Report on operations for the three monthsended march 31, 1996

REPORT ON OPERATIONS FOR THE THREE MONTHSENDED MARCH 31, 1996 Invoiced sales SEK 12,430 million (14,320) Income after net financial items SEK 1, 215 million (1,837) Net income after tax SEK 802 million (1,196) Income per share SEK 2.50 (3.70) Equity/assets ratio 49.5 percent (41.9) Sales and earnings The Group's invoiced sales for the period amounted to SEK 12,430 million, compared with SEK 14,320 million for the corresponding three months of 1995. After adjustment for divested units, invoicing decreased by SEK 1,598 million. Operating income totaled SEK 1,355 million (2,103). The lower level of invoicing and the decrease in earnings were mainly attributable to declining product prices and lower volumes. The Group's financial net improved by SEK 126 million to an expense of SEK 140 million (expense: 266), following which income after net financial items totaled SEK 1,215 million (1,837). Capital gains totaling SEK 100 million were included in income for the first quarter of the preceding year. Net income, after tax and minority shares, amounted to SEK 802 million (1,196). Tax for the period was SEK 407 million (611), which corresponded to 33.5 percent (33.2) of income before tax. Group income per share for the first quarter of 1996 was SEK 2.50 (3.70). On a rolling full-year basis the corresponding figure was SEK 15.45 (8.10), compared with SEK 16.70 for full-year 1995. The return on capital employed, after deductions for tax liabilities, for the period April 1995 to March 1996 was 19 percent (12), compared with 22 percent for full-year 1995. The corresponding figures for the return on shareholders' equity were 17 percent (11) and 20 percent, respectively. Market situation The first quarter of the year was characterized by a deterioration in economic conditions in most European countries, particularly Germany, which is STORA's largest single market. North America has also been dampened, but certain positive signs have been noted in this market more recently. Demand has slackened as a result of the uncertain economic trend, at the same time as inventory run-downs have been implemented by customers. The demand situation for STORA's products is fragmented. Order bookings for board for packaging applications have improved compared with the weak fourth quarter of 1995. Demand for newsprint and SC (uncoated magazine paper) is still moderately good, but remains weak for pulp, LWC (coated magazine paper) and fine papers. Both SC paper and coated fine papers are currently taking market share from LWC papers for price reasons. Coated fine papers are currently less expensive than LWC papers. The situation has stabilized for sawn timber since the fourth quarter of 1995. Prices for newsprint and SC paper were able to be raised slightly during the first quarter, while prices for other products declined by varying degrees. Demand for building products was weak during the first quarter, due in part to the cold, prolonged winter. STORA's shipments of pulp, paper and board decreased by 16 percent compared with the year-earlier period. Deliveries compared with the fourth quarter of 1995 were down 2 percent. Power Electricity consumption in Sweden increased as a result of the normal-to-cold winter. A dry finish to 1995 and a dry and cold start to 1996 are factors which have placed a strain on the power sector and led to very low reservoir levels. Water levels in Norwegian reservoirs are also very low. The scant volumes of snow in the mountains mean that reservoir levels are expected to remain low until 1997, even if precipitation returns to a normal level during the remainder of 1996. As a result of the strained power situation, condensing power has been utilized and power purchases have been made at high cost levels. Earnings declined. Forest and timber Lower production of pulp, paper and board has led to a surplus supply of softwood pulp in the market. This applies to both the Nordic region and Canada and the northwestern U.S. In order to improve the situation most of the players including STORA, will limit their felling during the spring. These limitations could affect the availability of saw timber. In northern and central Sweden, wood prices were reduced as of January 1, 1996 and a further reduction was made on April 1. The decreases in wood prices led to a deterioration in earnings. Sawn timber was affected by the weak building market, with falling sales prices as a result. Compared with the peaks noted at year-end 1994, the price level for spruce is down by 30 percent and for pine by 25 percent. Both production and inventory levels are showing declining trends. The lower sales prices resulted in sawn timber reporting a loss for the period. Pulp As a consequence of inventory reductions among paper wholesalers and printers, production restrictions by producers of fine papers and LWC have led to reduced demand for paper pulp. At the end of March, producer inventories in Scandinavia and North America totaled around 2.5 million tons. North American producers first introduced production cutbacks at the end of the period, while Scandinavian producers implemented restrictions throughout the period. The product area's earnings deteriorated. Printing papers The market for printing papers has been and remains at a favorable level in terms of newsprint and uncoated magazine paper but continues to be very weak for coated magazine paper. Deliveries of newsprint to Europe decreased by 1 percent. Price levels for newsprint in local currencies were raised at year-end 1995 by about 5-10 percent. Deliveries of SC paper to Europe declined by 4 percent. Deliveries of LWC papers in Europe decreased by about 26 percent. Demand was weakest within the offset area. SC papers and coated fine papers captured market shares from LWC papers. Sales prices for LWC papers are under pressure and the level is currently about 5-10 percent lower than in October/November 1995. STORA has implemented major production restrictions for LWC papers. Technical office papers (carbonless papers and thermal papers) continued to show market growth during the period. This particularly applied to the latter. Both products are experiencing strong price pressure. Income for the printing papers product area improved. Board and packaging paper The market for board and packaging paper continued to be affected by inventory run-downs among packaging converters and end-users. It is estimated that inventory reductions are in their final stages. The low level of order bookings has led to the introduction of production restrictions at STORA plants and other producers. Sales prices are under pressure and levels correspond to the situation prevailing a year ago. Demand for liquid packaging board is still favorable. The product area's income declined as a result of lower prices and reduced volumes. Fine papers The European fine papers market is characterized by weak demand and surplus capacity and, consequently, price competition. Shipments of coated fine papers in Europe decreased by 5 percent, compared with the preceding year. For uncoated papers, the corresponding figure showed a decrease of 9 percent. (The figures provided here relate to shipments up to and including February). Demand has also weakened in overseas markets. STORA and other producers have implemented production cutbacks. Price levels are now lower than at the corresponding date in 1995. This product area's income declined due to lower price levels and reduced volumes. Wholesale operations The Group's wholesale companies were affected by the tougher market scenario. Lower fine paper prices led to inventory write-downs, which means that income for the wholesale operations was lower than for the first three months of 1995. Building products Uncertainty surrounding the economic trend and the cold start to the year hampered building operations. In Sweden, building activity is at a low level, both in terms of new building and repair and renovation (R&R) operations. It is judged that the 10-percent Government subsidy for new building will generate some improvement. New building operations in Norway are expected to decrease, which is expected to be offset by an increase in R&R. Demand is also expected to decrease in Germany as a result of reduced activity in the new building segment. The markets in Finland and the U.K are also assessed as being weak. Due to the sharp downturn in the building market, an extensive action program has been introduced. The program includes the closure of the door production plant in Lovene, the sale of the operations in Vetlanda and rationalization measures within other units. Earnings for this product area remained unsatisfactory. Financial operations The financial markets have been characterized by less uncertainty during the early months of the year. Earnings have been generated in the interest and currency markets and in share-related instruments. Income was better than in the preceding year. Financial position The Group's equity/assets ratio at the end of the period was 49.5 (41.9) percent and the debt/equity ratio was 0.37 times (0.63). The corresponding figures at year-end 1995 were 47.6 percent and 0.37 times, respectively. Interest-bearing net indebtedness amounted to SEK 11,193 million (16,923), compared with SEK 10,755 million at year-end 1995. Of the SEK 1,512 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 includes pension liabilities of SEK 4,029 million (4,526) and SEK 4,055 million, respectively. To protect the shareholders' equity in the Group, STORA maintains loans corresponding 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. Rating from Standard & Poor's The Standard & Poor's rating institute has assigned STORA an "A-, stable outlook" long-term credit rating. Capital expenditures Investments in plant during the period totaled SEK 1,833 million (816), of which SEK 1,453 million (515) was in Sweden. Depreciation according to plan amounted to SEK 912 million (916). The board machine project in Skoghall (Sweden) is progressing according to plan. Accumulated payments total SEK 1,735 million, of which SEK 682 million relates to 1996. The magazine paper machine project in Nova Scotia (Canada) is also proceeding according to plan. Site-preparation work is scheduled to start in the near future. The rebuilding of the PM1 paper machine in Nymölla (Sweden) and PM5 in Kabel (Germany) were completed during the period. The rebuilt sawmill at Gruvön (Sweden) was placed in operation during the first quarter. The investment totaled SEK 160 million. Personnel The average number of employees in the Group as at March 31, 1996 was 24,778 (25,806). During 1995, the figure was 25,619. Falun, April 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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