Jul 26, 2006. /Lesprom Network/. Stora Enso's Profit 2007 profit improvement programme is proceeding ahead of schedule and the target of an improvement of Euro 300 million in annual pre-tax profit from mid 2007 onwards is expected to be exceeded. By the end of the second quarter of 2006, a total of Euro 159 million of the targeted profit improvement had been achieved. The profit improvement target of the Profit 2007 programme is based on 2005 price and cost levels and is net of implementation costs. Stora Enso launched its Profit 2007 programme in April 2005 and announced details of the programme in October 2005. The aim of the programme is to secure better financial performance and long-term competitiveness in Europe. The main measures for achieving the profit improvement target are: • Reduction in production costs • Reduction in support and administration costs • Improvement in sales and production mix Production costs The target is to reduce annual production costs by Euro 160 million. By the end of the second quarter of 2006, Euro 104 million of annual production cost reductions had been achieved, mainly through: • Energy-saving programmes at various mills • Reduced use of chemical pulp and recipe changes • More efficient and globally co-ordinated purchasing • Further optimisation of logistics The target will most likely be exceeded by mid 2007. Support and administration costs The target is to reduce annual support and administration costs by Euro 120 million. By the end of the second quarter of 2006, Euro 40 million of cost reductions had been achieved through: • Reorganizing the sales network • Restructuring logistic operations • Cost savings in IT through standardization, consolidation and centralized procurement • Extending human resources and accounting shared services in Finland, Sweden and Germany • Integrating administration of various mills in Finland, Sweden and Germany • Moving the fine paper management and a major part of financial services (treasury) operations from London to Helsinki The target is expected to be achieved slightly later than the scheduled by mid 2007. Sales and production mix The profit improvement target to be achieved by improving sales and production mix is estimated to be Euro 20 million. By the end of the second quarter of 2006, an improvement of Euro 15 million in annual profit had been achieved through: • Improving product portfolios at various mills • Better customer focus and pipeline management The target will most likely be exceeded by mid 2007. Personnel reductions Reductions in personnel so far total 1 245, out of an anticipated 2 000 due to the programme - half of them white-collar and half blue-collar staff, and slightly more than half in the Nordic countries and the rest elsewhere in Europe. Additionally, only 90 of the 600-700 possible personnel outsourcing opportunities identified have been implemented, mainly in Finland. "In Finland outsourcing has not proceeded as anticipated. Only a few of the negotiations with labour union regarding outsourcing have so far been concluded successfully. This is a disappointment for us and we will intensify our efforts to reach the original target. Outsourcing contracts are imperative for future investments in Finland," says CEO, Jukka Härmälä. Stora Enso will report on the progress of the Profit 2007 programme semi-annually, next time in conjunction with the full year results. Asset Performance Review (APR) and mills under scrutiny Stora Enso also launched its Asset Performance Review in April 2005 and announced details of the programme in October 2005. So far the following actions have taken place: • Signing of the agreement to divest Pankakoski mill in Finland (July 2006) • Signing of the agreement to divest Celbi pulp mill in Portugal (June 2006) • Divestment of Grycksbo mill in Sweden (March 2006) • Divestment of Linghed Sawmill in Sweden (March 2006) • PM3 and PM4 at Corbehem mill in France ceased production at the end of June 2006; personnel will be reduced by 340 by the end of September 2006 and by a further 60 by the end of 2006 • Closure of PM1 at Varkaus mill in Finland in December 2006 decided • Closure of Hammarby mill in Sweden (May 2006) • Closure of PM31 at Stevens Point mill in USA (March 2006) The APR process is proceeding according to plan and the mills placed under scrutiny are being evaluated with reference to their financial performance and strategic fit within the group. Decisions about the future of the mills under scrutiny will be announced no later than in conjunction with the third quarter results.