Report on operations for the 6 months ended june 30, 1997

REPORT ON OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 *Net sales: SEK 22,023 million (24,041) *Stronger market - delivery volumes up 10 percent *Income after net financial items: SEK 1,224 million (1,610) *Net income for period after tax: SEK 808 million (1,060) *Income per share: SEK 2.50 (3.30) sales and earnings The Group's net sales for the period amounted to SEK 22,023 million, compared with SEK 24,041 million for the corresponding six months of 1996. Stora Building Products, which was divested during 1996, accounted for SEK 1,721 million of the decrease. The net of lower sales prices and increased delivery volumes accounted for the remainder. Income after net financial items totaled SEK 1,224 million (1,610). Income was adversely affected by lower prices in an amount of SEK 2,600 million. Income was improved by increased delivery volumes, currency changes and lower costs in amounts of SEK 1,000 million, SEK 450 million and SEK 900 million, respectively. Earnings were also affected by the extensive program of investments in Skoghall and Skutskär (Sweden). The Group's financial net declined to an expense of SEK 387 million (expense: 273), due to increased net indebtedness resulting from the extensive program of investments. No interest was capitalized in connection with ongoing investment projects. Net income, after tax and minority shares, amounted to SEK 808 million (1,060). Tax for the period was SEK 404 million (539), which corresponded to 33 percent (33) of income before tax. Group income per share for the first six months of 1997 was SEK 2.50 (3.30). On a rolling full-year basis the corresponding figure was SEK 4.10, compared with SEK 4.85 for full-year 1996. The return on capital employed, after deductions for tax liabilities, for the period July 1996 to June 1997 was 6 percent, compared with 7 percent for full-year 1996. The corresponding figures for the return on shareholders' equity were 5 percent and 5 percent, re- spectively. The operating cash flow was negative and amounted to a deficit of SEK 1,699 million (+2,535), of which currency translation accounted for a deficit of SEK 320 million (+1,257). After deductions for net financial items, taxes and dividends, the Group's interest-bearing net indebtedness rose by SEK 3,450 million. Second quarter Group net sales for the second quarter totaled SEK 11,341 million (11,611), compared with SEK 10,682 million (12,430) for the first quarter of 1997. Income after net financial items amounted to SEK 664 million (395), an improvement of SEK 104 million on earnings of SEK 560 million (1,215) for the first three months of 1997. Adjusted for nonrecurring items, earnings increased for the fourth successive quarter. Second-quarter earnings were charged with a capital loss of SEK 150 million in connection with the divestment of the board mill in Arnsberg, Germany. Earnings within board and packaging paper were charged with approximately SEK 50 million relating to scrapping losses in connection with the commissioning of new equipment. Financial operations' earnings amounted to SEK 255 million during the quarter, most of which derived from concluded long-term investments. Income per share was SEK 1.35 (0.80), compared with SEK 1.15 (2.50) for the first quarter of 1997. Market and deliveries Trends in Europe improved gradually. A contributing factor was the strong USD exchange rate, which led to increased exports from Europe. However, the trend varies from country to country. Weak domestic demand in Germany was offset by a robust export trend as a result of the weaker DEM. However, the trend in the U.K. was characterized by a strong increase in domestic demand. The buoyant U.S. economy remains unchanged. In terms of volumes, the markets for sawn timber, paper and board improved, compared with the equivalent quarter of 1996. Order bookings strengthened and the order backlog for most of the Group's products varies from 3 to 5 weeks. STORA's deliveries of pulp, paper and board increased by 10 percent to 3,399,000 tonnes (3,091,000). Compared with the first quarter of 1997, delivery levels rose by 7 percent. Expressed in tonnes, finished goods inventories were in line with the level at year-end 1996. Translated into SEK, sales prices for the Group's paper and board products were about 13 percent lower than the first half of the preceding year. The corresponding figure, compared with the first quarter of 1997, showed an average price increase of 2 percent during the second quarter. For sawn timber, prices continued to rise during the second quarter. Power Electricity consumption was lower than during the preceding year, mainly as a result of the mild winter. On the other hand, consumption during the second quarter was higher than during the corresponding three months of 1996. Normal precipitation and a winter with abundant snow led to normal reservoir levels in the Scandinavian system. The improvement in earnings was mainly due to increased hydro power production and to the effects of the refinancing of Kopparkraft. Forest The situation in the wood market is stable. A good balance was able to be maintained for the entire range in STORA's case. Wood deliveries to Swedish units rose by about 10 percent compared with the preceding year. Felling in the Group's own forests corresponded to 50 percent of a normal year's extraction, which was more than in the first six months of 1996. Pulpwood prices were about 15 percent lower than during the preceding year, while spruce timber prices were 15 percent higher. The increase in volumes coupled with lower felling costs led to an improvement in the earnings of Forest operations. Sawn timber Demand remained strong in relation to the preceding year and the seasonal 3 norm. Deliveries totaled 394,000 m (320,000). Price levels for pine were about 15 percent higher than in the preceding year. The corresponding rise for spruce was 30 percent. The improvement in earnings for sawn timber operations was primarily due to a combination of increased volumes and improved efficiency in the sawmills. To a large extent, the price increases for finished goods were neutralized by higher timber prices. Pulp Norscan paper pulp inventory levels have declined for four months in a row and totaled around 1.5 million tonnes at midyear. Part of the decrease is attributable to paper producers increasing their stocks of pulp. Wage negotiations are in progress in Canada and strikes are affecting a number of pulp mills. The price levels announced as of July 1 are USD 610 for long-fiber pulp and ECU 490 for short-fiber pulp. A number of suppliers in North America have announced price increases to USD 630 for long-fiber pulp. Pulp operations continued to show a loss, but earnings were better than for the corresponding six months of 1996 due to lower expenses and slightly higher sales prices. Operating results remained negative in the second quarter but as a result of the price increases implemented the loss was more than halved, compared with the first quarter. The most severely affected market is the sulphite pulp segment in Canada, which accounted for most of the loss. Printing papers Total deliveries of newsprint in Western Europe rose by 2 percent, an increase which also applied to STORA's deliveries. As of year-end 1996, prices in local currencies were reduced by about 15 percent. The appreciation of mainly the USD and the GBP resulted in the reduction totaling 9 percent when translated into SEK. In North America a price increase of USD 75 per tonne was implemented during the spring and summer. An additional hike of USD 40 per tonne has been announced by some producers, effective in the fourth quarter. Based on current USD rates, this means that prices in North America will be 8-10 percent higher than in Europe. Total deliveries of SC papers in Europe rose by 3 percent. STORA's deliveries increased by 11 percent. The U.S. market was characterized by improved demand during the second quarter. Low production utilization resulted in pressure on prices. Total deliveries of LWC paper in Western Europe rose by 36 percent. STORA's total deliveries increased by 40 percent. Prices improved during the second quarter. Prices for offset grades are currently DEM 100 per tonne higher than at the beginning of the year. Earnings deteriorated in relation to the preceding year, mainly as a result of lower sales prices.The improvement in earnings during the second quarter, compared with the first, is explained by higher volumes and improved prices when translated into SEK. Technical office papers Total deliveries of carbonless paper to Western Europe increased by 5 percent. STORA's deliveries rose by 7 percent. Following the price increases implemented during the latter part of 1996 and the early part of 1997, price levels have remained stable. The increases led to an improvement in earnings. Total deliveries of thermal papers in Europe increased by 8 percent. STORA'a deliveries in Europe declined by 7 percent, due to a fixed-price policy. Earnings improved as a result of the price increases implemented during the latter half of 1996 and during 1997. The half-year earnings for technical office papers are now positive for the first time since 1991. Fine papers Compared with the first half of 1996, deliveries to European markets increased, with uncoated fine papers up 9 percent and coated fine papers up 13 percent. Some of the increase in volume is assumed to be due to inventory build-ups in the supply chain to the end customers. The capacity being added in Finland and Austria during the year has had only a marginal effect on deliveries. STORA's deliveries rose by 18 percent. Capacity utilization was high during the period, with the exception of recycled-fiber-based grades. Expressed in SEK, average prices in the second quarter remained unchanged compared with the first quarter. Some pressure on prices was noted during the latter part of the second quarter, partly as a result of changed currency exchange rates. A price hike of 8-12 percent is planned as of September. The improvement in earnings was attributable to higher volumes and improved margins. Compared with the first quarter of 1997, earnings deteriorated, primarily as a result of higher pulp costs. Wholesale operations The lower level of sales is explained in part by the fact that certain direct shipments are now invoiced directly by the mills. Average price levels in the Group's wholesaling operations were about 5 percent down on the preceding year. Earnings were slightly better than in the preceding year, which is explained by inventory writedowns during the second quarter of 1996, among other factors. Board and packaging paper Demand for board and packaging paper increased favorably, up 9 percent for packaging board, 9 percent for White Top Liner (WTL) and 7 percent for fluting. Inventory build-ups in the customer segment contributed slightly to the high increase levels, as did Western European converters increased exports of finished board products to Eastern Europe and other regions. Sales prices in SEK were lower than for the corresponding period of the preceding year but were slightly higher than during the first quarter of 1997. The announced price increases for packaging board will gradually have an effect as of July. The effects of the price increases announced earlier for WTL and fluting have started to be felt in recent months. The new board machine, KM8, has started up successfully and deliveries of liquid packaging board have developed more favorably than planned. The new bleaching plant in Skoghall (Sweden), which cost SEK 440 million, was placed in production towards the end of April. When the old bleaching plant was closed down, a scrapping charge of about SEK 50 million arose, which was charged against operating income during the second quarter. The test runs of new products and trimming-in of the new machine also had an adverse effect on earnings. Reported earnings were down on the preceding year due to lower sales prices and because the sack paper operations included last year have been sold. Earnings for the second quarter reached the same level as the first quarter. Financial operations Earnings were generated in interest-rate and currency markets, as well as in share-related instruments. Earnings improved and amounted to SEK 255 million during the second quarter, of which concluded long-term investments accounted for the greater portion. Earnings do not include interest on shareholders' equity or internal margins. Financial position The Group's equity/assets ratio was 45.9 (48.9) percent and the debt/equity ratio was 0.54 times (0.40). At year-end 1996, the corresponding figures were 48.0 and 0.42. Interest-bearing net indebtedness amounted to SEK 15,863 million (11,518), compared with SEK 12,413 million at year-end 1996. Interest-bearing net indebtedness included pension liabilities of SEK 3,937 million (3,964) and SEK 3,949 million, respectively. At the end of the period, the Group had granted but unutilized credit lines corresponding to SEK 11.6 billion. Capital expenditures Investments in plant during the period totaled SEK 3,272 million (3,389), of which SEK 1,747 million (2,704) was in Sweden. Depreciation according to plan amounted to SEK 1,882 million (1,827). The magazine paper machine project in Nova Scotia (Canada) is proceeding according to plan. To date, SEK 1,728 million has been invested in this project. Personnel The average number of employees in the Group as at June 30, 1997 was 20,732 (24,600). During 1996 the number was 22,716. Other The sale of the board mill in Arnsberg, Germany, to Cascades S.A. is part of STORA's continuing strategy to concentrate its operations. This transaction was concluded on July 31 and resulted in STORA's net indebtedness being reduced by SEK 325 million as of that date. The divestment resulted in a capital loss of SEK 150 million, which was charged against second-quarter earnings. CTMP fluff pulp production in Skoghall, Sweden, has been terminated, as has the production of board at the plant in Corbehem, France. Falun, August 5, 1997 STORA KOPPARBERGS BERGSLAGS AB Lars-Åke Helgesson President and Chief Executive Officer This interim report has not been subject to examination by the Company's auditors. The interim report on the third quarter of 1997 will be published on October 27, 1997. The interim report on the fourth quarter of 1997(1997 year-end report) will be published on January 30, 1998. The Annual General Meeting for fiscal year 1997 will be held on March 12, 1998. CONSOLIDATED INCOME STATEMENT (SEK m) January - June Full year 1997 1996 1995 1996 Net sales 22,023 24,041 29,271 45,161 Operating expenses - 18,380 - 20,402 - 23,073 - 38,777 Nonrecurring items - 150 71 272 - 37 Planned depreciation - 1,882 - 1,827 - 1,856 - 3,488 Operating income 1,611 1,883 4,614 2,859 Net financial items - 387 - 273 - 546 - 510 Income after net financial 1,224 1,610 4,068 2,349 items Taxes - 404 - 539 - 1,346 - 770 Minority share - 12 - 11 - 37 - 19 Net income for the period 808 1,060 2,685 1,560 Income per share, SEK 2.50 3.30 8.35 4.85 Cash flow from operations 5.20 1) per share , SEK 1) Excluding the effect of major corporate acquisitions and divestments. ANALYSIS OF FINANCIAL NET (SEK m) January - June Full year 1997 1996 1995 1996 Net interest items - 411 - 441 - 619 - 824 Interest difference, 24 168 73 314 translation hedge Net financial items - 387 - 273 - 546 - 510 NET SALES AND OPERATING INCOME BY PRODUCT AREA (SEK m) Net sales Oper. income/loss January - June January - June 1997 1996 1995 1997 1996 1995 Power 879 824 799 177 - 3 70 1) Forest 3,026 2,897 3,481 419 300 360 Sawn timber 891 691 874 32 - 54 51 Pulp 2,281 2,230 3,611 - 238 - 427 927 Eliminations - 1,330 - 1,173 - 1,455 Base products 5,747 5,469 7,310 390 - 184 1,408 Printing papers 6,814 7,382 7,930 619 1,528 1,136 Technical office papers 1,042 982 1,197 24 - 78 0 Fine papers 4,004 3,812 5,454 452 103 918 Wholesale operations 2,920 3,193 3,821 47 34 146 Eliminations - 870 - 1,044 - 1,141 Graphic papers 13,910 14,325 17,261 1,142 1,587 2,200 Board and packaging 4,730 4,725 5,632 256 603 1,079 paper Financial operations - - 311 115 82 Divested units 1,721 2,092 -67 -24 Nonrecurring items - - - 150 71 272 Amortization of surplus - - - 178 - 180 - 205 values ) Other - 2,364 - 2,199 - 3,024 - 160 62² - 198 Total 22,023 24,041 29,271 1,611 1,883 4,614 1)Operating income includes capital gains in connection with the divestment of land in amounts of SEK 23 million, SEK 22 million and SEK 15 million, respectively. Includes reversal of internal inventory gain in an amount of SEK 120 million. CONSOLIDATED BALANCE SHEET (SEK m) June 30, Dec 31, 1997 1996 Assets Fixed assets 44,413 42,864 Current assets 15,105 14,068 Interest-bearing assets 4,593 5,101 Total assets 64,111 62,033 Liabilities and shareholders' equity Shareholders' equity 29,172 29,485 Minority interests 256 269 Tax liabilities 7,121 6,935 Interest-bearing liabilities 20,456 17,514 Operating liabilities 7,106 7,830 Total liabilities and 64,111 62,033 shareholders' equity Interest-bearing net 15,863 12,413 indebtedness Debt/equity ratio, multiple 0.54 0.42 Equity/assets ratio, % 45.9 48.0 CHANGE IN INTEREST-BEARING NET INDEBTEDNESS (SEK m) January-June 1997 Jan - June Ongoing Transl. Total 1996 operations diff., for- Total eign units Operating income 1,611 1,611 1,883 +/- Oper.receivables/ - 1,348 - 13 - 1,361 452 liabilities Inventories - 307 - 61 - 368 720 - Investments - 3,272 - 3,272 - 3,389 + Depreciation 1,882 1,882 1,827 +/- Other changes in net fixed assets 55 - 246 - 191 1,042 Cash flow from operations - 1,379 - 320 - 1,699 2,535 -Net financial items - 387 - 387 - 273 +/- Taxes - 153 - 65 - 218 - 1,735 +/- Minority interests - 26 1 - 25 - 2 - Dividend - 1,206 - 1,206 - 1,206 +/- Change in shareholders' equity excl. income for the 85 85 - 82 period Change in interest-bearing net indebtedness - 3,151 - 299 - 3,450 - 763 KEY RATIOS January - June July '96- Full year July '95- 1997 1996 June '97 1996 June '96 Net income for the 808 1,060 1,308 1,560 3,742 period, SEK m Return on - 5 5 13 shareholders' equity, % Return on capital - 6 7 15 employed after deduction of tax liabilities, % Income per share, SEK 2.50 3.30 4.10 4.85 11.65 June 30, '97 Dec 31, '96 June 30, '96 Capital employed, SEK m 52,412 49,102 48,234 Capital employed excl. tax 45,291 42,167 40,652 liabilities, SEK m Net indebtedness, SEK m 15,863 12,413 11,518 Equity/assets ratio, % 45.9 48.0 48.9 Debt/equity ratio, multiple 0.54 0.42 0.40 Reported shareholders' equity per 91 92 90 share, SEK Adjusted shareholders' equity per 132 133 124 1) share , SEK 1)Including surplus value in forest and power assets. QUARTERLY DATA Consolidated income statement (SEK m) 1995 1996 1997 II III IV I II III IV I II Net 14,817 13,990 13,845 12,430 11,611 10,209 10,911 10,682 11,341 sales Operat--11,537-10,763-10,949-10,163-10,239 -8,909 -9,466 -9,037 -9,343 ing exp. Nonrec. 172 43 - 14 - 71 - 30 - 78 - - 150 items Planned - 941 - 898 - 894 - 912 - 915 - 831 - 830 - 920 - 962 deprec. Operat 2,511 2,372 1,988 1,355 528 439 537 725 886 ing income Net - 280 - 242 - 166 - 140 - 133 - 127 - 110 - 165 - 222 finan- cial items Income 2,231 2,130 1,822 1,215 395 312 427 560 664 after net finan- cial items Taxes - 735 - 699 - 560 - 407 - 132 - 111 - 120 - 185 - 219 Minorit - 7 - 8 - 3 - 6 - 5 5 - 13 - 6 - 6 y share Net 1,489 1,423 1,259 802 258 206 294 369 439 income for the period Net sales by product area (SEK m) 1995 1996 1997 II III IV I II III IV I II Power 301 267 455 525 299 280 465 545 334 Forest 1,687 1,415 1,680 1,545 1,352 1,203 1,328 1,508 1,518 Sawn 471 378 488 304 387 338 441 409 482 timber Pulp 1,852 2,004 1,522 1,120 1,110 1,064 946 1,033 1,248 Eliminat - 716 - 675 - 688 - 633 - 540 - 539 - 624 - 666 - 664 ions Base 3,595 3,389 3,457 2,861 2,608 2,346 2,556 2,829 2,918 products 4,104 4,896 4,575 3,731 3,651 3,799 4,038 3,196 3,618 Printing papers Tech. 611 540 531 541 441 424 457 526 516 off. papers Fine 2,599 2,051 2,002 2,106 1,706 1,565 1,874 1,999 2,005 papers 1,879 1,615 1,730 1,728 1,465 1,322 1,382 1,462 1,458 Wholesal e oper. - 570 - 564 - 566 - 678 - 366 - 375 - 456 - 442 - 428 Eliminat ions Graphic 8,623 8,538 8,272 7,428 6,897 6,735 7,295 6,741 7,169 papers Board 2,952 2,590 2,272 2,510 2,215 2,172 1,974 2,233 2,497 and packagin g paper Other -1,528 -1,445 -1,134 -1,195 -1,004 -1,044 -914 -1,121 -1,243 Adjusted 13,642 13,072 12,867 11,604 10,71610,209 10,911 10,682 11,341 net sales Divested 1,175 918 978 826 895 - - - - units Total 14,81713,990 13,845 12,430 11,611 10,209 10,911 10,682 11.341 Adjusted operating income/loss by product area (SEK m) 1995 1996 1997 II III IV I II III IV I II Power - 46 - 93 105 79 - 82 - 113 101 180 - 3 Forest 200 165 272 139 161 147 207 186 233 Sawn timber 14 - 60 - 40 - 34 - 20 - 47 4 8 24 Pulp 495 695 386 - 35 - 392 - 85 - 191 - 166 - 72 Base 663 707 723 149 - 333 - 98 121 208 182 products Printing 668 1,115 1,073 832 696 747 455 223 396 papers Tech. off. 8 - 11 - 41 - 17 - 61 - 117 - 60 8 16 papers Fine papers 484 277 263 97 6 - 78 152 244 208 Wholesale 65 32 24 27 7 18 22 24 23 oper. Graphic 1,225 1,413 1,319 939 648 570 569 499 643 papers Board and 587 392 187 371 232 118 - 22 127 129 packaging paper Financial 40 49 108 64 51 17 34 56 255 operations Amortization - 104 - 101 - 97 - 91 - 89 - 88 - 88 - 89 - 89 of surplus values Other - 90 - 86 - 172 - 23 - 39 - 50 1 - 76 - 84 Adjusted 2,321 2,374 2,068 1,409 470 469 615 725 1,036 operating income Operating 17.0 18.2 16.1 12.1 4.4 4.6 5.6 6.8 9.1 margin,% Divested 18 - 45 - 66 - 54 - 13 - - - units Nonrecurring 172 43 - 14 - 71 - 30 - 78 - - 150 items Reported 2,511 2,372 1,988 1,355 528 439 537 725 886 operating income Net - 319 - 282 - 246 - 214 - 227 - 208 - 175 - 189 - 222 financial items: Net interest items Interest 39 40 80 74 94 81 65 24 - difference, translation hedge Net -280 -242 -166 -140 -133 -127 -110 -165 -222 financial items Reported 2,231 2,130 1,822 1,215 395 312 427 560 664 income after net financial items DISTRIBUTION OF SHARES Series A Series B Total Unrestricted 261,797,100 59,706,625 321,503,725

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