Report on operations for the nine months ended september 30, 1996

REPORT ON OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 Invoicing SEK 34,250 million (43,261) Income after net SEK 1,922 million financial items (6,198) Net income after tax SEK 1,266 million (4,108) Income per share SEK 3.95 (12.80) Sales and earnings The Group's invoiced sales for the first nine months of 1996 amounted to SEK 34,250 million (SEK 43,261 million for year-earlier period). The change is attributable to delivery volumes declining by 8 percent, coupled with a deterioration in prices for virtually all products. In addition, the strengthened SEK had an adverse effect on invoicing in an amount of SEK 2,500 million. The divestment of the Stora Building Products and Newton Falls units accounted for a further SEK 1,800 million of the downturn. Operating income totaled SEK 2,322 million (6,986). Income was adversely affected by lower prices and delivery volumes totaling SEK 3,300 million, as well as by SEK 625 million due to the appreciation of the SEK. The remainder of the decline was attributable to changeovers and start-ups in connection with plant investments, lower revenues of a nonrecurring nature and the revaluation of inventories. The Group's financial net improved to an expense of SEK 400 million (expense: 788). Due to the strengthening of the SEK, the financial net improved by SEK 75 million. The financial net was also positively affected by a lower level of borrowing and declining interest rates on short-term loans. Income after net financial items amounted to SEK 1,922 million (6,198). Net income, after tax and minority shares, amounted to SEK 1,266 million (4,108). Tax for the period was SEK 650 million (2,045), corresponding to 34 percent (33) of pretax income. Group income per share for the first nine months of 1996 was SEK 3.95 (12.80). On a rolling full-year basis the corresponding figure was SEK 7.85 (15.25), compared with SEK 16.70 for full-year 1995. The return on capital employed, after deductions for tax liabilities, for the period October 1995 to September 1996 was 10 percent (20), compared with 22 percent for full-year 1995. The corresponding figures for the return on shareholders' equity were 9 percent (19) and 20 percent, respectively. The operating cash flow was positive and amounted to SEK 3,668 million (4,846), of which currency translation accounted for SEK 1,292 million (loss: 389). Following deductions for net financial items, taxes and dividends, interest-bearing net indebtedness rose by SEK 485 million. Market situation and deliveries A weak economic trend in Europe affected the markets for paper and board. This was aggravated by inventory reductions and cost savings measures among customers during the first two quarters of the year. Demand in the U.S. was slightly better due to a stronger economic trend, but deliveries were lower, compared with the corresponding period of 1995. Order bookings for pulp, paper and board improved during the second quarter. During the third quarter, the pulp markets were calm, for seasonal reasons, and as a result of lower shipments to Southeast Asia following the high levels recorded during the early summer. Demand for fine papers remained stable. The orders situation also improved in the board and packaging paper area, particularly for liner and fluting. Towards the end of the third quarter, order bookings for uncoated (SC) and coated (LWC) magazine papers, in the printing papers product area, strengthened. The weak market during the first half resulted in price falls for pulp, LWC, fine papers and board. Prices for paper pulp were increased during the third quarter. Fine paper prices were raised in September by about 10 percent in all European markets. The brakes have been applied to the price decline for board. At midyear, prices were reduced for newsprint and SC paper. Newsprint prices in the U.S. are currently at a lower level than in Europe. Translated into Swedish kronor, average prices for STORA's pulp, paper and board products were 16 percent lower, compared with the corresponding period of 1995. Capacity utilization declined to 86 percent (98). STORA's deliveries of pulp, paper and board totaled 4,725,000 metric tons (5,132,000), down by 8 percent. STORA estimates that the underlying consumption of paper and board has continued to rise and that the decrease in deliveries is due to inventory adjustments. Power The normal-cold 1995/96 winter and a general increase in consumption resulted in electricity consumption in Sweden increasing by 3.2 percent on a rolling annual basis. In terms of precipitation, 1996 looks like being one of the driest years of the century. A dry winter and very little precipitation during August and September have led to very low reservoir levels, which are about 30 percent below their normal levels. A similar situation exists in Norway, which is wholly dependent on hydro power. Reservoir levels will remain low during 1997, even if there is a return to normal precipitation. As a result of the strained power situation, coal and oil-based power was utilized and additional purchases were made at high cost levels, which explains why earnings deteriorated. Forest and sawn timber The wood market is characterized by good access to pine and deciduous pulpwood, spruce pulpwood is in balance, while there is a slight shortage of saw timber. The supply of wood from forest owners is low. Felling in the Group's own forests is now at the same level as during 1995. Decreased wood prices led to a deterioration in earnings for forest operations. Demand for sawn timber has been affected by the weak building market. The prevailing scarcity of saw timber is resulting in increased raw materials prices. In addition, lower production among pulp producers reduced marketing opportunities and thereby the price of chips. Deliveries rose compared with 3 the preceding year. STORA's shipments totaled 488,000 m (442,000), up 10 percent. Prices for spruce increased slightly during the period, as did certain pine grades. Sawn timber results were down on the preceding year and continued to show a loss. Pulp The low demand for paper pulp during the most recent quarter was normal for the time of year but deliveries increased during September. Demand for long- fiber pulp is weaker than for short-fiber pulp, since the market is stronger for fine papers than it is for LWC and SC papers. The price level for short-fiber pulp is currently ECU 420 per metric ton, while the price for long-fiber pulp is in the region of USD 560-580. The prices of fluff pulp are following the trend of long-fiber paper pulp. The earnings of this product area deteriorated. Printing papers The market for printing papers has been affected by the weak economic trend. In addition, measures have been introduced by customers to reduce consumption of this grade following the sharp price increases implemented during 1995. Total deliveries to the European market decreased during the first eight months of the year, by 5 percent for newsprint, 7 percent for SC papers and 21 percent for LWC papers. Coated fine papers and SC papers captured market share from LWC grades during the period. Prices for newsprint in Europe remained stable during the first half of the year but have been reduced by 3-5 percent since July depending on the market. Following the period covered by the report, a further reduction has been made in one or two individual markets. Prices for SC papers are 8-10 percent lower than during the first half of the year. The price level for LWC paper is currently 25-30 percent lower than at the beginning of the year. Production curtailments were implemented, primarily relating to LWC and SC papers. In the technical office papers segment, thermal papers continued to show market growth, while the consumption increase for carbonless papers was limited. Due to competitive pressures, the price level for both products is unsatisfactory. Price hikes of 10-15 percent have been announced for thermal papers, effective September 1, with an additional increase scheduled during October. Price increases of 25-35 percent have also been announced for carbonless papers. The earnings of the printing papers product area were lower than in the preceding year. Fine papers The level of order bookings for fine papers during the first quarter of the year was low, due to inventory reductions among customers. Order bookings since April have exceeded the level of the preceding year. The improvement is due to customers rebuilding their inventories pending expected price hikes and slightly increased consumption. Deliveries of coated fine papers in Europe increased by 2 percent compared with the preceding year. For uncoated fine papers, the corresponding figure was a decrease of 4 percent. Since year-end 1995, sales prices have declined by 25 to 30 percent. Due to the improvement in order bookings, price increases of about 10 percent were implemented during October. The earnings of this product area deteriorated as a result of lower price levels and lower volumes. Wholesale operations The Group's wholesale companies were affected by the changed market scenario for fine papers. During the most recent quarter, wholesale operations strengthened their presence in Eastern Europe through the acquisition of a paper merchant, PN Papier, based in Poznan, Poland. The deterioration in fine paper prices during the year led to inventory write- downs, which resulted in earnings for wholesale operations being lower than for 1995. Board and packaging paper The market for board and packaging paper was affected by inventory run-downs among packaging converters and end-users. The inventory reduction phase has now been concluded and order bookings have improved. The strongest recovery has been for liner and fluting products, where price increases of about 8 percent have been announced. Some improvement has also been noted for packaging board, an area for which price increases are planned later this year. On the whole, sales prices are considerably lower than at the beginning of the year. The earlier low level of order bookings resulted in production curtailments. In May, production of unbleached sack paper in Skoghall (Sweden) was terminated. The machine has been dismantled and sold. Demand for liquid packaging board continues to be stable. The substantial changes being made in Skoghall in connection with the KM8 project, including rebuilding work and test running new products on the KM7, have had an adverse effect on earnings, a situation that will continue until after the start-up of the new machine. The product area's earnings declined. Financial operations Financial markets were characterized by increased uncertainty during the most recent quarter. Earnings were generated in the interest rate and currency markets, as well as in share-related instruments. Earnings do not include interest on shareholders' equity or internal margins. Earnings were on a par with the preceding year. Financial position The Group's equity/assets ratio at the end of the period was 50.1 (45.8) percent and the debt/equity ratio was 0.38 times (0.48). The corresponding figures at year-end 1995 were 47.6 percent and 0.37 times, respectively. Interest-bearing net indebtedness amounted to SEK 11,240 million (13,634), compared with SEK 10,755 million at year-end 1995. Of the SEK 2,483 million in tax paid, as shown in the change in net indebtedness, the major portion related to supplementary preliminary tax in Sweden for 1995. Interest-bearing net indebtedness included pension liabilities of SEK 3,913 million (4,124) at the end of the period and SEK 4,055 million as at year-end 1995. To protect the shareholders' equity in the Group, STORA maintains loans corre- sponding to its assets in individual currencies. This eliminates the risk that changes in exchange rates will affect the value of the Group's net foreign assets. Capital expenditures Investments in plant during the period totaled SEK 5,208 million (3,330), of which SEK 3,691 million (2,145) was in Sweden. Depreciation according to plan amounted to SEK 2,658 million (2,754). The board machine project in Skoghall (Sweden) is progressing according to plan. Accumulated payments total SEK 2,584 million, of which SEK 1,531 million relates to 1996. The magazine paper machine project in Nova Scotia (Canada) is also proceeding according to plan. To date, SEK 350 million has been invested in this project. Personnel The average number of employees in the Group as at September 30, 1996 was 23,487 (25,719). Structural changes The sale of Stora Building Products to Industri Kapital was concluded on September 30. The divestment was effective retroactively as of July 1, 1996 and resulted in STORA's net indebtedness being reduced by SEK 905 million, and a capital loss on the sale of SEK 30 million, which was charged against third- quarter earnings. Falun, October 24, 1996 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.

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