Interim Report January - June 1999

INTERIM REPORT JANUARY - JUNE 1999 Highlights * Profit after net financial items amounted to SKr 1,158 million (corresponding period 1998: 1,391). The profit for the second quarter was SKr 543 million compared with SKr 615 million for the first quarter. * Profit after tax for the period amounted to SKr 786 million (960), which corresponds to earnings per share of SKr 8.80 (10.80). The return on equity was 9.4 per cent (11.7). * Net turnover amounted to SKr 11,131 million (11,511). * Demand for newsprint and magazine paper showed continued strength while the market for both paperboard and fine paper improved. Prices on newsprint and magazine paper, as well as paperboard prices, were stable. Fine paper prices rose towards the end of the period after having been depressed earlier in the year. Capacity utilisation improved for the main products during the second quarter. Net turnover and result Net turnover declined by three per cent to SKr 11,131 million (11,511) mainly as a result of lower prices. The second quarter turnover decreased by three per cent in relation to the first quarter due to lower delivery volumes. The operating profit amounted to SKr 1,269 million (1,488), and the operating margin was 11.4 per cent (12.9). The decline in the result was mainly caused by lower selling prices, expressed in Swedish kronor, and higher fixed costs. These, however, were partly offset by slightly higher delivery volumes and lower variable costs. Compared with the first quarter, the operating result decreased by SKr 27 million, mainly due to higher fixed costs and slightly lower sales prices. However, this was offset by lower variable costs mainly for energy. Capacity utilisation improved for all main products. The return on capital employed was 10.4 per cent (12.6). The return on equity was 9.4 per cent (11.7). Net financial costs amounted to SKr 111 million (costs 97). The profit after net financial items amounted to SKr 1,158 million (1,391). The profit for the second quarter was SKr 543 million (first quarter: 615). The profit after tax for the period amounted to SKr 786 million (960). Earnings per share after tax amounted to SKr 8.80 (10.80). Financing The negative cash flow amounted to SKr 3,208 million (positive 668) including dividend of SKr 3,999 million (800). The Group's net financial liability at the end of June was SKr 6,366 million (December 31, 1998: 3,143). The closing debt/equity ratio was 0.42 (December 31, 1998: 0.17). The equity ratio was 50.2 per cent (December 31, 1998: 60.4). Markets Demand for newsprint and magazine paper remained strong. The growth rate in Europe was positive with the exception of coated magazine paper. Additions to production capacity and higher deliveries, above all from Canada, have not influenced the balance on the market in Europe to any significant extent. Holmen Paper's delivery volume was broadly unchanged. The order intake was stable at a healthy level. After the adjustment made at the beginning of the year, the prices of newsprint and magazine paper have remained stable. The West European paperboard market improved and demand from non-European markets rose. However, total deliveries were still below last year's level. Iggesund Paperboard's deliveries decreased by two per cent but have been successively improving during the second quarter. Order books were strong at the end of the period. For the most part prices remained stable despite some pressure during the first quarter. The stronger market situation has resulted in price increases being announced for later in the autumn. West European deliveries of fine paper exceeded last year's volumes in the case of both uncoated and coated grades. The positive delivery trend is believed to be partly due to the decline in imports of uncoated fine paper from Eastern Europe and South East Asia. MoDo Paper's deliveries rose by nine per cent. Office paper and paper on reels for converters accounted for the bulk of the increase. Prices were raised by some five per cent at the end of the second quarter. Further price increases are likely in the autumn. Global demand for pulp has improved, mainly due to higher deliveries to Asia. MoDo Paper's external deliveries of pulp fell by five per cent. Producer stocks fell further during the second quarter and price increases have been made gradually. Demand for products at the merchanting stage improved after a weak start to the year. MoDo Merchants' deliveries rose by two per cent, which corresponds to the estimated average growth on the markets where MoDo Merchants is active. Price increases, mainly in the case of uncoated fine paper, were carried out during the second quarter. The sawn timber market is still characterised by a lack of balance between supply and demand. Iggesund Timber's deliveries from company sawmills rose by nine per cent. Redwood prices remained seriously depressed while some price increases are made for whitewood deliveries during the third quarter. Wood consumption continued at a high level and stocks were normal. Harvesting in company forests was seasonally higher during the second quarter than in the first quarter, whilst procurement from other sources was lower. The mills' wood costs per cubic meter declined by two per cent. Production and deliveries MoDo's production of paper, paperboard and pulp for external delivery amounted to 1,544,000 tonnes (1,550,000). The second quarter production rose by 24,000 tonnes in relation to the first quarter. Deliveries of paper, paperboard and pulp increased in relation to the corresponding period of 1998 by one per cent to 1,546,000 tonnes (1,530,000). The second quarter deliveries fell by 18,000 tonnes compared with the first quarter. Capital expenditure The Group's capital expenditure amounted to SKr 835 million (578). Depreciation according to plan amounted to SKr 764 million (738). Land exchanges In January, an agreement was reached with AssiDomän to exchange land holdings covering some 80,000 hectares of forest land in the north of Sweden. The Swedish Board of Agriculture decided in April to give its consent to this exchange. The transaction has been taken into MoDo's accounts without any effect on the result. Structural changes At the end of April, MoDo and SCA entered into an agreement to consolidate their operations within the areas of fine paper and merchanting in a new 50/50 jointly owned company, to be named MoDo Paper AB. MoDo will transfer the units within the business areas MoDo Paper (excl. Domsjö) and MoDo Merchants. The intention is the company to be listed within two years. The required approvals have been obtained from the relevant competition authorities. The operating profit of those business units which are intended to be included in the new MoDo Paper AB amounted to SKr 165 million (1998: 349) for the January - June period, of which SKr 135 million are attributable to the second quarter. Year 2000 Compliance MoDo's preparations for the change of millennium are moving ahead well. By far the greater part of all technical systems have been reviewed, modified and tested. Moreover, an extensive programme is in process to draw up continuity plans in order to minimise any disturbances that are beyond MoDo's control. A more detailed description of MoDo's Year 2000 project can be found on www.modogroup.com under the heading "2000 declaration". Employees The average number of employees in the Group was 9,284 (1998, full year: 9,586). Stockholm, August 17, 1999 Bengt Pettersson President and Chief Executive Officer This interim report has not been subject to general examination by the company's auditors. The interim report for the January- September 1999 period will be released on October 28. PROFIT AND LOSS ACCOUNT, SKr million January - June Full year 1999 1998 1998 Net turnover 11,131 11,511 22,676 Operating costs @9,100 @9,288 -18,700 Interest in earnings of associate 2 3 6 companies Depreciation according to plan @764 @738 -1,507 Operating profit 1,269 1,488 2,475 Net financial items @111 @97 -137 Profit after net financial items 1,158 1,391 2,338 Tax @372 @431 166 Profit for the period 786 960 2,504 Operating margin % 11.4 12.9 10.9 Return on capital employed % 10.4 12.6 10.3 Return on equity % 9.4 11.7 14.4 Earnings per share after tax * 8.80 10.80 28.20 SKr * Calculated before dilution of 3.5 per cent as a result of outstanding convertibles and warrants. NET TURNOVER AND OPERATING PROFIT, SKr million Net turnover Operating profit/loss January - June January - June 1999 1998 1999 1998 Holmen Paper 3,548 3,535 742 610 Holmen Paper excl MoDo 3,346 3,311 674 560 Kraft Iggesund Paperboard 1,945 2,052 194 347 MoDo Paper 3,674 3,769 89 340 MoDo Merchants 1,830 1,885 29 41 Iggesund Timber 401 370 @36 -22 MoDo Skog 2,304 2,499 236 265 Intra-group sales @2,571 @2,599 @ - Group adjustments and @ @ @122 -72 other External currency @ @ 137 -21 hedging 11,131 11,511 1,269 1,488 BALANCE SHEET, SKr million 1999 1998 June 30 Dec. 31 ASSETS Fixed assets 20,745 20,931 Current assets 8,304 8,262 Liquid funds 852 1,241 29,901 30,434 EQUITY AND LIABILITIES Equity 15,017 18,377 Minority interests 5 5 Deferred tax liability 2,965 2,920 Financial liabilities 7,218 4,384 Operating liabilities 4,696 4,748 29,901 30,434 Debt/equity ratio 0.42 0.17 Equity ratio % 50.2 60.4 CASH FLOW ANALYSIS, SKr million 1999 1998 Jan-Dec. 31 June Funds provided from operations 2,058 4,112 Change in working capital etc @431 169 Capital expenditure @835 @2,557 Net financial items @111 @137 Realised foreign exchange 217 @249 differences loans Paid tax @107 253 Cash flow before dividend 791 1,591 Issue of warrants and convertible @ 46 loan* Dividend paid to shareholders @3,999 @800 Cash flow @3,208 837 Unrealised foreign exchange @15 @111 differences** Change in net financial liabilities @3,223 726 Liquid funds 852 1,241 Financial liabilities @7,218 @4,384 Net financial liabilities @6,366 @3,143 Opening liquid funds 1,241 1,636 Change in liquid funds @365 @463 Foreign exchange differences @24 68 relating to translation of liquid funds Closing liquid funds 852 1,241 * Refers to rights to convert attached to the convertible loan. ** Relates to translation of accounts of foreign Group companies and unrealised foreign exchange differences on loans. QUARTERLY FIGURES, SKr million 1999 1998 1998 II I Full year IV III II I Net turnover Holmen Paper 1,710 1,838 7,432 2,064 1,833 1,782 1,753 Holmen Paper excl 1,644 1,702 6,972 1,923 1,738 1,706 1,605 MoDo Kraft Iggesund Paperboard 972 973 4,051 1,007 992 990 1,062 MoDo Paper 1,809 1,865 7,155 1,697 1,689 1,809 1,960 MoDo Merchants 909 921 3,672 928 859 895 990 Iggesund Timber 200 201 727 186 171 175 195 MoDo Skog 1,119 1,185 4,713 1,168 1,046 1,183 1,316 6,719 6,983 27,750 7,050 6,590 6,834 7,276 Intra-group sales @1,241 -1,330 @5,074 @1,298 @1,177 @1,206 -1,393 5,478 5,653 22,676 5,752 5,413 5,628 5,883 Profit/loss Holmen Paper 353 389 1,511 428 473 323 287 Holmen Paper excl 367 307 1,455 419 476 347 213 MoDo Kraft Iggesund Paperboard 106 88 590 104 139 141 206 MoDo Paper 94 -5 171 @170 1 130 210 MoDo Merchants 13 16 64 20 3 12 29 Iggesund Timber @24 -12 @59 @25 @12 @17 -5 MoDo Skog 124 112 548 157 126 164 101 Group adjustments and @53 -69 @24 84 @36 @51 -21 other External currency 8 129 @326 @126 @179 14 -35 hedging Operating profit 621 648 2,475 472 515 716 772 Net financial items @78 -33 @137 @31 @9 @54 -43 Profit after net 543 615 2,338 441 506 662 729 financial items Tax @175 -197 166 751 @154 @205 -226 Profit for the period 368 418 2,504 1,192 352 457 503 SHARES Series A Serie B Total Number* 22,623,234 66,235,044 88,858,278 * The outstanding convertibles and warrants would in the event of full conversion involve an issue of a further 3,209,689 series B shares, corresponding to dilution of the capital by 3.5 per cent and of the votes by 1.1 per cent. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/08/17/19990817BIT00180/bit0001.doc http://www.bit.se/bitonline/1999/08/17/19990817BIT00180/bit0002.pdf