based on the discounted cash flow valuation method; this incorporates future projections of cash flows and, among other estimates, projections of future product
pricing, production levels, product costs, market supply and demand, projected maintenance, capital expenditures and an assumption of a pre-tax weighted average cost of capital.



F-39



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Groups Fixed Assets at December 31, 2004 include capitalized balances for unamortized
computer software development costs, interest (at 6 percent to 11 percent) on the construction of qualifying assets and finance lease assets:



Capitalized Values



|                           |  |                  |   |  |                     |   |  |                 |   |  |      |   |  |        |   |  |       |  
|-------------------------- |  | ---------------- | - |  | ------------------- | - |  | --------------- | - |  | ---- | - |  | ------ | - |  | ----- | -
|                           |  | ComputerSoftware |   |  | CapitalizedInterest |   |  | Finance Leases  |  
|                           |  | 2003             |   |  | 2004                |   |  | 2003            |   |  | 2004 |   |  | 2003   |   |  | 2004  |  
|                           |  | ( in millions)  |   |  | ( in millions)     |   |  | ( in millions) |  
|As of January 1            |  | 36.3             |   |  | 46.7                |   |  | 79.4            |   |  | 77.1 |   |  | 614.4  |   |  | 142.3 |  
|Translation difference     |  | (0.2             | ) |  | (0.6                | ) |  | (1.3            | ) |  | (0.3 | ) |  | (88.5  | ) |  | (5.1  | )
|Acquisitions and disposals |  |                 |   |  | 4.0                 |   |  |                |   |  | (4.8 | ) |  | (369.4 | ) |  |      |  
|Capitalized in the year    |  | 18.5             |   |  | 32.8                |   |  | 5.2             |   |  | 2.5  |   |  | 21.5   |   |  |      |  
|Depreciation               |  | (7.9             | ) |  | (15.3               | ) |  | (6.2            | ) |  | (7.4 | ) |  | (35.7  | ) |  | (10.7 | )
|                           |  |                  |   |  |                     |   |  |                 |   |  |      |   |  |        |   |  |       |  
|As of December 31          |  | 46.7             |   |  | 67.6                |   |  | 77.1            |   |  | 67.1 |   |  | 142.3  |   |  | 126.5 |  
|                           |  |                  |   |  |                     |   |  |                 |   |  |      |   |  |        |   |  |       |  

---

Computer software includes capitalized own software
at the year end of 16.4 million in 2004 (2003: 18.5 million); additions during the year were 2.1 million (2003: 2.9 million) and depreciation was 4.2 million (2003:  2.3 million).



Fixed Asset Additions



There was one material acquisition in 2004, along with several smaller ones,
total acquisitions of Group companies amounting to 250.5 million in 2004 (2003: 241.3 million); the acquisition value of the operating fixed assets therein came to 190.2 million (2003: 206.4 million), of which 6.9
million (2003: 73.8 million) related to goodwill. Total acquisitions of Group companies in 2002 amounted to 56.3 million, the acquisition value of the operating fixed assets therein being 150.4 million of which 26.7 million
related to goodwill.



Capital expenditure for the year in Stora
Enso Oyj and its subsidiaries amounted to 975.1 million in 2004 (2003: 1,248.2 million). However, a further major investment is being undertaken at the Veracel Pulp Mill in Brazil, fixed assets in this company amounted to some 648
million in 2004 (2003: 230 million), but as the Group interest in this joint venture is only 50 percent, it is dealt with under equity accounting and is included on the balance sheet as an investment in an associate company; see note 13. No
major new projects were commenced or announced in 2004, capital expenditure for 2004 largely relating to projects from 2003 and earlier.



Fixed Asset Disposals



|                            |  |                                |  |       |  |      
|--------------------------- |  | ------------------------------ |  | ----- |  | -----
|                            |  | For the year endedDecember 31,
|                            |  | 2002                           |  | 2003  |  | 2004 
|                            |  | ( in millions)               
|Acquisition cost            |  | 1,071.2                        |  | 341.7 |  | 292.0
|Accumulated depreciation    |  | 508.6                          |  | 306.6 |  | 161.5
|                            |  |                                |  |       |  |      
|Net book value of disposals |  | 562.6                          |  | 35.1  |  | 130.5
|Net gains on disposals      |  | 37.2                           |  | 12.4  |  | 113.0
|                            |  |                                |  |       |  |      
|Disposals Proceeds          |  | 599.8                          |  | 47.5  |  | 243.5
|                            |  |                                |  |       |  |      
|Represented by              |  |                                |  |       |  |      
|Cash sales proceeds         |  | 202.4                          |  | 47.5  |  | 36.4 
|Non-cash sales proceeds     |  | 36.8                           |  |      |  |     
|Group company disposals     |  | 360.6                          |  |      |  | 207.1
|                            |  |                                |  |       |  |      
|Total Fixed Asset Disposals |  | 599.8                          |  | 47.5  |  | 243.5
|                            |  |                                |  |       |  |      



F-40



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The principal disposal in 2004 related to the divestment of the Swedish forests, the fixed asset
element therein, exclusive of the forests themselves, being 89.9 million along with a capital gain of 107.3 million representing the goodwill realized. There were no fixed asset disposals in 2003 other than minor sales in the normal
course of operations. In 2002, the principal fixed asset disposal consisted of the divestment of forest assets in Finland, 360.6 million, and in the US, 149.1; the Finnish transaction was partly in exchange for 41 percent of the shares
in a new associate company, Tornator Timberland Oy.



Note 12
Biological Assets



At January 1, 2004, 95 percent of the
Groups biological assets were in Sweden, however these were divested in March when the Groups recently created forest holding company, Bergvik Skog AB, was divested to institutional investors. Stora Enso retained a minority shareholding
of 43.3 percent and has signed long-term supply agreements with its new associate at market rates. The divestment value of Bergvik Skogs free standing trees was 1,524.6 million (SEK 13,753 million), other disposed fixed assets of
89.9 million (SEK 811 million) representing the land under the trees, the roads thereon and sundry forestry equipment. Prior to the divestment in March, the change in the value of the Swedish biological assets had generated income of 6.2
million, however after March, the Groups 43.3 percent share of this income is aggregated with the normal trading result of Bergvik Skog and reported as an associated company result (see note 13).



In October 2004 Stora Enso divested its majority shareholding in PT
Finnantara Intiga, its Borneo eucalyptus plantation company. The book value of the plantation at sale was 21.8 million.



The accounting standard IAS 41, Agriculture, under which Stora Ensos biological assets in the form of standing trees are fair market valued, came
into effect on January 1, 2003. The value of Group forests thus increased from a previous book value of 705.9 million to a fair value of 1,561.7 million. The revaluation reserve amounted to 855.8 million, which resulted in an
increase in equity of 615.4 million after the deduction of deferred tax; in accordance with IAS 8, this was credited directly to retained earnings as non-distributable equity, but has now been realized on the sale of the Swedish forests. The
initial IAS 41 fair value adjustment on account of the Groups forest associates added 44.0 million to equity net of deferred tax.



Following the divestment of the Swedish forests in 2004, future biological income will not be material. Nevertheless, periodic future changes resulting
from growth, price and other factors will be entered in the income statement so that operating profit includes an adjustment for the change in value of the standing forest during the year. This change in value is made up of growth, harvesting and
price fluctuations. The result for 2004 includes 37.5 million (2003: 116.2 million) in respect of the change in fair value, being the growth and price effect, less 30.4 million (2003: 104.6 million) for harvesting, resulting
in the net gain of 7.1 million (2003: 11.6 million) shown in the income statement; all but 0.9 million came from Bergvik Skog prior to its divestment.



At December 31, 2004 Stora Ensos remaining biological assets had a fair value of 64.6 million (1,587.8
million) and were located by value in Portugal (83 percent), Canada (3 percent) and China (14 percent). In addition, the Group now has three associated companies where IAS 41 is taken into account in computing their results:



| |  |  | Bergvik Skog AB, the new 43.3 percent owned Swedish associate, had biological assets at a fair value of 2,622.6 million (SEK 23,657 million).
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Tornator Timberland Oy, a 41 percent owned associate which acquired the Groups Finnish forest interests in 2002, had biological assets at a fair value of 614.9 million
in 2004 (2003: 628.9 million).
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Veracel, a 50 percent owned associate in Brazil, also has substantial forest plantations fair valued at 70.0 million in 2004 (2003; 67.4 million), though with a growing
cycle of only seven years.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-41



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Biological assets



|                                                    |  |                    |   |  |          |  
|--------------------------------------------------- |  | ------------------ | - |  | -------- | -
|                                                    |  | As of December 31, |  
|                                                    |  | 2003               |   |  | 2004     |  
|                                                    |  | ( in millions)    |  
|Assets reclassified from Fixed Assets (see note 11) |  | 705.9              |   |  |          |  
|Fair valuation surplus                              |  | 855.8              |   |  |          |  
|                                                    |  |                    |   |  |          |  
|Initial IAS 41 Valuation as of January 1, 2003      |  | 1,561.7            |   |  |          |  
|                                                    |  |                    |   |  |          |  
|Carrying value as of January 1                      |  | 1,561.7            |   |  | 1,587.8  |  
|Translation difference                              |  | 8.3                |   |  | 6.4      |  
|Additions                                           |  | 7.2                |   |  | 4.5      |  
|Disposals                                           |  | (1.0               | ) |  | (1,541.2 | )
|Change in fair value                                |  | 116.2              |   |  | 37.5     |  
|Decrease due to harvest                             |  | (104.6             | ) |  | (30.4    | )
|                                                    |  |                    |   |  |          |  
|Carrying value as of December 31                    |  | 1,587.8            |   |  | 64.6     |  
|                                                    |  |                    |   |  |          |  



Note 13Associated Companies



Carrying Values



|                                                         |  |                 |   |  |       |   |  |       |  
|-------------------------------------------------------- |  | --------------- | - |  | ----- | - |  | ----- | -
|                                                         |  | 2002            |   |  | 2003  |   |  | 2004  |  
|                                                         |  | ( in millions) |  
|Historical Cost                                          |  |                 |   |  |       |   |  |       |  
|As of January 1                                          |  | 251.3           |   |  | 225.3 |   |  | 319.7 |  
|Translation difference                                   |  | (6.9            | ) |  | (7.0  | ) |  | (1.4  | )
|Additions                                                |  | 1.5             |   |  | 103.5 |   |  | 250.4 |  
|Disposal proceeds                                        |  | (185.5          | ) |  | (0.4  | ) |  | (0.1  | )
|Equity adjustments disposal                              |  | 60.8            |   |  |      |   |  |      |  
|Income statement  profit on disposal                    |  | 76.7            |   |  | 0.3   |   |  |      |  
|Subsidiary transfers                                     |  | 29.2            |   |  | (2.4  | ) |  | (1.9  | )
|Transfer to available-for-sale investments               |  | (1.8            | ) |  | 0.4   |   |  |      |  
|                                                         |  |                 |   |  |       |   |  |       |  
|Historical cost as of December 31                        |  | 225.3           |   |  | 319.7 |   |  | 566.7 |  
|                                                         |  |                 |   |  |       |   |  |       |  
|Equity Adjustment to Investments in Associated Companies |  |                 |   |  |       |   |  |       |  
|As of January 1                                          |  | 55.4            |   |  | (13.6 | ) |  | (0.7  | )
|Translation difference                                   |  | (13.6           | ) |  | (1.9  | ) |  | 0.1   |  
|Disposals                                                |  | (60.8           | ) |  |      |   |  |      |  
|Effect of adopting IAS 41 Agriculture                    |  |                |   |  | 44.0  |   |  |      |  
|Share of results before tax                              |  | 14.6            |   |  | (23.0 | ) |  | 38.9  |  
|Dividends received                                       |  | (9.5            | ) |  | (3.2  | ) |  | (7.5  | )
|Income taxes                                             |  | 0.3             |   |  | 1.7   |   |  | (8.4  | )
|OCI on Bergqvik Skog AB (note 24)                        |  |                |   |  |      |   |  | (19.0 | )
|Subsidiary transfers                                     |  |                |   |  | (4.7  | ) |  | (2.0  | )
|                                                         |  |                 |   |  |       |   |  |       |  
|Equity adjustment as of December 31                      |  | (13.6           | ) |  | (0.7  | ) |  | 1.4   |  
|                                                         |  |                 |   |  |       |   |  |       |  
|Carrying value of associated companies as of December 31 |  | 211.7           |   |  | 319.0 |   |  | 568.1 |  
|                                                         |  |                 |   |  |       |   |  |       |  



The principal addition
in both 2004 and 2003 related to the Groups Brazilian interests. Stora Enso and its Brazilian partner, Aracruz Celulose S.A., are constructing a 900,000 tones per year eucalyptus pulp mill for their jointly owned associate company Veracel
Celulose S.A. at Eunápolis in the state of Bahia, Brazil; each company



F-42



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



has a 50 percent stake and will be entitled to half of the mills output. The pulp mill project cost is estimated at $860 million in 2004 (2003: $631
million) with a further $80 million (2003: 59 million) for infrastructure, 400 million and 28 million having been spent to date respectively. An additional $300 million (220 million) has also been spent on forestry-related
activities and construction of infrastructure, mainly roads and a harbor. Construction of the mill began in mid-2003 and start-up is scheduled for mid-2005. The total investment is estimated at 917 million ($1,250 million), to be financed by
45 percent equity and 55 percent loans provided by a number of development banks, currently split equally between US dollars and local currency. Equity injections to date amount to 273.0 million (2003: 192.6 million) and after the
deduction of start-up costs of 22.5 million (2003: 24.8 million) and currency fluctuations of 60.7 million (2003: 63.1 million), gives a carrying value to the Group of 189.8 million (2003: 104.7 million) in 2004.



In March 2004, 56.7 percent of Stora Ensos Swedish
forest holding company, Bergvik Skog AB, was divested to institutional investors, leaving the Group with a minority shareholding of 43.3 percent valued at cost of 169.3 million (SEK 1,527 million). During the year, the carrying value has been
increased for the Groups post-divestment share of the result for the year of 24.2 million, less tax of 6.8 million, and reduced by 19.0 million on account of the net after-tax fair value loss on its cashflow hedge accounted
interest rate swap.



The principal addition in 2002 consisted
of the acquisition of a 41 percent holding in Tornator Timberland Oy, a company established in conjunction with Finnish financial institutions, in exchange for the divestment of the greater part of Stora Ensos Finnish forestry assets (see note
4). The intention is to further reduce the Group interest, but the holding will continue to be subject to equity accounting until it drops below 20 percent.



The principal disposal in 2002 related to the sale of 29.5 percent of Billerud ABs share capital for SEK 1,667 million (182.1 million),
resulting in a capital gain of SEK 702 million (76.7 million). The Group residual holding in Billerud since 2004 has comprised 300,000 shares, valued at 2.9 million (2003: 2.9 million) and representing 0.5 percent of the share
capital and votes; this is shown as a listed security under available-for-sale investments.



Principal Associated Companies



|                                                                    |  |          |  |                    |  |                |  |       |  |      
|------------------------------------------------------------------- |  | -------- |  | ------------------ |  | -------------- |  | ----- |  | -----
|                                                                    |  |          |  | As of December 31,
|                                                                    |  | Domicile |  | 2004               |  | 2002           |  | 2003  |  | 2004 
|                                                                    |  |          |  | %                  |  | ( in million)
|Bergvik Skog AB                                                     |  | Sweden   |  | 43.3               |  |               |  |      |  | 167.9
|Veracel Celulose S.A.: pulp mill & plantation                       |  | Brazil   |  | 50.0               |  | 27.3           |  | 104.7 |  | 189.8
|Tornator Timberland Oy : forest                                     |  | Finland  |  | 41.0               |  | 29.2           |  | 83.0  |  | 81.7 
|Sunila Oy : pulp mill                                               |  | Finland  |  | 50.0               |  | 45.3           |  | 44.4  |  | 48.8 
|Thiele Kaolin Company Inc: China clay                               |  | USA      |  | 34.9               |  | 34.1           |  | 37.1  |  | 36.6 
|Steveco Oy : stevedores                                             |  | Finland  |  | 34.3               |  | 14.9           |  | 12.5  |  | 9.3  
|Mitsubishi HiTec Paper Group (Bielefeld & Flensburg): office papers |  | Germany  |  | 24.0               |  | 22.2           |  | 7.3   |  | 7.2  
|Holzwerke Wimmer GmbH : timber processing(1)                        |  | Germany  |  | 49.0               |  | 6.8            |  | 5.6   |  | 7.6  
|AS Imavere Saeveski : sawmill (33.3% to subsidiaries in 2003)       |  | Estonia  |  | N/A                |  | 6.6            |  |      |  |     
|                                                                    |  |          |  |                    |  |                |  |       |  |      
|                                                                    |  |          |  |                    |  | 186.4          |  | 294.6 |  | 548.9
|Others                                                              |  |          |  |                    |  | 25.3           |  | 24.4  |  | 19.2 
|                                                                    |  |          |  |                    |  |                |  |       |  |      
|Carrying Value of Associated Companies as of December 31            |  |          |  |                    |  | 211.7          |  | 319.0 |  | 568.1
|                                                                    |  |          |  |                    |  |                |  |       |  |      

---

|(1) |  | To become a subsidiary in early 2005
|--- |  | ------------------------------------



F-43



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Related Party Balances



|                                        |  |                    |  |      |  |      
|--------------------------------------- |  | ------------------ |  | ---- |  | -----
|                                        |  | As of December 31,
|                                        |  | 2002               |  | 2003 |  | 2004 
|                                        |  | ( in millions)   
|Receivables from Associated Companies   |  |                    |  |      |  |      
|Long-term loan receivables              |  | 2.8                |  | 34.8 |  | 229.6
|Trade receivables                       |  | 16.0               |  | 21.6 |  | 28.9 
|Short-term loan receivables             |  | 6.2                |  | 14.4 |  | 9.5  
|Prepaid expenses and accrued income     |  | 0.6                |  | 0.8  |  | 0.9  
|Liabilities due to Associated Companies |  |                    |  |      |  |      
|Trade payables                          |  | 11.0               |  | 13.6 |  | 16.2 
|Accrued liabilities and deferred income |  | 0.3                |  | 0.1  |  | 6.4  



Related Party
Transactions



|                                                |  |                                 |  |       |  |      
|----------------------------------------------- |  | ------------------------------- |  | ----- |  | -----
|                                                |  | For the year ended December 31,
|                                                |  | 2002                            |  | 2003  |  | 2004 
|                                                |  | ( in millions)                
|Sales to associated companies                   |  | 119.0                           |  | 139.6 |  | 166.4
|Interest on associated company loan receivables |  | 0.4                             |  | 3.1   |  | 15.1 
|Purchases from associated companies             |  | 79.8                            |  | 54.2  |  | 150.0



The Group engages in
transactions with associated companies, such as sales of wood material and purchases of wood, energy and pulp products. All agreements are negotiated at arms length and are conducted on terms that the Group considers customary in the industry
and generally no less favorable than would be available from independent third parties.



Total loans to associates came to 239.1 million in 2004 (2003: 49.2 million) of which 178.8 million was due from Bergvik Skog and a further 38.3 million (2003: 34.8 million) from
Tornator. Interest income on associate loans totaled 15.1 million in 2004, of which 11.4 million came from Bergvik Skog and 3.1 million (2003: 2.9 million) from Tornator.



Note 14Available-for-Sale Investments



The Group classifies its investments into the three categories of trading,
held-to-maturity and available-for-sale; at the balance sheet date the Group held only available-for-sale investments. All available-for-sale investments are considered to be non-current assets unless they are expected to be realized within twelve
months.



Unrealized holding gains and losses on
available-for-sale securities are included, net of related taxes, in other comprehensive income. Other-than-temporary impairment losses and realized gains and losses of such securities are reported in earnings. Equity securities that are not
publicly traded are recorded at cost.



F-44



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Summary of Values



|                                               |  |                 |   |  |       |   |  |       |  
|---------------------------------------------- |  | --------------- | - |  | ----- | - |  | ----- | -
|                                               |  | 2002            |   |  | 2003  |   |  | 2004  |  
|                                               |  | ( in millions) |  
|Acquisition cost as of January 1               |  |                 |   |  |       |   |  |       |  
|Listed  Listed securities                     |  | 138.9           |   |  | 145.2 |   |  | 147.2 |  
|Unlisted  Shares in other companies           |  | 181.0           |   |  | 148.5 |   |  | 140.8 |  
|                                               |  |                 |   |  |       |   |  |       |  
|Investments reclassified as available-for-sale |  | 319.9           |   |  | 293.7 |   |  | 288.0 |  
|Effect of IAS 39 : OCI                         |  | 58.5            |   |  | 24.0  |   |  | 80.5  |  
|                                               |  |                 |   |  |       |   |  |       |  
|Available-for-Sale investments as of January 1 |  | 378.4           |   |  | 317.7 |   |  | 368.5 |  
|Translation difference                         |  | 0.8             |   |  | 0.1   |   |  | 0.1   |  
|Additions                                      |  | 12.8            |   |  | 28.4  |   |  | 13.2  |  
|Change in fair values (OCI)                    |  | (34.5           | ) |  | 56.5  |   |  | 2.5   |  
|Disposal proceeds                              |  | (44.4           | ) |  | (33.3 | ) |  | (32.8 | )
|Income Statement  Profit / loss on disposal   |  | 2.8             |   |  | (0.9  | ) |  | 1.4   |  
|Transfer from Associated Companies             |  | 1.8             |   |  |      |   |  |      |  
|                                               |  |                 |   |  |       |   |  |       |  
|Carrying Amount as of December 31              |  | 317.7           |   |  | 368.5 |   |  | 352.9 |  
|                                               |  |                 |   |  |       |   |  |       |  



Disposals



|                    |  |                                |  |      |   |  |       |  
|------------------- |  | ------------------------------ |  | ---- | - |  | ----- | -
|                    |  | For the year endedDecember 31, | 
|                    |  | 2002                           |  | 2003 |   |  | 2004  |  
|                    |  | ( in millions)                | 
|Sale proceeds       |  | 44.4                           |  | 33.3 |   |  | (32.8 | )
|Carrying value      |  | 41.6                           |  | 34.2 |   |  | 31.4  |  
|                    |  |                                |  |      |   |  |       |  
|Gain (loss) on sale |  | 2.8                            |  | (0.9 | ) |  | 1.4   |  
|                    |  |                                |  |      |   |  |       |  



Unrealized Gains
and Losses in Marketable Securities



|                                                                       |  |                                |   |  |       |   |  |       |  
|---------------------------------------------------------------------- |  | ------------------------------ | - |  | ----- | - |  | ----- | -
|                                                                       |  | For the year endedDecember 31, |  
|                                                                       |  | 2002                           |   |  | 2003  |   |  | 2004  |  
|                                                                       |  | ( in millions)                |  
|Unrealized holding gains                                               |  | 68.4                           |   |  | 92.9  |   |  | 111.2 |  
|Unrealized holding loss                                                |  | (44.4                          | ) |  | (12.4 | ) |  | (28.2 | )
|                                                                       |  |                                |   |  |       |   |  |       |  
|Net unrealized holding gains (OCI)                                     |  | 24.0                           |   |  | 80.5  |   |  | 83.0  |  
|Cost                                                                   |  | 293.7                          |   |  | 288.0 |   |  | 269.9 |  
|                                                                       |  |                                |   |  |       |   |  |       |  
|Market value                                                           |  | 317.7                          |   |  | 368.5 |   |  | 352.9 |  
|                                                                       |  |                                |   |  |       |   |  |       |  
|Net unrealized holding gains (OCI)                                     |  | 24.0                           |   |  | 80.5  |   |  | 83.0  |  
|Deferred tax                                                           |  | (7.6                           | ) |  | (24.1 | ) |  | (28.2 | )
|                                                                       |  |                                |   |  |       |   |  |       |  
|Unrealized holding gains shown in equity as OCI                        |  | 16.4                           |   |  | 56.4  |   |  | 54.8  |  
|                                                                       |  |                                |   |  |       |   |  |       |  
|Change for the year in unrealized holding gains shown in equity as OCI |  | (24.3                          | ) |  | 40.0  |   |  | (1.6  | )
|                                                                       |  |                                |   |  |       |   |  |       |  



The fair value of
publicly traded securities are based on quoted market prices at the balance sheet date whereas the fair value of other securities are assessed using a variety of methods and assumptions based on market conditions existing at each balance sheet date;
quoted market prices or dealer quotes for similar or identical securities may be obtained, alternatively, other techniques such as option pricing models and estimated discounted values of future cash flows, may also be used.



F-45



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Principal Available- for-Sale Investments



|                                                             |  |                         |  |                  |  |                  |  |             
|------------------------------------------------------------ |  | ----------------------- |  | ---------------- |  | ---------------- |  | ------------
|                                                             |  | As of December 31, 2004
|                                                             |  | Holding%                |  | Number of Shares |  | Acquisition Cost |  | Market Value
|                                                             |  |                         |  |                  |  | ( in millions) 
|Listed Securities                                            |  |                         |  |                  |  |                  |  |             
|Advance Agro PCL, Thailand                                   |  | 18.9                    |  | 100,536,328      |  | 69.1             |  | 46.5        
|Alfred Berg Global B (growth), Finland                       |  | 9.91                    |  | 5,414,836        |  | 4.5              |  | 3.1         
|Alfred Berg Euro Obligaatio Pro B (growth), Finland          |  | 1.7                     |  | 503,917          |  | 1.3              |  | 1.5         
|Alfred Berg Europe (growth), Finland                         |  | 7.4                     |  | 6,357,793        |  | 4.0              |  | 4.3         
|Billerud AB, Sweden                                          |  | 0.5                     |  | 300,000          |  | 1.8              |  | 2.9         
|CA-AM Dynarbitrage VaR4, France                              |  | 0.1                     |  | 390,000          |  | 2.0              |  | 2.1         
|CPI Group Ltd, Australia                                     |  | 7.6                     |  | 4,784,142        |  | 5.0              |  | 2.2         
|Finnlines Oyj, Finland                                       |  | 5.5                     |  | 2,209,340        |  | 1.9              |  | 28.3        
|FIM Russia (growth), Finland                                 |  | 1.3                     |  | 61,637           |  | 2.0              |  | 2.4         
|Nordea AB, Sweden                                            |  | 0.1                     |  | 3,091,213        |  | 7.3              |  | 23.0        
|Nordea Foresta (growth), Finland                             |  | 4.3                     |  | 5,000,000        |  | 0.8              |  | 1.8         
|Nordea Europa Plus (growth), Finland                         |  | 10.5                    |  | 2,991            |  | 2.0              |  | 2.2         
|Nordea Pro Euro Korko, Finland                               |  | 0.2                     |  | 329,000          |  | 2.9              |  | 3.0         
|Sampo Plc, A series, Finland                                 |  | 1.6                     |  | 8,911,140        |  | 25.7             |  | 90.5        
|Sea Containers Ltd, Bermuda                                  |  | 1.1                     |  | 195,904          |  | 3.2              |  | 2.8         
|Others                                                       |  |                        |  | N/A              |  | 3.6              |  | 3.5         
|                                                             |  |                         |  |                  |  |                  |  |             
|Total Listed Securities                                      |  |                         |  |                  |  | 137.1            |  | 220.1       
|Unlisted Shares                                              |  |                         |  |                  |  | 132.8            |  | 132.8       
|                                                             |  |                         |  |                  |  |                  |  |             
|Total Available-for-Sale Investments as of December 31, 2004 |  |                         |  |                  |  | 269.9            |  | 352.9       
|                                                             |  |                         |  |                  |  |                  |  |             
|Total Available-for-Sale Investments as of December 31, 2003 |  |                         |  |                  |  | 288.0            |  | 368.5       
|                                                             |  |                         |  |                  |  |                  |  |             



The net difference of
83.0 million in 2004 (2003: 80.5 million) between the market value in excess of the acquisition cost of the available-for-sale investments represents the OCI Reserve as shown in note 23.



Note 15Other Non-Current Assets



|                                                                   |  |                    |  |      
|------------------------------------------------------------------ |  | ------------------ |  | -----
|                                                                   |  | As of December 31,
|                                                                   |  | 2003               |  | 2004 
|                                                                   |  | ( in millions)   
|Stora Enso North America Corp.: over funded pension plan (note 20) |  | 124.4              |  | 170.3
|Others                                                             |  | 45.9               |  | 40.2 
|                                                                   |  |                    |  |      
|Total                                                              |  | 170.3              |  | 210.5
|                                                                   |  |                    |  |      



F-46



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Note 16Inventories



|                            |  |                    |   |  |         |  
|--------------------------- |  | ------------------ | - |  | ------- | -
|                            |  | As of December 31, |  
|                            |  | 2003               |   |  | 2004    |  
|                            |  | ( in millions)    |  
|Cutting rights              |  | 14.9               |   |  | 35.3    |  
|Materials and supplies      |  | 393.5              |   |  | 407.9   |  
|Work in progress            |  | 76.2               |   |  | 74.2    |  
|Finished goods              |  | 813.3              |   |  | 872.2   |  
|Spare parts and consumables |  | 299.2              |   |  | 316.5   |  
|Other inventories           |  | 31.9               |   |  | 29.9    |  
|Advance payments            |  | 29.4               |   |  | 72.7    |  
|Obsolescence provision      |  | (28.6              | ) |  | (30.2   | )
|Market value provision      |  | (6.3               | ) |  | (7.2    | )
|                            |  |                    |   |  |         |  
|Total                       |  | 1,623.5            |   |  | 1,771.3 |  
|                            |  |                    |   |  |         |  



Note 17Receivables



Short-term Receivables



|                                    |  |                    |   |  |         |  
|----------------------------------- |  | ------------------ | - |  | ------- | -
|                                    |  | As of December 31, |  
|                                    |  | 2003               |   |  | 2004    |  
|                                    |  | ( in millions)    |  
|Trade receivables                   |  | 1,461.2            |   |  | 1,565.2 |  
|Provision for doubtful debts        |  | (40.6              | ) |  | (39.8   | )
|Prepaid expenses and accrued income |  | 109.8              |   |  | 96.6    |  
|Other receivables                   |  | 172.9              |   |  | 243.3   |  
|                                    |  |                    |   |  |         |  
|Total                               |  | 1,703.3            |   |  | 1,865.3 |  
|                                    |  |                    |   |  |         |  



Receivables falling
due after one year are included in non-current receivables.



Loan Receivables



|                                                      |  |                    |  |      
|----------------------------------------------------- |  | ------------------ |  | -----
|                                                      |  | As of December 31,
|                                                      |  | 2003               |  | 2004 
|                                                      |  | ( in millions)   
|Restricted U.S. cash balance for cross-border leasing |  | 443.6              |  |     
|Derivative financial instruments (note 23)            |  | 277.0              |  | 193.9
|Associate company loans                               |  | 46.1               |  | 239.1
|Other loan receivables                                |  | 59.4               |  | 48.8 
|                                                      |  |                    |  |      
|                                                      |  | 826.1              |  | 481.8
|                                                      |  |                    |  |      
|                                                      |  |                   
|Current assets: Receivable within 12 months           |  | 781.8              |  | 248.7
|Non-current assets: Receivable after 12 months        |  | 44.3               |  | 233.1
|                                                      |  |                    |  |      
|Total                                                 |  | 826.1              |  | 481.8
|                                                      |  |                    |  |      



Annual interest rates
for loan receivables at December 31, 2004 ranged from 2.0 percent (2003: 1.77 percent) to 9.0 percent (2003: 7.1 percent). Due to the nature of the Group financial assets, their carrying value is considered to approximate their fair value.



F-47



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Note 18Shareholders Equity



Under the Articles of association, the minimum issued share capital of the Company is 850 million and the maximum
3,400 million, within the limits of which it may be increased or reduced without amendment to the Articles; the minimum number of shares that may be issued is 500 million and the maximum number 2,000 million. Series A shares entitle the holder
to one vote per share whereas Series R shares entitle the holder to one vote per ten shares with a minimum of one vote, though the nominal value of both shares is the same. The maximum number of Series A shares is 500 million and Series R shares,
1,600 million, the aggregate not exceeding 2,000 million. Series A shares may be converted into Series R shares at any time at the request of a shareholder. At December 31, 2004 the Companys fully paid-up share capital as entered in the
Finnish Trade Register was 1,423.3 million (2003: 1,469.3 million).



As from 1997, the Finnish Companies Act determined that the individual nominal value of shares would no longer be a fixed sum, but would instead represent the total value of the issued share capital divided by the
number of shares in issue. The current nominal value of each issued share is 1.70, unchanged from the previous year.



At December 31, 2004 Stora Enso Oyj held shares with an acquisition cost of 180.8 million (2003: 258.0 million), comprising 12,300 Series A
shares along with 16,795,984 Series R shares, and representing 2.2 percent of the share capital and 0.9 percent of voting rights. In late 2004 the Finnish Ministry of Social Affairs and Health approved changes to the Finnish statutory employment
pension scheme (TEL) principles for calculating disability pension liabilities under which the TELs disability pension component, previously treated as a defined benefit scheme, is to be accounted for as a defined contribution
liability in IFRS accounts. This allowed Stora Enso to release all but 4.4 million of the previously recorded provision under IFRS (911.9 million as of December 31, 2003). The effect on the IFRS income statement for 2004 is to reduce
defined benefit pension costs by 179.9 million to show a net income of 116.6 million. Under U.S. GAAP, the changes approved in the TEL had no impact on the accounting treatment of the disability pension component; it continues to be
qualify for treatment as a defined benefit scheme.



At the end
of 2004 directors and management group members owned 35,121 (2003: 34,175) Series A shares and 192,534 (2003: 2,862,910) Series R shares, representing less than 0.1 percent of the total voting rights of the Company. A full description of company
option programmes, along with full details of director and executive interests, is shown at note 27; at December 31, 2004 none of these programmes had a material impact on the issued share capital.



At December 31, 2004 shareholder equity amounted to 8,051.1 million
(2003: 7,952.9 million) against a market capitalization on the Helsinki Exchanges of 9.5 billion (2003: 9.3 billion); the market values of the shares were 11.55 (2003: 11.0) for A shares and 11.27 (2003:
10.68) for the R shares.



F-48



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Changes in Share Capital



|                                                                 |  |             |   |  |             |   |  |             |  
|---------------------------------------------------------------- |  | ----------- | - |  | ----------- | - |  | ----------- | -
|                                                                 |  | Series A    |   |  | Series R    |   |  | Total       |  
|As of January 1, 2002                                            |  | 184,273,585 |   |  | 722,479,714 |   |  | 906,753,299 |  
|Warrants exercised and registered January 10                     |  |            |   |  | 1,158,000   |   |  | 1,158,000   |  
|Cancellation of repurchased shares April 3                       |  | (813,200    | ) |  | (7,319,800  | ) |  | (8,133,000  | )
|Conversion of Series A shares to Series R shares September 16-27 |  | (1,143,700  | ) |  | 1,143,700   |   |  |            |  
|                                                                 |  |             |   |  |             |   |  |             |  
|As of December 31, 2002                                          |  | 182,316,685 |   |  | 717,461,614 |   |  | 899,778,299 |  
|Warrants exercised and registered January 9                      |  |            |   |  | 3,000       |   |  | 3,000       |  
|Cancellation of repurchased shares March 31                      |  | (93,800     | ) |  | (35,500,000 | ) |  | (35,593,800 | )
|Conversion of Series A shares to Series R shares June 16         |  | (16,118     | ) |  | 16,118      |   |  |            |  
|Conversion of Series A shares to Series R shares July 15         |  | (1,400      | ) |  | 1,400       |   |  |            |  
|Conversion of Series A shares to Series R shares August 15       |  | (34,200     | ) |  | 34,200      |   |  |            |  
|Conversion of Series A shares to Series R shares September 15    |  | (21,841     | ) |  | 21,841      |   |  |            |  
|Conversion of Series A shares to Series R shares October 15      |  | (502,923    | ) |  | 502,923     |   |  |            |  
|Conversion of Series A shares to Series R shares November 17     |  | (121,166    | ) |  | 121,166     |   |  |            |  
|Conversion of Series A shares to Series R shares December 12     |  | (314,157    | ) |  | 314,157     |   |  |            |  
|Warrants exercised and registered December 12                    |  |            |   |  | 75,000      |   |  |            |  
|                                                                 |  |             |   |  |             |   |  |             |  
|As of December 31, 2003                                          |  | 181,211,080 |   |  | 683,051,419 |   |  | 864,262,499 |  
|Warrants exercised and registered January 8                      |  |            |   |  | 27,000      |   |  | 27,000      |  
|Warrants exercised and registered January 15                     |  |            |   |  | 195,000     |   |  | 195,000     |  
|Conversion of Series A shares to Series R shares January 15      |  | (27,906     | ) |  | 27,906      |   |  |            |  
|Shares in issue as of January 15, 2004                           |  | 181,183,174 |   |  | 683,301,325 |   |  | 864,484,499 |  
|Conversion of Series A shares to Series R shares Feb 16          |  | (10,341     | ) |  | 10,341      |   |  |            |  
|Warrants exercised and registered Mar 4                          |  |            |   |  | 75,000      |   |  | 75,000      |  
|Cancellation of repurchased shares Apr 5                         |  | (8,100      | ) |  | (27,800,000 | ) |  | (27,808,100 | )
|Warrants exercised and registered Apr 8                          |  |            |   |  | 492,000     |   |  | 492,000     |  
|Conversion of Series A shares to Series R shares Apr 15          |  | (1,036,667  | ) |  | 1,036,667   |   |  |            |  
|Conversion of Series A shares to Series R shares May 14          |  | (32,437     | ) |  | 32,437      |   |  |            |  
|Conversion of Series A shares to Series R shares June 15         |  | (25,053     | ) |  | 25,053      |   |  |            |  
|Conversion of Series A shares to Series R shares July 15         |  | (9,805      | ) |  | 9,805       |   |  |            |  
|Conversion of Series A shares to Series R shares Aug 16          |  | (477        | ) |  | 477         |   |  |            |  
|Conversion of Series A shares to Series R shares Sept 15         |  | (1,000,100  | ) |  | 1,000,100   |   |  |            |  
|Conversion of Series A shares to Series R shares Oct 15          |  | (2,517      | ) |  | 2,517       |   |  |            |  
|Conversion of Series A shares to Series R shares Nov 15          |  | (500        | ) |  | 500         |   |  |            |  
|Conversion of Series A shares to Series R shares Dec 15          |  | (8,654      | ) |  | 8,654       |   |  |            |  
|                                                                 |  |             |   |  |             |   |  |             |  
|At of December 31, 2004                                          |  | 179,048,523 |   |  | 658,194,876 |   |  | 837,243,399 |  
|Conversion of Series A shares to Series R shares Jan 17          |  | (114        | ) |  | 114         |   |  |            |  
|                                                                 |  |             |   |  |             |   |  |             |  
|Shares in Issue of January 17, 2005                              |  | 179,048,409 |   |  | 658,194,990 |   |  | 837,243,399 |  
|                                                                 |  |             |   |  |             |   |  |             |  
|Number of votes as of December 31, 2004                          |  | 179,048,523 |   |  | 65,819,488  |   |  | 244,868,011 |  
|                                                                 |  |             |   |  |             |   |  |             |  
|Share Capital as of 31 December 2004,  million                  |  | 304.4       |   |  | 1,118.9     |   |  | 1,423.3     |  
|                                                                 |  |             |   |  |             |   |  |             |  
|Share Capital as of December 31, 2003,  million                 |  | 308.1       |   |  | 1,161.2     |   |  | 1,469.3     |  
|                                                                 |  |             |   |  |             |   |  |             |  
|Share Capital as of December 31, 2002,  million                 |  | 309.9       |   |  | 1,219.7     |   |  | 1,529.6     |  
|                                                                 |  |             |   |  |             |   |  |             |  

---

Nominal Value for all Shares is 1.70.

The shares in issue at January 17, 2005 represent the total shares eligible to vote at the forthcoming Annual General Meeting.



F-49



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Treasury Shares



|                                          |  |                  |   |  |                   |   |  |             |   |  |        |  
|----------------------------------------- |  | ---------------- | - |  | ----------------- | - |  | ----------- | - |  | ------ | -
|                                          |  | Number of Shares |   |  | Cost in millions |  
|                                          |  | Series A         |   |  | Series R          |   |  | Total       |   | 
|Shares held as of January 1, 2003         |  | 85,400           |   |  | 28,257,531        |   |  | 28,342,931  |   |  | 314.9  |  
|Total shares repurchased in the year      |  | 16,500           |   |  | 33,471,600        |   |  | 33,488,100  |   |  | 319.6  |  
|Shares cancelled                          |  | (93,800          | ) |  | (35,500,000       | ) |  | (35,593,800 | ) |  | (376.0 | )
|Shares allocated to Option Programs       |  |                 |   |  | (47,752           | ) |  | (47,752     | ) |  | (0.5   | )
|                                          |  |                  |   |  |                   |   |  |             |   |  |        |  
|Total shares held as of December 31, 2003 |  | 8,100            |   |  | 26,181,379        |   |  | 26,189,479  |   |  | 258.0  |  
|                                          |  |                  |   |  |                   |   |  |             |   |  |        |  
|Total shares repurchased in the year      |  | 12,300           |   |  | 18,461,600        |   |  | 18,473,900  |   |  | 199.0  |  
|Shares cancelled                          |  | (8,100           | ) |  | (27,800,000       | ) |  | (27,808,100 | ) |  | (275.8 | )
|Shares allocated to Option Programs       |  |                 |   |  | (48,048           | ) |  | (48,048     | ) |  | (0.4   | )
|                                          |  |                  |   |  |                   |   |  |             |   |  |        |  
|Total shares held as of December 31, 2004 |  | 12,300           |   |  | 16,794,931        |   |  | 16,807,231  |   |  | 180.8  |  
|                                          |  |                  |   |  |                   |   |  |             |   |  |        |  



The Annual General
Meeting on March 18, 2004 decided to reduce the Companys share capital by 47.3 million by canceling 8,100 A shares and 27,800,000 R shares; these shares were repurchased between March 2003 and February 2004 under authorization granted by
the previous Annual General Meeting.



Groups
Distributable Equity



At December 31, 2004 the
Groups distributable equity amounted to 3,674.6 million (2003: 2,418.9 million), being retained earnings of 5,950.7 million (2003: 5,586.7 million) less 2,276.1 million (2003: 3,167.8 million) for
non-distributable translation differences, treasury shares and untaxed reserves.



Dividends



During the
year-ended December 31, 2004, the Company paid a dividend of 375.7 or 0.45 per share, compared to a dividend of 387.7 million or 0.45 per share during the year-ended December 31, 2003.



Note 19Minority Interests



In December 2004 Stora Enso closed its acquisition of 65.5 percent of the
Polish packaging producer Intercell SA. The fair value of the net assets acquired, including net cash and deferred tax liabilities, amounted to 201.2 million, of which the accounting value of the minority interest was 69.4 million, with
another 0.5 million minority within the Intercell group.



In February 2003 Stora Enso Timber acquired a 66 percent ownership of AS Sylvesters sawmilling operations in the Baltic States, the 34 percent direct minority amounting to 26.2 million with a further 3.8 percent indirect
minority within Imavere Sawmill valued at 1.4 million. The original purchase agreement provided for the buy-out of the remaining AS Sylvester minority in 2005 for a consideration to be determined by performance targets; this is expected to be
completed in the first quarter of 2005 upon which, subject to the small minority in the Imavere operation, Stora Enso Timbers Baltic operations will become 100 percent owned.



In December 2002 the Group completed the disposal of the greater part of its Finnish forest holdings to a new company,
Tornator Timberland Oy, thereby disposing of a minority of 17.6 million.



F-50



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Minority Interests



|                       |  |                                 |   |  |      |   |  |       |  
|---------------------- |  | ------------------------------- | - |  | ---- | - |  | ----- | -
|                       |  | For the year ended December 31, |  
|                       |  | 2002                            |   |  | 2003 |   |  | 2004  |  
|                       |  | ( in millions)                 |  
|As of January 1        |  | 50.2                            |   |  | 30.4 |   |  | 60.3  |  
|Translation difference |  | (2.0                            | ) |  | (1.6 | ) |  | (0.3  | )
|Acquisitions           |  |                                |   |  | 27.6 |   |  | 69.9  |  
|Disposals              |  | (17.4                           | ) |  |     |   |  |      |  
|Income Statement       |  | (0.1                            | ) |  | 5.8  |   |  | 8.1   |  
|Dividends              |  | (0.3                            | ) |  | (1.9 | ) |  | (1.9  | )
|                       |  |                                 |   |  |      |   |  |       |  
|As of December 31      |  | 30.4                            |   |  | 60.3 |   |  | 136.1 |  



Principal Minority
Interests



|                                                       |  |         |  |                    |  |      |  |      
|------------------------------------------------------ |  | ------- |  | ------------------ |  | ---- |  | -----
|                                                       |  |         |  | As of December 31,
|                                                       |  |         |  | 2002               |  | 2003 |  | 2004 
|                                                       |  |         |  | ( in millions)   
|Intercell S. A. Group                                  |  | Poland  |  |                   |  |     |  | 69.9 
|Stora Enso Timber Group                                |  | Estonia |  |                   |  | 27.5 |  | 29.0 
|Corenso United Oy Group                                |  | Finland |  | 17.3               |  | 16.9 |  | 18.3 
|Enocell Oy                                             |  | Finland |  | 4.3                |  | 4.2  |  | 4.2  
|FPB Holding GmbH & Co. KG (the former Feldmühle Group) |  | Germany |  | 2.0                |  | 2.0  |  | 2.0  
|Fortek Oy                                              |  | Finland |  | 2.9                |  | 3.9  |  | 3.5  
|Others                                                 |  |        |  | 3.9                |  | 5.8  |  | 9.2  
|                                                       |  |         |  |                    |  |      |  |      
|                                                       |  |         |  | 30.4               |  | 60.3 |  | 136.1
|                                                       |  |         |  |                    |  |      |  |      



Note 20Post-employment
Benefits



The Group has established a number of pension
plans for its operations throughout the world. In Finland pension cover since 2001 has been entirely arranged through local insurance companies, whereas in Sweden cover is arranged through both insurance companies and book reserves in accordance
with the Swedish PRI/FPG System. Pension arrangements outside Scandinavia are made in accordance local regulations and practice, mostly being defined benefit pension plans with retirement, disability, death and termination income
benefits; the retirement benefits are generally a function of years worked and final salary and are coordinated with national pensions. The Group also has some fully insured plans and defined contribution plans, the charge to the income statement
for the latter amounting to 201.8 million (2003: 223.4 million; 2002: 217.1 million) for the year 2004.



Group policy for funding its defined benefit plans is intended to satisfy local statutory funding requirements for tax deductible contributions, together
with adjusting to market rates the discount rates used in actuarial calculations of liability in book reserves; the charge in the income statement for year amounted to 63.3 million in 2004 (2003: 104.5 million; 2002: 88.5 million)
before the below adjustment relating to the Finnish statutory employment pension scheme.



The Group also funds certain other post-employment benefits in North America relating to retirement medical and life insurance programmes, the charge for the year being a gain of 32.9 million as compared with an
expense in 2003 of 31.4 million and an expense in 2002 of 35.2 million; the gain was as a result of the changes in US healthcare plans detailed below which had a positive effect of 76.8 million.



F-51



---

`STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Retirement age for the management of Group companies has been agreed at between 60 and 65 years and
for members of the Executive Management Group, 60.



In late
2004 the Finnish Ministry of Social Affairs and Health approved changes to the Finnish statutory employment pension scheme (TEL) principles for calculating disability pension liabilities under which the TELs disability pension
component, previously treated as a defined benefit scheme, is to be accounted for as a defined contribution liability under IFRS. This allowed Stora Enso to release all but 4.4 million of the previously recorded provision (184.3 million
as of December 31, 2003). The effect on the income statement for 2004 was to reduce defined benefit pension costs by 179.9 million, offset by deferred tax thereon of 52.2 million.



Also in 2004, changes in US healthcare plans had a one-time positive non-cash
effect of $96.4 million (78.6 million), before taxes. This arose as a reversal of expenses already taken in respect of various US retiree healthcare programs provided to both current and future retirees that are now being modified. These
measures were taken as part of the fixed cost reduction programs in Stora Enso North America.



Pension and Post-Employment Benefit Provisions



|                                                                                  |  |                    |  |      
|--------------------------------------------------------------------------------- |  | ------------------ |  | -----
|                                                                                  |  | As of December 31,
|                                                                                  |  | 2003               |  | 2004 
|                                                                                  |  | ( in millions)   
|Defined benefit plans                                                             |  | 572.7              |  | 343.6
|Other post-employment benefits                                                    |  | 214.8              |  | 123.9
|Stora Enso North America Corp.: Overfunded pension plan shown in assets (note 15) |  | 124.4              |  | 170.3
|                                                                                  |  |                    |  |      
|Total Liability                                                                   |  | 911.9              |  | 637.8
|                                                                                  |  |                    |  |      



Balance Sheet
Reconciliation



|                                |  |                    |   |  |        |  
|------------------------------- |  | ------------------ | - |  | ------ | -
|                                |  | As of December 31, |  
|                                |  | 2003               |   |  | 2004   |  
|                                |  | ( in millions)    |  
|Net liability as of January 1   |  | 919.0              |   |  | 911.9  |  
|Translation difference          |  | (37.7              | ) |  | (14.3  | )
|Acquisition                     |  | 1.3                |   |  | 0.6    |  
|Increase                        |  | 121.7              |   |  | 82.5   |  
|Decrease                        |  | (92.4              | ) |  | (342.9 | )
|                                |  |                    |   |  |        |  
|Net liability as of December 31 |  | 911.9              |   |  | 637.8  |  
|                                |  |                    |   |  |        |  



Amounts Recognized
in the Balance Sheet



|                                        |  |                              |   |  |                                |   |  |        |   |  |        |  
|--------------------------------------- |  | ---------------------------- | - |  | ------------------------------ | - |  | ------ | - |  | ------ | -
|                                        |  | As of December 31,           |  
|                                        |  | Defined BenefitPension Plans |   |  | Other Post-Employment Benefits |  
|                                        |  | 2003                         |   |  | 2004                           |   |  | 2003   |   |  | 2004   |  
|                                        |  | ( in millions)              |   |  | ( in millions)                |  
|Present value of funded obligations     |  | 923.2                        |   |  | 1,018.6                        |   |  | 7.7    |   |  | 35.8   |  
|Present value of unfunded obligations   |  | 625.6                        |   |  | 573.3                          |   |  | 396.8  |   |  | 298.9  |  
|Fair value of plan assets               |  | (693.4                       | ) |  | (818.4                         | ) |  | (7.3   | ) |  | (35.3  | )
|Unrecognized actuarial gains and losses |  | (263.7                       | ) |  | (418.2                         | ) |  | (201.4 | ) |  | (188.3 | )
|Unrecognized prior service cost         |  | (8.4                         | ) |  | (11.7                          | ) |  | 8.4    |   |  | 12.8   |  
|                                        |  |                              |   |  |                                |   |  |        |   |  |        |  
|Net liability in the balance sheet      |  | 583.3                        |   |  | 343.6                          |   |  | 204.2  |   |  | 123.9  |  
|                                        |  |                              |   |  |                                |   |  |        |   |  |        |  



F-52



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Amounts Recognized in the Income Statement



|                                                |  |                                 |   |  |                                |   |  |        |   |  |      |   |  |      |   |  |       |  
|----------------------------------------------- |  | ------------------------------- | - |  | ------------------------------ | - |  | ------ | - |  | ---- | - |  | ---- | - |  | ----- | -
|                                                |  | For the year ended December 31, |  
|                                                |  | Defined BenefitPension Plans    |   |  | Other Post-Employment Benefits |  
|                                                |  | 2002                            |   |  | 2003                           |   |  | 2004   |   |  | 2002 |   |  | 2003 |   |  | 2004  |  
|                                                |  | ( in millions)                 |   |  | ( in millions)                |  
|Current service cost                            |  | 39.1                            |   |  | 39.8                           |   |  | 38.1   |   |  | 7.1  |   |  | 5.6  |   |  | 8.5   |  
|Interest cost                                   |  | 88.9                            |   |  | 80.8                           |   |  | 73.5   |   |  | 24.6 |   |  | 21.5 |   |  | 22.1  |  
|Expected return on plan assets                  |  | (55.8                           | ) |  | (41.4                          | ) |  | (67.5  | ) |  | (2.1 | ) |  | (1.0 | ) |  | (1.8  | )
|Net actuarial losses (gains) recognized in year |  | 16.3                            |   |  | 25.1                           |   |  | 20.1   |   |  | 5.6  |   |  | 6.8  |   |  | (61.7 | )
|Settlements                                     |  |                                |   |  |                               |   |  | (180.8 | ) |  |     |   |  |     |   |  |      |  
|Loss curtailment                                |  |                                |   |  | 0.2                            |   |  |       |   |  |     |   |  | (1.5 | ) |  |      |  
|                                                |  |                                 |   |  |                                |   |  |        |   |  |      |   |  |      |   |  |       |  
|Total included in personnel expenses            |  | 88.5                            |   |  | 104.5                          |   |  | (116.6 | ) |  | 35.2 |   |  | 31.4 |   |  | (32.9 | )
|                                                |  |                                 |   |  |                                |   |  |        |   |  |      |   |  |      |   |  |       |  



The actual return on
plan assets was 71.7 million in 2004, compared to 86.8 million in 2003 and 29.4 million in 2002.



Defined Benefit Plans: Country Assumptions Used in Calculating Benefit Obligations



|                                                      |  |                                 |  |         |  |         |  |        |  |               |  |      |  |      |  |      |  |      |  |     
|----------------------------------------------------- |  | ------------------------------- |  | ------- |  | ------- |  | ------ |  | ------------- |  | ---- |  | ---- |  | ---- |  | ---- |  | ----
|                                                      |  | For the year ended December 31,
|                                                      |  | 2003                            |  | 2004    |  | 2003    |  | 2004   |  | 2003          |  | 2004 |  | 2003 |  | 2004 |  | 2003 |  | 2004
|                                                      |  | Canada                          |  | Finland |  | Germany |  | Sweden |  | United States
|Discount rate %                                       |  | 7.0                             |  | 6.3     |  | 5.3     |  | 5.0    |  | 5.5           |  | 5.2  |  | 5.5  |  | 5.5  |  | 6.0  |  | 5.8 
|Expected return on plan assets %                      |  | 7.5                             |  | 7.5     |  | 5.3     |  | 5.0    |  | 4.5           |  | 4.5  |  | n/a  |  | n/a  |  | 8.5  |  | 8.0 
|Future salary increase %                              |  | 2.0                             |  | 2.0     |  | 4.5     |  | 5.0    |  | 2.5           |  | 2.5  |  | 3.0  |  | 3.0  |  | 5.0  |  | 5.0 
|Future pension increases %                            |  | 1.5                             |  | 2.0     |  | 2.3     |  | 2.3    |  | 1.5           |  | 1.5  |  | 2.0  |  | 2.0  |  | 0.0  |  | 0.0 
|Expected average remaining working years of employees |  | 14.7                            |  | 14.7    |  | 13.0    |  | 13.0   |  | 13.1          |  | 12.5 |  | 14.0 |  | 13.0 |  | 15.5 |  | 12.0



Benefit Plan
Reconciliation



|                                               |  |                                 |   |  |                               |   |  |       |   |  |       |  
|---------------------------------------------- |  | ------------------------------- | - |  | ----------------------------- | - |  | ----- | - |  | ----- | -
|                                               |  | Defined BenefitPension Plans    |   |  | Other Post-EmploymentBenefits |  
|                                               |  | For the year ended December 31, |  
|                                               |  | 2003                            |   |  | 2004                          |   |  | 2003  |   |  | 2004  |  
|                                               |  | ( in millions)                 |   |  | ( in millions)               |  
|Net liability as of January 1                  |  | 523.9                           |   |  | 583.3                         |   |  | 231.7 |   |  | 204.2 |  
|Translation difference                         |  | 27.3                            |   |  | 14.3                          |   |  | (37.3 | ) |  | (14.9 | )
|Acquisition                                    |  | 1.3                             |   |  |                              |   |  |      |   |  | 0.3   |  
|Net expense recognized in the income statement |  | 104.5                           |   |  | (116.6                        | ) |  | 31.4  |   |  | (32.9 | )
|Contributions paid                             |  | (82.1                           | ) |  | (128.0                        | ) |  | (21.6 | ) |  | (32.8 | )
|Settlements                                    |  | 8.4                             |   |  | (9.4                          | ) |  |      |   |  |      |  
|                                               |  |                                 |   |  |                               |   |  |       |   |  |       |  
|Net liability in the balance sheet             |  | 583.3                           |   |  | 343.6                         |   |  | 204.2 |   |  | 123.9 |  
|                                               |  |                                 |   |  |                               |   |  |       |   |  |       |  



F-53



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Benefit Plan Summary by Country



|                                        |  |                                      |   |  |         |   |  |         |   |  |        |   |  |              |   |  |       |   |  |         |  
|--------------------------------------- |  | ------------------------------------ | - |  | ------- | - |  | ------- | - |  | ------ | - |  | ------------ | - |  | ----- | - |  | ------- | -
|                                        |  | For the year ended December 31, 2004 |  
|                                        |  | Canada                               |   |  | Finland |   |  | Germany |   |  | Sweden |   |  | UnitedStates |   |  | Other |   |  | Total   |  
|                                        |  | ( in millions)                      |  
|Present value of funded obligations     |  | 158.5                                |   |  | 257.8   |   |  | 5.7     |   |  |       |   |  | 571.9        |   |  | 60.5  |   |  | 1,054.4 |  
|Present value of unfunded obligations   |  | 18.5                                 |   |  |        |   |  | 256.0   |   |  | 247.2  |   |  | 313.7        |   |  | 36.8  |   |  | 872.2   |  
|Fair value of plan assets               |  | (153.7                               | ) |  | (68.9   | ) |  | (2.9    | ) |  |       |   |  | (571.9       | ) |  | (56.3 | ) |  | (853.7  | )
|Unrecognized actuarial gains and losses |  | (36.8                                | ) |  | (167.4  | ) |  | (1.7    | ) |  | (25.8  | ) |  | (367.9       | ) |  | (5.8  | ) |  | (605.4  | )
|                                        |  |                                      |   |  |         |   |  |         |   |  |        |   |  |              |   |  |       |   |  |         |  
|Net liability in the balance sheet      |  | (13.5                                | ) |  | 21.5    |   |  | 257.1   |   |  | 221.4  |   |  | (54.2        | ) |  | 35.2  |   |  | 467.5   |  
|                                        |  |                                      |   |  |         |   |  |         |   |  |        |   |  |              |   |  |       |   |  |         |  
|Represented by                          |  |                                      |   |  |         |   |  |         |   |  |        |   |  |              |   |  |       |   |  |         |  
|Defined Benefit Pension Plans           |  | (23.0                                | ) |  | 21.5    |   |  | 257.1   |   |  | 221.4  |   |  | (161.8       | ) |  | 28.4  |   |  | 343.6   |  
|Other Post-Employment Benefits          |  | 9.5                                  |   |  |        |   |  |        |   |  |       |   |  | 107.6        |   |  | 6.8   |   |  | 123.9   |  
|                                        |  |                                      |   |  |         |   |  |         |   |  |        |   |  |              |   |  |       |   |  |         |  
|Net Liability in the Balance Sheet      |  | (13.5                                | ) |  | 21.5    |   |  | 257.1   |   |  | 221.4  |   |  | (54.2        | ) |  | 35.2  |   |  | 467.5   |  
|                                        |  |                                      |   |  |         |   |  |         |   |  |        |   |  |              |   |  |       |   |  |         |  



Benefit Plan
Summary by Country



|                                        |  |                                      |   |  |         |   |  |         |   |  |        |   |  |              |   |  |       |   |  |         |  
|--------------------------------------- |  | ------------------------------------ | - |  | ------- | - |  | ------- | - |  | ------ | - |  | ------------ | - |  | ----- | - |  | ------- | -
|                                        |  | For the year ended December 31, 2003 |  
|                                        |  | Canada                               |   |  | Finland |   |  | Germany |   |  | Sweden |   |  | UnitedStates |   |  | Other |   |  | Total   |  
|                                        |  | ( in millions)                      |  
|Present value of funded obligations     |  | 149.8                                |   |  | 289.1   |   |  | 5.2     |   |  |       |   |  | 441.0        |   |  | 45.8  |   |  | 930.9   |  
|Present value of unfunded obligations   |  | 16.7                                 |   |  |        |   |  | 254.4   |   |  | 237.1  |   |  | 495.6        |   |  | 18.6  |   |  | 1,022.4 |  
|Fair value of plan assets               |  | (138.2                               | ) |  | (77.2   | ) |  | (2.8    | ) |  |       |   |  | (441.0       | ) |  | (41.5 | ) |  | (700.7  | )
|Unrecognized actuarial gains and losses |  | (33.9                                | ) |  | (11.0   | ) |  | 3.6     |   |  | (12.7  | ) |  | (409.5       | ) |  | (1.6  | ) |  | (465.1  | )
|                                        |  |                                      |   |  |         |   |  |         |   |  |        |   |  |              |   |  |       |   |  |         |  
|Net liability in the balance sheet      |  | (5.6                                 | ) |  | 200.9   |   |  | 260.4   |   |  | 224.4  |   |  | 86.1         |   |  | 21.3  |   |  | 787.5   |  
|                                        |  |                                      |   |  |         |   |  |         |   |  |        |   |  |              |   |  |       |   |  |         |  
|Represented by                          |  |                                      |   |  |         |   |  |         |   |  |        |   |  |              |   |  |       |   |  |         |  
|Defined Benefit Pension Plans           |  | (15.0                                | ) |  | 200.9   |   |  | 260.4   |   |  | 224.4  |   |  | (102.8       | ) |  | 15.4  |   |  | 583.3   |  
|Other Post-Employment Benefits          |  | 9.4                                  |   |  |        |   |  |        |   |  |       |   |  | 188.9        |   |  | 5.9   |   |  | 204.2   |  
|                                        |  |                                      |   |  |         |   |  |         |   |  |        |   |  |              |   |  |       |   |  |         |  
|Net liability in the balance sheet      |  | (5.6                                 | ) |  | 200.9   |   |  | 260.4   |   |  | 224.4  |   |  | 86.1         |   |  | 21.3  |   |  | 787.5   |  
|                                        |  |                                      |   |  |         |   |  |         |   |  |        |   |  |              |   |  |       |   |  |         |  



Note 21Borrowings



In December 2004 Stora Enso Oyj issued a five year SEK
4.3 billion bond in order to restructure the Companys debt portfolio and take advantage of favorable market conditions; the bond pays a fixed coupon of 3.875 percent. In June 2004 the Group created a new ten year bond by offering to exchange
its existing 850 million 2007 bond; 475 million of notes were exchanged, 55.9 percent of the total, the transaction extending the average maturity of all debt by one year.



In January 2005 Stora Enso Oyj signed a five year 1.75 billion multi-currency revolving credit facility agreement
which replaced a previous 2.5 billion facility signed in 2003.



Borrowings have various maturities, the latest being in 2023, and have either fixed or floating interest rates ranging from 1.0 percent (2003: 1.0 percent) to 9.99 percent (2003: 9.99 percent) in 2004. The majority of Group loans are
denominated in Euros, the principal other currencies being Swedish Kronas and US Dollars. At December 31, 2004 the Groups unused committed credit facilities totaled 2,712.7 million (2003: 2,500.0 million), of which 0.0
million (2003: 0.0 million) was classified as short-term.



F-54



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



In 2004 Stora Enso bought back bonds with a nominal value of SEK 469 million (52.6 million),
resulting in a loss in financial items of SEK 1 million (0.1 million).



In 2003 Stora Enso bought back bonds with a nominal value of SEK 110 million (12.1 million) at par and 22.1 million resulting in a loss in financial items of 0.7 million.



In 2002 Stora Enso bought back bonds with a nominal value of SEK 797 million
(87.1 million), resulting in a loss in financial items of SEK 4.7 million (0.5 million), $35.0 million (37.0 million) at par and 88.0 million resulting in a loss of 2.2 million.



The Company is required to comply with certain covenants within the debt
arrangements which include maintaining a minimum level of consolidated net worth and ensuring that certain indebtedness does not exceed thresholds based on the Companys consolidated net assets. As of December 31, 2004, the Company was in
compliance with its debt covenants.



Country/Area Breakdown



|              |  |                                  |   |  |                   |   |  |          |  |         
|------------- |  | -------------------------------- | - |  | ----------------- | - |  | -------- |  | --------
|              |  | As of December 31,              
|              |  | Net interest-bearing Liabilities |   |  | Operating Capital
|              |  | 2003                             |   |  | 2004              |   |  | 2003     |  | 2004    
|              |  | ( in millions)                  |   |  | ( in millions)  
|Euro area     |  | 975.1                            |   |  | 1,950.7           |   |  | 6,236.7  |  | 6,299.7 
|Sweden        |  | 1,183.7                          |   |  | (131.4            | ) |  | 3,630.4  |  | 2,131.6 
|United States |  | 1,515.7                          |   |  | 1,131.7           |   |  | 2,457.1  |  | 2,346.8 
|Canada        |  | 19.4                             |   |  | 29.5              |   |  | 492.5    |  | 476.2   
|China         |  | 129.2                            |   |  | 107.8             |   |  | 157.2    |  | 147.0   
|UK            |  | (22.5                            | ) |  | (34.3             | ) |  | 18.9     |  | 2.8     
|Other         |  | 118.4                            |   |  | (2.6              | ) |  | 555.6    |  | 766.2   
|              |  |                                  |   |  |                   |   |  |          |  |         
|Total         |  | 3,919.0                          |   |  | 3,051.4           |   |  | 13,548.4 |  | 12,170.3
|              |  |                                  |   |  |                   |   |  |          |  |         



Repayment Schedule
of Long-term Debt



|                                                         |  |                    |  |       |  |       |  |       |  |       |  |         |  |        
|-------------------------------------------------------- |  | ------------------ |  | ----- |  | ----- |  | ----- |  | ----- |  | ------- |  | -------
|                                                         |  | As of December 31,
|                                                         |  | 2005               |  | 2006  |  | 2007  |  | 2008  |  | 2009  |  | 2010+   |  | Total  
|                                                         |  | ( in millions)   
|Bond loans                                               |  | 3.9                |  | 305.4 |  | 423.3 |  | 165.1 |  | 471.5 |  | 1,397.1 |  | 2,766.3
|Loans from credit institutions                           |  | 89.7               |  | 34.6  |  | 154.5 |  | 49.9  |  | 31.5  |  | 133.0   |  | 493.2  
|Financial lease liabilities                              |  | 8.0                |  | 8.0   |  | 7.8   |  | 7.5   |  | 7.5   |  | 124.7   |  | 163.5  
|Other long-term liabilities                              |  | 0.5                |  | 3.2   |  | 0.3   |  | 0.2   |  | 0.1   |  | 2.9     |  | 7.2    
|                                                         |  |                    |  |       |  |       |  |       |  |       |  |         |  |        
|Total long-term debt                                     |  | 102.1              |  | 351.2 |  | 585.9 |  | 222.7 |  | 510.6 |  | 1,657.7 |  | 3430.2 
|                                                         |  |                    |  |       |  |       |  |       |  |       |  |         |  |        
|Current liabilities: repayable within the next 12 months |  |                    |  |       |  |       |  |       |  |       |  |         |  | 102.1  
|                                                         |  |                    |  |       |  |       |  |       |  |       |  |         |  |        
|Long-term liabilities: repayable after 12 months         |  |                    |  |       |  |       |  |       |  |       |  |         |  | 3,328.1
|                                                         |  |                    |  |       |  |       |  |       |  |       |  |         |  |        



Due to the short-term
nature of most Group financial liabilities, their carrying value is considered to approximate their fair value. However, the fair value of long-term term debt, exclusive of the current part, has a value of 3,600.9 million in 2004 (2003:
3,626.1 million) as against a carrying value of 3,328.1 million (2003: 3,404.6 million).



F-55



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Bonds Loans in Long-term Debt



|                                       |  |                                |  |                 |  |                  |  |                      |  |                               |  |                                 |  |         |  |      
|-------------------------------------- |  | ------------------------------ |  | --------------- |  | ---------------- |  | -------------------- |  | ----------------------------- |  | ------------------------------- |  | ------- |  | -----
|Issue / Maturity Dates                 |  | Description Of Bond            |  | Interest Rate % |  | Currency of Bond |  | Nominal Value Issued |  | Outstanding asof December 31, |  | Carrying Valueas of December31,
|                                       |  |                                |  |                 |  |                  |  |                      |  | 2003                          |  | 2004                            |  | 2003    |  | 2004 
|                                       |  |                                |  |                 |  |                  |  | Currency million     |  |  million                    
|Fixed Rate                             |  |                                |  |                 |  |                  |  |                      |  |                               |  |                                 |  |        
|1991-2006                              |  | Series C Senior Notes 2006 *   |  | 9.99            |  | $                |  | 50.4                 |  | 37.3                          |  | 30.1                            |  | 29.6    |  | 22.1 
|1993-2019                              |  | Series C Senior Notes 2019 *   |  | 8.60            |  | $                |  | 50.0                 |  | 50.0                          |  | 50.0                            |  | 39.6    |  | 36.7 
|1996-2006                              |  | Swedish Medium Term Note *     |  | 7.90            |  | SEK              |  | 470.0                |  | 470.0                         |  | 309.0                           |  | 61.3    |  | 34.4 
|1997-2007                              |  | Senior Notes Series B 2007     |  | 6.82            |  | $                |  | 102.0                |  | 102.0                         |  | 102.0                           |  | 86.3    |  | 75.2 
|1997-2009                              |  | Senior Notes Series C 2009     |  | 6.90            |  | $                |  | 48.5                 |  | 48.5                          |  | 48.5                            |  | 41.3    |  | 35.0 
|1997-2012                              |  | Senior Notes Series D 2012     |  | 7.00            |  | $                |  | 22.5                 |  | 22.5                          |  | 22.5                            |  | 19.2    |  | 16.3 
|1997-2017                              |  | Senior Notes Series E 2017     |  | 7.14            |  | $                |  | 23.0                 |  | 23.0                          |  | 23.0                            |  | 17.3    |  | 16.1 
|1997-2017                              |  | Euro Medium Term Note *        |  | 4.105           |  | JPY              |  | 10,000               |  | 10,000                        |  | 10,000                          |  | 74.0    |  | 71.6 
|1998-2008                              |  | Swedish Medium Term Note *     |  | 4.00            |  | SEK              |  | 264.4                |  | 250.0                         |  | 250.0                           |  | 28.8    |  | 27.3 
|1998-2009                              |  | Senior Notes Series F 2009     |  | 6.93            |  | $                |  | 30.0                 |  | 30.0                          |  | 30.0                            |  | 25.4    |  | 21.6 
|1998-2018                              |  | Senior Notes Series G 2018     |  | 7.24            |  | $                |  | 65.0                 |  | 65.0                          |  | 65.0                            |  | 47.9    |  | 44.6 
|1998-2023                              |  | Senior Notes Series H 2023     |  | 7.30            |  | $                |  | 65.0                 |  | 65.0                          |  | 65.0                            |  | 47.1    |  | 43.8 
|1999-2006                              |  | Swedish Medium Term Note *     |  | 5.90            |  | SEK              |  | 500.0                |  | 43.0                          |  | 43.0                            |  | 4.7     |  | 4.8  
|1999-2008                              |  | Swedish Fixed Real Rate *      |  | 4.00            |  | SEK              |  | 105.3                |  | 100.0                         |  | 100.0                           |  | 9.7     |  | 11.5 
|2000-2006                              |  | Euro Medium Term Note *(1)     |  | 6.25            |  | SEK              |  | 2,000.0              |  | 2,000.0                       |  | 2,000.0                         |  | 231.1   |  | 31.9 
|2000-2007                              |  | Euro Bond 6.375 % Notes 2007 * |  | 6.375           |  |                 |  | 850.0                |  | 850.0                         |  | 374.6                           |  | 846.0   |  | 372.6
|2000-2007                              |  | Euro Medium Term Note *        |  | 6.90            |  | SEK              |  | 200.0                |  | 200.0                         |  | 200.0                           |  | 22.0    |  | 22.2 
|2001-2006                              |  | Euro Medium Term Note *        |  | 6.25            |  | SEK              |  | 2,000.0              |  | 2,000.0                       |  | 2,000.0                         |  | 230.8   |  | 218.9
|2001-2011                              |  | Global 7.375 % Notes 2011 *    |  | 7.375           |  | $                |  | 750.0                |  | 750.0                         |  | 750.0                           |  | 690.0   |  | 588.0
|2004-2014                              |  | Euro Medium Term Note *        |  | 5.125           |  |                 |  | 517.6                |  |                              |  | 517.6                           |  |        |  | 492.7
|2004-2009                              |  | Swedish Medium Term Note *     |  | 3.875           |  | SEK              |  | 4,300.0              |  |                              |  | 4,300.0                         |  |        |  | 474.1
|Loans matured and extinguished in 2004 |  |                                |  |                 |  |                  |  |                      |  |                               |  | 228.4                           |  |       
|                                       |  |                                |  |                 |  |                  |  |                      |  |                               |  |                                 |  |         |  |      
|Total fixed rate bond loans            |  |                                |  |                 |  |                  |  |                      |  |                               |  | 2,780.5                         |  | 2,661.4
|                                       |  |                                |  |                 |  |                  |  |                      |  |                               |  |                                 |  |         |  |      
|Floating Rate                          |  |                                |  |                 |  |                  |  |                      |  |                               |  |                                 |  |        
|1997-2007                              |  | Euro Medium Term Note *        |  | Libor+0.35      |  | FIM              |  | 110.0                |  | 110.0                         |  | 110.0                           |  | 18.5    |  | 18.5 
|1998-2008                              |  | Euro Medium Term Note *        |  | Libor+0.35      |  | $                |  | 30.0                 |  | 30.0                          |  | 30.0                            |  | 23.8    |  | 22.0 
|1998-2008                              |  | Euro Medium Term Note *        |  | Libor+0.33      |  | $                |  | 40.0                 |  | 40.0                          |  | 40.0                            |  | 31.7    |  | 29.4 
|2000-2007                              |  | Swedish Medium Term Note *     |  | Euribor+0.75    |  |                 |  | 10.0                 |  | 10.0                          |  | 10.0                            |  | 10.0    |  | 10.0 
|2000-2010                              |  | Euro Medium Term Note *        |  | Euribor+0.8     |  |                 |  | 25.0                 |  | 25.0                          |  | 25.0                            |  | 25.0    |  | 25.0 
|Loans matured and extinguished in 2003 |  |                                |  |                 |  |                  |  |                      |  |                               |  | 33.0                            |  |       
|                                       |  |                                |  |                 |  |                  |  |                      |  |                               |  |                                 |  |         |  |      
|Total floating rate bond loans         |  |                                |  |                 |  |                  |  |                      |  |                               |  | 142.0                           |  | 104.9  
|                                       |  |                                |  |                 |  |                  |  |                      |  |                               |  |                                 |  |         |  |      
|Total bond loans                       |  |                                |  |                 |  |                  |  |                      |  |                               |  | 2,922.5                         |  | 2,766.3
|                                       |  |                                |  |                 |  |                  |  |                      |  |                               |  |                                 |  |         |  |      

---

* Parent company liabilities

|(1) |  | SEK 2,000 million is legally outstanding, but the Company holds Notes to the value of SEK 1,722 million leaving SEK 278 million held externally
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------



F-56



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Short-term Borrowings



|                                                             |  |                    |   |  |      
|------------------------------------------------------------ |  | ------------------ | - |  | -----
|                                                             |  | As of December 31,
|                                                             |  | 2003               |   |  | 2004 
|                                                             |  | ( in millions)   
|Short-term loans                                             |  | 929.1              |   |  | 543.3
|Derivative financial instruments (note 23)                   |  | (19.1              | ) |  | 54.1 
|U.S. finance lease terminal liability (see below and note 8) |  | 500.1              |   |  |     
|                                                             |  |                    |   |  |      
|                                                             |  | 1,410.1            |   |  | 597.4
|                                                             |  |                    |   |  |      

---

The US finance lease liability in 2003 consisted of
446.2 of principal and a provision of 53.9 for termination costs.



Group short-term loans are principally denominated in euros (50.9 percent), SEK (34.4 percent) and Chinese renminbi (12.8 percent), with maturities of between 3 days and 11 months. Short-term loans also include
commercial paper with applicable weighted average interest rates of 2.2 percent (2.2 percent).



Finance Lease Liabilities



At December 31, 2004 Stora Enso had a small number of finance leasing agreements for machinery and equipment for which capital costs of 126.5 million (2003: 142.3 million; 2002: 614.4 million) were included in machinery
and equipment; the depreciation thereon was 10.7 million in 2004 (2003: 35.7 million; 2002: 53.9 million). The aggregate leasing payments for the year amounted to 17.4 million in 2004 (2003: 35.1 million; 2002:
76.6 million), the interest element being 17.3 million in 2004 (2003: 30.2 million; 2002: 34.3 million). No new leasing commitments were entered into in 2004.



In 2003 a new leasing commitment of 21.5 million relating to buildings was incurred by the Danish merchant subsidiary,
the only lease termination being as detailed below.



At
December 31, 2002 the Groups finance lease liabilities amounted to 672.2 against a capitalized fixed asset value of 614.4 million. The principal lease liability consisted of a portfolio of 1996 UK finance leases to finance PM16 at
Wisconsin Rapids and PM26 at Biron, but by December 31, 2003 Stora Enso North America Inc was in the process of terminating these leases as a consequence of changes in the interpretation of UK leasing tax rules (see note 7). All amounts due under
these leases were no longer shown under finance lease liabilities, but were instead shown on the balance sheet under current interest-bearing liabilities; see above. The transaction was closed on March 2, 2004 when $650.5 million (522.9
million) was passed over in full and final settlement.



F-57



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Finance Lease Liabilities



|                                           |  |                    |   |  |       |  
|------------------------------------------ |  | ------------------ | - |  | ----- | -
|                                           |  | As of December 31, |  
|                                           |  | 2003               |   |  | 2004  |  
|                                           |  | ( in millions)    |  
|Minimum lease payments                     |  |                    |   |  |       |  
|Less than 1 year                           |  | 19.3               |   |  | 17.4  |  
|12 years                                  |  | 21.7               |   |  | 17.4  |  
|23 years                                  |  | 17.8               |   |  | 17.4  |  
|34 years                                  |  | 17.8               |   |  | 17.4  |  
|45 years                                  |  | 17.8               |   |  | 17.4  |  
|Over 5 years                               |  | 222.6              |   |  | 176.0 |  
|                                           |  |                    |   |  |       |  
|                                           |  | 317.0              |   |  | 263.0 |  
|Future finance charges                     |  | (142.0             | ) |  | (99.5 | )
|                                           |  |                    |   |  |       |  
|Present value of finance lease liabilities |  | 175.0              |   |  | 163.5 |  
|                                           |  |                    |   |  |       |  
|Present Value of finance Lease Liabilities |  |                    |   |  |       |  
|Less than 1 year                           |  | 18.5               |   |  | 15.5  |  
|12 years                                  |  | 20.2               |   |  | 14.7  |  
|23 years                                  |  | 14.9               |   |  | 13.8  |  
|34 years                                  |  | 13.7               |   |  | 13.0  |  
|45 years                                  |  | 12.6               |   |  | 12.3  |  
|Over 5 years                               |  | 95.1               |   |  | 94.2  |  
|                                           |  |                    |   |  |       |  
|                                           |  | 175.0              |   |  | 163.5 |  
|                                           |  |                    |   |  |       |  

---

|Annual |  | repayments of principal are shown above in the repayment schedule of long-term debt.
|------ |  | ------------------------------------------------------------------------------------



Note 22Other Liabilities and Provisions



Other Current Liabilities



|                                        |  |                    |  |        
|--------------------------------------- |  | ------------------ |  | -------
|                                        |  | As of December 31,
|                                        |  | 2003               |  | 2004   
|                                        |  | ( in millions)   
|Advances received                       |  | 21.0               |  | 5.5    
|Trade payables                          |  | 770.6              |  | 849.1  
|Other current liabilities               |  | 196.6              |  | 191.7  
|Accrued liabilities and deferred income |  | 519.6              |  | 606.1  
|Current portion of provisions           |  | 30.5               |  | 20.7   
|                                        |  |                    |  |        
|Total                                   |  | 1,538.3            |  | 1,673.1
|                                        |  |                    |  |        

---

|Accrued |  | liabilities and deferred income consist mainly of personnel costs, customer discounts, and other accruals.
|------- |  | ----------------------------------------------------------------------------------------------------------



Long-term Operative Liabilities



|                                |  |                    |  |      
|------------------------------- |  | ------------------ |  | -----
|                                |  | As of December 31,
|                                |  | 2003               |  | 2004 
|                                |  | ( in millions)   
|Provision for unrealized profit |  | 44.2               |  | 120.7
|Accruals                        |  | 20.8               |  | 20.4 
|Other payables                  |  | 12.7               |  | 12.1 
|                                |  |                    |  |      
|Total                           |  | 77.7               |  | 153.2
|                                |  |                    |  |      



F-58



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The provision for unrealized profit relates to that part of the gains on sale of Tornator Timberlands
Oy in 2002 and Bergvik Skog AB in 2004 that were deemed to relate to the proportion of shares retained in these new Associates, being 44.2 million and 76.5 million (SEK 690 million) respectively.



Other Provisions



|                                                       |  |                 |   |  |                |   |  |                 |   |  |       |  
|------------------------------------------------------ |  | --------------- | - |  | -------------- | - |  | --------------- | - |  | ----- | -
|                                                       |  | Environmental   |   |  | Reorganization |   |  | OtherObligatory |   |  | Total |  
|                                                       |  | ( in millions) |  
|Carrying value as of January 1, 2003                   |  | 54.5            |   |  | 24.7           |   |  | 115.3           |   |  | 194.5 |  
|Translation difference                                 |  | (0.1            | ) |  | 0.1            |   |  | 0.1             |   |  | 0.1   |  
|Reclassification                                       |  |                |   |  |               |   |  | (76.2           | ) |  | (76.2 | )
|Charge in income statement                             |  |                 |   |  |                |   |  |                 |   |  |       |  
|New provisions                                         |  |                |   |  | 53.2           |   |  | 1.6             |   |  | 54.8  |  
|Increase in existing provisions                        |  | 1.8             |   |  |               |   |  | 2.0             |   |  | 3.8   |  
|Reversal of existing provisions                        |  | (4.6            | ) |  |               |   |  | (4.6            | ) |  | (9.2  | )
|Payments                                               |  | (4.4            | ) |  | (29.4          | ) |  | (6.4            | ) |  | (40.2 | )
|                                                       |  |                 |   |  |                |   |  |                 |   |  |       |  
|Carrying value as of December 31, 2003                 |  | 47.2            |   |  | 48.6           |   |  | 31.8            |   |  | 127.6 |  
|Translation difference                                 |  | 0.1             |   |  | (1.5           | ) |  | 0.1             |   |  | (1.3  | )
|Reclassification                                       |  |                |   |  | 4.6            |   |  | (4.6            | ) |  |      |  
|Charge in income statement                             |  |                |   |  |               |   |  | (14.7           | ) |  | (14.7 | )
|New provisions                                         |  | 2.7             |   |  | 6.2            |   |  |                |   |  | 8.9   |  
|Increase in existing provisions                        |  | 1.3             |   |  | 3.1            |   |  | 3.8             |   |  | 8.2   |  
|Reversal of existing provisions                        |  |                |   |  | (1.1           | ) |  | (0.2            | ) |  | (1.3  | )
|Payments                                               |  | (5.9            | ) |  | (28.9          | ) |  | (11.0           | ) |  | (45.8 | )
|                                                       |  |                 |   |  |                |   |  |                 |   |  |       |  
|Carrying value as of December 31, 2004                 |  | 45.4            |   |  | 31.0           |   |  | 5.2             |   |  | 81.6  |  
|                                                       |  |                 |   |  |                |   |  |                 |   |  |       |  
|Allocation between current and non-current liabilities |  |                 |   |  |                |   |  |                 |   |  |       |  
|Current liabilities: payable within 12 months          |  | 3.0             |   |  | 15.3           |   |  | 2.4             |   |  | 20.7  |  
|Non-current liabilities: payable after 12 months       |  | 42.4            |   |  | 15.7           |   |  | 2.8             |   |  | 60.9  |  
|                                                       |  |                 |   |  |                |   |  |                 |   |  |       |  
|Total as of December 31, 2004                          |  | 45.4            |   |  | 31.0           |   |  | 5.2             |   |  | 81.6  |  
|                                                       |  |                 |   |  |                |   |  |                 |   |  |       |  



Reorganization Provisions



Stora Enso North America Fixed-Cost Reduction
Programme



In 2004 Stora Enso North America announced a
further extension of its profit enhancement programme of August 2002 whereby maintenance personnel would be reduced by a target of nearly 200 at a cost of 4.4 ($5.5) million. The 2003 extension of the programme had also included a reduction in
Stora Enso North Americas total workforce of about 12 percent or 700 employees by mid 2005. At the year-end 2004 Stora Enso employed 5,266 (2003: 5,669) people in North America, against a target of 5,000 and compared to 7,300 at the time of
the acquisition in 2000. A restructuring charge of 24.6 million ($27.4 million) was entered in 2003, the charge in 2002 having been 52.9 million ($50.0 million). At December 31, 2004 the remaining provision amounted to 6.6 million
(2003: 15.1 million).



The original 2002 profit
enhancement programme comprised a comprehensive range of measures to improve the Groups competitive position and profitability, the main elements being to restructure selected manufacturing assets with the loss of some 500 jobs. The
restructuring charge of 52.9 million ($50.0 million) entered in 2002 related to asset impairment aspect of the plan.



F-59



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Corbehem Mill Restructuring Programme



In 2003 Stora Enso launched a restructuring programme at Corbehem Mill in
France to secure the sites long-term competitiveness. The programme involved a major reorganization of the whole mill, including a variable-cost reduction plan, investments in PM5 and a decrease of 169 permanent positions by 2006, of which 110
had gone by the end of 2004. A provision of 15.3 million was made in 2003, of which 14.2 million related to redundancy payments and 1.1 million to other costs; 5.6 million (2003: 6.9 million) was outstanding at December
31, 2004.



Nymölla Mill, Sweden



A restructuring provision of 2.0 million at December 31, 2002 related
to the closing down of a coating machine in early 2002 which resulted in 70 redundancies; this provision was subsequently supplemented in 2003 by a further reorganization whereby costs were set aside to cover the redundancy of some 90 staff, the
final 33 of whom left the company in 2004. By December 31, 2004, the provision had been discharged.



Port Hawkesbury Mill, Nova Scotia, Canada



A provision of 4.9 million was made in late 2003 for severance and related benefits related to workforce downsizing of 135 staff, all but 32 having
been announced by the end of 2004 and 56 leaving in the year; at December 31, 2004 the provision amounted to 4.2 million (2003: 4.9 million).



Papyrus GB Ltd



In May 2002 Stora Enso closed down Papyrus GB Ltd, its merchant arm in the UK and a restructuring charge of 25.1 million was recorded for the exit
costs, of which 9.5 million related to staff and a further 15.6 million to lease terminations and asset write-downs. The provision was slightly increased in 2004 and at the year-end amounted to 5.5 million (2003: 4.8
million), mainly pension-related.



Summa Paper Mill, Finland



As part of its asset improvement plan, the Group closed
down PM1 at Summa Mill in Finland, charging restructuring costs of 8.8 million in 2002, of which 3.4 million related to staff and a further 5.4 million to site clean-up and restoration costs and inventory write-downs. At December
31, 2004 the remaining provision amounted to 0.6 million (2003: 2.8 million).



Environmental Remediation



Provision for environmental remediation amounted to 45.4 million (2003: 47.2 million) at December 31, 2004 and largely related to the removal of mercury and other contaminants from sites in Sweden and Finland; details of the
principal provisions are:



| |  |  | Following an agreement between Stora Enso and the City of Falun, the Group is obliged to clean-up pollution to the area caused by the Kopparberg mine; the provision amounted to
9.9 million in 2004 (2003: 12.9 million).
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A provision of 7.8 million in 2004 (2003: 10.4 million) has been made for removing mercury from the harbor basin at Skutskär
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | The site of Skoghall Mill contains ground pollutants that must be eliminated; the provision amounts to 9.0 million in 2004 (2003: 10.9 million).
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | There are a further five cases in Finland where the total provision amounts to 8.1 million in 2004 (2003: 9.1 million); the largest relates to pollution in the vicinity
of Pateniemi sawmill, being 5.0 million in 2004 (2003: 5.1 million).
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-60



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Other Obligatory Provisions



A provision in Sweden of 14.7 million relating to statutory forest replanting was disposed of with the divestment of
Bergvik Skog AB. Certain other provisions amounting to 4.6 million were also reclassified, leaving a year-end liability for other obligatory provisions of 5.2 million



Note 23Financial Instruments



Shareholders EquityOther Comprehensive Income (OCI)



Certain derivatives are designated as cash flow hedges and measured to fair value with the fair value movements being
recorded in the separate equity category of OCI: Hedging Reserve. The other component of OCI is the available-for-sale reserve, representing the difference between the fair value of investments and their cost (see note 14). Movements in the year for
these two reserves, together with the balances at the year-end, are as shown below.



OCI Reserves



|                                            |  |                         |   |  |                             |   |  |                    |   |  |        |   |  |       |   |  |        |  
|------------------------------------------- |  | ----------------------- | - |  | --------------------------- | - |  | ------------------ | - |  | ------ | - |  | ----- | - |  | ------ | -
|                                            |  | Hedging Reserve         |   |  | Available- for-Sale Reserve |   |  | Total OCI Reserves |  
|                                            |  | Forward &Swap Contracts |   |  | CommodityHedges             |   |  | AssociateHedge     |   |  | Total  |   |  |      
|                                            |  | ( in millions)         |  
|OCI as of January 1, 2003                   |  | 36.7                    |   |  | 180.3                       |   |  |                   |   |  | 217.0  |   |  | 16.4  |   |  | 233.4  |  
|Net change in OCI in the year               |  | (28.9                   | ) |  | (129.9                      | ) |  |                   |   |  | (158.8 | ) |  | 40.0  |   |  | (118.8 | )
|                                            |  |                         |   |  |                             |   |  |                    |   |  |        |   |  |       |   |  |        |  
|OCI as of December 31, 2003                 |  | 7.8                     |   |  | 50.4                        |   |  |                   |   |  | 58.2   |   |  | 56.4  |   |  | 114.6  |  
|                                            |  |                         |   |  |                             |   |  |                    |   |  |        |   |  |       |   |  |        |  
|OCI as of January 1, 2004                   |  |                         |   |  |                             |   |  |                    |   |  |        |   |  |       |   |  |        |  
|Gains and losses from changes in fair value |  | 11.6                    |   |  | 71.5                        |   |  |                   |   |  | 83.1   |   |  | 80.5  |   |  | 163.6  |  
|Deferred taxes                              |  | (3.8                    | ) |  | (21.1                       | ) |  |                   |   |  | (24.9  | ) |  | (24.1 | ) |  | (49.0  | )
|                                            |  |                         |   |  |                             |   |  |                    |   |  |        |   |  |       |   |  |        |  
|                                            |  | 7.8                     |   |  | 50.4                        |   |  |                   |   |  | 58.2   |   |  | 56.4  |   |  | 114.6  |  
|                                            |  |                         |   |  |                             |   |  |                    |   |  |        |   |  |       |   |  |        |  
|Net change in OCI in 2004                   |  |                         |   |  |                             |   |  |                    |   |  |        |   |  |       |   |  |        |  
|Gains and losses from changes in fair value |  | (8.5                    | ) |  | (47.6                       | ) |  |                   |   |  | (56.1  | ) |  | 2.5   |   |  | (53.6  | )
|Reclassification of losses                  |  | 19.0                    |   |  |                            |   |  | (19.0              | ) |  |       |   |  |      |   |  |       |  
|Deferred taxes                              |  | 2.7                     |   |  | 13.3                        |   |  |                   |   |  | 16.0   |   |  | (4.1  | ) |  | 11.9   |  
|Reclassification of deferred taxes          |  | (5.3                    | ) |  |                            |   |  |                   |   |  | (5.3   | ) |  |      |   |  | (5.3   | )
|                                            |  |                         |   |  |                             |   |  |                    |   |  |        |   |  |       |   |  |        |  
|                                            |  | 7.9                     |   |  | (34.3                       | ) |  | (19.0              | ) |  | (45.4  | ) |  | (1.6  | ) |  | (47.0  | )
|                                            |  |                         |   |  |                             |   |  |                    |   |  |        |   |  |       |   |  |        |  
|OCI as of December 31, 2004                 |  |                         |   |  |                             |   |  |                    |   |  |        |   |  |       |   |  |        |  
|Gains and losses from changes in fair value |  | 22.1                    |   |  | 23.9                        |   |  | (19.0              | ) |  | 27.0   |   |  | 83.0  |   |  | 110.0  |  
|Deferred taxes                              |  | (6.4                    | ) |  | (7.8                        | ) |  |                   |   |  | (14.2  | ) |  | (28.2 | ) |  | (42.4  | )
|                                            |  |                         |   |  |                             |   |  |                    |   |  |        |   |  |       |   |  |        |  
|Total                                       |  | 15.7                    |   |  | 16.1                        |   |  | (19.0              | ) |  | 12.8   |   |  | 54.8  |   |  | 67.6   |  
|                                            |  |                         |   |  |                             |   |  |                    |   |  |        |   |  |       |   |  |        |  

---

|The |  | gain on derivative financial instruments designated as cash flow hedges that was realized from OCI through the income statement
|--- |  | -------------------------------------------------------------------------------------------------------------------------------

|amounted |  | to 67.4 million in 2004 (2003: 225.4 million).
|-------- |  | ------------------------------------------------



The hedging reserve includes the Groups 43.3 percent (2003: 100 percent) share in an interest rate swap showing a deferred loss of 19.0
million in 2004 (2003: 19.0 million) in respect of Stora Ensos now associate, but formerly wholly owned subsidiary, Bergvik Skog AB. This amount relates to a fair value loss on Bergvik Skog ABs cashflow hedge accounted interest
rate swap and, in 2004, has been deducted from the equity accounted value of the Group interest in its associate. In 2003 the gross loss was 19.0 million, against which



F-61



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



deferred tax of 5.3 million was provided, however in 2004 the loss 26.4 million is accounted for after tax as the deferred tax belongs to Bergvik
Skog AB and not Stora Enso, the interest in the associate being equity accounted.



The estimated net amount of unrealized gains and losses expected to be reclassified as earnings within the next twelve months amounted to 23.0 million in 2004 (2003: 72.0 million), of which 22.1
million (2003: 30.6 million) related to currencies and 0.9 million (2003: 41.4 million) to commodities.



Fair Values of Financial Instruments



Derivative financial instruments are recorded on the balance sheet at their fair values, defined as the amount at which the instrument could be exchanged
between willing parties in a current transaction, other than in a liquidation or forced sale. The fair values of such financial items have been estimated on the following basis:



| |  |  | Currency option contract values are calculated using year-end market rates together with common option pricing models, the fair values being implicit in the resulting carrying
amounts.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The carrying amounts of foreign exchange forward contracts are calculated using year end market rates and thus they approximate fair values.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The fair values of interest rate swaps have been calculated using a discounted cash flow analysis.
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | Swaption contract fair values are calculated using year-end interest rates together with common option pricing models, the fair values being implicit in the resulting carrying
amounts.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Cross currency swaps are fair valued against discounted cash flow analysis and year end foreign exchange rates.
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | The fair values of interest rate futures have been calculated by using either discounted cash flow analysis or quoted market prices on future exchanges, the carrying amounts
approximating fair values.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Commodity contract fair values are computed with reference to quoted market prices on future exchanges and thus the carrying amounts approximate fair values.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The fair values of commodity options are calculated using year end market rates together with common option pricing models, the fair values being implicit in the resulting carrying
amounts.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The fair values of total return (Equity), swaps are calculated using year end equity prices as well as year end interest rates.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Group had no outstanding embedded derivatives at either December 31, 2003 or 2004.
| | - |  | --------------------------------------------------------------------------------------



Certain gains and losses on financial instruments are taken directly to equity, either to offset cumulative translation
adjustments (CTA) or deferred under other comprehensive income (OCI). The remaining fair value movements are taken to the income statement as net financial items (note 7) as shown below.



Fair Value Hedge Gains and Losses in the Income Statement



|                                                                                  |  |                                |   |  |      |  
|--------------------------------------------------------------------------------- |  | ------------------------------ | - |  | ---- | -
|                                                                                  |  | For the year endedDecember 31, |  
|                                                                                  |  | 2003                           |   |  | 2004 |  
|                                                                                  |  | ( in millions)                |  
|Net gains (losses) on qualifying hedges, incl. fair value changes in hedged items |  | (9.8                           | ) |  | 13.6 |  
|Net gains (losses) on non-qualifying hedges                                       |  | (11.2                          | ) |  | (6.4 | )
|Net gains (losses) on total return swaps                                          |  | 20.8                           |   |  | 24.9 |  
|                                                                                  |  |                                |   |  |      |  
|Net fair value gains (losses) in net financial items                              |  | (0.2                           | ) |  | 32.1 |  
|                                                                                  |  |                                |   |  |      |  



F-62



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Hedge Ineffectiveness in Net Financial Items



|                              |  |                                 |  |      |  
|----------------------------- |  | ------------------------------- |  | ---- | -
|                              |  | For the year ended December 31, | 
|                              |  | 2003                            |  | 2004 |  
|                              |  | ( in millions)                 | 
|Forward exchange contracts    |  | 13.7                            |  | (0.5 | )
|Commodity contracts           |  | 2.6                             |  | (0.9 | )
|                              |  |                                 |  |      |  
|Total hedging ineffectiveness |  | 16.3                            |  | (1.4 | )
|                              |  |                                 |  |      |  



Fair Values of Derivative Financial
Instruments



|                      |  |                    |   |  |                      |  |                      |   |  |                 |  
|--------------------- |  | ------------------ | - |  | -------------------- |  | -------------------- | - |  | --------------- | -
|                      |  | As of December 31, |  
|                      |  | 2003               |   |  | 2004                 | 
|                      |  | Net Fair Values    |   |  | Positive Fair Values |  | Negative Fair Values |   |  | Net Fair Values |  
|                      |  | ( in millions)    |  
|Interest rate swaps   |  | 106.8              |   |  | 157.1                |  | (5.8                 | ) |  | 151.3           |  
|Interest rate options |  | 0.5                |   |  | 1.4                  |  | (0.4                 | ) |  | 1.0             |  
|Cross currency swaps  |  | (11.0              | ) |  | 3.3                  |  | (14.9                | ) |  | (11.6           | )
|Forward contracts     |  | 172.8              |   |  | 94.7                 |  | (5.2                 | ) |  | 89.5            |  
|Currency options      |  | 0.7                |   |  | 3.2                  |  | (1.4                 | ) |  | 1.8             |  
|Commodity contracts   |  | 71.5               |   |  | 28.8                 |  | (5.2                 | ) |  | 23.6            |  
|Total return swaps    |  | (36.0              | ) |  | 21.8                 |  | (33.2                | ) |  | (11.4           | )
|                      |  |                    |   |  |                      |  |                      |   |  |                 |  
|Total                 |  | 305.3              |   |  | 310.3                |  | (66.1                | ) |  | 244.2           |  
|                      |  |                    |   |  |                      |  |                      |   |  |                 |  

---

|Positive |  | and negative fair values of financial instruments are included under interest-bearing receivables, liabilities and long-term debt.
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------



Nominal Values of Derivative Financial Instruments



|                               |  |                   |  |        
|------------------------------ |  | ----------------- |  | -------
|                               |  | As at 31 December
|                               |  | 2003              |  | 2004   
|                               |  | ( in millions)  
|Interest Rate Derivatives      |  |                   |  |        
|Interest rate swaps            |  |                   |  |        
|Maturity under 1 year          |  | 113.7             |  | 66.5   
|Maturity 25 years             |  | 1,080.4           |  | 953.4  
|Maturity 610 years            |  | 1,439.2           |  | 1,469.9
|                               |  |                   |  |        
|                               |  | 2,633.3           |  | 2,489.8
|Interest rate options          |  | 23.8              |  | 198.4  
|                               |  |                   |  |        
|Total                          |  | 2,657.1           |  | 2,688.2
|                               |  |                   |  |        
|Foreign Exchange Derivatives   |  |                   |  |        
|Cross-currency swap agreements |  | 129.5             |  | 102.7  
|Forward contracts              |  | 3,112.5           |  | 2,479.8
|Currency options               |  | 208.1             |  | 588.3  
|                               |  |                   |  |        
|Total                          |  | 3,450.1           |  | 3,170.8
|                               |  |                   |  |        
|Commodity Derivatives          |  | 477.0             |  | 442.7  
|                               |  |                   |  |        
|Equity Swaps                   |  | 308.4             |  | 359.5  
|                               |  |                   |  |        



F-63



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Note 24. Cumulative Translation Adjustment (CTA) and Equity Hedging.



The Group operates internationally and is thus exposed to currency risk
arising from exchange rate fluctuations on the value of its net investment in non-Euro area foreign subsidiaries and associates. Exchange differences, arising from the translation of equity, results and dividends for foreign subsidiary and associate
undertakings, are aggregated with the financial instruments hedging these investments and the net is recorded directly in shareholders equity as CTA; this is expensed though the income statement on the divestment of a foreign entity.



Cumulative Translation Adjustment



|                                                   |  |                                 |   |  |        |  
|-------------------------------------------------- |  | ------------------------------- | - |  | ------ | -
|                                                   |  | For the year ended December 31, |  
|                                                   |  | 2003                            |   |  | 2004   |  
|                                                   |  | ( in millions)                 |  
|As of January 1                                    |  |                                 |   |  |        |  
|CTA on net investment in non-Euro foreign entities |  | (484.1                          | ) |  | (629.1 | )
|Hedging                                            |  | 339.7                           |   |  | 432.0  |  
|                                                   |  |                                 |   |  |        |  
|                                                   |  | (144.4                          | ) |  | (197.1 | )
|                                                   |  |                                
|CTA Movement for the Year                          |  |                                 |   |  |        |  
|Restatement of opening non-euro denominated equity |  | (156.7                          | ) |  | (37.8  | )
|Difference in Income Statement translation         |  | 21.2                            |   |  | 14.7   |  
|Internal equity injections less dividends          |  | (17.6                           | ) |  | (44.6  | )
|Other                                              |  | (3.4                            | ) |  | 0.3    |  
|                                                   |  |                                 |   |  |        |  
|                                                   |  | (156.5                          | ) |  | (67.4  | )
|Hedging of Net Investment for the Year             |  |                                 |   |  |        |  
|Hedging result                                     |  | 146.2                           |   |  | 78.3   |  
|Taxes                                              |  | (42.4                           | ) |  | (21.0  | )
|                                                   |  |                                 |   |  |        |  
|                                                   |  | 103.8                           |   |  | 57.3   |  
|Income Statement                                   |  |                                 |   |  |        |  
|CTA on divested non-Euro foreign entities          |  | 11.5                            |   |  | (11.7  | )
|Hedging result allocated to divested entities      |  | (11.5                           | ) |  |       |  
|                                                   |  |                                 |   |  |        |  
|(Gain) in Income Statement for the year            |  |                                |   |  | (11.7  | )
|                                                   |  |                                
|As of December 31                                  |  |                                 |   |  |        |  
|CTA on net investment in non-Euro foreign entities |  | (629.1                          | ) |  | (708.2 | )
|Hedging (see below)                                |  | 432.0                           |   |  | 489.3  |  
|                                                   |  |                                 |   |  |        |  
|                                                   |  | (197.1                          | ) |  | (218.9 | )
|                                                   |  |                                
|Hedging of Net Investment in Foreign Entities      |  |                                 |   |  |        |  
|Realized gains                                     |  | 159.7                           |   |  | 209.5  |  
|Unrealized gains                                   |  | 272.3                           |   |  | 279.8  |  
|                                                   |  |                                 |   |  |        |  
|Total                                              |  | 432.0                           |   |  | 489.3  |  
|                                                   |  |                                 |   |  |        |  



Hedging of Net
Investment in Foreign Entities



Group policy for
translation risk exposure is to minimize this by funding assets, whenever possible and economically viable, in the same currency, but if matching of the assets and liabilities in the same currency is not possible, hedging of the remaining
translation risk may take place. The gains and losses, net of tax, on all financial liabilities and instruments used for hedging purposes, are offset in CTA against the respective currency movements arising from the restatement of the net
investments at current exchange rates on the balance sheet date; the net amount of gains and losses included in CTA during the period as shown above came to 57.3 million in 2004 (2003: 103.8 million). Details of the hedging and the
unrealized hedging gains are shown below, details of the net investment in foreign subsidiaries being shown in note 3Segment Information.



F-64



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Hedging of Net Investment in Foreign Entities



|                           |  |                        |  |                 |  |                     |  |         |  |       |  |       |  
|-------------------------- |  | ---------------------- |  | --------------- |  | ------------------- |  | ------- |  | ----- |  | ----- | -
|                           |  | As of December 31,     | 
|                           |  | 2003                   |  | 2004            |  | 2003                |  | 2004    |  | 2003  |  | 2004  |  
|                           |  | Nominal amount         |  | Nominal amount  |  | UnrealizedGain/Loss | 
|                           |  | (currency in millions) |  | ( in millions) | 
|Forward Exchange Contracts |  |                        |  |                 |  |                     |  |         |  |       |  |       |  
|Canada                     |  | 750.0                  |  | 700.0           |  | 462.0               |  | 426.4   |  | 27.9  |  | 16.0  |  
|Denmark                    |  |                       |  | 745.0           |  |                    |  | 100.2   |  |      |  | 0.1   |  
|Sweden                     |  | 4,345.0                |  |                |  | 478.5               |  |        |  | 4.1   |  |      |  
|United Kingdom             |  | 28.0                   |  | 27.8            |  | 39.7                |  | 39.4    |  | 0.3   |  | 0.3   |  
|United States              |  |                       |  | 350.0           |  |                    |  | 257.0   |  |      |  | 17.5  |  
|                           |  |                        |  |                 |  |                     |  |         |  |       |  |       |  
|                           |  |                        |  |                 |  | 980.2               |  | 823.0   |  | 32.3  |  | 33.9  |  
|Borrowings                 |  |                        |  |                 |  |                     |  |         |  |       |  |       |  
|United States              |  | 830.0                  |  | 880.0           |  | 657.2               |  | 646.1   |  | 240.0 |  | 252.4 |  
|Sweden                     |  |                       |  | 5,343.0         |  |                    |  | 592.3   |  |      |  | (6.5  | )
|                           |  |                        |  |                 |  |                     |  |         |  |       |  |       |  
|Total Hedging              |  |                        |  |                 |  | 1,637.4             |  | 2,061.4 |  | 272.3 |  | 279.8 |  
|                           |  |                        |  |                 |  |                     |  |         |  |       |  |       |  



Note 25Commitments and
Contingencies



Commitments



|                                       |  |                    |  |      
|-------------------------------------- |  | ------------------ |  | -----
|                                       |  | As of December 31,
|                                       |  | 2003               |  | 2004 
|                                       |  | ( in millions)   
|On Own Behalf                          |  |                    |  |      
|Pledges given(1)                       |  | 3.8                |  | 0.8  
|Mortgages                              |  | 103.5              |  | 118.8
|On Behalf of Associated Companies      |  |                    |  |      
|Mortgages                              |  | 0.8                |  | 0.8  
|Guarantees                             |  | 48.4               |  | 209.3
|On Behalf of Others                    |  |                    |  |      
|Pledges given                          |  | 2.2                |  |     
|Mortgages                              |  | 10.9               |  |     
|Guarantees                             |  | 13.1               |  | 6.8  
|Other Commitments, own                 |  |                    |  |      
|Operating leases, in next 12 months    |  | 34.3               |  | 32.6 
|Operating leases, after next 12 months |  | 171.2              |  | 159.2
|Pension liabilities                    |  | 3.0                |  | 2.2  
|Other contingencies                    |  | 95.9               |  | 92.5 
|                                       |  |                    |  |      
|Total                                  |  | 487.1              |  | 623.0
|                                       |  |                    |  |      
|Pledges given                          |  | 6.0                |  | 0.8  
|Mortgages                              |  | 115.2              |  | 119.6
|Guarantees                             |  | 61.5               |  | 216.1
|Operating leases                       |  | 205.5              |  | 191.8
|Pension liabilities                    |  | 3.0                |  | 2.2  
|Other contingencies                    |  | 95.9               |  | 92.5 
|                                       |  |                    |  |      
|Total                                  |  | 487.1              |  | 623.0
|                                       |  |                    |  |      

---

|(1) |  | Pledged assets consist of marketable securities, inventories and fixed assets.
|--- |  | ------------------------------------------------------------------------------



F-65



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Other contingencies include a contingent liability, relating to exposure to hazardous substances and
environmental matters, pursuant to certain indemnification provisions granted in connection with the 1994 divestment of the Tarkett Group, the flooring business of the former Stora Kopparberg Bergslags AB. The Groups maximum aggregate
liability under the hazardous substance indemnification is limited to $62.5 million (45.9 million), under the on-site environmental indemnification, SEK 328 million (36.4 million), and under the off-site environmental indemnification,
without limit. One off-site indemnification matter is pending, but is expected to be closed shortly, and a further three on-site matters are outstanding. Stora Enso does not expect any further claims and estimates that the aggregate liability for
the environmental liabilities will not exceed 1.0 million; however, the limitations period for claims to occur does not expire until 2024.



Purchase Agreement Commitments as of December 31, 2004



|                                        |  |                |  |         |  |            |  |                |  |                             |  |        |  |     |  |      
|--------------------------------------- |  | -------------- |  | ------- |  | ---------- |  | -------------- |  | --------------------------- |  | ------ |  | --- |  | -----
|                                        |  | Type of Supply |  | Country |  | Years Left |  | Contract Total |  | Scheduled Contract Payments
|                                        |  |                |  |         |  | 2005       |  | 2006-7         |  | 2008-9                      |  | 2010 +
|                                        |  |                |  |         |  |            |  |                |  | ( in millions)            
|Materials & Supplies                    |  |                |  |         |  |            |  |                |  |                             |  |        |  |     |  |      
|Stora Enso Skog AB                      |  | Wood           |  | Sweden  |  | 14         |  | 1,738          |  | 138                         |  | 257    |  | 251 |  | 1,092
|Stora Enso Oyj                          |  | Gas            |  | Finland |  | 1          |  | 60             |  | 60                          |  | 0      |  | 0   |  | 0    
|Stora Enso North America Corp           |  | Electricity    |  | US      |  | 14         |  | 118            |  | 14                          |  | 29     |  | 32  |  | 43   
|Stora Enso Kabel GmbH & Co KG           |  | Electricity    |  | Germany |  | 7          |  | 224            |  | 32                          |  | 64     |  | 64  |  | 64   
|Stora Enso Langerbrugge NV              |  | Electricity    |  | Belgium |  | 2          |  | 43             |  | 22                          |  | 21     |  | 0   |  | 0    
|Stora Enso Reisholz GmbH & Co KG        |  | Electricity    |  | Germany |  | 7          |  | 104            |  | 16                          |  | 32     |  | 32  |  | 24   
|Stora Enso Kvarnsveden AB               |  | Electricity    |  | Sweden  |  | 9          |  | 153            |  | 17                          |  | 34     |  | 34  |  | 68   
|Stora Enso Baienfurt GmbH & Co KG       |  | Electricity    |  | Germany |  | 6          |  | 111            |  | 19                          |  | 37     |  | 37  |  | 18   
|Stora Enso Transport & Distribution AB  |  | Shipping       |  | Sweden  |  | 10         |  | 80             |  | 8                           |  | 16     |  | 16  |  | 40   
|Stora Enso Transport & Distribution AB  |  | Shipping       |  | Denmark |  | 10         |  | 135            |  | 13                          |  | 27     |  | 27  |  | 68   
|Stora Enso Oyj                          |  | Shipping       |  | Sweden  |  | 15         |  | 217            |  | 13                          |  | 26     |  | 26  |  | 152  
|Stora Enso Transport & Distribution Ltd |  | Terminal       |  | UK      |  | 15         |  | 218            |  | 15                          |  | 29     |  | 29  |  | 145  
|Others                                  |  |               |  |        |  |           |  | 667            |  | 205                         |  | 230    |  | 68  |  | 164  
|                                        |  |                |  |         |  |            |  |                |  |                             |  |        |  |     |  |      
|                                        |  |                |  |         |  |            |  | 3,868          |  | 572                         |  | 802    |  | 616 |  | 1,878
|                                        |  |                |  |         |  |            |  |                |  |                             |  |        |  |     |  |      
|Capital Expenditure                     |  |                |  |         |  |            |  |                |  |                             |  |        |  |     |  |      
|Stora Enso Kvarnsveden AB               |  | Machinery      |  | Sweden  |  |           |  | 233            |  | 220                         |  | 13     |  |    |  |     
|Stora Enso Skoghall AB                  |  | Machinery      |  | Sweden  |  |           |  | 44             |  | 44                          |  |       |  |    |  |     
|Others                                  |  |               |  |        |  |           |  | 217            |  | 185                         |  | 32     |  |    |  |     
|                                        |  |                |  |         |  |            |  |                |  |                             |  |        |  |     |  |      
|                                        |  |                |  |         |  |            |  | 494            |  | 449                         |  | 45     |  |    |  |     
|                                        |  |                |  |         |  |            |  |                |  |                             |  |        |  |     |  |      
|Total Contractual Commitments           |  |                |  |         |  |            |  | 4,362          |  | 1,021                       |  | 847    |  | 616 |  | 1,878
|                                        |  |                |  |         |  |            |  |                |  |                             |  |        |  |     |  |      



Outstanding balances
under binding purchase agreements amount to 4,362 million in 2004 (2003: 1,990 million), of which contracts for materials and services amount to 3,868 million (2003: 1,610 million) and for capital expenditure commitments,
494 million (2003: 379 million). The principal commitment for materials relate to wood supplied from the Groups Swedish forest associate, Bergvik Skog AB, and Group risk management of power supplies by entering into long-term fixed
price contracts; the principal service commitments relate to shipping and terminal facilities. The Kabel Mill take or pay power supply contract also



F-66



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



provides for a penalty clause of 40 million for early termination; it was also the largest contract in 2003, then valued at 288 million. Stora
Enso Oyj has also signed a 15 year take or pay contract with Nordsjöfrakt AB for the operation of ships between Finland and Sweden, thus the Groups commitment of 217 million is also its contingent liability in the event of early
termination.



The largest contract for capital expenditure in
2004 amounted to 233 million for the new paper machine to be supplied to Kvarnsveden Mill in Sweden; the two largest contracts in 2003 were 67.1 million for a new recovery boiler at Skoghall Mill in Sweden and 38.0 million for the
rebuild of PM 6 at Maxau Mill in Germany.



Guarantees are made
in the ordinary course of business on behalf of associated companies and occasionally others; the guarantees, entered into with financial institutions and other credit guarantors, generally obligate the Group to make payment in the event of default
by the borrower. The guarantees have off-balance sheet credit risk representing the accounting loss that would be recognized at the reporting date if counterparties failed to perform completely as contracted. The credit risk amounts are equal to the
contract sums, assuming the amounts are not paid in full and are irrecoverable from other parties.



Stora Enso Oyj has guaranteed the liabilities of many of its subsidiaries up to a maximum of 748.5 million (2003: 966.3 million) as of
December 31, 2004.



Stora Enso Oyj guaranteed the pension
liabilities of its Swedish subsidiaries at the time of the 1998 merger; as of December 31, 2004, this guarantee amounted to 258.4 million (2003: 252.8 million), but maturity dates cannot be determined with any certainty.



Stora Enso Reisholz GmbH & Co. KG in Germany has given a guarantee to an
energy supplier such that should it close its mill, it will pay compensation of 1 million per annum until 2011.



Stora Enso Transport and Distribution AB, Sweden, has a time charter party with Wagenborg Scheepvaart B.V. of the Netherlands (WSBV)
concerning three vessels; WSBV has, in turn, chartered the three vessels from owners in Denmark. At the expiry of the three charter parties in 2015, Stora Enso Oyj has guaranteed to pay the owners an amount equal to the difference between the
stipulated loss value and the net sale price obtained by the owners, however, always limited to 6/21 of the original facility amount. The maximum Group exposure under this guarantee amounted to 32.8 million (2003: 32.8 million) at the
year-end 2004.



The Group leases office and warehouse space
under various non-cancellable operating leases, some of which contain renewal options. The future cost for contracts exceeding one year and for non-cancellable operating leasing contracts are:



Repayment Schedule of Operating Lease Commitments



|      |  |                
|----- |  | ---------------
|      |  | Amounts        
|      |  | ( in millions)
|2004  |  | 32.6           
|2005  |  | 27.1           
|2006  |  | 22.8           
|2007  |  | 18.9           
|2008. |  | 17.1           
|2009- |  | 73.3           
|      |  |                
|Total |  | 191.8          
|      |  |                



F-67



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Contingent Liabilities



Stora Enso is party to legal proceedings that arise in the ordinary course of business and which primarily involve claims
arising out of commercial law. The Group is also involved in administrative proceedings relating primarily to competition law. The directors do not consider that liabilities related to such proceedings, before insurance recoveries, if any, are
likely to be material to the Group financial condition or results of operations.



In May 2004 Stora Enso was the subject of inspections carried out by the European Commission and the Finnish Competition Authority at locations in Europe and received subpoenas issued by the US Department of Justice
as part of preliminary anti-trust investigations into the paper industry in Europe and the US. The investigations by the authorities in both jurisdictions are at a fact-finding stage only and no formal allegations have been made against the Group or
any of its employees. Coincident with these investigations, Stora Enso was named in a number of class action lawsuits filed in the US. As the Company cannot currently determine what impact, if any, these investigations will have no provision has
been made.



Stora Timber Finance B.V. has been found
responsible for soil pollution at the Port of Amsterdam, but has appealed the decision to the Court of Appeal in Amsterdam; 2.4 million was recorded as a provision at December 31, 2004.



F-68



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Note 26Principal Subsidiaries as of December 31, 2004



The following is a list of the Companys fifty principal operating
subsidiary undertakings ranked by external sales; these companies, along with the parent, account for 98 percent (95 percent) of Group external sales. The principal country in which each subsidiary operates is the country of incorporation. The
Groups effective interest in the undertakings is 100 percent except where indicated and is held in each case by a subsidiary undertaking except for those companies marked with + which are held directly by the Parent Company. The
countries operating outside the Euro area are indicated by *.



|                                                |  |             |  |         |  |                   |  |           |  |           |  |                  |  |               |  |                  |  |      
|----------------------------------------------- |  | ----------- |  | ------- |  | ----------------- |  | --------- |  | --------- |  | ---------------- |  | ------------- |  | ---------------- |  | -----
|Subsidiary Companies (ranked by
external sales) |  | Country     |  | % Sales |  | Publication Paper |  | FinePaper |  | Merchants |  | Packaging Boards |  | Wood Products |  | WoodSupplyEurope |  | Other
|Stora Enso Oyj                                  |  | Finland     |  | 17.73   |  | X                 |  | X         |  |           |  | X                |  |               |  | X                |  | X    
|Stora Enso North America Corp+*                 |  | USA         |  | 13.28   |  | X                 |  | X         |  |           |  | X                |  |               |  |                  |  | X    
|Stora Enso Publication Papers Oy Ltd+           |  | Finland     |  | 5.36    |  | X                 |  |           |  |           |  |                  |  |               |  |                  |  |      
|Stora Enso Skoghall AB*                         |  | Sweden      |  | 3.80    |  |                   |  |           |  |           |  | X                |  |               |  |                  |  |      
|Stora Enso Maxau GmbH & Co KG                   |  | Germany     |  | 3.12    |  | X                 |  |           |  |           |  |                  |  |               |  |                  |  |      
|Stora Enso Kabel GmbH & Co KG                   |  | Germany     |  | 3.07    |  | X                 |  |           |  |           |  |                  |  |               |  |                  |  |      
|Stora Enso Hylte AB*                            |  | Sweden      |  | 2.78    |  | X                 |  |           |  |           |  |                  |  |               |  |                  |  |      
|Stora Enso Kvarnsveden AB*                      |  | Sweden      |  | 2.74    |  | X                 |  |           |  |           |  |                  |  |               |  |                  |  |      
|Stora Enso Fors AB*                             |  | Sweden      |  | 2.45    |  |                   |  |           |  |           |  | X                |  |               |  |                  |  |      
|Stora Enso Corbehem SA                          |  | France      |  | 2.25    |  | X                 |  |           |  |           |  |                  |  |               |  |                  |  |      
|Stora Enso Port Hawkesbury Ltd*                 |  | Canada      |  | 2.22    |  | X                 |  |           |  |           |  |                  |  |               |  |                  |  |      
|Stora Enso Timber Oy Ltd+                       |  | Finland     |  | 2.12    |  |                   |  |           |  |           |  |                  |  | X             |  |                  |  |      
|Stora Enso Timber AG                            |  | Austria     |  | 2.11    |  |                   |  |           |  |           |  |                  |  | X             |  |                  |  |      
|Stora Enso Nymölla AB*                          |  | Sweden      |  | 1.93    |  |                   |  | X         |  |           |  |                  |  |               |  |                  |  |      
|Stora Enso Skog AB*                             |  | Sweden      |  | 1.91    |  |                   |  |           |  |           |  |                  |  |               |  | X                |  |      
|Stora Enso Langerbrugge NV+                     |  | Belgium     |  | 1.69    |  | X                 |  |           |  |           |  |                  |  |               |  |                  |  |      
|Puumerkki Oy                                    |  | Finland     |  | 1.67    |  |                   |  |           |  |           |  |                  |  | X             |  |                  |  |      
|Stora Enso Pulp AB*                             |  | Sweden      |  | 1.57    |  | X                 |  | X         |  |           |  |                  |  |               |  |                  |  |      
|Stora Enso Uetersen GmbH & Co KG                |  | Germany     |  | 1.42    |  |                   |  | X         |  |           |  |                  |  |               |  |                  |  |      
|Papyrus Sweden AB*                              |  | Sweden      |  | 1.38    |  |                   |  |           |  | X         |  |                  |  |               |  |                  |  |      
|Berghuizer Papierfabriek NV+                    |  | Netherlands |  | 1.32    |  |                   |  | X         |  |           |  |                  |  |               |  |                  |  |      
|Stora Enso Sachsen GmbH                         |  | Germany     |  | 1.30    |  | X                 |  |           |  |           |  |                  |  |               |  |                  |  |      
|Stora Enso Baienfurt GmbH & Co KG               |  | Germany     |  | 1.21    |  |                   |  |           |  |           |  | X                |  |               |  |                  |  |      
|Stora Enso Grycksbo AB*                         |  | Sweden      |  | 1.11    |  |                   |  | X         |  |           |  |                  |  |               |  |                  |  |      
|Stora Enso Timber AB*                           |  | Sweden      |  | 1.08    |  |                   |  |           |  |           |  |                  |  | X             |  |                  |  |      
|Stora Enso Ingerois Oy+                         |  | Finland     |  | 1.06    |  |                   |  |           |  |           |  | X                |  |               |  |                  |  |      
|Sydved AB (66.7%)*                              |  | Sweden      |  | 1.05    |  |                   |  |           |  |           |  |                  |  |               |  | X                |  |      
|Stora Enso Barcelona S.A.                       |  | Spain       |  | 1.04    |  |                   |  |           |  |           |  | X                |  |               |  |                  |  |      
|Stora Enso Reisholz GmbH & Co KG                |  | Germany     |  | 1.01    |  | X                 |  |           |  |           |  |                  |  |               |  |                  |  |      
|Stora Enso Timber AS (66.0%)*                   |  | Estonia     |  | 1.00    |  |                   |  |           |  |           |  |                  |  | X             |  |                  |  |      
|Laminating Papers Oy+                           |  | Finland     |  | 0.91    |  |                   |  |           |  |           |  | X                |  |               |  |                  |  |      
|Stora Enso Timber US Corp*                      |  | USA         |  | 0.88    |  |                   |  |           |  |           |  |                  |  | X             |  |                  |  |      
|Stora Enso Suzhou Paper Co Ltd (80.9%)*         |  | China       |  | 0.83    |  |                   |  | X         |  |           |  |                  |  |               |  |                  |  |      
|Enocell Oy (98.4%)+                             |  | Finland     |  | 0.82    |  |                   |  |           |  |           |  | X                |  |               |  |                  |  |      
|Papyrus France SA                               |  | France      |  | 0.80    |  |                   |  |           |  | X         |  |                  |  |               |  |                  |  |      
|Stora Enso Packaging Oy+                        |  | Finland     |  | 0.77    |  |                   |  |           |  |           |  | X                |  |               |  |                  |  |      
|Papyrus A/S*                                    |  | Denmark     |  | 0.74    |  |                   |  |           |  | X         |  |                  |  |               |  |                  |  |      
|Stora Enso Packaging AB*                        |  | Sweden      |  | 0.71    |  |                   |  |           |  |           |  | X                |  |               |  |                  |  |      
|Papyrus SA                                      |  | Belgium     |  | 0.57    |  |                   |  |           |  | X         |  |                  |  |               |  |                  |  |      
|Stora Enso Timber Zdirec sro*                   |  | Czech       |  | 0.49    |  |                   |  |           |  |           |  |                  |  | X             |  |                  |  |      
|Celulose Beira Industrial SA                    |  | Portugal    |  | 0.48    |  |                   |  | X         |  |           |  |                  |  |               |  |                  |  |      
|Stora EnsoTimber Bad St Leonard GmbH            |  | Austria     |  | 0.47    |  |                   |  |           |  |           |  |                  |  | X             |  |                  |  |      
|Corenso United Oy Ltd (71.0%)+                  |  | Finland     |  | 0.42    |  |                   |  |           |  |           |  | X                |  |               |  |                  |  |      
|ZAO Stora Enso Packaging (93.5%)*               |  | Russia      |  | 0.37    |  |                   |  |           |  |           |  | X                |  |               |  |                  |  |      
|Stora Enso Pankakoski Oy Ltd                    |  | Finland     |  | 0.36    |  |                   |  |           |  |           |  | X                |  |               |  |                  |  |      
|Stora Enso Bois SA                              |  | France      |  | 0.33    |  |                   |  |           |  |           |  |                  |  | X             |  |                  |  |      
|Sydved Energileveranser AB (66.7%)*             |  | Sweden      |  | 0.32    |  |                   |  |           |  |           |  |                  |  |               |  | X                |  |      
|Stora Enso Lumber Trading GmbH                  |  | Austria     |  | 0.31    |  |                   |  |           |  |           |  |                  |  | X             |  |                  |  |      
|Papyrus Norge A/S*                              |  | Norway      |  | 0.30    |  |                   |  |           |  | X         |  |                  |  |               |  |                  |  |      
|Papyrus Finland Oy+                             |  | Finland     |  | 0.29    |  |                   |  |           |  | X         |  |                  |  |               |  |                  |  | X    
|Scaldia Papier BV                               |  | Netherlands |  | 0.28    |  |                   |  |           |  | X         |  |                  |  |               |  |                  |  |      



F-69



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Note 27Employee and Equity Compensation Benefits



The majority of production employees are members of labor unions with which
either the Group or the forest industry customarily negotiate collective bargaining agreements in Europe. Salaries for senior management are negotiated individually. Stora Enso has incentive plans that take into account the performance, development
and results of both business units and individual employees. This performance-based bonus system is based on profitability as well as on attaining key business targets.



Bonus Programmes



Division and Business Unit management have annual bonus programmes based on the corporate target return on capital employed and on the results of their
respective areas of responsibility, together with the achievement of separately defined key personal targets; the bonus amounts to between 10 percent and 40 percent of salary depending on the persons position in the Company. Staff participate
in another bonus plan in which the payment is calculated as a percentage of annual salary up to a maximum of 7 percent. All bonuses are discretionary and, for the majority of employees, at least 50 percent of the bonuses are dependent on financial
targets, triggered only when results exceed a predetermined minimum level. The Group has decided to continue its performance-based programmes and has expanded these to cover 75 percent to 80 percent of employees globally where allowed by local
practice and regulations.



Share Based Programmes for
Management



In 2004 the board approved the implementation
of two new share based programmes to complement and partially replace the existing option programme. The changes were made in response to the competitive market trend away from option programmes towards share base award schemes, stimulated by the
change in international accounting standards. The new programmes are synthetic share awards where designated employees will receive existing Stora Enso R shares, not new shares. The new programmes are targeted at 200 key managers and staff in the
Group and replace 50 percent of the existing option programme for these employees; consequently the number of options issued under the 2004 share option programme has been reduced. The total number of shares that may be awarded under these two new
share programmes is 652,500.



The Performance Share Plan will
deliver awards to managers and key employees in each March over a three year period, starting in 2005, based on the Group performance during each of the preceding financial years. The performance target is for the corporate return on capital
employed to equal the weighted average cost of capital before any shares are awarded. The intended range of awards over the three year period is from 850 to 10,000 shares with a maximum of one and one half times the award when the corporate return
on capital employed exceeds the weighted average cost of capital by 4 percentage points. The Restricted Share Plan will similarly deliver shares to managers and key employees over the same three year period subject to the employee remaining in
employment of Stora Enso on the intended award date.



The board
also approved awarding shares under the restricted plan to a maximum of 50 key top young talents with a condition that they remain in employment for at least 5 years. The level for these award was set at 2,500 to 5,000 shares and the maximum number
of shares that may be issued is 187,500.



F-70



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The new share plans do not confer any beneficial interest at grant and the holder has no rights to
receive shares until the future award dates materialize.



|                 |  |              |  |              |  |                |  |                  |  |                         |  |                              |  |                        
|---------------- |  | ------------ |  | ------------ |  | -------------- |  | ---------------- |  | ----------------------- |  | ---------------------------- |  | -----------------------
|Option Programme |  | Type         |  | Year ofIssue |  | Number ofStaff |  | Strike Price     |  | Number ofOptions Issued |  | Number ofOptions Outstanding |  | Exercise Period        
|2004             |  | Synthetic    |  | 2004         |  | 1,000          |  | 11.15           |  | 4,675,300               |  | 4,644,050                    |  | 1 Mar 2007-28 Feb 2011 
|2003             |  | Synthetic    |  | 2003         |  | 1,000          |  | 10.00           |  | 6,064,150               |  | 5,945,400                    |  | 8 Feb 2006-7 Feb 2010  
|2002             |  | Synthetic    |  | 2002         |  | 1,000          |  | 16.50           |  | 5,902,000               |  | 5,702,000                    |  | 8 Feb 2005-7 Feb 2009  
|2001             |  | Synthetic    |  | 2001         |  | 500            |  | 11.70           |  | 4,215,000               |  | 3,995,000                    |  | 1 Apr 2004-31 Mar 2008 
|2000             |  | Synthetic    |  | 2000         |  | 200            |  | 12.25           |  | 2,800,000               |  | 2,555,000                    |  | 1 Apr 2003-31 Mar 2007 
|1999             |  | Synthetic    |  | 1999         |  | 200            |  | 11.75           |  | 2,750,000               |  | 2,532,750                    |  | 15 Jul 2002-15 Jul 2006
|1997 (closed)    |  | Warrants     |  | 1997         |  | 15             |  | FIM 45.57(7.66) |  | 3,000,000               |  | 0                            |  | 1 Dec 1998-31 Mar 2004 
|North America    |  | Stockoptions |  | 2000         |  | 839            |  | $6.9687(5.51)   |  | 5,680,000               |  | 1,166,559                    |  | 11 Sep 2000-4 Feb 2010 



Option Programmes
for Management (1999 to 2004)



In 1999, the board
announced an annual share option programme for some 200 key staff as part of an integrated top management compensation structure intended to provide a programme contributing to the long-term commitment of managerial and specialist personnel. This
programme has since been extended into subsequent years and now covers some 1,000 staff. The seven-year programmes consist of financially hedged options and synthetic options, with strike prices set at levels representing then-current market prices
plus 10 percent premiums. The synthetic options are hedged by total return swaps (TRS), which are settled with cash payments, allowing the Company to receive cash compensation to partially offset any change in share price between
the grant date and the settlement date. Depending on local circumstances, option holders will receive either a payment in cash, representing the difference between the strike price and the share price at the time of exercise, or an option to
purchase existing R shares. If an employee receives an option to purchase existing R shares, the Company first purchases the relevant number of R shares and immediately sells them to the employee, which avoids diluting the number of shares in issue.
Options are not transferable and expire if the employee leaves the Group.



The strike price for the 2004 Programme has been set at 11.15 based on the average price for R shares from February 5 to February 12, 2004, plus a 10 percent premium. The strike price for the 2003 Programme has
been set at 10.00 based on the average price for R shares from January 31, 2003 to February 7, 2003, plus a 10 percent premium. The strike price for the 2002 Programme has been set at 16.50 based on the average price for R shares from
January 31 to February 7, 2002, plus a 10 percent premium. The strike price for the 2001 Programme has been set at 11.70 based on the average price for R shares from February 8 to14, 2001, plus a 10 percent premium; the earliest exercise date
was April 1, 2004. The strike price for the 2000 Programme is 12.25 based on the average share price for the period of three days before and after the Annual General Meeting on March 21, 2000, plus a 10 percent premium; the earliest exercise
date was April 1, 2003. The strike price for the 1999 Programme is 11.75, based on the average share price from May to July 1999, plus a 10 percent premium; the earliest exercise date was July 15, 2002. As of December 31, 2004, no options from
the 1999 to 2004 programmes had been taken up.



F-71



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Stora Enso North America Option Programme



On August 18, 2000 the board decided to convert the Consolidated Papers,
Inc. share option plans (1989 Stock Option Plan and 1998 Incentive Compensation Plan) into Stora Enso programmes entitling holders to purchase a maximum 5,680,000 R shares, in the form of ADRs, at a weighted average strike price of $6,9687. The
exercise period of the currently existing plans is from September 11, 2000 to February 4, 2010, depending on the grant date.



On October 16, 2001 the board decided to amend the Programme to simplify administration and speed up delivery of shares to option holders. Thus, as of
November 1, 2001, no new R shares will be issued under the terms of the Programme, but instead, repurchased R shares have been reserved for distribution. A total of 2,001,733 new R shares were issued before the terms were amended, thereby increasing
the share capital by 3.4 million. During the year 2004, 733,133 (2003: 570,292) options were exercised, of which 685,085 (2003: 522,540) resulted in cash compensation and 48,048 (2003: 47,752) in the allocation of repurchased R shares. At
December 31, 2004, 1,166,559 (2003: 1,899,692) options were still outstanding.



Option Programme for Management (1997): Fully Subscribed and Closed



On April 7, 1997 the Company issued 1,000 warrants with a maximum value of 168,187 (FIM 1 million) to 15 members of senior management. Each bond
accrued annual interest of 4.0 percent, had a maturity of five years and carried one warrant entitling the holder to subscribe for 3,000 new R shares at a subscription price of 7.66 (FIM 45.57). The exercise period ran from December 1, 1998 to
March 31, 2004 and the bond entitled the holder to receive a dividend for the year in which the warrants were exercised. In 2004, a final 789,000 shares were issued, thus by April 8, 2004 the Programme had been fully subscribed and a total of
3,000,000 new R shares had been issued against the warrants, representing 0.3 percent of the share capital and 0.1 percent of the voting rights.



Director and Management Group Interests as of December 31, 2004



Board of Directors



|                                |  |                      |  |                      |  |         |  |                                 
|------------------------------- |  | -------------------- |  | -------------------- |  | ------- |  | --------------------------------
|                                |  | Series A Shares Held |  | Series R Shares Held |  | Options |  | Committee Memberships(1)Chairman
|Claes Dahlbäck, Chairman        |  | 2,541                |  | 19,529               |  |        |  | Compensation(1), Nomination     
|Krister Ahlström, Vice Chairman |  | 1,500                |  |                     |  |        |  | Compensation, Nomination(1)     
|Lee A. Chaden (ADRs)            |  |                     |  | 3,500                |  |        |  |                                
|Harald Einsmann (ADRs)          |  |                     |  | 4,800                |  |        |  | Compensation, Nomination        
|Björn Hägglund, Deputy CEO      |  |                     |  |                     |  |        |  |                                
|Jukka Härmälä, CEO              |  |                     |  |                     |  |        |  |                                
|Barbara Kux                     |  |                     |  |                     |  |        |  | Financial & Audit               
|                                |  |                      |  |                      |  |         |  | Compensation, Nomination        
|Ilkka Niemi                     |  |                     |  |                     |  |        |  | Financial & Audit               
|Paavo Pitkänen                  |  |                     |  | 3,800                |  |        |  | Financial & Audit               
|Jan Sjöqvist                    |  | 508                  |  | 1,943                |  |        |  | Financial & Audit(1)            
|Marcus Wallenberg               |  | 2,795                |  | 5,367                |  |        |  | Financial & Audit               
|                                |  |                      |  |                      |  |         |  |                                 
|Total                           |  | 7,344                |  | 38,939               |  |        |  |                                 
|                                |  |                      |  |                      |  |         |  |                                 



F-72



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



In 2003, the board of directors established a nomination committee for Stora Enso Oyj, with the main
task of giving guidance on the composition of the board of directors, remuneration thereof and preparing proposals on the composition of the other committees of the board of directors. The nomination committee comprises three or four non-executive
directors nominated annually by the board of directors.



|                                                                                   |  |                      |  |                      |  |                             |  |                        |  |                                  
|---------------------------------------------------------------------------------- |  | -------------------- |  | -------------------- |  | --------------------------- |  | ---------------------- |  | ---------------------------------
|Executive Management Group (EMG) Names followed by principal area
ofresponsibility |  | Series A Shares Held |  | Series R Shares Held |  | Synthetic Options 1999-2003 |  | Synthetic Options 2004 |  | Committee Memberships(1) Chairman
|Jukka Härmälä, CEO                                                                 |  |                     |  | 6,500                |  | 552,500                     |  | 60,000                 |  |                                 
|Björn Hägglund, Deputy CEO                                                         |  | 7,877                |  | 14,618               |  | 453,750                     |  | 45,000                 |  | Sustainability(1) R&D(1)         
|Lars Bengtsson                                                                     |  |                     |  |                     |  | 211,900                     |  | 22,500                 |  |                                 
|Jussi Huttunen                                                                     |  |                     |  |                     |  | 136,800                     |  | 22,500                 |  | Sustainability                   
|Kai Korhonen                                                                       |  |                     |  |                     |  | 226,900                     |  | 22,500                 |  | Sustainability, R&D              
|Pekka Laaksonen                                                                    |  | 15,000               |  |                     |  | 226,900                     |  | 22,500                 |  | Sustainability                   
|Esko Mäkeläinen                                                                    |  | 1,900                |  | 4,669                |  | 226,900                     |  | 22,500                 |  |                                 
|Arno Pelkonen                                                                      |  |                     |  |                     |  | 196,900                     |  | 22,500                 |  | Sustainability, R&D              
|Bernd Rettig                                                                       |  |                     |  |                     |  | 226,900                     |  | 22,500                 |  | R&D                              
|Yngve Stade                                                                        |  |                     |  | 725                  |  | 226,900                     |  | 22,500                 |  | Sustainability, R&D,Investments  
|                                                                                   |  |                      |  |                      |  |                             |  |                        |  |                                  
|Total                                                                              |  | 24,777               |  | 26,512               |  | 2,686,350                   |  | 285,000                |  |                                  
|                                                                                   |  |                      |  |                      |  |                             |  |                        |  |                                  



|                                                                                               |  |                      |  |                      |  |                             |  |                        |  |                                  
|---------------------------------------------------------------------------------------------- |  | -------------------- |  | -------------------- |  | --------------------------- |  | ---------------------- |  | ---------------------------------
|Management Group Consisting of the EMG and: Names
followed by principal area of responsibility |  | Series A Shares Held |  | Series R Shares Held |  | Synthetic Options 1999-2003 |  | Synthetic Options 2004 |  | Committee Memberships(1) Chairman
|Christer Ågren                                                                                 |  |                     |  | 3,000                |  | 152,900                     |  | 15,000                 |  | Sustainability                   
|John F Bergin (ADRs)                                                                           |  |                     |  | 80,715               |  | 50,000                      |  | 11,250                 |  |                                 
|Magnus Diesen                                                                                  |  | 1,000                |  |                     |  | 137,900                     |  | 15,000                 |  | Investment(1)                    
|Nils Grafström                                                                                 |  | 2,000                |  |                     |  | 75,000                      |  | 22,500                 |  |                                 
|Walter Haberland                                                                               |  |                     |  |                     |  | 82,900                      |  | 11,250                 |  |                                 
|Peter Kickinger .                                                                              |  |                     |  |                     |  | 69,100                      |  | 15,000                 |  | Investment                       
|Jyrki Kurkinen                                                                                 |  |                     |  | 32,568               |  | 122,900                     |  | 11,250                 |  | Disclosure                       
|Mats Nordlander                                                                                |  |                     |  |                     |  | 60,900                      |  | 15,000                 |  |                                 
|Markku Pentikäinen                                                                             |  |                     |  |                     |  | 70,300                      |  | 15,000                 |  |                                 
|Eberhard Potempa                                                                               |  |                     |  |                     |  | 96,000                      |  | 11,250                 |  |                                 
|Niilo Pöyhönen                                                                                 |  |                     |  |                     |  | 80,900                      |  | 11,250                 |  | R&D                              
|Keith B Russell                                                                                |  |                     |  | 7,000                |  | 90,000                      |  | 22,500                 |  |                                 
|Elisabet Salander Björklund                                                                    |  |                     |  |                     |  | 57,300                      |  | 15,000                 |  | Sustainability                   
|Kari Vainio                                                                                    |  |                     |  | 3,800                |  | 152,900                     |  | 15,000                 |  | Sustainability                   
|Petri Wager                                                                                    |  |                     |  |                     |  | 88,600                      |  | 15,000                 |  | Sustainability                   
|                                                                                               |  |                      |  |                      |  |                             |  |                        |  |                                  
|Total                                                                                          |  | 3,000                |  | 127,083              |  | 1,387,600                   |  | 221,250                |  |                                  
|                                                                                               |  |                      |  |                      |  |                             |  |                        |  |                                  
|Grand Total                                                                                    |  | 35,121               |  | 192,534              |  | 4,073,950                   |  | 506,250                |  |                                  
|                                                                                               |  |                      |  |                      |  |                             |  |                        |  |                                  



Details of officers
who retired during the year are not given



F-73



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Note 28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 percent 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 percent 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 favorable 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 percent associated company owned jointly with Myllykoski Oy. Stora Enso supplies fibre to Sunila, selling them 36.6 million (2003: 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 (2003: 123,921) metric tons from Sunila for a total price of 66.5 million (2003: 49.1 million).



Energy



Stora Enso holds a 15.7 percent 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 percent 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 5.0 million (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.



F-74



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Recycled Paper



The Group owns minority interests in several paper recyclers from whom recycled paper is purchased at market prices, this
amounting to 36.9 million (2003: 20.2 million) in 2004.



Restructured Forest Assets & 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 percent with the remaining 59 percent being held by Finnish institutional investors. One such investor with a 13.3 percent 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 46.7 million (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 percent was owned by the group and 5.0 percent by Korsnäs AB, a Swedish forest industry company controlled by the Kinnevik Group. The remaining 51.7 percent was sold
to institutional investors as a result of which a gain of 113.9 million was recorded. These investors include the Knud and Alice Wallenberg Foundation with a holding of 7.0 percent; 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 97.3 million with Group
sales to Bergvik being 25.4 million.



Stevedoring



The Group currently owns 34.3 percent 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
21.9 million (2003: 20.8 million).



Note 29Earnings (Loss)
per Share



|                                                 |  |                                 |   |  |             |  |            
|------------------------------------------------ |  | ------------------------------- | - |  | ----------- |  | -----------
|                                                 |  | For the year ended December 31,
|                                                 |  | 2002                            |   |  | 2003        |  | 2004       
|Net profit (loss) for the period,  million      |  | (240.7                          | ) |  | 137.9       |  | 739.7      
|                                                 |  |                                 |   |  |             |  |            
|Weighted average number of Series A and R shares |  | 889,606,185                     |   |  | 851,127,954 |  | 829,396,446
|Effect of warrants                               |  | 349,362                         |   |  | 198,214     |  | 610,540    
|                                                 |  |                                 |   |  |             |  |            
|Diluted number of shares                         |  | 889,955,547                     |   |  | 851,326,168 |  | 830,006,986
|                                                 |  |                                 |   |  |             |  |            
|Basic earnings (loss) per Share,                |  | (0.27                           | ) |  | 0.16        |  | 0.89       
|                                                 |  |                                 |   |  |             |  |            
|Diluted earnings (loss) per Share,              |  | (0.27                           | ) |  | 0.16        |  | 0.89       
|                                                 |  |                                 |   |  |             |  |            



Note 30Subsequent Events



On January 26, 2005 Stora Enso signed a new 1.75
billion syndicated credit facility agreement with a group of 23 banks. The five year facility is for general corporate purposes, including the refinancing of an existing 2.5 billion syndicated facility, and has a margin of 0.275 percent p.a.
over Euribor.



F-75



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Stora Enso is in negotiations to acquire a leading French paper merchant, Papeteries de France, from
International Paper. This company has net sales of approximately 160 million, employing some 220 staff in France, and would become part of the Stora Enso Merchants division. The transaction is expected to close late in the first quarter of
2005, subject to formal processes and approval by regulatory authorities. This acquisition is a further step in strengthening the Stora Enso Merchant presence in France and Western Europe following the decision to develop this segment as a core
business area.



In February 2003, Stora Enso Timber acquired a
66 percent interest in the sawmilling operations AS Sylvester, Estonia largest such company with extensive interest in the Baltic States. The original purchase agreement included an option to buy out the remaining AS Sylvester minority for a
consideration to be determined by performance targets. This option has now been exercised and the purchase is expected to be completed in the first quarter of 2005, upon which, subject to a 3.8 percent minority in the Imavere sawmill operation,
Stora Enso Timbers Baltic operations will become 100 percent owned.



Note 31Summary of differences between International Financial Reporting Standards and Generally Accepted Accounting Principles in the United States of America



The Groups consolidated financial statements are prepared in accordance with IFRS, which differ in a number of
respects from the accounting principles generally accepted in the United States (U.S. GAAP). Such differences include methods for measuring and presenting the amounts shown in the consolidated financial statements, as well as additional
disclosures required by U.S. GAAP.



Restatement



Amounts previously reported as net income (loss) in
accordance with U.S. GAAP differ from those amounts shown in these financial statements. Net income (loss) previously reported for the years ended December 31, 2003 and 2002 was 234.4 million and (303.5) million, respectively. Net income
(loss) reported in these financial statements for the years ended December 31, 2003 and 2002 is 134.9 million and (335.4) million, respectively. Basic and diluted earnings (loss) per share previously reported for the years ended December
31, 2003 and 2002 was 0.28 and (0.34), respectively. Basic and diluted earnings (loss) per share reported in these financial statements for the years ended December 31, 2003 and 2002 is 0.16 and (0.38), respectively.



An adjustment to decrease net income for the year ended
December 31, 2003 of 99.5 million and to increase net loss for the year ended December 31, 2002 of 31.9 million was made to properly present the change in fair value of certain derivative contracts under US GAAP. In prior years, the
Company inadvertently recorded the income statement effect as the total fair value of the derivative financial instrumentsnot the change in fair value. This correction did not have an effect on total shareholders equity in accordance
with U.S. GAAP since the U.S. GAAP adjustment to net income (loss) for derivative financial instruments is reflected as a reclassification from other comprehensive income under IFRS to retained earnings under U.S. GAAP.



Reconciliation of net profit (loss) and shareholders equity



The following is a summary of the significant adjustments
to net profit (loss) and shareholders equity required when reconciling such amounts recorded in the Groups consolidated financial statements to the corresponding amounts in accordance with U.S. GAAP. The most significant adjustments
relate to the accounting for business combinations. As further detailed below, the business combination of STORA and Enso is accounted for as a uniting of interests under IFRS but is accounted for using the purchase method under U.S. GAAP. This
difference affects the valuation of a number of financial statement accounts at the date of the combination. For



F-76



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



presentation purposes in the reconciliation, which follow, the Reverse acquisition item includes solely the impact of valuation differences that
arose using the purchase method under U.S. GAAP. The other reconciling items reflect the pre-and post-combination differences between IFRS and U.S. GAAP.



Reconciliation of net profit (loss)



|                                               |  |                                 |      |  |            |      |  |        |   |  |         |  
|---------------------------------------------- |  | ------------------------------- | ---- |  | ---------- | ---- |  | ------ | - |  | ------- | -
|                                               |  | For the year ended December 31, |     
|                                               |  | 2002                            |      |  | 2003       |      |  | 2004   |   |  | 2004    |  
|                                               |  | (Restated)                      |      |  | (Restated) |      |  |        |   |  |         |  
|                                               |  |                                |      |  |           |      |  |       |   |  | $       |  
|                                               |  | (in millions)                   |     
|Reconciliation of net profit (loss)            |  |                                 |      |  |            |      |  |        |   |  |         |  
|Net profit (loss) in accordance with IFRS      |  | (240.7                          | )    |  | 137.9      |      |  | 739.7  |   |  | 1,001.4 |  
|U.S. GAAP adjustments:                         |  |                                 |      |  |            |      |  |        |   |  |         |  
|a) Employee benefit plans                      |  | (11.0                           | )    |  | (0.8       | )    |  | (280.3 | ) |  | (379.5  | )
|b) Reverse acquisition                         |  | (204.5                          | )    |  | (59.7      | )    |  | (51.4  | ) |  | (69.6   | )
|c) Acquisition of Consolidated Papers, Inc.    |  | (153.1                          | )    |  | 7.8        |      |  | (167.8 | ) |  | (227.2  | )
|d) Provision for future reforestation costs    |  | (1.5                            | )    |  | 0.8        |      |  |       |   |  |        |  
|e) Derivative financial instruments            |  | 95.3                            | (1)  |  | (5.0       | )(1) |  | 5.1    |   |  | 6.9     |  
|f) Impairment of goodwill                      |  |                                |      |  | (47.1      | )    |  | (243.9 | ) |  | (330.2  | )
|g) Impairment of fixed assets                  |  | 71.8                            |      |  | (4.9       | )    |  | (4.4   | ) |  | (6.0    | )
|h) Stock based compensation                    |  | 9.2                             |      |  | (1.2       | )    |  | (6.0   | ) |  | (8.1    | )
|i) Pension surplus refund                      |  | 10.9                            |      |  | 2.4        |      |  | 1.5    |   |  | 2.0     |  
|j) Amortization of goodwill                    |  | 148.8                           |      |  | 116.1      |      |  | 90.2   |   |  | 122.1   |  
|k) Restructuring costs                         |  |                                |      |  | 20.7       |      |  | (10.3  | ) |  | (13.9   | )
|l) Biological assets                           |  |                                |      |  | (24.1      | )    |  | (13.8  | ) |  | (18.7   | )
|m) Share of results in associated companies    |  |                                |      |  | (10.2      | )    |  | (17.2  | ) |  | (23.3   | )
|n) Sale of forest assets                       |  |                                |      |  |           |      |  | 233.7  |   |  | 316.4   |  
|Deferred tax effect of U.S. GAAP adjustments   |  | (60.6                           | )(1) |  | 2.2        | (1)  |  | 93.9   |   |  | 127.3   |  
|                                               |  |                                 |      |  |            |      |  |        |   |  |         |  
|Net income (loss) in accordance with U.S. GAAP |  | (335.4                          | )(1) |  | 134.9      | (1)  |  | 369.0  |   |  | 499.6   |  
|                                               |  |                                 |      |  |            |      |  |        |   |  |         |  

---

|(1) |  | Amount has been restated.
|--- |  | -------------------------



F-77



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|                                                                                 |  |                                             |   |  |          |  |       |  |      
|-------------------------------------------------------------------------------- |  | ------------------------------------------- | - |  | -------- |  | ----- |  | -----
|                                                                                 |  | For the year ended December 31,            
|                                                                                 |  | 2002                                        |   |  | 2003     |  | 2004  |  | 2004 
|                                                                                 |  |                                            |   |  |         |  |      |  | $    
|                                                                                 |  | (in millions, except for per share amounts)
|                                                                                 |  | Restated                                    |   |  | Restated |  |       |  |      
|Presentation of net income (loss) and earnings (loss) per share under U.S. GAAP: |  |                                             |   |  |          |  |       |  |      
|Net income (loss):                                                               |  |                                             |   |  |          |  |       |  |      
|Income (loss) from continuing operations                                         |  | (333.5                                      | ) |  | 134.9    |  | 369.0 |  | 499.6
|Extraordinary items, net of tax expense                                          |  | (1.9                                        | ) |  |         |  |      |  |     
|                                                                                 |  |                                             |   |  |          |  |       |  |      
|Net income (loss) in accordance with U.S. GAAP                                   |  | (335.4                                      | ) |  | 134.9    |  | 369.0 |  | 499.6
|                                                                                 |  |                                             |   |  |          |  |       |  |      
|Basic and diluted earnings (loss) per share:                                     |  |                                             |   |  |          |  |       |  |      
|Basic earnings (loss) per share                                                  |  |                                             |   |  |          |  |       |  |      
|Continuing operations                                                            |  | (0.38                                       | ) |  | 0.16     |  | 0.44  |  | 0.60 
|Extraordinary items                                                              |  |                                            |   |  |         |  |      |  |     
|                                                                                 |  |                                             |   |  |          |  |       |  |      
|Total basic earnings (loss) per share                                            |  | (0.38                                       | ) |  | 0.16     |  | 0.44  |  | 0.60 
|                                                                                 |  |                                             |   |  |          |  |       |  |      
|Diluted earnings (loss) per share                                                |  |                                             |   |  |          |  |       |  |      
|Continuing operations                                                            |  | (0.38                                       | ) |  | 0.16     |  | 0.44  |  | 0.60 
|Extraordinary items                                                              |  |                                            |   |  |         |  |      |  |      
|                                                                                 |  |                                             |   |  |          |  |       |  |      
|Total diluted earnings (loss) per share                                          |  | (0.38                                       | ) |  | 0.16     |  | 0.44  |  | 0.60 
|                                                                                 |  |                                             |   |  |          |  |       |  |      

|                                                               |  |             |  |             |  |             |  | 
|-------------------------------------------------------------- |  | ----------- |  | ----------- |  | ----------- |  | 
|Weighted average number of shares outstanding under U.S. GAAP: |  |             |  |             |  |             |  | 
|Basic                                                          |  | 889,606,185 |  | 851,127,954 |  | 829,396,446 |  | 
|Diluted                                                        |  | 889,955,547 |  | 851,326,168 |  | 830,006,986 |  | 



Consolidated
Statement of Comprehensive Income



The Company has adopted
SFAS No. 130, Reporting Comprehensive Income, which establishes standards for the reporting and presentation of comprehensive income and its components. The Company has chosen to present comprehensive income using amounts determined in
accordance with IFRS.



Components of comprehensive income in
accordance with IFRS consist of the following:



|                                                                                                                                       |  |                                 |   |  |        |   |  |       |   |  |        |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | - |  | ------ | - |  | ----- | - |  | ------ | -
|                                                                                                                                       |  | For the year ended December 31, |  
|                                                                                                                                       |  | 2002                            |   |  | 2003   |   |  | 2004  |   |  | 2004   |  
|                                                                                                                                       |  |                                |   |  |       |   |  |      |   |  | $      |  
|                                                                                                                                       |  | (in millions)                   |  
|Comprehensive income                                                                                                                   |  |                                 |   |  |        |   |  |       |   |  |        |  
|Net income (loss) in accordance with IFRS                                                                                              |  | (240.7                          | ) |  | 137.9  |   |  | 739.7 |   |  | 1001.4 |  
|Other comprehensive income                                                                                                             |  |                                 |   |  |        |   |  |       |   |  |        |  
|Foreign currency translation adjustment                                                                                                |  | (94.3                           | ) |  | (52.7  | ) |  | (21.8 | ) |  | (29.5  | )
|Available-for-sale investments, net of tax benefit of 10.2 million in 2002, expense of 16.5 million in 2003 and 4.1 million
in 2004 |  | (24.3                           | ) |  | 40.0   |   |  | (1.6  | ) |  | (2.2   | )
|Cash flow hedging, net of tax expense of 81.1 million in 2002, benefit of 63.6 million in 2003 and 10.7 million in
2004             |  | 199.1                           |   |  | (158.8 | ) |  | (45.4 | ) |  | (61.5  | )
|Fair value adjustment related to the adoption of IAS 41, Agriculture as of January 1, 2003, net of tax expense of 240.4
million       |  |                                |   |  | 659.4  |   |  |      |   |  |       |  
|                                                                                                                                       |  |                                 |   |  |        |   |  |       |   |  |        |  
|Comprehensive income (loss) in accordance with IFRS                                                                                    |  | (160.2                          | ) |  | 625.8  |   |  | 670.9 |   |  | 908.2  |  
|                                                                                                                                       |  |                                 |   |  |        |   |  |       |   |  |        |  



F-78



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Reconciliation of shareholders equity



|                                                  |  |                    |   |  |         |   |  |         |   |  |          |  
|------------------------------------------------- |  | ------------------ | - |  | ------- | - |  | ------- | - |  | -------- | -
|                                                  |  | As of December 31, |  
|                                                  |  | 2002               |   |  | 2003    |   |  | 2004    |   |  | 2004     |  
|                                                  |  |                   |   |  |        |   |  |        |   |  | $        |  
|                                                  |  | ( in millions)    |  
|Reconciliation of shareholders equity            |  |                    |   |  |         |   |  |         |   |  |          |  
|Shareholders equity in accordance with IFRS      |  | 8,034.8            |   |  | 7,952.9 |   |  | 8,051.1 |   |  | 10,899.6 |  
|U.S. GAAP adjustments:                            |  |                    |   |  |         |   |  |         |   |  |          |  
|a) Employee benefit plans                         |  | (32.4              | ) |  | (36.3   | ) |  | (265.1  | ) |  | (358.9   | )
|b) Reverse acquisition                            |  | 658.3              |   |  | 598.6   |   |  | 547.2   |   |  | 740.8    |  
|c) Acquisition of Consolidated Papers, Inc.       |  | 257.0              |   |  | 220.3   |   |  | 51.4    |   |  | 69.6     |  
|d) Provision for future reforestation costs       |  | 22.7               |   |  | 23.5    |   |  |        |   |  |         |  
|f) Impairment of goodwill                         |  | 52.8               |   |  | 5.7     |   |  | (216.6  | ) |  | (293.2   | )
|g) Impairment of fixed assets                     |  | 64.8               |   |  | 49.4    |   |  | 41.7    |   |  | 56.5     |  
|h) Stock based compensation                       |  |                   |   |  | (1.2    | ) |  | (7.2    | ) |  | (9.7     | )
|i) Pension surplus refund                         |  | (3.9               | ) |  | (1.5    | ) |  |        |   |  |         |  
|j) Amortization of goodwill                       |  | 152.0              |   |  | 243.6   |   |  | 324.8   |   |  | 439.7    |  
|k) Restructuring costs                            |  |                   |   |  | 20.7    |   |  | 10.4    |   |  | 14.1     |  
|l) Biological assets                              |  |                   |   |  | (886.7  | ) |  | (23.0   | ) |  | (31.1    | )
|m) Share of results in associated companies       |  |                   |   |  | (54.2   | ) |  | (64.8   | ) |  | (87.7    | )
|n) Sale of forest assets                          |  |                   |   |  |        |   |  | (368.1  | ) |  | (498.3   | )
|Deferred tax effect of U.S. GAAP adjustments      |  | (21.6              | ) |  | 228.7   |   |  | 58.6    |   |  | 79.3     |  
|                                                  |  |                    |   |  |         |   |  |         |   |  |          |  
|Shareholders equity in accordance with U.S. GAAP |  | 9,184.5            |   |  | 8,363.5 |   |  | 8,140.4 |   |  | 11,020.7 |  
|                                                  |  |                    |   |  |         |   |  |         |   |  |          |  



a)    Employee
benefit plans



The companies within the Group maintain
various pension plans in accordance with the local conditions and practices in the countries in which they operate. The plans 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 operates.



Under IAS 19 (revised) and under U.S. GAAP SFAS No. 87 Employers Accounting for Pensions, pension expense is based upon a specified methodology that includes a designated actuarial approach and reflects
the concept of accrual accounting. Under U.S. GAAP, pension expense is recorded on a full accrual basis and reflected in the income statement over the working lives of the employees provided with such benefits. The economic and demographic
assumptions used in calculating pension expense are required to be reviewed and updated periodically to the extent that local market economic conditions and demographics change. Under U.S. GAAP, the Group has estimated the effect on net income and
shareholders equity assuming the adoption of SFAS No. 87 as of January 1, 1998. (The adoption of SFAS No. 87 on the actual effective date of January 1, 1989 was not feasible.) As of January 1, 1998, an unrecognized transition obligation was
determined and is being amortized over the then average future-working lifetime of employee participants commencing January 1, 1989. SFAS No. 87 also contains a minimum liability provision, which requires, under certain circumstances, recognition of
at least the unfunded accumulated pension benefit obligation on the balance sheet.



Disability benefits under the Finnish statutory employment pension scheme (TEL) were previously accounted for as a defined benefit plan under IFRS. In late 2004 the Finnish Ministry of Social Affairs and
Health approved changes to the TEL which affected the method for calculating and funding these disability benefits (see



F-79



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



note 20). IFRS provides that the use of insurance premiums to fund benefits should be accounted for using defined contribution accounting as long as a
company retains no ongoing legal or constructive obligations, under any circumstances. Because this change to the TEL will result in accounting for the disability benefits as a defined contribution plan under IFRS, the Company recorded a reduction
in personnel expenses amounting to 179.9 million for its defined benefit obligation related to those benefits. U.S. GAAP contains no provision to allow defined contribution accounting where insurance premiums are used to fund benefits. Under
U.S. GAAP, the cost of a benefit can and should be determined without regard to how an employer decides to finance the plan. The changes to the TEL had no impact on the defined benefit accounting treatment for the disability benefits under U.S.
GAAP.



The Group uses a December 31 measurement date for the
majority of its plans.



The following table sets forth the
changes in the benefit obligation and fair value of plan assets during the year and the funded status of the significant defined benefit pension plans showing the amounts that would be recognized in the Groups consolidated balance sheet in
accordance with U.S. GAAP as of December 31, 2003 and 2004.



|                                               |  |                    |   |  |          |   |  |                       |   |  |          |    |  |          |   |  |                       |  
|---------------------------------------------- |  | ------------------ | - |  | -------- | - |  | --------------------- | - |  | -------- | -- |  | -------- | - |  | --------------------- | -
|                                               |  | Retirement Benefit |  
|                                               |  | 2003               |   |  | 2004     |  
|                                               |  | Domestic           |   |  | Foreign  |   |  | Domestic              |   |  | Foreign  |   
|                                               |  |                    |   |  | Pensions |   |  | Other post-retirement |   |  |          |    |  | Pensions |   |  | Other post-retirement |  
|                                               |  | ( in millions)    |   |  |          |   |  | ( in millions)       |  
|Change in benefit obligation                   |  |                    |   |  |          |   |  |                       |   |  |          |    |  |          |   |  |                       |  
|Benefit obligation at beginning of year        |  | 261.9              |   |  | 1,305.9  |   |  | 372.4                 |   |  | 259.8    |    |  | 1,262.0  |   |  | 431.5                 |  
|Service cost                                   |  | 15.0               |   |  | 21.1     |   |  | 6.5                   |   |  | 39.1     |    |  | 77.2     |   |  | 11.1                  |  
|Interest cost                                  |  | 15.1               |   |  | 72.0     |   |  | 21.4                  |   |  | 40.3     |    |  | 132.3    |   |  | 23.1                  |  
|SFAS No. 88 events                             |  |                   |   |  | (2.6     | ) |  | (4.3                  | ) |  |         |    |  |         |   |  |                      |  
|Plan participants contributions               |  |                   |   |  |         |   |  |                      |   |  |         |    |  | 3.2      |   |  | 0.6                   |  
|Amendments                                     |  |                   |   |  | 15.3     |   |  | 3.1                   |   |  | (51.3    | )  |  | 0.7      |   |  | (75.1                 | )
|Acquisitions                                   |  |                   |   |  |         |   |  |                      |   |  |         |    |  |         |   |  |                      |  
|Actuarial loss (gain)                          |  | (18.0              | ) |  | 29.7     |   |  | 113.6                 |   |  | (2.9     | )  |  | (19.9    | ) |  | (3.0                  | )
|Benefits paid Settlements                      |  | (14.2             | ) |  | (76.2   | ) |  | (20.3                | ) |  | (4.6(2.7 | )) |  | (83.5   | ) |  | (23.2                | )
|Currency effect                                |  |                   |   |  | (103.2   | ) |  | (60.9                 | ) |  |         |    |  | (43.3    | ) |  | (30.5                 | )
|                                               |  |                    |   |  |          |   |  |                       |   |  |          |    |  |          |   |  |                       |  
|Benefit obligation at end of year              |  | 259.8              |   |  | 1,262.0  |   |  | 431.5                 |   |  | 277.7    |    |  | 1,328.7  |   |  | 334.5                 |  
|                                               |  |                    |   |  |          |   |  |                       |   |  |          |    |  |          |   |  |                       |  
|Change in plan assets                          |  |                    |   |  |          |   |  |                       |   |  |          |    |  |          |   |  |                       |  
|Fair value of plan assets at beginning of year |  | 44.5               |   |  | 636.9    |   |  | 18.6                  |   |  | 51.6     |    |  | 616.7    |   |  | (10.7                 | )
|Actual return on plan assets                   |  | 5.1                |   |  | 85.6     |   |  | 1.2                   |   |  | 14.6     |    |  | 133.6    |   |  | 19.8                  |  
|Company contribution                           |  | 16.2               |   |  | 29.2     |   |  | 9.7                   |   |  | 7.3      |    |  | 90.3     |   |  | 46.1                  |  
|SFAS No. 88 events                             |  |                   |   |  | 16.0     |   |  |                      |   |  |         |    |  |         |   |  |                      |  
|Acquisitions                                   |  |                   |   |  | (29.9    | ) |  | (18.5                 | ) |  |         |    |  |          |   |  |                      |  
|Benefits paid                                  |  | (14.2              | ) |  | (38.4    | ) |  | (18.5                 | ) |  | (4.6     | )  |  | (43.4    | ) |  | (19.4                 | )
|Currency effect                                |  |                   |   |  | (82.7    | ) |  | (3.2                  | ) |  |         |    |  | (35.5    | ) |  | (0.6                  | )
|                                               |  |                    |   |  |          |   |  |                       |   |  |          |    |  |          |   |  |                       |  
|Fair value of plan assets at end of year       |  | 51.6               |   |  | 616.7    |   |  | (10.7                 | ) |  | 68.9     |    |  | 761.7    |   |  | 35.2                  |  
|                                               |  |                    |   |  |          |   |  |                       |   |  |          |    |  |          |   |  |                       |  
|Funded status                                  |  | (208.2             | ) |  | (645.3   | ) |  | (442.2                | ) |  | (208.8   | )  |  | (567.0   | ) |  | (299.3                | )
|Unrecognized transitional obligation (asset)   |  |                   |   |  | (1.6     | ) |  |                      |   |  |         |    |  | (1.0     | ) |  |                      |  
|Unrecognized prior service cost                |  | 24.5               |   |  | 7.2      |   |  | (9.5                  | ) |  | (49.9    | )  |  | 11.3     |   |  | (82.6                 | )
|Unrecognized actuarial loss                    |  | (16.7              | ) |  | 307.1    |   |  | 216.1                 |   |  | 25.1     |    |  | 286.4    |   |  | 187.6                 |  
|                                               |  |                    |   |  |          |   |  |                       |   |  |          |    |  |          |   |  |                       |  
|(Accrued)/Prepaid benefit cost                 |  | (200.4             | ) |  | (332.6   | ) |  | (235.6                | ) |  | (233.6   | )  |  | (270.3   | ) |  | (194.3                | )
|                                               |  |                    |   |  |          |   |  |                       |   |  |          |    |  |          |   |  |                       |  



F-80



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table sets forth liabilities recognized in the U.S. GAAP balance sheet as of December
31, 2003 and 2004:



|                                       |  |                                        |   |  |                 |   |  |          |   |  |         |   |  |          |   |  |        |  
|-------------------------------------- |  | -------------------------------------- | - |  | --------------- | - |  | -------- | - |  | ------- | - |  | -------- | - |  | ------ | -
|                                       |  | Retirement Benefits as of December 31, |  
|                                       |  | 2003                                   |   |  | 2004            |  
|                                       |  | Domestic                               |   |  | Foreign         |   |  | Domestic |   |  | Foreign |  
|                                       |  |                                        |   |  | Pensions        |   |  | Other    |   |  |         |   |  | Pensions |   |  | Other  |  
|                                       |  | ( in millions)                        |   |  | ( in millions) |  
|Accrued benefit liability              |  | (200.4                                 | ) |  | (453.7          | ) |  | (235.6   | ) |  | (233.6  | ) |  | (531.4   | ) |  | (194.3 | )
|Prepaid benefit cost                   |  |                                       |   |  | 16.3            |   |  |         |   |  |        |   |  | 201.7    |   |  |       |  
|Intangible asset                       |  |                                       |   |  | 13.0            |   |  |         |   |  |        |   |  | 3.5      |   |  |       |  
|Accumulated other comprehensive income |  |                                       |   |  | 91.8            |   |  |         |   |  |        |   |  | 55.9     |   |  |       |  
|                                       |  |                                        |   |  |                 |   |  |          |   |  |         |   |  |          |   |  |        |  
|Net amount recognized                  |  | (200.4                                 | ) |  | (332.6          | ) |  | (235.6   | ) |  | (233.6  | ) |  | (270.3   | ) |  | (194.3 | )
|                                       |  |                                        |   |  |                 |   |  |          |   |  |         |   |  |          |   |  |        |  



Total ABO in 2004 was
180.6 million for all domestic and 1,232.7 million for all foreign pension plans.



For plans where the accumulated benefit obligation (ABO) and the projected benefit obligation (PBO) exceed the fair value of plan assets under U.S. GAAP, the ABO, the PBO and fair value of plan
assets as of December 31, 2003 and 2004 were as follows:



|                     |  |                                        |  |          |                 |       |          |  |         |  |          |  |      
|-------------------- |  | -------------------------------------- |  | -------- | --------------- | ----- | -------- |  | ------- |  | -------- |  | -----
|                     |  | Retirement Benefits as of December 31,
|                     |  | 2003                                   |  |          | 2004           
|                     |  | Domestic                               |  | Foreign  |                 |       | Domestic |  | Foreign
|                     |  |                                        |  | Pensions |                 | Other |          |  |         |  | Pensions |  | Other
|                     |  | ( in millions)                        |  |          | ( in millions)
|ABO                  |  | 135.9                                  |  | 873.5    |                 | 429.1 |          |  | 180.6   |  | 640.1    |  | 334.6
|PBO                  |  | 194.7                                  |  | 931.9    |                 | 429.1 |          |  | 277.7   |  | 655.9    |  | 334.6
|Fair value of assets |  |                                       |  | 340.0    |                 | (10.7 | )        |  | 68.9    |  | 109.7    |  | 35.3 



During the year, had
other comprehensive income been presented in accordance with U.S. GAAP, an amount of  35.9 million would have been recorded in other comprehensive income for 2004 (2003: 12.9 million; 2002:  (41.1) million) due to the change in the
additional minimum pension liability during the period.



Net
periodic benefit cost in accordance with U.S. GAAP for the years ended December 31, 2002, 2003 and 2004 included the following components:



|                                          |  |                                                     |   |  |                 |   |  |                 |   |  |         |   |  |          |   |  |         |   |  |       |   |  |          |   |  |       |  
|----------------------------------------- |  | --------------------------------------------------- | - |  | --------------- | - |  | --------------- | - |  | ------- | - |  | -------- | - |  | ------- | - |  | ----- | - |  | -------- | - |  | ----- | -
|                                          |  | Retirement Benefits for the year ended December 31, |  
|                                          |  | 2002                                                |   |  | 2003            |   |  | 2004            |  
|                                          |  | Domestic                                            |   |  | Foreign         |   |  | Domestic        |   |  | Foreign |   |  | Domestic |   |  | Foreign |  
|                                          |  |                                                     |   |  | Pensions        |   |  | Other           |   |  |         |   |  | Pensions |   |  | Other   |   |  |       |   |  | Pensions |   |  | Other |  
|                                          |  | ( in millions)                                     |   |  | ( in millions) |   |  | ( in millions) |  
|Service cost                              |  | 13.4                                                |   |  | 23.4            |   |  | 8.0             |   |  | 15.0    |   |  | 21.1     |   |  | 6.5     |   |  | 28.5  |   |  | 22.9     |   |  | 8.1   |  
|Interest cost                             |  | 15.3                                                |   |  | 78.5            |   |  | 24.6            |   |  | 15.1    |   |  | 72.0     |   |  | 21.4    |   |  | 22.8  |   |  | 71.8     |   |  | 22.1  |  
|Expected return on plan assets            |  | (2.5                                                | ) |  | (59.9           | ) |  | (2.1            | ) |  | (2.6    | ) |  | (45.2    | ) |  | (1.0    | ) |  | (2.8  | ) |  | (52.8    | ) |  | (1.8  | )
|Actuarial gains/losses                    |  | 5.6                                                 |   |  | 9.0             |   |  | 5.9             |   |  | 3.0     |   |  | 17.5     |   |  | 7.1     |   |  | 12.2  |   |  | 11.6     |   |  | 11.1  |  
|Amortization                              |  | (7.7                                                | ) |  | (9.3            | ) |  | (0.4            | ) |  | (5.1    | ) |  | (18.4    | ) |  | (1.2    | ) |  | (20.0 | ) |  | 0.1      |   |  | (3.2  | )
|                                          |  |                                                     |   |  |                 |   |  |                 |   |  |         |   |  |          |   |  |         |   |  |       |   |  |          |   |  |       |  
|Subtotal                                  |  | 24.1                                                |   |  | 41.7            |   |  | 36.1            |   |  | 25.4    |   |  | 47.0     |   |  | 32.8    |   |  | 40.7  |   |  | 53.6     |   |  | 36.3  |  
|SFAS No. 88 cost                          |  | 4.3                                                 |   |  |                |   |  |                |   |  | 2.1     |   |  | (0.2     | ) |  | (1.6    | ) |  |      |   |  |         |   |  |      |  
|                                          |  |                                                     |   |  |                 |   |  |                 |   |  |         |   |  |          |   |  |         |   |  |       |   |  |          |   |  |       |  
|Net periodic benefit cost                 |  | 28.4                                                |   |  | 41.7            |   |  | 36.1            |   |  | 27.5    |   |  | 46.8     |   |  | 31.2    |   |  | 40.7  |   |  | 53.6     |   |  | 36.3  |  
|Acquisitions                              |  |                                                    |   |  |                |   |  |                |   |  |        |   |  |         |   |  |        |   |  |      |   |  | 0.2      |   |  |      |  
|                                          |  |                                                     |   |  |                 |   |  |                 |   |  |         |   |  |          |   |  |         |   |  |       |   |  |          |   |  |       |  
|Total expense and change in balance sheet |  | 28.4                                                |   |  | 41.7            |   |  | 36.1            |   |  | 27.5    |   |  | 46.8     |   |  | 31.2    |   |  | 40.7  |   |  | 53.8     |   |  | 36.3  |  
|                                          |  |                                                     |   |  |                 |   |  |                 |   |  |         |   |  |          |   |  |         |   |  |       |   |  |          |   |  |       |  



F-81



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Weighted-average assumptions used in the calculation of retirement benefit obligations are as
follows:



|                               |  |                     |   |  |          |   |  |          |   |  |         |   |  |          |   |  |       |  
|------------------------------ |  | ------------------- | - |  | -------- | - |  | -------- | - |  | ------- | - |  | -------- | - |  | ----- | -
|                               |  | Retirement Benefits |  
|                               |  | 2003                |   |  | 2004     |  
|                               |  | Domestic            |   |  | Foreign  |   |  | Domestic |   |  | Foreign |  
|                               |  |                     |   |  | Pensions |   |  | Other    |   |  |         |   |  | Pensions |   |  | Other |  
|Discount rate                  |  | 5.25                | % |  | 6.05     | % |  | 6.05     | % |  | 5.00    | % |  | 5.53     | % |  | 5,73  | %
|Rate of compensation increase  |  | 4.00                | % |  | 3.33     | % |  | n/a      |   |  | 5.00    | % |  | 3.72     | % |  | n/a   |  
|Expected return on plan assets |  | 5.25                | % |  | 8.57     | % |  | 8.57     | % |  | 5.00    | % |  | 8.24     | % |  | 4.50  | %



Weighted-average
assumptions used in the calculation of net periodic cost are as follows:



|                               |  |                     |   |  |          |   |  |          |   |  |         |   |  |          |   |  |         |   |  |      |   |  |          |   |  |       |  
|------------------------------ |  | ------------------- | - |  | -------- | - |  | -------- | - |  | ------- | - |  | -------- | - |  | ------- | - |  | ---- | - |  | -------- | - |  | ----- | -
|                               |  | Retirement Benefits |  
|                               |  | 2002                |   |  | 2003     |   |  | 2004     |  
|                               |  | Domestic            |   |  | Foreign  |   |  | Domestic |   |  | Foreign |   |  | Domestic |   |  | Foreign |  
|                               |  |                     |   |  | Pensions |   |  | Other    |   |  |         |   |  | Pensions |   |  | Other   |   |  |      |   |  | Pensions |   |  | Other |  
|Discount rate                  |  | 5.50                | % |  | 6.41     | % |  | 6.41     | % |  | 5.25    | % |  | 6.05     | % |  | 6.05    | % |  | 5.00 | % |  | 5.83     | % |  | 5.73  | %
|Rate of compensation increase  |  | 2.30                | % |  | 4.11     | % |  | n/a      |   |  | 4.00    | % |  | 3.33     | % |  | n/a     |   |  | 5.00 | % |  | 3.72     | % |  | n/a   |  
|Expected return on plan assets |  | 5.50                | % |  | 8.86     | % |  | 8.86     | % |  | 5.25    | % |  | 8.57     | % |  | 8.57    | % |  | 5.00 | % |  | 8.24     | % |  | 4.50  | %



In 2005, Stora Enso
expects to contribute 8.3 million in respect to the Finnish TEL system for the disability and old-age retirement liability.



The expected long term rate of return on plan assets held in trust is based on capital market assumptions for each asset class incorporated under the
respective trusts investment policy. The assumptions reflect a combination of historical performance analysis and the forward looking views of the financial markets as revealed through the yield on long term bonds and the price earnings ratios
of the major stock market indices. The assumption setting process begins with analysis of historical risks and correlations of asset class returns, to which subjective judgment is applied. The result of this analysis is incorporated into a risk
matrix from which expected long term risk premiums are derived for each asset class. The nominal return expectations are then determined by combining the asset class risk premiums with expected inflation and real risk-free rate assumptions. As final
consideration, the nominal return assumptions are blended with current market conditions to develop long-term equilibrium expectations.



Plan assets in North America are held in trusts. Investment policies provide frameworks within which to manage the investments of each trust. It is the
primary objective of the investment policies to invest the trust assets in a manner that ensures sufficient funds will be available to meet the benefit obligations of the trusts as determined in connection with periodic asset-liability studies
commissioned by the investment committee. The pension investment policy provides for strategic allocation targets as follows: US Large Cap Equity 40 percent, US Small Cap Equity 8 percent, International Equity 17 percent, Fixed Income 22 percent,
Real Estate 5 percent and Alternative Investments 8 percent. The policy also provides for appropriate drift ranges for each asset class and rebalancing back to the allocation target when the range is exceeded. The policy has additional requirements
to ensure adequate diversification, limit non-investment grade quality fixed income securities and restrict the use of derivatives. The investment policy for other benefits is similar but also takes into consideration the fact that retiree
healthcare obligations are not required to be funded and have varying cash flow needs.



F-82



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table presents details of the Company plan assets structure for North American Plans:



Plan AssetsPercentage of Fair Value by Asset Category



|                  |  |                        |   |  |                      |   |  |        |   |  |        |  
|----------------- |  | ---------------------- | - |  | -------------------- | - |  | ------ | - |  | ------ | -
|                  |  | As of December 31,     |  
|                  |  | Pension benefits plans |   |  | Other benefits plans |  
|                  |  | 2003                   |   |  | 2004                 |   |  | 2003   |   |  | 2004   |  
|Asset category    |  |                        |   |  |                      |   |  |        |   |  |        |  
|Cash              |  | 0.13                   | % |  | 0.03                 | % |  | 4.29   | % |  | 0.26   | %
|Equity securities |  | 67.43                  | % |  | 65.83                | % |  | 22.91  | % |  | 19.79  | %
|Debt securities   |  | 23.95                  | % |  | 25.96                | % |  | 72.80  | % |  | 79.95  | %
|Real Estate       |  | 2.97                   | % |  | 3.29                 | % |  | 0.00   | % |  | 0.00   | %
|Other             |  | 5.52                   | % |  | 4.89                 | % |  | 0.00   | % |  | 0.00   | %
|Total             |  | 100.00                 | % |  | 100.00               | % |  | 100.00 | % |  | 100.00 | %



Plan assets in Finland
are managed by insurance companies. Because the plan assets are assets of the insurance companies, information about the exact structure and investment strategy surrounding the plan assets is not available to participating employers. The assets are
managed in accordance with the local statutory requirements for the insurance companies.



Plan assets in other European countries are not material.



Estimated Future Benefit Payments, euro



|                |  |                  |  |               
|--------------- |  | ---------------- |  | --------------
|                |  | Pension benefits |  | Other benefits
|2005            |  | 81,582,320       |  | 20,613,328    
|2006            |  | 101,611,500      |  | 20,601,947    
|2007            |  | 130,454,796      |  | 20,097,915    
|2008            |  | 83,944,486       |  | 19,381,803    
|2009            |  | 75,474,660       |  | 18,812,990    
|Years 2010-2014 |  | 369,068,289      |  | 86,023,589    



Expected Employer
Contributions to Paid into Plan during next fiscal year



|                                 |  |                  |  |               
|-------------------------------- |  | ---------------- |  | --------------
|Euro                             |  | Pension benefits |  | Other benefits
|Payments during fiscal year 2005 |  | 29,542,496       |  | 11,062,693    



Assumptions related to
the health care benefits as of December 31 (applicable only for North American plans).



|                                                                                  |  |      |   |  |        |   |  |      |   |  |        |  
|--------------------------------------------------------------------------------- |  | ---- | - |  | ------ | - |  | ---- | - |  | ------ | -
|                                                                                  |  | 2003 |   |  | 2004   |  
|                                                                                  |  | USA  |   |  | Canada |   |  | USA  |   |  | Canada |  
|Health care cost trend rate assumed for next year                                 |  | 10   | % |  | 10     | % |  | 9    | % |  | 10     | %
|Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) |  | 5    | % |  | 6      | % |  | 5    | % |  | 6      | %
|Year that the rate reaches the ultimate trend rate                                |  | 2009 |   |  | 2010   |   |  | 2009 |   |  | 2009   |  



A one-percentage-point
change in assumed health care cost trend rates would have the following effects:



|                                                        |  |                            |  |                              |  
|------------------------------------------------------- |  | -------------------------- |  | ---------------------------- | -
|Euro, million                                           |  | Percentage- Point Increase |  | 1-Percentage- Point decrease |  
|Effect on total of service and interest cost components |  | 4.2                        |  | (3.4                         | )
|Effect on postretirement benefit obligation             |  | 33.1                       |  | (26.7                        | )



F-83



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STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The final regulations implementing the Medicare Prescription Drug, Improvement, and Modernization Act
of 2003 were issued in January of 2005; an estimate of the Regulations possible effect has not yet been made by the Company.



In January 2004 the FASB issued FSP No. FAS 106-1, and in May 2004 FSP No. FAS 106-2, Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003. FSP No. FAS 106-2 superseded FSP No. FAS 106-1 and is effective for the Company for the fiscal year ended December 31, 2005. The Company has not yet determined if the benefits
provided by their other post-retirement plan in the United States are actuarially equivalent to Medicare Part D under the Act. The Company does not expect the Act to have a material impact on their financial statements.



b)    Reverse acquisition



In December 1998, Enso Oyj acquired STORA through a share exchange
transaction and changed its name to Stora Enso Oyj. The business combination was accounted for using the uniting of interests method in the consolidated financial statements prepared in accordance with IFRS. Under U.S. GAAP, the business combination
was accounted for as a purchase (reverse acquisition), with STORA as the accounting acquirer. The total purchase consideration of Enso was determined on the basis of the fair value of the transaction when the combination was announced on June 2,
1998.



The excess of the cost of the acquisition of Enso over
the fair value of the net assets acquired totaled 124.4 million and has been recorded as goodwill under U.S. GAAP. Under U.S. GAAP, before the adoption of SFAS No. 142 Goodwill and Other Intangible Assets, on January 1, 2002, such
goodwill was amortized on straight-line basis over an estimated economic useful life of 20 years from the effective date of the combination. As a result of the adoption of SFAS No. 142, the remaining goodwill under U.S. GAAP is no longer subject to
annual amortization but is subject to regular impairment tests; see adjustment f) Impairment of goodwill.



The Group disposed of its Finnish forest holdings as described in note 4, Acquisitions and Disposals, on December 5, 2002. The book value for these forest
assets under IFRS amounted to 410.0 million and under U.S. GAAP to 650.5 million. The fair market value as determined by the sale transaction amounted to 521.8 million and as a result, the U.S. GAAP fair value adjustment resulting
from the reverse acquisition to the Finnish forest holdings has been included in the determination of the loss on sale under U.S. GAAP. As the Company retained a 41.0 percent ownership in its associated company Tornator Timberland Oy, a portion of
the gain amounting to 44.2 million has been deferred under IFRS. Under U.S. GAAP, the deferred gain has been eliminated as the transaction resulted in a loss under U.S. GAAP.



F-84



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STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The total purchase accounting fair value adjustments were 1,086.1 million as of December 31,
1998. The effect of those adjustments on the reconciliation of net profit (loss) and shareholders equity to the corresponding amounts under U.S. GAAP is as follows:



|                                             |  |                                |   |  |       |   |  |       |  
|-------------------------------------------- |  | ------------------------------ | - |  | ----- | - |  | ----- | -
|                                             |  | For the year endedDecember 31, |  
|                                             |  | 2002                           |   |  | 2003  |   |  | 2004  |  
|                                             |  | ( in millions)                |  
|Net income                                   |  |                                |   |  |       |   |  |       |  
|Amortization of goodwill                     |  |                               |   |  |      |   |  |      |  
|Depletion of forest assets                   |  | (4.8                           | ) |  |      |   |  |      |  
|Loss on sale of forest holdings              |  | (128.8                         | ) |  |      |   |  |      |  
|Reversal of gain on sale recorded under IFRS |  | (67.6                          | ) |  |      |   |  |      |  
|Depreciation of tangible assets              |  | (81.5                          | ) |  | (81.5 | ) |  | (81.5 | )
|Financial income and expenses                |  |                               |   |  |      |   |  |      |  
|Change in deferred tax liabilities           |  | 78.2                           |   |  | 21.8  |   |  | 30.1  |  
|                                             |  |                                |   |  |       |   |  |       |  
|Total                                        |  | (204.5                         | ) |  | (59.7 | ) |  | (51.4 | )
|                                             |  |                                |   |  |       |   |  |       |  



The additional
depletion cost under U.S. GAAP for Finnish forest holdings for the period of January 1, 2002 to December 5, 2002 amounted to 4.8 million with the related tax effect of 1.3 million. The loss on sale under U.S. GAAP on the Finnish forest
holdings amounted to 128.8 million with the related tax effect of 36.0 million. In addition, the 2002 adjustment reverses portion of the gain recorded under IFRS relating to the forest assets amounting to 67.6 million with the
related tax amounting to 18.9 million.



|                                     |  |                    |   |  |        |  
|------------------------------------ |  | ------------------ | - |  | ------ | -
|                                     |  | As of December 31, |  
|                                     |  | 2003               |   |  | 2004   |  
|                                     |  | ( in millions)    |  
|Shareholders equity                 |  |                    |   |  |        |  
|Goodwill                             |  | (79.0              | ) |  | (79.0  | )
|Reversal of deferred gain under IFRS |  | 44.2               |   |  | 44.2   |  
|Buildings and structures             |  | 292.9              |   |  | 277.5  |  
|Machinery and equipment              |  | 462.4              |   |  | 396.3  |  
|Shares in associated companies       |  | 128.4              |   |  | 128.4  |  
|Deferred tax liabilities             |  | (250.3             | ) |  | (220.2 | )
|                                     |  |                    |   |  |        |  
|Total                                |  | 598.6              |   |  | 547.2  |  
|                                     |  |                    |   |  |        |  



c)    Acquisition of Consolidated Papers, Inc



In August 2000, the Company completed the acquisition of Consolidated Papers, Inc. The purchase price for the acquisition under IFRS was determined on the basis of the stock price for Stora Enso series R shares issued
and stock options exchanged as part of the consideration at the acquisition date. Under U.S. GAAP, the measurement date for the valuation for equity securities has been determined by using the announcement date. Accordingly, the difference of
485.7 million in the purchase price at the acquisition date has been recorded as additional goodwill under U.S. GAAP. The additional amortization expense amounted to 24.2 million for the year ended December 31, 2001. Since the adoption
of SFAS No. 142 as of January 1, 2002, goodwill is no longer amortized under U.S. GAAP. The difference in the amount of goodwill between IFRS and U.S. GAAP in the amount of goodwill is also affected by change in cumulative translation adjustment as
the goodwill and accumulated amortization is denominated in U.S. dollar, which is recorded directly in shareholders equity in the cumulative translation account.



F-85



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



As more fully described under adjustment f) Impairment of goodwill, the Company
recognized goodwill impairment charges under U.S. GAAP of 418.8 on September 30, 2004 of which 174.9 million relates to this adjustment. This impairment is in addition to the 162.2 million impairment charge in 2002.



Translation differences for the full amount of goodwill relating to
Consolidated Papers Inc., previously recorded as a part of this adjustment, have been reclassified to adjustment j) Amortization of goodwill.



In addition, this adjustment is affected as a result of classifying an operating lease under U.S. GAAP as a financing lease under IFRS as of August 31,
2000. Accordingly, the depreciation and interest expense recorded under IFRS was decreased by 9.1 million, 7.8 million and 7.1 million to arrive at the operating lease expense under U.S. GAAP for the years ended December 31, 2001,
2002 and 2003 respectively.



The following table shows the
break-down of the adjustment related to the acquisition of Consolidated Papers, Inc. as of December 31, 2003 and 2004, respectively:



|                                           |  |                 |   |  |                |   |  |        |  
|------------------------------------------ |  | --------------- | - |  | -------------- | - |  | ------ | -
|                                           |  | Goodwill        |   |  | Lease contract |   |  | Total  |  
|                                           |  | ( in millions) |  
|Opening balance January 1, 2003            |  | 238.6           |   |  | 18.4           |   |  | 257.0  |  
|Recognized through income statement        |  |                |   |  | 7.8            |   |  | 7.8    |  
|Translation difference                     |  | (65.1           | ) |  | (3.9           | ) |  | (69.0  | )
|                                           |  |                 |   |  |                |   |  |        |  
|Ending balance December 31, 2003           |  | 173.5           |   |  | 22.3           |   |  | 195.8  |  
|Reclassification to adjustment j)          |  | 24.5            |   |  |               |   |  | 24.5   |  
|                                           |  |                 |   |  |                |   |  |        |  
|Ending balance December 31, 2003, adjusted |  | 198.0           |   |  | 22.3           |   |  | 220.3  |  
|Recognized through income statement        |  | (174.9          | ) |  | 7.1            |   |  | (167.8 | )
|Translation difference                     |  | 1.2             |   |  | (2.3           | ) |  | (1.1   | )
|                                           |  |                 |   |  |                |   |  |        |  
|Ending balance December 31, 2004           |  | 24.3            |   |  | 27.1           |   |  | 51.4   |  
|                                           |  |                 |   |  |                |   |  |        |  



d)    Provision
for future reforestation costs



Bergvik Skog AB (Sweden)
recognizes a provision for future reforestation costs under IFRS, which does not meet the requirements of SFAS No. 5, Accounting for Contingencies and is consequently reversed under U.S GAAP. This provision amounted to 23.5 million and
32.3 million as of December 31, 2003 and 2004, respectively.



As described in note 13, Stora Enso divested 56.7 percent of its Swedish forest holding company, Bergvik Skog AB in March 2004 to institutional investors, leaving the group with a minority shareholding of 43.3 percent. Accordingly, Bergvik
Skog AB is now accounted for using the equity method and the adjustment relating to the provision for future reforestation costs is included in adjustment n) Sale of forest assets.



e)    Derivative financial instruments



Under U.S. GAAP (prior to the adoption of SFAS No. 133 Accounting for
Derivative Financial Instruments and Hedging Activities,as of January 1, 2001), hedge (deferral) accounting was applied to qualifying derivative financial instruments that were designated and effective as a hedge. Unrealized gains and losses on
such derivative financial instruments were deferred until the gains and losses on the related underlying hedged items were recognized. If the derivative financial instruments did not qualify as hedges, unrealized gains and losses were recognized
immediately in income.



F-86



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Group entered into forward exchange contracts to manage its foreign exchange exposure related to
some anticipated future revenues and expenses denominated in foreign currencies other than the euro. Some of these transactions were entered into in respect of future revenues and expenses that are not covered by firm commitments. As permitted under
IFRS (prior to the adoption of IAS 39 as of January 1, 2001), the Group had deferred the unrealized gains and losses on such hedges until the related revenue and expense were realized. Under U.S. GAAP such unrealized gains and losses had to be
included in the determination of net income before the adoption of SFAS No. 133. As a result of the adoption of IAS 39, all derivative financial instruments were recorded at fair value as of January 1, 2001 and any difference between previous
carrying amounts and fair values was adjusted to shareholders equity. Consequently, the difference between shareholders equity under IFRS and U.S. GAAP has been eliminated as of January 1, 2001.



Stora Enso Oyj has entered into forward foreign exchange contracts in order
to hedge net investments in Canada, Denmark, and the United Kingdom as explained in note 24. The investments in Denmark and the United Kingdom are held by a Swedish subsidiary of Stora Enso Oyj, which has a functional currency of SEK. The investment
in Canada is held by Stora Enso North America Inc, which has a functional currency of US dollar. With respect to hedging foreign currency risk, IFRS does not require that the operating unit that is exposed to the risk being hedged be a party to the
hedging instrument and does not require same functional currencies. U.S. GAAP foreign currency hedge accounting criteria requires that the member of the consolidated group that is party to the hedging instrument have the same functional currency as
the unit exposed to the risk. Accordingly, hedge accounting cannot be applied under U.S. GAAP and the fair values of the forward exchange contracts have been included in the determination of net income, net of taxes. As of May 31, 2003, the UK
Holdings was transferred from the Swedish subsidiary to Stora Enso Oyj and the hedge accounting criteria under U.S. GAAP have been met with respect to the GBP net investment since that date and accordingly the fair values of such forward exchange
contracts have been recorded directly in the CTA account within equity.



f)    Impairment of goodwill



The Group recognized an impairment charge of 89.9 million on goodwill for the year ended December 31, 1998 under IFRS. In determining the recoverable amount of these assets, Stora Enso discounted future cash flows expected to result
from the use and eventual disposition of these assets. Under U.S. GAAP, prior to the adoption of SFAS No. 142, the Group applied the provisions of SFAS No. 121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of which required that expected cash flows used in determination of an assets recoverable amount be undiscounted. As the recoverable amount based on undiscounted cash flows exceeded the carrying value no impairment existed
relating to these assets in 1998 under U.S. GAAP.



The
impairment loss recognized for the year ended December 31, 1998 of 89.9 million has been reversed under U.S. GAAP. Additional amortization expense of 10.1 million has been recognized for the year ended December 31, 2001, resulting from
reversal of the write-down recorded under IFRS. Since the adoption of SFAS No. 142 as of January 1, 2002, goodwill is no longer amortized under U.S. GAAP. Accumulated amortization relating to these assets is 221.0 million.



The Group has evaluated its existing goodwill relating to prior business
combinations and has determined that an adjustment or reclassification to intangible assets as of January 1, 2002 was not required in order to conform to the new criteria in SFAS No. 141 Business Combinations. The Company has also reassessed
the useful lives and carrying values of other intangible assets, and will continue to amortize these assets over their remaining useful lives.



As of January 1, 2002, the Group performed the transitional goodwill impairment test under SFAS No. 142 for each of its reporting units by comparing the
carrying value of the reporting unit to its fair value. Fair value



F-87



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



was determined using discounted projected future cash flows. Upon completion of the transitional impairment test, the Group determined that there was no
impairment as of January 1, 2002, as the carrying value for each reporting unit did not exceed fair value. The Group has determined that the annual goodwill impairment testing date required by SFAS No. 142 is September 30.



The annual impairment test as of September 30, 2002 resulted in carrying
value exceeding the fair value for two of the Groups reporting units and accordingly, additional testing was performed for possible goodwill impairment. The fair value of these business units was then allocated to individual assets and
liabilities of the reporting unit based on appraised values. Any excess of fair value over the allocated amounts was equal to the implied fair value of goodwill. Where this implied goodwill value was less than the goodwill book value, an impairment
charge was recorded. Based on the impairment testing completed as of the annual testing date, an impairment charge of 924.2 million was recorded for the Magazine Paper segment and an impairment charge of 156.9 million for the Fine Paper
segment, resulting in a total impairment charge in 2002 under U.S. GAAP of 1,081.1 million.



Under IFRS, goodwill is allocated to cash generating units, which are the smallest group of identifiable assets that include the goodwill
under review for impairment, and that generate cash inflows from continuing use that are largely independent of the cash inflows from other assets. Under IFRS, the Group recorded a goodwill impairment charge for the Magazine Paper segment of
790.1 million and for the Fine Paper segment of 128.8 million, resulting in a total goodwill impairment charge of 918.9 million. The impairment loss was calculated as the difference between the recoverable amount for the cash
generating unit and its carrying value which was then allocated first to goodwill and then on a pro-rata basis to the other assets in that unit (see note 10).



The different techniques applied under IFRS and U.S. GAAP resulted in an additional goodwill impairment charge under U.S. GAAP for the Magazine Paper
segment of 134.1 million and for the Fine Paper segment of 28.1 million for a total charge of 162.2 million.



The annual impairment test as of September 30, 2003 resulted in a goodwill impairment charge of 47.1 million for the Fine Paper segment under U.S.
GAAP. However, there was no impairment under IFRS since the net assets and goodwill balances for the Fine Paper segment are lower according to IFRS than under U.S. GAAP.



The annual impairment test as of September 30, 2004 resulted in a goodwill impairment charge of 335.1 million for the
Fine Paper segment and 83.7 million for the Publication Paper segment under U.S. GAAP. However, there was no impairment under IFRS in 2004 since the net assets and goodwill balances are lower according to IFRS than under U.S. GAAP. 174.9
million of the total impairment of 418.8 has been recorded as part of adjustment c) Acquisition of Consolidated Papers, Inc.



F-88



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table presents changes in the goodwill balances (as determined under U.S. GAAP) as
allocated to each reportable segment for the years ended December 31, 2004 and 2003.



|                        |  |                  |   |  |           |   |  |                 |   |  |           |   |  |                  |   |  |       |   |  |         |  
|----------------------- |  | ---------------- | - |  | --------- | - |  | --------------- | - |  | --------- | - |  | ---------------- | - |  | ----- | - |  | ------- | -
|                        |  | PublicationPaper |   |  | FinePaper |   |  | PackagingBoards |   |  | Merchants |   |  | WoodSupplyEurope |   |  | Other |   |  | Total   |  
|                        |  | ( in millions)  |  
|As of January 1, 2003   |  | 256.8            |   |  | 932.5     |   |  | 114.8           |   |  | 21.3      |   |  | 81.4             |   |  | 6.2   |   |  | 1,413.0 |  
|Translation difference  |  | (16.8            | ) |  | (151.2    | ) |  | (2.1            | ) |  | (0.7      | ) |  | 1.9              |   |  |      |   |  | (168.9  | )
|Acquisitions            |  |                 |   |  |          |   |  | 2.6             |   |  |          |   |  | 71.1             |   |  | 0.2   |   |  | 73.9    |  
|Disposals               |  |                 |   |  |          |   |  |                |   |  |          |   |  |                 |   |  |      |   |  |        |  
|Reclassification        |  | 10.8             |   |  | 33.9      |   |  | (27.1           | ) |  | (7.8      | ) |  | (3.4             | ) |  | (6.4  | ) |  |        |  
|Impairment losses       |  |                 |   |  | (47.1     | ) |  |                |   |  |          |   |  |                 |   |  |      |   |  | (47.1   | )
|                        |  |                  |   |  |           |   |  |                 |   |  |           |   |  |                  |   |  |       |   |  |         |  
|As of December 31, 2003 |  | 250.8            |   |  | 768.1     |   |  | 88.2            |   |  | 12.8      |   |  | 151.0            |   |  |      |   |  | 1,270.9 |  
|Acquisitions            |  |                  |   |  |           |   |  | 0.1             |   |  | 6.8       |   |  |                  |   |  |       |   |  | 6.9     |  
|Translation difference  |  | 1.4              |   |  | (22.2     | ) |  | (0.7            | ) |  | 0.2       |   |  | 3.9              |   |  |      |   |  | (17.4   | )
|Disposals               |  |                 |   |  |          |   |  |                |   |  |          |   |  |                 |   |  |      |   |  |        |  
|Reclassification        |  |                 |   |  |          |   |  |                |   |  |          |   |  |                 |   |  |      |   |  |        |  
|Impairment losses       |  | (83.7            | ) |  | (335.1    | ) |  |                |   |  |          |   |  |                 |   |  |      |   |  | (418.8  | )
|                        |  |                  |   |  |           |   |  |                 |   |  |           |   |  |                  |   |  |       |   |  |         |  
|As of December 31, 2004 |  | 168.5            |   |  | 410.8     |   |  | 87.6            |   |  | 19.8      |   |  | 154.9            |   |  |      |   |  | 841.6   |  
|                        |  |                  |   |  |           |   |  |                 |   |  |           |   |  |                  |   |  |       |   |  |         |  



g)    Impairment of fixed assets



The Group recognized an impairment charge of 224.4 million on long-lived tangible assets in September 2002 under IFRS. The impairment loss was determined as the difference between the recoverable amount of the cash-generating unit and
its carrying amount and the difference was allocated first to goodwill and then on a pro-rata basis to the long-lived tangible assets of that unit. In determining the recoverable amount of these assets the Group discounted future cash flows expected
to result from the use and eventual disposition of these assets. Under SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets, an impairment charge should be recognized only if the carrying amount of the asset is not
recoverable and exceeds its fair value. The carrying amount of an asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. As the carrying value exceeded the
recoverable amount based on undiscounted cash flows, these long-lived assets were measured for impairment under U.S. GAAP.



The fair value for the long-lived assets to be held and used U.S. GAAP was determined by using a depreciated replacement cost method as determined by an
external valuation specialist. The difference between the carrying value and the fair value amounted to 151.1 million and accordingly, a portion of the impairment loss recorded under IFRS amounting to 73.3 million has been reversed under
U.S. GAAP in 2002.



Additional depreciation under U.S. GAAP
amounted to 4.4 million and 4.9 million for year ended December 31, 2004, and for the year ended December 31, 2003, respectively, which has been calculated based on the remaining useful lives for these assets and recorded through U.S.
GAAP earnings, net of taxes.



h)    Stock based
compensation



Under IFRS, no compensation is recognized
for equity compensation benefits for stock warrants or for cash payments that will depend on the future market price of the Companys stock.



As allowed under U.S. GAAP, by SFAS No. 123, Accounting for Stock-Based Compensation, the Company has elected to apply the intrinsic value method
of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its schemes.



F-89



---

STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Companys option schemes for synthetic options, established in 1999, 2000, 2001, 2002, 2003
and 2004 are settled in cash by measuring the difference between the exercise price and the prevailing stock price. Under U.S. GAAP, these schemes are accounted for as stock appreciation rights in accordance with FASB Interpretation No. 28
Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans, where compensation is measured each period end between the exercise price and the current stock price. Such compensation is accrued as a charge to
expense over the future service period and adjusted in subsequent periods up to the measurement date for changes, either increases or decreases, in the share price.



In April 1989, the shareholders of Consolidated Papers approved a Stock Option Plan for granting options to directors,
officers and all other non-union employees (1989 Stock Option Plan). In April 1998, the company adopted a similar plan, the 1998 Incentive Compensation Plan. This plan provides for the granting of options, stock appreciation rights, stock or cash
awards to directors, officers and all other non-union employees. In August 2000 the Board of Directors decided to convert the Consolidated papers stock option plans (1989 Stock Option plan and 1998 Incentive Compensation Plan) into stock
option plans of Stora Enso (North America Option Program).



On
April 7, 1997, the Company issued 1,000 warrants with a maximum value of 168,187 (FIM 1 million) to 15 members of senior management. Each bond accrues annual interest of 4.0 percent, has a maturity of five years and carries one warrant
entitling the holder to subscribe for 3,000 new Series R shares at a subscription price of 7.66 (FIM 45.57). The exercise period runs from December 1, 1998 to March 31, 2004 and the bond entitles the holder to receive a dividend for the year
in which the warrants are exercised. By January 15, 2004, 2,433,000 new Series R shares had been issued against the warrants, representing 0.1 percent of the share capital, and if the warrants are exercised in full, the further issue of 567,000 new
shares will raise share capital by another 1.0 million.



An analysis of the Companys fixed stock option plans, which are fully vested as of December 31, 2001, 2002, 2003 and 2004 is as follows:



|                                                    |  |                             |   |  |                                 |  |                    |  |                               
|--------------------------------------------------- |  | --------------------------- | - |  | ------------------------------- |  | ------------------ |  | ------------------------------
|                                                    |  | North America OptionProgram |   |  | Weighted average exercise price |  | 1997 OptionProgram |  | Weighted averageexercise price
|                                                    |  | Shares                      |   |  |                                |  | Shares             |  |                              
|Outstanding and exercisable as of January 1, 2001   |  | 5,679,625                   |   |  | 7.49                            |  | 2,724,000          |  | 7.66                          
|Exercised and registered                            |  | 2,423,169                   |   |  | 7.65                            |  | 699,000            |  | 7.66                          
|Outstanding and exercisable as of December 31, 2001 |  | 3,256,456                   |   |  | 8.01                            |  | 2,025,000          |  | 7.66                          
|Exercised and registered                            |  | 786,472                     |   |  | 7.41                            |  | 1,161,000          |  | 7.66                          
|Outstanding and exercisable as of December 31, 2002 |  | 2,469,984                   |   |  | 6.75                            |  | 864,000            |  | 7.66                          
|Exercised and registered                            |  | 565,513                     |   |  | 5.50                            |  | 297,000            |  | 7.66                          
|Expired                                             |  | 5,278                       |   |  | 5.70                            |  |                   |  |                              
|Outstanding and exercisable as of December 31, 2003 |  | 1,899,692                   |   |  | 5.63                            |  | 567,000            |  | 7.66                          
|Exercised and registered                            |  | 764,277                     |   |  | 5.12                            |  | 567,000            |  | 7.66                          
|Cancelled                                           |  | (31,094                     | ) |  | 5.06                            |  |                   |  |                              
|Outstanding and exercisable as of December 31, 2004 |  | 1,166,559                   |   |  | 5.28                            |  | closed             |  | closed                        



Pro forma disclosures
of net income and earnings per share have not been presented as all share-based awards for which compensation cost has not been recorded based on fair value of the award are fully vested as of December 31, 2001.



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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The weighted-average fair value of the 1997 option program and North America Option Program is
estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for 1997 option program and North America Option Program, respectively: risk-free interest rates of 4.56 percent and
5.88 percent; expected dividend yields of 2.30 percent and 2.82 percent; expected lives of 4.3 and 8.0 years; and expected volatility of 30.6 percent; and 30.0 percent. The measurement date for the fair valuation of the North America Option Program
under U.S. GAAP was determined by using the announcement date of the acquisition by Stora Enso of Consolidated Papers Inc., which differs from the measurement date under IFRS. See note 31 (c) for discussion of the purchase accounting.



Exercise prices for North America options outstanding as of December 31,
2004, ranged from 4.47 to 7.67. The exercise prices are denominated in U.S. dollars and converted into euros at the year-end rate. Of the 1,166,559 options outstanding as of December 31, 2004, 411,090 have exercise prices between
4.47 and 4.98, with a weighted average exercise price of 4.56 and a weighted average remaining contractual life of 2.5 years. Of these options, 318,850 are exercisable with a weighted average exercise price of 4.47. Of the
outstanding options 646,839 have exercise prices between 5.04 and 5.89, with a weighted average exercise price of 5.44 and a weighted average remaining contractual life of 3 years. Of these options, 415,975 options are exercisable
at the exercise price of 5.33 with the weighted average remaining contractual life of 4 years. The remaining 108,630 options have exercise prices between 6.19 and 7.67, with a weighted average exercise price of 6.87 and a
weighted average remaining contractual life of 2.8 years



Option Programme for Management (1997): Fully Subscribed and Closed



As discussed in the note 27, on 7 April 1997 the Company issued 1,000 warrants with a maximum value of 168,187 (FIM 1 million) to 15 members of senior management. Each bond accrued annual interest of 4.0
percent, had a maturity of five years and carried one warrant entitling the holder to subscribe for 3,000 new R shares at a subscription price of 7.66 (FIM 45.57). The exercise period ran from December 1, 1998 to March 31, 2004 and the
bond entitled the holder to receive a dividend for the year in which the warrants were exercised. In 2004, a final 789,000 shares were issued, thus by April 8, 2004 the Programme had been fully subscribed and a total of 3,000,000 new R shares had
been issued against the warrants, representing 0.3 percent of the share capital and 0.1 percent of the voting rights.



Share Award Plans



As discussed in note 27, in March of 2004, the company granted 522,000 shares with a value as of grant date of 10.9 and as of year end of
11.27 per share to key managers and staff. The grants were made under the Performance Share Plan and the Restricted Share Plan and are to be issued in there tranches over a three year period. The grants under the Performance Share Plan are
dependent upon the performance of the Company and continued employment of the employee and grants under the Restricted Share Plan are only dependent upon the continued employment of the employee. Additionally, 187,500 shares with a value as of grant
date of 10.9and as of year end of 11.27 per share were issued to key top young talents on the condition that they remain in employment for at least five years. Under IFRS, no compensation expense has been recorded related to these share
awards. Under US GAAP, the fair value of these share awards is recognized in income over the related service period.



i)    Pension surplus refund



During 2000, Stora Enso received a surplus refund from the Swedish pension insurer SPP. The refund was received partly in cash with the remaining portion
of the total amount mainly available for use against future pension premiums. Under IFRS, the total surplus refund was recognized in income. Under U.S. GAAP, only the portion reimbursed in cash can be recognized as income.



F-91



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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



j)    Amortization of goodwill



Under IFRS, goodwill is amortized over its estimated useful life. Under U.S.
GAAP, before July 1, 2001, goodwill was amortized over its estimated useful life consistent with IFRS. The Group adopted the transition provisions of SFAS No. 141 for acquisitions from July 1, 2001. The Group also adopted the provisions of SFAS No.
142 on January 1, 2002. As a result of the adoption of SFAS No. 141 and SFAS No. 142, goodwill is no longer subject to amortization under U.S. GAAP subsequent to the date of adoption. The book value of goodwill is tested for impairment annually, or
more frequently, if circumstances indicate that the book value could be impaired (see adjustment g) Impairment of goodwill).



The U.S. GAAP adjustment reverses the amortization expense recorded under IFRS and also reverses the movement in accumulated amortization under IFRS
during the period subsequent to the adoption of SFAS No. 141 and SFAS No. 142 and prior to the adoption of IFRS 3.



k)    Restructuring costs



As a result of the Groups restructuring plans, termination benefit costs were recorded under IFRS during 2004 amounting to 30.9 million, of
which 8.2 million remained as a provision as of December 31, 2004. If employees are required to render service until they are terminated in order to receive the termination benefits, the cost under U.S. GAAP is recognized ratably over the
future service period, whereas under IFRS, a provision for the full termination benefit cost is recognized in the period in which the Group becomes legally or constructively committed to a plan. As a result, 10.4 million of termination benefit
costs recognized as a liability under IFRS have been reversed under U.S. GAAP as of December 31, 2004.



l)    Biological assets



Biological assets



Under IFRS, beginning with the adoption of IAS 41, Agriculture ̧ on January 1, 2003, Stora Ensos forest assets in the form of standing trees are fair valued on the balance sheet with changes in the fair values recorded
through current period earnings which amount to 10.9 million before tax during 2003 and 7.1 million before tax during 2004 (see note 12). The land on which the trees grow is recorded at cost.



Under U.S. GAAP, timber and timberlands are recorded at cost, and
reforestation cost is capitalized, less depletion for the cost of timber harvested. Depletion is computed by the units-of-production method. As a result, the fair market values recorded under IFRS are reversed under U.S. GAAP and cost of timber
harvested is recorded through current period earnings which amounted to 13.2 million during 2003 and 6.7 million during 2004.



m)    Share of results in associated companies



Stora Ensos share of results in associated companies is determined using the equity method and is based on the financial statements of the investees
prepared in accordance with IFRS. The U.S. GAAP share of results of associated companies is adjusted to reflect differences between IFRS and U.S. GAAP relating to the associates. The significant difference relates to accounting for biological
assets. See adjustment m) Biological assets.



n)    Sale of forest assets



As discussed in the note 4, Stora Enso divested 56.7 percent of its Swedish forest holding company Bergvik Skog AB in March 2004 to institutional investors, leaving the group with a minority shareholding of 43.3



F-92



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STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



percent. The net asset value of Bergvik Skog AB under IFRS was higher than in U.S. GAAP which results in a higher gain on the sale under U.S. GAAP. This
transaction gave rise to a deferred gain under IFRS, which also results in a higher deferred gain under U.S. GAAP. The main IFRS and U.S. GAAP difference in Bergvik Skog AB, related to the accounting for forest assets which is more fully described
in adjustment l) Biological assets. In October 2004, the Group divested its majority shareholding in PT Finnantara Intiga, its Borneo plantation company. This transaction also resulted in a higher gain under U.S. GAAP.



o)    Additional disclosures required under U.S. GAAP



There were no assets held for sale as of December 31, 2004. On December
8, 2003, Stora Ensos board of directors approved a plan to restructure ownership of the Groups forest lands in Sweden and in Canada as explained in note 4. The forest land held for sale was part of the Forest Products segment. The
disposal was completed during the first quarter in 2004.



The
major classes of assets and liabilities under U.S. GAAP included as part of these disposals as of December 31, 2003 are presented below:



|                                             |  |                        
|-------------------------------------------- |  | -----------------------
|                                             |  | As of December 31, 2003
|                                             |  | ( in millions)        
|Fixed Assets and other long-term investments |  | 757.6                  
|Current Assets                               |  | 23.4                   
|                                             |  |                        
|Total Assets                                 |  | 781.0                  
|                                             |  |                        
|Long Term Liabilities                        |  | 242.2                  
|Current Liabilities                          |  | 30.5                   
|                                             |  |                        
|Total Liabilities                            |  | 272.7                  
|                                             |  |                        



Intangible assets



Intangible assets were 108.0 million as of December
31, 2004, of which capitalized and purchased software were 67.6 million, patents and trademarks were 6.5 million and other intangible assets were 33.9 million.



As of December 31, 2003, the Groups intangible assets amounted to 80.4 million and consisted of capitalized and
purchased software of 65.7 million, patents and trademarks of 9.1 million and other intangible assets of 5.6 million. The Group does not have indefinite lived intangible assets.



Intangible assets are amortized on a straight-line basis over their expected
useful lives, which vary from 3 to 10 years. The amortization expense of identifiable intangible assets subject to amortization and recorded in books as of December 31, 2004 is expected to approximate 17.0 million for each of the five years
from 2005 through 2009.



F-93



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STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Segment information



The Group evaluates the performance of its segments and allocates resources to them based on operating profit.



|                               |  |                                 |   |  |          |   |  |       |   |  |        |   |  |       |   |  |       |  
|------------------------------ |  | ------------------------------- | - |  | -------- | - |  | ----- | - |  | ------ | - |  | ----- | - |  | ----- | -
|                               |  | For the year ended December 31, |  
|                               |  | 2002                            |   |  | 2003     |   |  | 2004  |  
|                               |  | ( in millions)                 |  
|                               |  |                                 |   |  | (1)      |   |  |       |   |  | (1)    |   |  |       |   |  | (1)   |  
|Paper                          |  |                                 |   |  |          |   |  |       |   |  |        |   |  |       |   |  |       |  
|Publication paper              |  | (762.7                          | ) |  | 313.6    |   |  | 47.2  |   |  | 111.1  |   |  | 144.5 |   |  | 91.3  |  
|Fine paper                     |  | 67.9                            |   |  | 298.3    |   |  | 100.1 |   |  | 153.5  |   |  | 104.0 |   |  | 64.3  |  
|Merchants                      |  | (24.7                           | ) |  | 5.4      |   |  | (8.9  | ) |  | (6.7   | ) |  | 9.9   |   |  | 11.2  |  
|Packaging boards               |  | 332.3                           |   |  | 345.3    |   |  | 280.5 |   |  | 292.4  |   |  | 339.7 |   |  | 277.6 |  
|Forest products                |  |                                 |   |  |          |   |  |       |   |  |        |   |  |       |   |  |       |  
|Wood products                  |  | 30.1                            |   |  | 44.5     |   |  | 6.5   |   |  | 26.5   |   |  | 29.8  |   |  | 34.7  |  
|Wood supply Europe             |  | 120.5                           |   |  | 94.6     |   |  | 116.5 |   |  | 116.5  |   |  | 158.6 |   |  | 32.3  |  
|Other(2)                       |  | 58.9                            |   |  | (52.5    | ) |  | (70.5 | ) |  | (51.5  | ) |  | (80.4 | ) |  | (84.7 | )
|                               |  |                                 |   |  |          |   |  |       |   |  |        |   |  |       |   |  |       |  
|Operating profit (loss), total |  | (177.7                          | ) |  | 1,049.2  |   |  | 471.4 |   |  | 641.8  |   |  | 706.1 |   |  | 426.7 |  
|                               |  |                                 |   |  |          |   |  |       |   |  |        |   |  |       |   |  |       |  
|Goodwill amortization          |  |                                |   |  | (148.8   | ) |  |      |   |  | (116.0 | ) |  |      |   |  | (90.3 | )
|Non-recurring items(3)         |  |                                |   |  | (1,078.1 | ) |  |      |   |  | (54.4  | ) |  |      |   |  | 369.7 |  
|                               |  |                                 |   |  |          |   |  |       |   |  |        |   |  |       |   |  |       |  
|Operating profit (loss), total |  | (177.7                          | ) |  | (177.7   | ) |  | 471.4 |   |  | 471.4  |   |  | 706.1 |   |  | 706.1 |  
|                               |  |                                 |   |  |          |   |  |       |   |  |        |   |  |       |   |  |       |  

---

|(1) |  | The operating profit (loss) presented by product area excludes goodwill amortization and non-recurring items.
|--- |  | -------------------------------------------------------------------------------------------------------------

|(2) |  | Includes non-allocated corporate overhead items and elimination of group internal margin in consolidation.
|--- |  | ----------------------------------------------------------------------------------------------------------

|(3) |  | The non-recurring items for 2002 consist mainly of a one-time impairment charge related to our North American assets and capital gains from the sale of shares of Billerud and forest
land in Finland and in the United States. The non-recurring items for 2003 consist mainly of restructuring charges related to the cost reduction program in North America, a provision related to restructuring costs at the Corbehem Mill in France and
a provision related to the expected capital loss on the sale of forest land in Ontario, Canada. The non-recurring items for 2004 consist mainly of the restructuring of ownership of our Swedish forest land, the reversal of expenses already taken in
respect of various U.S. retiree healthcare programs, the provision for the future reduction of maintenance personnel in the United States and the income relating to the change in the Finnish disability pension liabilities.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Accrued payroll



The Groups total amount of accrued payroll charges such as accrued
wages and salaries and holiday pay included under current liabilities on the balance sheet amounted to 255.4 million and 231.1 million as of December 31, 2003 and 2004, respectively.



F-94



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STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Unrealized losses on investments



The following shows the gross unrealized losses and fair values of Group
investments with unrealized losses that are not deemed to be other-than-temporarily impaired, as aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31,
2004.



|                                                                   |  |                    |  |                     |  |                 |  |                      |  |                 |  |                   |  |            |  |                
|------------------------------------------------------------------ |  | ------------------ |  | ------------------- |  | --------------- |  | -------------------- |  | --------------- |  | ----------------- |  | ---------- |  | ---------------
|                                                                   |  | Less Than 12Months |  | 12 Months orGreater |  | Subtotal        |  | All OtherInvestments |  |                
|                                                                   |  | FairValue          |  | UnrealizedLosses    |  | FairValue       |  | UnrealizedLosses     |  | FairValue       |  | Unrealized Losses |  | Fair Value |  | Total FairValue
|                                                                   |  | ( in millions)    |  | ( in millions)     |  | ( in millions) |  | ( in millions)      |  | ( in millions)
|Marketable equity securities                                       |  |                   |  |                    |  | 55.0            |  | 25.9                 |  | 55.0            |  | 25.9              |  | 144.7      |  | 199.7          
|                                                                   |  |                    |  |                     |  |                 |  |                     
|Investment in equity (growth) funds                                |  |                   |  |                    |  | 3.1             |  | 1.4                  |  | 3.1             |  | 1.4               |  | 10.7       |  | 13.8           
|                                                                   |  |                    |  |                     |  |                 |  |                     
|Money Market, Bond, Hedge Funds                                    |  |                   |  |                    |  |                |  |                     |  |                |  |                  |  | 6.6        |  | 6.6            
|                                                                   |  |                    |  |                     |  |                 |  |                     
|Investments in equity securities carried at cost (unlisted shares) |  |                   |  |                    |  |                |  |                     |  |                |  |                  |  | 132.8      |  | 132.8          
|                                                                   |  |                    |  |                     |  |                 |  |                      |  |                 |  |                   |  |            |  |                
|Total                                                              |  |                   |  |                    |  | 58.1            |  | 27.3                 |  | 58.1            |  | 27.3              |  | 294.8      |  | 352.9          
|                                                                   |  |                    |  |                     |  |                 |  |                      |  |                 |  |                   |  |            |  |                



Marketable Equity
Securities



Group investments in marketable equity
securities consist primarily of investments in:



| |  |  | Common stock of banks and financial institutions, comprising 113.5 million of the total fair value with no unrealized losses.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | Companies in the forestry industry, comprising  49.4 million of the total fair value with  22.6 million of the total unrealized losses.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Companies in the transportation industry, comprising  31.1 million of the total fair value with  0.4 million of the total unrealized losses.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Companies in the paper merchandising industry, comprising 5.0 million of the total fair value with 2.8 million of the total unrealized losses.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



The Group portfolio of common stocks for two
forest industry companies includes that of Advance Agro PCL (Advance Agro) which is in an unrealized loss position and accounts for some 94 percent of the fair value of total forestry investments and 83 percent of the Groups total
unrealized losses; the remaining unrealized losses in the marketable equity group are in three other companies. The impairment (fair value is 67 percent of cost) and duration (12 months) correlate with challenges in doing business in emerging
countries and the relatively cautious attitude of investment markets towards uncertainties in Thailands business and legal environment, being common for emerging markets due to a lack of transparency and communications. The Group has evaluated
Advance Agros near-term prospects, taking into account that it is one of the most modern paper companies in Asia with significant growth potential, especially considering the generally positive business expectations for East Asian markets.
Accordingly, Stora Enso anticipates growing demand for Advance Agro products in Asia. In addition, the Company has received an informal offer to purchase its Advance Agro shares at a price which would not result in a loss on the proposed sale.
Notwithstanding a potential sale of Advance Agro,



F-95



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STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



the Group has the ability and intent to hold this investment for a reasonable period of time sufficient for the forecasted fair value recovery. Based on this
evaluation, the Group does not consider this investment other-than-temporarily impaired at December 31, 2004.



The Group portfolio of common stocks in the transport industry consists of investments in two companies, of which one, Sea Containers Ltd, which comprises
10 percent of the total fair value of the investments in this category, is in an unrealized loss position. This industry is susceptible to changes in global fuel prices and any economic slowdowns in their customers businesses. High fuel prices
and regulatory changes are having significant impacts, fuel prices being at record levels and regulatory changes involving security initiatives occurring quickly; shippers who import, export or have freight with enhanced security risks are feeling
the greatest impact of these regulatory changes. The impairment (fair value is 87 percent of cost) and duration (13 months) is consistent with the increasing fuel prices and decreasing customer demand. The Group has evaluated the near-term prospects
in relation to the severity and duration of this impairment and, based on that evaluation and the ability and intent to hold this investment for a reasonable period of time sufficient for the forecasted fair value recovery, does not consider this to
be other-than-temporarily impaired at December 31, 2004.



The
Group portfolio of common stocks in the paper merchandising industry consists of an investment in one company, CPI Group Ltd, which is in an unrealized loss position, but represents only 1 percent of the total fair value of investments in marketable
securities. The paper sales industry is susceptible to changes in customer demand and economic trends affecting their customers, thus the impairment (fair value is 44 percent of cost) and duration (over 5 years) are consistent with industry specific
trends. CPI, one of Australias largest paper and ink distributors, undertook a serious restructuring program in 2004. In contrast to 2003 when CPIs debt was almost 100 percent of NTA and the CPI Group was not trading profitably, debt is
currently less than 50 percent of NTA, the group is trading profitably and they are now able to focus on rebuilding shareholder value. During 2004 an opportunity arose for CPI to acquire the business of the Boomerang Paper Group, this being
complementary to CPIs existing paper merchanting business and operating as a niche supplier in the business forms market. Stora Enso has evaluated the near-term prospects in relation to the severity and duration of the impairment and, based on
that evaluation along with the Groups ability and intent to hold this investment for a reasonable period of time sufficient for the forecasted fair value recovery, does not consider this to be other-than-temporarily impaired at December 31,
2004.



Investments in Growth Funds



The unrealized loss on Group investments in growth funds solely relates to
the Alfred Berg Global B growth fund in Finland. Alfred Berg is a one of the leading Nordic investment banks with a track record of excellence. The 1.4 million unrealized loss was caused by the decreased export revenues of European companies
due to adverse exchange rate fluctuations along with reduced profitability of European producers and near-term forecasts by industry analysts resulting from competitive pricing pressure. The fair value of this investment is only slightly below cost,
therefore the Group holds it in anticipation of a full recovery in the long-term and it has the ability and intent to hold its share in this fund until the fair value recovery occurs. As a result, Stora Enso does not consider the investment in
Alfred Berg Global B growth fund to be other-than-temporarily impaired at December 31, 2004.



Investments in Equity Securities Carried at Cost



The aggregate value of Group investments shown at cost totaled 132.8 million at December 31, 2004. These investments were not evaluated for impairment as Stora Enso did not identify any events or changes in
circumstances that may have had a significant adverse effect on the fair value of these investments.



F-96



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STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



p)    Classification differences



Consolidated income statement



In accordance with IFRS, the Group classifies gains on sale of fixed assets
as a component of operating profit. Under U.S. GAAP, these items would be classified as a component of non-operating profit.



In accordance with IFRS, gains and losses resulting from extinguishment of debt are classified as a component of net financial items. Under U.S. GAAP,
before the adoption of SFAS No. 145 Rescission of FAS Nos. 4, 44, and 64, Amendment of FAS 13, and Technical Corrections as of April 2002, these items are classified as an extraordinary item, net of related income tax.



Minority Interest



As described in note 4, the group completed its acquisition of 65.5% of the
Polish packaging producer Intercell S.A. in December 2004. Under IFRS the minority interest is stated at the minoritys proportion of the net fair value of acquired assets, liabilities and contingent liabilities assumed whereas under U.S. GAAP
fair values are assigned only to the parent companys share of the net assets acquired. The minority interest under U.S. GAAP is valued at its pre-acquisition cost. Because the acquisition occurred at the end of 2004 there is no adjustment to
the net income or equity reconciliation, however the difference asset value will give rise to differences in depreciation charges in the future.



q)    New accounting standards



U.S. GAAP Developments



FAS 151



In November 2004 the Financial Accounting Standards Board (FASB) issued Financial Accounting Standard No. 151, Inventory Costsan amendment of ARB
No. 43, Chapter 4 (revised) (FAS 151). FAS 151 amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material
(spoilage). FAS 151 requires that those items be recognized as current-period charges. In addition, FAS 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production
facilities. Stora Enso will adopt FAS 151on January 1, 2006. The new standard is not expected to have material impact on the Companys results of operations and financial position under U.S. GAAP.



FAS 123R



In December 2004 the FASB issued Financial Accounting Standard No. 123R,
Share-Based Payment (FAS 123R). FAS 123R requires that companies expense the value of employee stock options and other awards. FAS 123R allows companies to choose an option pricing model that appropriately reflects their specific circumstances and
the economics of their transactions, and allows companies to select from three transition methods for adoption of the provisions of the standard. Stora Enso will adopt FAS 123R on January 1, 2006. The Company is currently investigating the impact of
the revised standard on the results of operations and financial position under U.S. GAAP.



FAS 153



In December
2004 the FASB issued Financial Accounting Standard No. 153, Exchanges of Nonmonetary Assets (FAS 153). FAS 153 amends APB Opinion No. 29, Accounting for Nonmonetary Transactions, to eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general



F-97



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STORA ENSO OYJ AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows
of the entity are expected to change significantly as a result of the exchange. Stora Enso will adopt FAS 153 for nonmonetary exchanges occurring on or after January 1, 2006. The new standard is not expected to have material impact on the
Companys results of operations and financial position under U.S. GAAP.



EITF 03-01



In June
2004, the Emerging Issues Task Force finalized Issue No. 03-01, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (EITF 03-01). The issue was intended to address the meaning of other-than-temporary
impairment and its application to certain investments in debt and equity securities. A consensus was reached regarding disclosure requirements concerning unrealized losses on available-for-sale debt and equity securities accounted for under
Financial Accounting Standard No. 115, Accounting for Certain Investments in Debt and Equity Securities (FAS 115) and Financial Accounting Standard No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations (FAS 124). The
guidance for evaluating whether an investment is other-than-temporarily impaired has been applied beginning January 1, 2005. The Company does not expect application of this guidance to have a material impact on its results of operations. The
disclosure requirements of EITF 03-01 have been included in the Companys financial statements for the year ended December 31, 2004, for its available-for-sale and cost method investments. For all other investments within the scope of EITF
03-01, the disclosures will be effective for the year ending December 31, 2005.



F-98