Report on operations for the nine months ended September 30, 1998

For distribution in the UNITED STATES, CANADA, AUSTRALIA and JAPAN STORA's results for the nine months ended September 30, 1998, will be presented at a press conference to be held at 1.00 p.m. today in the Group's Stockholm office, Västra Trädgårdsgatan 15. REPORT ON OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 * Net sales: SEK 33,806 million (32,999) +2% * Profit after financial items: SEK 2,342 million (1,753) +33% * Net profit after tax: SEK 1,593 million (1,155) +38% * Earnings per share: SEK 4.95 (3.60) +38% * The market for printing papers remained strong, with favorable earnings in the third quarter. * The markets for the pulp, fine papers and board and packaging paper product areas weakened during the quarter. * The new SC machine at Stora Port Hawkesbury, which was started up in mid- April, has experienced running-in problems but continuous improvements are being achieved. * Negotiations are in progress with Mitsubishi to divest Technical Office Papers. Net sales and earnings The Group's net sales for the first nine months of 1998 amounted to SEK 33,806 million (compared with SEK 32,999 million for the corresponding period of 1997). Profit after financial items totaled SEK 2,342 million (1,753) and included items affecting comparability in an amount of SEK 149 million (-150). The improvement in profit was due to higher sales prices for most of the Group's products. Current profit was affected by start-up and running-in problems related to the PM2 in Port Hawkesbury, Canada. The problems, which are mainly due to the calender machines (used to create a glazed surface), prevented the unit from achieving the quality planned. Measures have been implemented and improvements have been achieved. The loss noted during the second quarter was replaced by a break-even result in the third quarter. For comparable units, delivery volumes of pulp, paper and board remained unchanged compared with the first nine months of the preceding year. Levels in the third quarter were in line with the preceding quarter of 1998. With a few exceptions, prices were higher than during the corresponding period of 1997. The financial net declined to an expense of SEK 854 million (expense: 612), due to increased net indebtedness. No interest was capitalized in connection with ongoing investment projects. Net profit for the period, after tax and minority shares, amounted to SEK 1,593 million (1,155). Tax for the period was SEK 755 million (578), which corresponded to 32 percent (33) of profit before tax. Group earnings per share were SEK 4.95 (3.60). The return on capital employed, after deductions for tax liabilities, was 9 percent (7) for the period October 1997 to September 1998, compared with 7 percent for full-year 1997. The corresponding return on shareholders' equity was 7 percent (5) and 5 percent.The capital employed at the units in Skoghall (Sweden), Port Hawkesbury (Canada), and Skutskär (Sweden), in which considerable investments have been made in recent years, totaled approximately SEK 12 billion, corresponding to about 25 percent of STORA's total capital employed. The combined operating results for these units improved slightly during the third quarter but are still weak, which significantly affected Group profitability. The operating cash flow was negative in an amount of SEK 1,088 million. The outflow was due to the final payments for the investment in Port Hawkesbury and the acquisition of Suzhou Papyrus, China. After deductions for net financial items, taxes and dividends, the Group's interest-bearing net indebtedness rose by SEK 2,691 million to SEK 18,248 million. Net sales and earnings for the third quarter The Group's net sales for the third quarter of 1998 amounted to SEK 11,239 million (10,976) and were up on the preceding quarter's sales of SEK 11,067 million. Profit after financial items totaled SEK 679 million (529), compared with SEK 788 million for the second quarter of 1998, which included noncomparable items in an amount of SEK 149 million. Adjusted for this, third-quarter profit was SEK 40 million up on the second quarter. Power operations, which are highly seasonal, showed an operating loss of SEK 42 million (loss: 47). For comparable units, delivery volumes of paper and board decreased by slightly less than 2 percent, compared with the corresponding quarter of 1997, but were up slightly more than 2 percent compared with the second quarter of 1998. With a few exceptions, prices were higher than during the third quarter of 1997. The financial net declined to an expense of SEK 314 million (expense: 225), due to increased net indebtedness resulting from the program of investments. No interest was capitalized in connection with ongoing investment projects. Net profit, after tax and minority shares, amounted to SEK 477 million (347). Tax for the period was SEK 218 million (174), which corresponded to 32 percent (33) of profit before tax. Group earnings per share were SEK 1.50 (1.10), compared with SEK 1.65 for the preceding quarter. Market and deliveries, January - September Western Europe, STORA's main market, showed volume growth during the period in most of the Group's product areas. Adjusted for divestments and the closure of units, STORA's total deliveries of paper and board increased by nearly 2 percent, compared with the corresponding period of 1997. Sales prices were higher without exception, than at the beginning of the year. Compared with the second quarter of 1998, sales price levels in local currencies remained largely unchanged during the third quarter. Market trend (based on European supplier information) Source: CEPI Percentage change Deliveries to Sales prices in Western Europe Germany* Full 9-mos 97 Q3 97 Q298 year 96 versus versus versus versus 9-mos 98 Q3 98 Q3 98 full year 97 Newsprint 6 5 6 0 SC paper 8 10 17 1 LWC paper 25 1 18 -1 Uncoated fine papers 5 0 8 0 Coated fine papers 12 11 15 0 Packaging board 6 3 7 0 White Top Liner 7 3 14 -3 * Relates solely to a specific product within the product area in certain instances. Power Earnings were lower than in the corresponding period of 1997, while third- quarter earnings matched the level of the preceding quarter. A mild winter and good access to date to water supplies led to lower electricity prices. Normal seasonal variations traditionally result in earnings for the second and third quarters being lower than for the first and last. Electricity consumption in Sweden has risen by 1.5 percent on a rolling 12- month basis. In Norway and Finland the increase was greater. The increase is attributable to the industrial sector. Reservoir levels within STORA's area of operations are slightly above normal. Forest Earnings were slightly better than in the corresponding period of 1997. Compared with the preceding quarter, earnings declined, mainly due to seasonal variations. Continual rationalization measures have reduced production costs, which offset the lower prices for saw timber. Felling in the Group's own forests was slightly up on the year-earlier level. Pulpwood consumption decreased during the autumn. The price of pulpwood in Sweden remained unchanged, but declined for imported wood. This led to an increase in pulpwood imports. As of November, the price of soft pulpwood in central Sweden was reduced by 3 approximately SEK 20 per m solid wood under bark. Sawn timber Sawn timber operations showed a loss and were weaker than in the corresponding period of 1997. Compared with the second quarter of 1998, third-quarter results deteriorated. Compared with 1997, the downturn was mainly due to lower prices for spruce products. Deliveries were higher than in the corresponding quarter of 1997 but were lower than in the second quarter of 1998 due to seasonal variations. Average sales prices during the quarter were marginally higher for spruce and unchanged for pine, compared with the second quarter. Demand in the European market is favorable but the situation of extensive supply is resulting in price competition. Pulp Adjusted for the loss arising from the closure of the sulphite pulp mill in Canada, earnings totaled SEK 105 million. Third-quarter earnings were down on the second. Lower selling prices, and lower demand resulting from the Asian crisis, had an adverse effect on earnings. Delivery volumes were low during the quarter as a result of the annual shut-down for maintenance during September. Norscan paper pulp inventory levels totaled about 1.8 million tonnes at the end of the period. Currently, price levels are USD 460/tonne for long-fiber pulp and ECU 360/tonne for short-fiber pulp. Printing papers Compared with 1997, earnings virtually doubled during the first nine months of the year. Third-quarter earnings were better than the preceding quarter. The improvement was due to increased volumes and higher selling prices. Capacity utilization was high during the third quarter, which also contained a higher number of production days. Earnings were also favorably affected by lower variable costs and currency rate changes. Start-up costs for the PM2 in Canada had an adverse effect on earnings in an amount of SEK 115 million during the second quarter. During the third quarter, the machine showed a break-even result. Fixed costs within the product area were reduced during the period. STORA's total deliveries of newsprint rose by 1 percent. The European market remained strong and price levels were stable. North America has been affected by the crisis in Asia but labor conflicts led to reduced supply, enabling the market to remain in balance. Price levels in Asia declined. STORA's total deliveries of SC paper increased by 15 percent, mainly as a result of the new machine in Canada. The market for SC paper is favorable. A certain shift from LWC to SC paper occurred in both Europe and North America. Price levels remained stable and a price increase was implemented in North America on July 1. Compared with the first nine months of 1997, STORA's total deliveries of LWC paper rose by 1 percent. Demand in Europe remained unchanged following the sharp increase in 1997. Market demand increased slightly in North America. Price levels in Europe and North America remained unchanged, compared with the preceding quarter, but declined in Asia. Since the end of the period, the price of LWC has come under pressure in North America. Technical office papers Earnings deteriorated compared with 1997. Third-quarter earnings were down on the second quarter of 1998. The decline was due to carbonless paper operations, which reported a loss. The third quarter was negatively affected by provisions made prior to the forthcoming divestment of this product area. The weak demand for carbonless paper continued. STORA's strict pricing policy reduced the Group's total deliveries of carbonless paper by more than the market change for the period. Compared with the preceding year, STORA's deliveries of thermal papers increased substantially. The European market increased by 5 percent. Prices for thermal papers in Europe were stable during the period, but deteriorated elsewhere. Fine papers Earnings were lower than during the first nine months of 1997. The third quarter was down on the second quarter of 1998, due among other factors to the Chinese mill, Suzhou, which reported a deficit of SEK 41 million during the quarter. Compared with 1997, STORA's total deliveries of fine papers were slightly lower during the period. Production curtailments totaling around 20,000 tonnes were implemented during the third quarter, in addition to the planned maintenance shut-down. The market picture is uncertain and is characterized by caution and inventory reductions in the customer segment. However, favorable order bookings have been noted since the beginning of October. Declining pulp prices have placed fine paper prices under constant pressure. Plans to raise prices in the fourth quarter were unsuccessful. Both demand and price levels weakened in Southeast Asia. Paper merchant operations Compared with the corresponding nine months of 1997, earnings remained unchanged. Earnings for the third quarter matched the level of the second. Continued price competition resulted in reduced margins. Distributed volumes increased as a result of the operations of the paper merchants acquired in Poland and Hungary. Board and packaging paper Earnings improved, compared with 1997. Third-quarter earnings were down on the second. The improvement during the nine-month period as a whole was mainly attributable to operations in Skoghall. In relation to the first nine months of the preceding year, deliveries for comparable units remained unchanged. The relatively favorable demand during the initial part of the year deteriorated due to the crises in Asia and Russia. Production curtailments of approximately 45,000 tonnes were implemented during the third quarter, in addition to a planned maintenance stoppage in Gruvön. Further production curtailments have been, and will be, implemented during the fourth quarter. In addition, planned maintenance stoppages will be conducted at Skoghall and Fors. Sales prices, which increased for most product types during the first three months of the year, are now under pressure. Financial operations Earnings for the third quarter were slightly lower than in the preceding quarter. Taking into account the long-term investments concluded in 1997, accumulated earnings for 1998 were slightly up on the preceding year. Earnings were generated in interest-rate and currency markets, as well as in share-related instruments. Earnings do not include interest on shareholders' equity or internal margins. Financial position The Group's equity/assets ratio was 43.9 (46.1) percent and the debt/equity ratio was a multiple of 0.59 (0.52). At year-end 1997, the corresponding ratios were 45.9 percent and a multiple of 0.52, respectively. Interest-bearing net indebtedness amounted to SEK 18,248 million (15,388), compared with SEK 15,557 million at the end of 1997. Interest-bearing net indebtedness included pension liabilities of SEK 4,019 million (3,854) and 3,960, respectively. At the end of the period, the Group had granted but unutilized credit lines corresponding to SEK 11.5 billion. Investments Investments in plant during the period totaled SEK 3,795 million (4,713), of which SEK 2,194 million (2,471) was in Sweden. Depreciation according to plan amounted to SEK 2,941 million (2,790). The new paper machine (PM2) at Stora Port Hawkesbury, Canada, was started up in mid April. A total of SEK 3,750 million has been invested in this project, of which SEK 950 million during 1998. Current productivity program To date, the productivity-improvement program launched at the 1998 Annual General Meeting has been introduced at nine of the Group's pulp and paper production units. During the autumn, the program will be extended to include an additional three units. It is estimated that the program will generate a positive effect on Group earnings as of 1999. Personnel The average number of employees in the Group during the period was 20,029 (20,609). During the whole of the preceding year, the Group had an average of 20,431 personnel. Other Negotiations to divest Technical Office Papers STORA has conducted negotiations with Mitsubishi Paper Mills and Mitsubishi Corporation, Tokyo, for some time regarding the divestment of 76 percent of Stora Carbonless Paper GmbH (Hillegossen) and Stora Spezialpapiere GmbH (Flensburg) in Germany. At STORA's 1998 Annual General Meeting, in connection with the launch of the productivity-improvement program, the Group announced that certain units would be considered for divestment. The current sale is a key feature of that program. The operations in Hillegossen (carbonless papers) and Flensburg (thermal papers) correspond to STORA's Technical Office Papers product area. Mitsubishi already owns 20 percent of Stora Spezialpapiere GmbH and is currently negotiating to increase its holding to 76 percent and to concurrently acquire 76 percent of the shares in Stora Carbonless GmbH. A due diligence process, which involves a review and analysis of the operations of Mitsubishi, is currently in progress. The purchase price being discussed for the shares would result in a capital loss for STORA of approximately SEK 200 million (about SEK 100 million after tax). Total capital employed in the operations amounts to about SEK 1,700 million, including goodwill. The negotiations are being conducted with the aim of a takeover at year-end 1998. Settlement reached in arbitration proceedings against Metallgesellschaft STORA has reached a settlement in the arbitration proceedings carried out against Metallgesellschaft (MG). The proceedings related to payment responsibility for tax liabilities totaling DEM 103 million. The liabilities were attributable to the operations of Buderus and Dynamit Nobel, which were sold to MG in 1992. The settlement had no effect on Group earnings. Year-2000 compliance At September 30, 1998, the situation regarding the adaptation of systems within the STORA Group prior to year 2000, was that virtually the entire inventory, analysis and prioritization phase, had been completed. Measures to adapt systems are now in progress. These are being carried out in cooperation with STORA's suppliers. The first tests were conducted during the spring. The majority of STORA's production plants report that the planned end-dates will be met. A minority of the plants report some delays, due to the timing of planned maintenance work in the facilities during autumn 1999, but they confirm that the necessary adjustments will be made prior to year-end 1999. Approximately 50 percent of the compliance work within the Group is assessed to have been completed. Repayment of capital tax in Germany With the application of a new interpretation of tax legislation in Germany, by which it is permissible to use loans raised for the acquisition of subsidiaries to reduce the capital base for the calculation of capital tax, Stora Beteiligungen GmbH has the right to the repayment of capital taxes paid earlier. During 1997, DEM 6 million was repaid for the years 1996 and 1997. Demands for repayment for the years 1992 to 1995, totaling DEM 40 million, have now been approved. Since tax on shareholders' equity has been reported as an operating expense within STORA, the repayments have been reported as operating revenue under the heading "Items affecting comparability." Such items were reported during the second quarter. Divestment of Svenska Dagbladet STORA has accepted an offer to sell its holding in Svenska Dagbladet Holding AB to the Norwegian media group, Schibsted. The sale will result in a capital loss of SEK 27 million, which was charged against earnings under "Items affecting comparability" during the second quarter. Merger between STORA and Enso As announced earlier, the EU competition authorities are still considering the proposed merger of STORA and Enso. STORA ENSO shares are expected to be listed on the Helsinki and Stockholm Stock Exchanges as of December 30, 1998. Attached to this report is a brief description of the merger between STORA and Enso, plus preliminary accounts for the period January-September, 1998. Accounting principles The accounting principles shown in the 1997 annual report have been applied in the preparation of this interim report. Falun, November 10, 1998 STORA KOPPARBERGS BERGSLAGS AB Björn Hägglund President and Chief Executive Officer This interim report has not been subject to examination by the Company's auditors. CONSOLIDATED INCOME STATEMENT (SEK m) January - September Full year 1998 1997 1996 1997 Net sales 33,806 32,999 34,250 44,464 Operating expenses - 27,818 - 27,694 - 29,311 - 37,305 Items affecting comparability 149 - 150 41 - 262 Planned depreciation - 2,941 - 2,790 - 2,658 - 3,683 Operating profit 3,196 2,365 2,322 3,214 Net financial items - 854 - 612 - 400 - 832 Profit after net financial 2,342 1,753 1,922 2,382 items Taxes - 755 - 578 - 650 - 775 Minority share - 20 - 6 - 25 6 Net profit for the period 1,593 1,155 1,266 1,582 Earnings per share, SEK 4.95 3.60 3.95 4.90 ANALYSIS OF FINANCIAL NET (SEK m) January - Full September year 1998 1997 1996 1997 Net interest items - 854 - 636 - 649 - 856 Interest difference, 24 249 24 translation hedge - Net financial items - 854 - 612 - 400 - 832 NET SALES AND OPERATING PROFIT BY PRODUCT AREA (SEK m) Net sales Operating profit January - January - September September 1998 1997 1996 1998 1997 1996 Power 1,033 1,192 1,104 21 130 - 116 1) Forest 4,303 4,221 4,100 579 559 447 Sawn timber 1,228 1,265 1,029 - 54 44 - 101 Pulp 3,326 3,565 3,294 18 - 199 - 512 Eliminations - - - 2,021 1,953 1,712 - - - Base products 7,869 8,290 7,815 564 534 - 282 Printing papers 11,976 10,623 11,181 2,138 1,164 2,275 Technical office 1,446 1,532 1,406 - 99 35 - 195 papers Fine papers 6,105 5,890 5,377 428 520 25 Paper merchant 4,470 4,264 4,515 64 65 52 operations Eliminations - - - 1,180 1,273 1,419 - - - Graphic papers 22,817 21,036 21,060 2,531 1,784 2,157 Board and 6,847 7,104 6,897 468 390 721 packaging paper Financial - - - 122 322 132 operations Divested units - - 1,721 - - - 67 Items affecting - - - 149 - 150 41 comparability Amortization of - - - - - 265 - 268 surplus values 266 3 Other - - - - - 250 - 112 2) 3,727 3,431 3,243 372 Total 33,806 32,999 34,250 3,196 2,365 2,322 1)Operating profit includes capital gains in connection with the divestment of land in amounts of SEK 42 million, SEK 31 million and SEK 30 million, respectively. 2) Includes SEK 89 million provision for open positions in forward contracts on GBP (of which SEK 19 million during Q3) and a SEK 40 million increase in intra-Group profit reserve. 3)Includes reversal of internal inventory gain in an amount of SEK 150 million. CONSOLIDATED BALANCE SHEET (SEK m) Sep 30, 1998 Dec 31, 1997 Assets Fixed assets 49,540 46,487 Current assets 15,918 14,625 Interest-bearing assets 5,227 4,387 Total assets 70,685 65,499 Liabilities and shareholders' equity Shareholders' equity 30,582 29,788 Minority interests 456 266 Tax liabilities 8,116 7,507 Interest-bearing liabilities 23,475 19,944 Operating liabilities 8,056 7,994 Total liabilities and 70,685 65,499 shareholders' equity KEY RATIOS Jan - Oct 97- Full year Oct 96- Sep 1998 1997 Sep 98 1997 Sep 97 Profit for the period, 1,593 1,155 2,020 1,582 1,449 SEK m Return on shareholders' - - 7 5 5 equity, % Return on capital - - 9 7 7 employed, % Earnings per share, SEK 4.95 3.60 6.30 4.90 4.50 Sep 30, 1998 Dec 31, 1997 Sep 30, 1997 Operating capital, SEK m 57,402 53,118 51,751 Capital employed, SEK m 49,286 45,611 44,714 Net indebtedness, SEK m 18,248 15,557 15,388 Equity/assets ratio, % 43.9 45.9 46.1 Debt/equity ratio, multiple 0.59 0.52 0.52 Reported shareholders' equity 95 93 91 per share, SEK Adjusted shareholders' equity 134 132 132 1) per share , SEK 1)Including surplus values in forest and power assets CHANGE IN INTEREST-BEARING NET INDEBTEDNESS (SEK m) January - September 1998 Jan - Ongoing Transla-- Items affecting Total Sep operati tion comparability 1997 ons diff,. for. units PM2 Port Suzhou Total Hawkesb Operating profit 3,196 3,196 2,365 +/- Operating receivables/ 96 - 95 - 400 - 6 - 405 - 521 liabilities +/- Inventories - 449 - 146 - 231 - 826 - 24 + Depreciation 2,941 2,941 2,790 Cash flow before 5,784 - 241 - 400 - 237 4,906 4,610 investments - Investments - 2,845 - 950 - 3,795 - 4,713 +/- Other changes in 1) net fixed 27 - 566 - 1,660 - 2,199 - 181 assets Cash flow from 2,966 - 807 - 1,350 - 1,897 - 1,088 - 284 operations - Net financial - 854 - 854 - 612 items +/- Taxes - 280 134 - 146 - 476 +/- Minority - 21 13 205 197 - 34 interests +/- Change in shareholders' equity, excluding 406 406 - 363 net profit for the period Cash flow before owner transactions 1,811 - 254 - 1,350 - 1,692 - 1,485 - 1,769 - Dividend - 1,206 - 1,206 - 1,206 Change in interest- bearing net 605 - 254 - 1,350 - 1,692 - 2,691 - 2,975 indebtedness 1)Compared with June 30, the estimated additional purchase price has been reduced by SEK 155 million. QUARTERLY DATA Consolidated income statement (SEK m) 1 9 9 6 1 9 9 7 1 9 9 8 III IV I II III IV I II III Net sales 10,20910,91110,68211,34110,97611,465 11,500 11,067 11,239 Oper. -8,909-9,466- - - - 9,611 - 9,393 - 9,166 - 9,259 expenses 9,037 9,343 9,314 Items affecting - 30 - 78 - - 150 - - 112 - 149 - comparability Planned - 831 - 830 - 920 - 962 - 908 - 893 - 987 - 967 - 987 deprec. Operating 439 537 725 886 754 849 1,120 1,083 993 profit Net financial - 127 - 110 - 165 - 222 - 225 - 220 - 245 - 295 - 314 items Profit after net financial312 427 560 664 529 629 875 788 679 items Taxes - 111 - 120 - 185 - 219 - 174 - 197 - 282 - 255 - 218 Minority 5 - 13 - 6 - 6 - 8 -5 - 7 - 3 16 share Net profit for the 206 294 369 439 347 427 586 530 477 period Net sales by product area (SEK m) 1 9 9 6 1 9 9 7 1 9 9 8 III IV I II III IV I II III Power 280 465 545 334 313 509 453 300 280 Forest 1,203 1,328 1,508 1,518 1,195 1,545 1,576 1,528 1,199 Sawn timber 338 441 409 482 374 480 423 444 361 Pulp 1,064 946 1,033 1,248 1,284 1,222 1,196 1,136 994 Eliminations - 539 - 624 - 666 - 664 - 623 - 656 - 679 - 707 - 635 Base products2,346 2,556 2,829 2,918 2,543 3,100 2,969 2,701 2,199 Printing 3,799 4,038 3,196 3,618 3,809 3,812 3,699 3,833 4,444 papers Tech. off. 424 457 526 516 490 471 521 484 441 papers Fine papers 1,565 1,874 1,999 2,005 1,886 2,123 2,223 1,871 2,011 Paper 1,322 1,382 1,462 1,458 1,344 1,471 1,604 1,475 1,391 merchant oper. Eliminations - 375 - 456 - 442 - 428 - 403 - 539 - 449 - 371 - 360 Graphic 6,735 7,295 6,741 7,169 7,126 7,338 7,598 7,292 7,927 papers Board and pack- 2,172 1,974 2,233 2,497 2,374 2,181 2,327 2,364 2,156 aging paper Other - 1,044 - 914-1,121 -1,243-1,067 -1,154 - 1,394 -1,290 - 1,043 Adjusted net 10,209 10,91110,682 11,34110,976 11,465 11,500 11,067 11,239 sales Divested - - - - - units - - - - Total 10,209 10,91110,682 11,34110,976 11,465 11,500 11,067 11,239 Adjusted operating profit/loss by product area (SEK m) 1 9 9 6 1 9 9 7 1 9 9 8 III IV I II III IV I II III Power - 113 101 180 - 3 - 47 120 103 - 40 - 42 Forest 147 207 186 233 140 261 210 224 145 Sawn timber - 47 4 8 24 12 - 24 - 27 - 5 - 22 Pulp - 85 - 191 - 166 - 72 39 149 - 26 73 - 29 Base - 98 121 208 182 144 506 260 252 52 products Printing 747 455 223 396 545 449 579 561 998 papers Tech. off. - 117 - 60 8 16 11 12 8 - 25 - 82 papers Fine papers - 78 152 244 208 68 158 256 141 31 Paper 18 22 24 23 18 38 38 10 16 merchant oper. Graphic 570 569 499 643 642 657 881 687 963 papers Board and pack-aging 118 - 22 127 129 134 - 36 173 167 128 paper Financial 17 34 56 255 11 5 51 50 21 oper. Amortization of surplus - 88 - 88 - 89 - 89 - 87 - 88 - 88 - 87 - 91 values Other - 50 1 - 76 - 84 - 90 - 83 - 157 - 135 - 80 Adjusted operating 469 615 725 1,036 754 961 1,120 934 993 profit Oper. 4,6 5,6 6,8 9,1 6,9 8,4 9,7 8,4 8,8 margin, % Divested - - - - - - - - - units Items affecting - 30 - 78 - - 150 - - 112 - 149 - comparabilit y Reported oper-ating 439 537 725 886 754 849 1,120 1,083 993 profit Net financial items: Net interest - 208 - 175 - 189 - 222 - 225 - 220 - 245 - 295 - 314 items Interest difference, 81 65 24 - - - - - - translation hedge Net - 127 - 110 - 165 - 222 - 225 - 220 - 245 - 295 - 314 financial items Reported profit after 312 427 560 664 529 629 875 788 679 net fin. items Deliveries by product area (000s of tonnes) 1 9 9 7 1 9 9 8 I II III IV I II III Newsprint 376 361 416 398 380 366 422 SC paper 98 111 120 113 101 121 158 LWC paper 188 224 238 245 209 221 225 Technical office 43 39 38 37 41 39 39 papers Fine papers 260 270 265 270 276 251 241 Total graphic papers 965 1,005 1,077 1,063 1,007 998 1,085 Board 227 262 230 196 206 231 204 Packaging paper 141 143 145 151 153 139 114 Other grades 4 3 4 4 6 14 16 Total board and 372 408 379 351 365 384 334 packaging paper Total paper and board 1,337 1,413 1,456 1,414 1,372 1,382 1,419 Pulp 307 342 316 299 321 290 271 Sawn timber (000 m³) 187 207 155 221 206 213 169 DISTRIBUTION OF SHARES Series A Series B Total Unrestric 261,797,100 59,706,625 321,503,725 ted STORA ENSO, pro forma On June 2, 1998, the respective Boards of Directors of Enso and STORA approved the merger agreement between the two companies. On completion of the merger, and in terms of capacity, STORA ENSO will be the world's largest forest products group, with an annual production capacity of 13.1 million tonnes of paper and board and 2.8 million cubic meters of sawn timber. STORA ENSO will hold a leading position in Europe, as well as globally, in many of its core product areas: printing papers, fine papers and packaging board. As Europe's largest sawn timber supplier, STORA ENSO will be a major global player in this business segment. The new Group's main market will be Europe but the company will also be strongly positioned for continued global expansion. STORA ENSO'S production will be based on the processing of wood fiber. The new Group will produce paper and board from both primary and recycled fiber. It will own 2.6 million hectares of forest land, of which 2.1 million is productive. STORA ENSO'S annual consumption of waste paper is estimated at about 1.8 million tonnes. STORA ENSO'S own power plants and holdings in other power companies assure the new Group of substantial energy resources. Based on 1997 figures, the Group is 90-percent self-sufficient in terms of electric power. STORA ENSO'S business strategy, financial targets and dividend policy STORA ENSO will be a leading forest products Group with a strong international presence. The Group's aims are to maximize shareholder value, by supplying high-quality, cost-competitive products to its customers, and to pursue profitable growth opportunities within core business areas from a sound financial base. The principal elements of the business strategy will be: * product and customer focus * productivity and cost competitiveness * profitable growth. STORA ENSO'S objective is to be the most attractive listed forest products company for investors and to create returns that exceed the full cost of capital and to generate added value for its shareholders. STORA ENSO'S internal profitability target is currently an average return on capital employed (ROCE) of 13 percent during a business cycle. The emphasis will be placed on the efficient utilization of capital. The 13-percent return requirement also applies to new investments and represents the minimal acceptable return. In the present interest-rate environment, STORA ENSO'S objective is that the debt/equity ratio should be less than a multiple of 1.0. More than 20 percent of the capital employed by STORA ENSO will consist of power production plants and forest land, which have a lower business risk and substantial hidden value. This has been taken into account when setting the Group's debt/equity target. In accordance with its dividend policy, STORA ENSO will strive to pay stable dividends corresponding to an aggregate of approximately one third of total net profit during a full business cycle. STORA ENSO'S shares will be listed on the Helsinki and Stockholm stock exchanges. STORA ENSO'S consolidated financial statements are prepared in accordance with the accounting standards recommended by the International Accounting Standards Committee (IASC). The following tables include the preliminary unaudited consolidated financial statements of STORA ENSO. The accounts have been prepared in accordance with the pooling-of-interests method. Some of the figures for STORA ENSO presented in the Offer Prospectus published on July 13, have since been updated. During 1998, STORA ENSO'S functional currency will be the Finnish mark (FIM). Thereafter, the new company will report in Euro. To facilitate comparison, the following tables are thus shown in both FIM and SEK (rounding-off differences can occur) . STORA ENSO - PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS (unaudited) FIM million SEK million INCOME STATEMENT Jan-Sep Jan-Sep Jan-Dec Jan-Sep 98 Jan-Sep 97 Jan-Dec 97 98 97 97 Net sales 46,848 43,394 59,446 68,382 64,240 87,434 Expenses and other operating income - 29,257- 28,547- 38,871 - 42,706 - 42,260 - 57,172 Personnel costs - 7,913 - 7,554 - 10,330 - 11,550 - 11,183 - 15,193 Depreciation - 3,919 - 3,548 - 4,933 - 5,720 - 5,252 - 7,256 Share in income of associated 69 49 77 101 73 113 companies Operating profit 5,828 3,794 5,389 8,507 5,617 7,926 Financial net - 1,599 - 1,146 - 1,619 - 2,334 - 1,697 - 2,381 Profit after 4,229 2,648 3,770 6,173 3,921 5,545 financial items Taxes - 1,327 - 849 - 1,209 - 1,937 - 1,257 - 1,778 Minority interests - 25 - 56 - 85 - 36 - 82 - 125 Net profit 2,877 1,744 2,477 4,200 2,582 3,643 BALANCE SHEET Sep 30, Sep 30, Dec 31, Sep 30, 98 Sep 30, 97 Dec 31, 97 98 97 97 Assets Fixed assets and other non-current 71,222 70,403 70,497 109,539 101,066 102,721 assets Current assets 22,196 22,461 21,897 34,137 32,245 31,906 Total assets 93,418 92,864 92,394 143,676 133,311 134,627 Shareholders' equity and liabilities Shareholders' 34,277 33,149 33,783 52,718 47,586 49,225 equity Minority interests 626 832 832 963 1,195 1,212 Interest-bearing 39,748 40,806 39,265 61,133 58,579 57,213 liabilities Other liabilities 18,767 18,077 18,514 28,862 25,951 26,977 Total shareholders' equity and 93,418 92,864 92,394 143,676 133,311 134,627 liabilities KEY RATIOS Earnings/share, 3.70 2.24 3.18 5.40 3.32 4.68 FIM/SEK Operating margin, % 12.4 8.7 9.1 12.4 8.7 9.1 ROCE, % 10.9 7.4 7.8 10.9 7.4 7.8 Net interest- 36,704 37,463 36,505 56,450 53,780 53,191 bearing liabilities Capital employed 71,607 71,444 71,120 110,131 102,561 103,628 Capital employed, 71,363 68,819 68,657 104,166 101,879 100,981 average Debt/equity ratio, 1.05 1.10 1.06 1.05 1.10 1.06 multiple Investments (excl. 3,905 5,012 6,740 5,700 7,420 9,913 acquisitions) Number of employees 40,579 39,781 40,228 40,579 39,781 40,228 NET SALES OPERATING PROFIT (FIM million) Jan-Sep Jan-Sep Jan-Dec Jan-Sep 98 Jan-Sep 97 Jan-Dec 97 98 97 97 Power 1,065 1,162 1,651 492 484 732 Forest 6,785 6,440 8,837 474 481 662 Sawn timber 3,095 3,084 4,294 34 254 304 Pulp 3,990 4,229 5,701 217 - 66 150 Newsprint 7,613 6,705 9,216 1,353 758 1,068 Magazine paper 7,688 6,063 8,513 1,161 315 475 Fine papers 9,580 8,188 11,452 941 582 847 Board and 10,513 10,631 14,129 1,137 1,106 1,347 packaging paper Specialty papers 1,956 1,840 2,477 30 72 99 Paper merchants 3,725 3,493 4,760 16 23 32 Financial - - - 84 218 222 operations Divested units - 79 79 - - 3 - 3 Items aff. - - - 102 - 132 - 233 comparability Other - 9,162 - 8,521 -11,664 - 214 - 297 - 310 Total 46,848 43,394 59,446 5,828 3,794 5,389 NET SALES OPERATING PROFIT (SEK million) Jan-Sep Jan-Sep Jan-Dec Jan-Sep 98 Jan-Sep 97 Jan-Dec 97 98 97 97 Power 1,555 1,721 2,429 718 716 1,076 Forest 9,904 9,534 12,998 692 711 973 Sawn timber 4,518 4,565 6,316 50 377 447 Pulp 5,824 6,261 8,385 317 - 98 221 Newsprint 11,112 9,927 13,556 1,975 1,123 1,570 Magazine paper 11,222 8,976 12,522 1,695 467 698 Fine papers 13,984 12,122 16,842 1,374 862 1,245 Board and 15,345 15,737 20,781 1,660 1,638 1,981 packaging paper Specialty papers 2,855 2,724 3,643 44 107 145 Paper merchants 5,437 5,171 7,001 23 34 47 Financial - - - 123 323 327 operations Divested units - 117 116 - - 4 - 4 Items aff. - - - 149 - 195 - 343 comparability Other -13,373 -12,615 -17,156 - 312 - 439 - 457 Total 68,382 64,240 87,434 8,507 5,617 7,926 QUARTERLY DATA 1 9 9 7 1 9 9 8 I II III IV I II III Net sales (FIM million) Power 506 334 322 489 454 327 285 Forest 2,282 2,159 1,999 2,397 2,405 2,256 2,124 Sawn timber 965 1,179 940 1,210 995 1,092 1,008 Pulp 1,239 1,486 1,504 1,472 1,417 1,371 1,202 Newsprint 2,031 2,187 2,488 2,511 2,476 2,486 2,651 Magazine paper 1,639 2,113 2,312 2,450 2,392 2,557 2,739 Fine papers 2,705 2,675 2,809 3,263 3,453 3,099 3,028 Board and 3,386 3,681 3,563 3,499 3,619 3,637 3,257 packaging paper Specialty papers 582 641 617 637 676 691 589 Paper merchants 1,192 1,176 1,125 1,267 1,351 1,240 1,133 Financial - - - - - - - operations Divested units 58 21 - - - - - Items aff. - - - - - - - comparability Other - 2,959 - 2,778 - 2,784 - 3,143 - 3,225 - 3,009 - 2,928 Total 13,626 14,872 14,896 16,052 16,013 15,746 15,089 Operating profit (FIM million) Power 260 135 89 248 222 156 114 Forest 175 152 153 181 171 163 140 Sawn timber 63 118 73 49 - 14 15 33 Pulp - 118 - 39 91 216 54 88 75 Newsprint 210 164 384 309 375 402 576 Magazine paper 36 117 162 160 366 289 506 Fine papers 229 213 140 265 439 327 175 Board and 347 342 417 241 418 355 364 packaging paper Specialty papers 24 30 18 27 42 16 - 28 Paper merchants 12 6 5 9 19 - 4 1 Financial 38 171 9 5 35 35 14 operations Divested units 9 0 - 12 - - - - Items aff. - - 132 - - 101 - 103 - 1 comparability Other - 58 - 111 - 128 - 14 - 95 - 66 - 52 Total 1,227 1,167 1,401 1,595 2,032 1,879 1,918 1 9 9 7 1 9 9 8 I II III IV I II III Net sales (SEK million) Power 755 499 466 708 660 467 428 Forest 3,405 3,232 2,898 3,464 3,498 3,229 3,176 Sawn timber 1,440 1,762 1,363 1,751 1,447 1,566 1,505 Pulp 1,849 2,222 2,190 2,124 2,061 1,964 1,799 Newsprint 3,030 3,272 3,625 3,629 3,601 3,562 3,949 Magazine paper 2,446 3,160 3,371 3,545 3,479 3,665 4,078 Fine papers 4,035 4,002 4,085 4,721 5,023 4,435 4,526 Board and 5,052 5,508 5,178 5,044 5,264 5,210 4,871 packaging paper Specialty papers 868 959 897 918 983 990 882 Paper merchants 1,779 1,759 1,634 1,830 1,965 1,776 1,696 Financial - - - - - - - operations Divested units 87 31 - - - - - Items aff. - - - - - - - comparability Other - 4,416 - 4,157 - 4,043 - 4,541 - 4,691 - 4,309 - 4,374 Total 20,331 22,248 21,662 23,194 23,291 22,554 22,537 Operating profit (SEK million) Power 388 203 126 360 323 222 173 Forest 261 228 222 262 249 234 209 Sawn timber 94 177 106 69 - 20 22 48 Pulp - 176 - 59 137 318 79 126 112 Newsprint 313 246 563 447 545 577 853 Magazine paper 54 175 238 232 532 413 749 Fine papers 342 319 201 384 639 467 268 Board and 518 512 608 344 608 508 543 packaging paper Specialty papers 36 45 25 39 61 23 - 41 Paper merchants 18 9 7 13 28 - 7 2 Financial 57 255 11 5 51 50 22 operations Divested units 13 0 - 18 - - - - Items aff. - - 197 2 - 147 - 149 - comparability Other - 87 - 166 - 187 - 18 - 139 - 95 - 79 Total 1,831 1,745 2,041 2,309 2,955 2,689 2,863 1 9 9 7 1 9 9 8 I II III IV I II III Deliveries, 000 tonnes Packaging board 780 831 788 770 774 788 719 Magazine paper 458 551 592 596 553 588 637 Newsprint 696 732 813 781 767 756 815 Fine papers 584 614 640 705 705 689 653 Specialty papers 85 91 92 93 103 104 99 Total paper and board 2,603 2,819 2,925 2,945 2,902 2,925 2,923 3 Sawn timber, 000 m 587 685 509 739 622 688 580 Market pulp, 000 tonnes 542 620 558 534 567 525 554 Corrugated board, million m² 78 88 88 89 86 90 81 ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1998/11/10/19981110BIT00080/bit0001.doc http://www.bit.se/bitonline/1998/11/10/19981110BIT00080/bit0002.pdf