Interim Report, Acquisitions

INFORMATION SVENSKA CELLULOSA AKTIEBOLAGET SCA (publ) Corporate Communications Box 7827, SE-103 97 STOCKHOLM, Sweden Tel 0046 8 788 51 00, Fax 0046 8 678 81 30 www.sca.se Press releases from SCA - 28 October 1999 * Interim Report 1 January - 30 September 1999 (18 pages) * Press release "SCA acquires hygiene products and packaging companies" (2 pages) SVENSKA CELLULOSA AKTIEBOLAGET SCA (publ) Corporate Communications INFORMATION SVENSKA CELLULOSA AKTIEBOLAGET SCA (publ) Corporate Communications Box 7827, SE-103 97 STOCKHOLM, Sweden Tel 0046 8-788 51 00. Fax 0046 8-678 81 30 www.sca.se Interim Report 1 January - 30 September 1999 99:3 99:2 99:1 9909 9809 Net sales, SEK M 16,603 16,389 16,242 49,234 45,355 Earnings after 1,395 1,287 1,128 3,810 4,052 financial items, SEK M Excluding 1,395 1,287 1,128 3,810 3,652 nonrecurring items Earnings per share, 4.44 4.25 3.76 12.45 13.39 SEK Cash flow from current operations 8.68 8.57 4.25 21.50 13.95 per share, SEK * Continued expansion within Hygiene Products and Packaging through additional acquisitions in Great Britain and France during the third quarter. * Fine-paper business was transferred to Modo Paper AB on 1 October. The intention is to list Modo Paper on the stock exchange, if possible during 2000. * Improvement in earnings in all business areas in the third quarter, compared with the second quarter. Group earnings after financial items were 8% higher compared with the second quarter. * Cash flow from operations amounted to SEK 4,276 M, which was in line with the Group's cash-flow target for the period. * A new issue of shares amounting to SEK 4.6 billion was approved at a General Meeting of shareholders in September. The issue of new shares, which ended on 22 October was fully subscribed. SALES AND EARNINGS Consolidated net sales amounted to SEK 49,234 M (45,355), an increase of 9% compared with sales in the corresponding 1998 period. The largest increase was in Packaging, due mainly to acquisitions. Currency movements affected Group net sales positively in the amount of 1%. Net sales in the third quarter were 1% higher than in the second quarter of the year. Group operating profit amounted to SEK 4,709 M (4,968). Adjusted for nonrecurring items amounting to SEK 400 M in 1998, operating profit for the period increased by 3%. Packaging reported higher earnings, while earnings in the other business areas were marginally lower. Operating profit in the third quarter was 11% higher than in the second quarter. Operating profit improved in all business areas. Financial items amounted to an expense of SEK 899 M (916). The effect of a higher net debt attributable to acquisitions was more than offset by lower interest rates. Financial expenses in the third quarter amounted to SEK 315 M, compared with financial expenses of SEK 258 M in the second quarter. The change was due to higher net debt as a result of acquisitions in the third quarter and to the fact that certain dividends were received in the second quarter. Group earnings after financial items amounted to SEK 3,810 M (4,052). Adjusted for nonrecurring items, this was equal to an increase of 4% compared with the year-earlier period. Earnings after financial items in the third quarter were 8% higher than in the second quarter. Net earnings after tax amounted to SEK 2,470 M (2,648). Earnings per share after full tax and full dilution amounted to SEK 12.45 (13.39). Calculated on a rolling 12-month basis, the return on shareholders' equity was 11% (13). The return on capital employed, calculated on the same basis and excluding nonrecurring items in 1998 of SEK 400 M, was 12% (13). CASH FLOW Operating cash surplus amounted to SEK 8,031 M (7,454), equal to 16% (16) of net sales. Operating cash flow amounted to SEK 5,912 M (4,384). Working capital increased by SEK 612 M (1,653) during the nine-month period. The amount of capital tied up in operations decreased by SEK 132 M during the third quarter. Current capital expenditures totaled SEK 1,441 M (1,267). Cash flow from current operations, that is before strategic capital expenditures and dividends, amounted to SEK 4,276 M (2,363), equal to SEK 21.50 (11.93) per share. Accordingly, calculated on an annual basis, SCA's cash flow is above the short-term target of SEK 5.5 billion, and well above the long-term target of SEK 3.8 billion. Acquisitions and strategic capital expenditures in machinery and plant amounted to SEK 9,943 M (3,085). Acquisitions amounting to SEK 7,750 M (1,929) included the purchase of packaging companies in Great Britain, Denmark and France, the purchase of a tissue company in Great Britain, and the acquisition of a minority interest in Metsä Tissue. Strategic capital expenditures in machinery and plant amounted to SEK 2,193 M (1,156), mainly in Hygiene Products but also in Packaging. 1 SEK M 9909 9809 Net sales 49,234 45,355 Operating cash surplus 8,031 7,454 % of net sales 16 16 Current capital expenditures, net -1,441 -1,267 % of net sales 3 3 Changes in working capital -612 -1,653 Other operating cash flow changes -66 -150 Operating cash flow 5,912 4,384 Income taxes paid, etc² -1,002 -1,177 Free cash flow 4,910 3,207 per share, SEK 24.69 16.19 Interest paid after taxes -634 -844 Cash flow from current operations 4,276 2,363 per share, SEK 21.50 11.93 Strategic capital investments, net -10,167 -1,663 Cash flow before dividend -5,891 700 ¹ Figures for 1998 adjusted to conform to SCA's new cash flow statement (see page 12). 2 Tax attributable to operating profit. FINANCING Net debt at 30 September 1999 amounted to SEK 27,853 M, which was SEK 6,483 M higher than at 1 January. The increase is the net of a cash flow of SEK 4,276 M from current operations, expenditures of SEK 10,167 M for strategic investments etc., dividends of SEK 1,304 M to the shareholders, and favorable effects of currency movements amounting to SEK 712 M. As a result of the strengthening of the Swedish krona, shareholders' equity decreased by approximately SEK 1,100 M since 31 December 1998 due to SCA's policy of hedging the Group's assets outside Sweden. This policy is based on the principle that the debt/equity ratio should not be affected by currency movements. The debt/equity ratio, which was 0.72 as of 31 December 1998, amounted to 0.94 (0.71) at the close of the period. The interest-coverage multiple was 5.2 (5.4). The debt/equity ratio including reported pension liability of approximately SEK 3.3 billion, was 1.05 (0.83). During the fourth quarter funds totaling about SEK 1.1 billion will be transferred to a newly formed Swedish pension foundation for ITP pensions. As of the fourth quarter, calculation of net debt and the debt/equity ratio will include the Group's remaining reported pension liabilities. HYGIENE PRODUCTS BUSINESS AREA Net sales amounted to SEK 20,052 M (19,213), an increase of 4%, of which 3% was attributable to acquisitions, compared with the year-earlier period. Operating profit amounted to SEK 1,801 M (1,821). Higher volumes and lower raw material costs did not have an impact on earnings due to declining prices for products and slightly higher production costs. As a result of continuing strong volume growth and some price increases, earnings in the third quarter were 8% higher than in the second quarter, despite higher raw material costs. Demand for tissue strengthened in the quarter. Combined with increases in raw material costs, this resulted in higher sales prices. Price competition is still severe in certain markets, however. Operating profit from consumer products, SEK 684 M (763), declined 10% for the period. This was due to lower sales prices and temporarily higher production and distribution costs as a result of restructuring programs, which were not fully offset by larger volumes and lower raw material costs. The growth in sales of SCA's feminine hygiene products was strong, notably in France where the Group's share of the market now exceeds 20%. The volume of private label baby diapers in Europe has increased sharply and SCA is now the largest company in this segment. SCA's market share of branded baby diapers in the Nordic region has increased markedly, while the trend in the panty-diaper segment has been strong. Operating profit from consumer products improved by 18% relative to the second quarter due to slightly higher prices and considerably larger volumes. As was the case in the second quarter, higher raw material costs had a negative impact on earnings in the third quarter. Operating profit from AFH and incontinence products amounted to SEK 1,117 M (1,058), an increase of 6%. Despite lower selling price, continuing good growth in volume and lower raw material and production costs resulted in an improvement in earnings. Earnings in the third quarter were marginally higher than in the second quarter. The strong growth in volume of incontinence products is continuing and the introduction of light incontinence products in Great Britain was well received. Restructuring programs in the tissue and diaper operations are proceeding according to plan and are expected to yield results in 2000 and 2001. SEK M 99:3 99:2 99:1 9909 9809 Net sales 6,764 6,679 6,609 20,052 19,213 Consumer products 3,894 3,774 3,775 11,443 11,232 AFH and incontinence 2,870 2,905 2,834 8,609 7,981 products 948 907 905 2,760 2,758 Operating surplus 449 406 424 1,279 1,388 Consumer products 499 501 481 1,481 1,370 AFH and incontinence 622 583 596 1,801 1,821 products 242 205 237 684 763 Operating profit 380 378 359 1,117 1,058 Consumer products AFH and incontinence 5.4* -2.4* 1.6* 5.0** 13.0** products 1.5* 2.9* 2.0* 8.2** 8.0** Volume growth, % Consumer products AFH and incontinence products *) Compared with the immediately preceding quarter. **) Compared with corresponding period previous year. PACKAGING BUSINESS AREA Net sales for the period amounted to SEK 14,271 M (11,203), an increase of 27%. The growth in volume of corrugated board amounted to 15%. The increases were attributable to acquisitions. Operating profit amounted to SEK 1,371 M (1,164), an improvement of 18%. Acquisitions of companies had a favorable impact on earnings, while lower prices for paper reduced earnings. As a result of the lower paper prices, earnings from the liner operations declined and were offset only to a minor degree by lower energy costs and larger volumes. However, as a result of the lower paper prices, earnings from corrugated board operations increased. Operating profit from packaging operations increased by 8%, compared with second-quarter results. The improvement was attributable to both liner and corrugated board business. Demand for corrugated board has been weak during the year. Trends in the various markets are fragmented, with decline in volume in Great Britain and Switzerland, largely unchanged conditions in France and Germany, and increases in volume in Sweden and Italy. The Spanish market for corrugated board continues to show very good growth. During the summer the volume situation improved and the seasonal decline was smaller than usual. The corrugated board field in September was characterized by price-increase announcements and increased order bookings. During the third quarter price increases of slightly more than 10% were announced for kraftliner, effective as of 1 October. These increases have now been implemented as planned and will have full impact during the fourth quarter. The market for kraftliner in Europe is still strong, due primarily to small volumes of imports from North America. The improvement in demand for corrugated board during the summer also resulted in increased demand for grades of paper based on recycled fiber, testliner and fluting. The price increases for these products were implemented more rapidly than expected. The price level is expected to be stable during the rest of the year. The full impact of the higher prices for paper will be felt in the fourth quarter. Corrugated board companies have announced additional price increases but there is a time lag in implementing them, with the result that they will not have an impact on earnings until the beginning of next year. SEK M 99:3 99:2 99:1 9909 9809 Net sales 4,862 4,664 4,745 14,271 11,203 Operating surplus 823 793 699 2,315 1,747 Operating profit 510 474 387 1,371 1,164 Deliveries m sq. m. Corrugated board 838 827 823 2,488 2,155 Production and deliveries, liner products, see table "Volumes" on page 16. GRAPHIC PAPER BUSINESS AREA Net sales amounted to SEK 13,826 M (13,943), a decrease of 1%. The change is a net of lower prices, which were offset by larger volumes and favorable effects of currency movements. Net sales decreased by 1%, compared with the second quarter, which was due to the fact that the larger volumes were offset by the negative effects of currency movements, while prices were relatively unchanged. Operating profit for the period amounted to SEK 1,363 M (1,382), of which wood-containing publication papers accounted for SEK 981 M (954). The improvement in earnings from wood-containing publication papers was due mainly to lower prices for wood combined with favorable effects of currency movements. The lower earnings in the third quarter, compared with second- quarter earnings, were due mainly to the fact that prices of chemical pulp have risen sharply. The market for newsprint is stable, while demand for SC and LWC paper has improved. Operating profit in the fine-paper and market pulp operations amounted to SEK 382 M (428). The decline was a net effect of weaker fine-paper operations and a certain improvement in market pulp business. The decline in fine-paper operations was due to the fact that lower selling prices did not fully compensate for lower raw material prices. The improvement in market pulp operations was due to the fact that lower wood prices and improved productivity, combined with the favorable effects of currency movements, compensated for lower selling prices. Operating profit from fine-paper and market pulp operations in the third quarter amounted to SEK 192 M, an improvement of 83% that was due largely to the market pulp operations, where the negative trend of prices has definitely been reversed, with the result that the recovery in earnings that could be discerned in the second quarter was further strengthened in the third quarter. SEK M 99:3 99:2 99:1 9909 9809 Net sales 4,615 4,642 4,569 13,826 13,943 Operating surplus 823 799 743 2,365 2,387 Wood-containing publication 484 524 508 1,516 1,476 papers 339 275 235 849 911 Fine papers, paper merchanting, 501 457 405 1,363 1,382 market pulp 309 352 320 981 954 Operating profit 192 105 85 382 428 Wood-containing publication papers Fine papers, paper merchanting, market pulp Production and deliveries, see table "Volumes" on page 16. FOREST AND TIMBER Operating profit for the period was 5% lower than in the year-earlier period. Earnings included capital gains of SEK 67 M (24). Sawmill operations reported lower earnings compared with results in 1998, due to lower prices for sawn goods and lower prices for wood chips, factors that were partially offset by lower indirect costs. Forestry operations reported improved operating profit, relative to the year-earlier period, due in part to the capital gains noted above, but mainly to lower operating costs. SEK M 99:3 99:2 99:1 9909 9809 Net sales 959 922 941 2,822 2,987 Operating surplus 202 179 188 569 612 Operating profit 175 152 161 488 516 SIGNIFICANT EVENTS Modo Paper AB was formed as planned on 1 October. SCA holds 50% of the shares in the new company and will be reporting the holding as an associated company, included in share in earnings as of 1 October. Net sales for the period of the portion of the fine-paper business that has been transferred to Modo Paper AB, the new company, amounted to SEK 7,795 M (7,893). Operating profit amounted to SEK 353 M (428). Operating profits in the first three quarters of the year amounted to SEK 108 M, SEK 121 M and SEK 124 M, respectively. The deconsolidation of the fine-paper operations will reduce SCA's capital employed by SEK 3.0 billion. Book value of SCA's shareholding in the newly formed company amounts to SEK 3.3 billion. The effect on SCA's net debt will be a reduction of SEK 3.0 billion. The number of employees in the SCA Group will decline by approximately 3,600. MoDo and SCA intend to list Modo Paper AB on the stock exchange as soon as conditions are deemed appropriate, if possible during 2000. Neither MoDo nor SCA intend to retain a shareholding in Modo Paper AB long term. To ensure a continuing high rate of growth in Hygiene Products and Packaging, SCA shareholders at a Special General Meeting in September approved a new issue of shares. The issue is the second largest in the history of the Stockholm Stock Exchange. The subscription period for the new issue expired 22 October. The issue was fully subscribed and yielded proceeds of SEK 4.6 billion. OTHER ITEMS As additional information in Appendix 1, to facilitate comparisons with competitors in the hygiene products and packaging sectors, which have applied 40-year amortization periods or the pooling method, operating profit and margins for the business areas are shown excluding amortization of goodwill. Preparations for the changeover to the new millennium are proceeding according to plan. More detailed information is available under the heading "Y2K" on SCA's website (www.sca.se). PERSONNEL The number of employees at the end of the third quarter was 35,903 (32,147). The number of employees at 31 December 1998 was 32,211. The increase was attributable to acquisitions of companies. MARKET OUTLOOK The European economy is improving gradually and forecast of growth in 2000 has been revised upward. The growth rate in North America is expected to decline slightly, but to be on a good level also next year. The strengthening of the economy has resulted in greater demand for the Group's products at the same time that opportunities for price increases have improved. However, a continuing strong market for raw materials is expected to result in cost increases in the fourth quarter. SCA expects to implement gradual increases in selling prices in its hygiene and packaging operations, but they will not have full impact until next year. SHARE DISTRIBUTION 30 September 1999 Series A Series B Total Registered number of shares 62,139,516 135,260,419197,399,93 5 Unconverted debenture loans - 1,289,973 1,289,973 Outstanding warrants - 1,643,544 1,643,544 Total after full conversion 62,139,516 138,193,936200,333,45 2 Calculated in accordance with the recommendations of the Swedish Financial Analysts Association, the effects of the outstanding convertible debenture and warrant programs amount to a maximum dilution of 0.8%, which is taken into account when calculating earnings per share for the period. Stockholm, 28 October 1999 SVENSKA CELLULOSA AKTIEBOLAGET SCA (publ) Sverker Martin-Löf President and CEO AUDITORS' STATEMENT We have reviewed this interim report in accordance with the recommendations issued by the Swedish Institute of Authorized Public Accountants (FAR). A review is considerably limited in scope compared with an audit. Nothing has come to our attention that causes us to believe that the interim report does not comply with the requirements of the Securities and Clearing Operations Act and the Annual Accounts Act. Stockholm, 28 October 1999 Öhrlings PricewaterhouseCoopers Bertil Edlund Authorized Public Accountant Year-end Report on operations for the full year 1999 will be released 31 January 2000. Copies of the Interim Report are available at SCA U.K. Holdings Limited, SCA Packaging House, 543, New Hythe Lane, Aylesford, Kent ME20 7PE, attention, Tony Staples, telephone 0044 1622 883 025. Statement of Earnings 1 January - 30 September 1999 1998 SEK M EUR M SEK M ECU M Net sales 49,234 5,559 45,355 5,174 Operating expenses - -4,662 - -4,279 41,291 37,511 Operating surplus 7,943 897 7,844 895 Depreciation according to plan -3,255 -367 -2,970 -339 Share in earnings of associated 21 2 94 11 companies Operating profit 4,709 532 4,968 567 Financial items -899 -102 -916 -104 Earnings after financial items 3,810 430 4,052 463 Income taxes -1,294 -146 -1,324 -151 Minority interest -46 -5 -80 -9 Net earnings after tax 2,470 279 2,648 303 Operating margin 10 % 11 % Return on shareholders' equity 11 % 13 % Return on capital employed 12 % 14 % Business Areas Net sales 1 January - 30 September SEK M 1999 1998 Hygiene Products 20,052 19,213 Consumer products 11,443 11,232 AFH and incontinence products 8,609 7,981 Packaging 14,271 11,203 Graphic Paper 13,826 13,943 Wood-containing publication papers 5,585 5,499 Fine papers, paper merchanting, market 8,241 8,444 pulp Forest and Timber 2,822 2,987 Other operations 1,302 1,282 Divested units - 141 Intra-Group deliveries -3,039 -3,414 Total net sales 49,234 45,355 Earnings 1 January - 30 September SEK M 1999 1998 Hygiene Products 1,801 1,821 Consumer products 684 763 AFH and incontinence products 1,117 1,058 Packaging 1,371 1,164 Graphic Paper 1,363 1,382 Wood-containing publication papers 981 954 Fine papers, paper merchanting, market pulp 382 428 Forest and Timber 488 516 Other operations -75 315 Divested units - 4 Goodwill amortization, common -239 -234 Total operating profit 4,709 4,968 Financial items -899 -916 Earnings after financial items 3,810 4,052 of which nonrecurring items - 400 Earnings after financial items excluding nonrecurring items 3,810 3,652 Balance Sheet 1999-09-30 1998-12-31 SEK M EUR M SEK M ECU M Assets Long-term assets* 60,899 6,998 55,147 5,823 Receivables and 20,750 2,384 18,790 1,984 inventories Financial receivables 2,801 322 2,617 276 and investments Cash and bank balances 2,419 278 1,819 192 Total assets 86,869 9,982 78,373 8,275 Equity, provisions and liabilities Shareholders' equity 28,402 3,264 28,404 2,999 Minority interests 1,276 147 1,386 146 Provisions 10,977 1,261 10,906 1,152 Interest-bearing debt 33,073 3,800 25,806 2,725 Operating liabilities and other noninterest-bearing debt 13,141 1,510 11,871 1,253 Total equity, 86,869 9,982 78,373 8,275 provisions and liabilities Debt/equity 0.94 times 0.72 times Equity/assets 34 % 38 % * of which goodwill amounting to SEK 9,819 M (6,134). Cash Flow Statement 1 January - 30 September 3 SEK M 1999 1998 Operating cash surplus ¹ 8,031 7,454 Changes in working capital -612 -1,653 Current capital expenditures - -1,267 1,441 Other operating -66 -150 cash flow changes Operating cash flow 5,912 4,384 Financial items -899 -916 Income taxes paid -696 -875 Other -41 -230 Cash flow from 4,276 2,363 current operations Strategic capital - -1,156 expenditures 2,193 Strategic structural -254 - 2 expenditures Acquisitions - -1,929 7,750 Divestments 30 1,422 Cash flow before dividend - 700 5,891 Dividend - -1,145 1,304 Net cash flow * - -445 7,195 Net debt, 1 January - -19,018 21,37 0 Net cash flow - -445 7,195 Currency effects 712 -746 Net debt, 30 September - -20,209 27,85 3 Debt payment capacity 35 % 39 % * Additional information in accordance with Swedish Financial Accounting Standards Council's recommendation regarding reporting of cash flow: Net cash flow - -445 7,195 Change in interest- 7,916 284 bearing debt Change in cash 721 -161 and bank balances Cash and bank balances 1,819 1,582 at beginning of period Change in cash and bank balances 721 -161 Currency effects on -121 -19 cash and bank balances Cash and bank balances 2,419 1,402 at end of period ¹ Operating surplus adjusted for significant noncash items in accordance with the principles being applied by SCA effective at midyear 1999. 2 Restructuring measures taken to improve SCA's competitive position. 3 Figures for 1998 adjusted in accordance with SCA's new cash flow statement. Quarterly Data Group 1999 1998 SEK M III II I IV III II I Net sales 16,60316,38916,242 15,91815,234 14,857 15,264 Operating 2,783 2,627 2,533 2,476 2,506 2,427 2,911 surplus Depreciation -1,078-1,093-1,084 -1,043-1,006 -966 -998 according to plan Share in earnings of 5 11 5 27 32 41 21 associated companies Operating 1,710 1,545 1,454 1,460 1,532 1,502 1,934 profit Financial -315 -258 -326 -343 -338 -298 -280 items Earnings 1,395 1,287 1,128 1,117 1,194 1,204 1,654 after financial items of which - - - - - - 400 nonrecurring items Income taxes -497 -425 -372 -356 -426 -376 -522 Minority -15 -21 -10 -30 -19 -29 -32 interest Net earnings 883 841 746 731 749 799 1,100 after tax Earnings per 4.44 4.25 3.76 3.68 3.77 4.05 5.57 share, SEK Quarterly Data Business Areas - Net sales 1999 1998 SEK M III II I IV III II I Hygiene Products 6,764 6,679 6,609 6,951 6,490 6,395 6,328 Consumer products 3,894 3,774 3,775 4,081 3,820 3,714 3,698 AFH and 2,870 2,905 2,834 2,870 2,670 2,681 2,630 incontinence products Packaging 4,862 4,664 4,745 3,832 3,725 3,650 3,828 Graphic Paper 4,615 4,642 4,569 4,959 4,779 4,491 4,673 Wood-containing 1,884 1,894 1,807 1,979 1,900 1,761 1,838 publication papers Fine papers, paper merchanting, 2,731 2,748 2,762 2,980 2,879 2,730 2,835 market pulp Forest and 959 922 941 998 901 1,033 1,053 Timber Other 440 487 375 365 467 404 411 operations Divested units - - - 3 1 -1 141 Intra-Group -1,037-1,005 -997-1,190-1,129-1,115-1,170 deliveries Total net sales 16,60316,38916,24215,91815,23414,85715,264 Business Areas - Operating Surplus 1999 1998 SEK M III II I IV III II I Hygiene Products 948 907 905 925 919 887 952 Consumer products 449 406 424 431 457 460 471 AFH and incontinence 499 501 481 494 462 427 481 products Packaging 823 793 699 523 580 592 575 Graphic Paper 823 799 743 785 835 823 729 Wood-containing 484 524 508 533 540 490 446 publication papers Fine papers, paper merchanting, 339 275 235 252 295 333 283 market pulp Forest and Timber 202 179 188 236 171 221 220 Other -13 -51 -2 7 1 -96 435 Total operating 2,783 2,6272,5332,4762,5062,4272,911 surplus Quarterly Data Business Areas - Operating profit 1999 1998 SEK M III II I IV III II I Hygiene Products 622 583 596 583 600 605 616 Consumer products 242 205 237 244 234 276 253 AFH and incontinence 380 378 359 339 366 329 363 products Packaging 510 474 387 316 396 395 373 Graphic Paper 501 457 405 469 492 425 465 Wood-containing 309 352 320 380 358 317 279 publication papers Fine papers, paper merchanting, 192 105 85 89 134 108 186 market pulp Forest and Timber 175 152 161 206 140 188 188 Other operations -19 -40 -16 -30 -16 -34 365 Divested units - - - -1 -1 - 5 Goodwill amortization, -79 -81 -79 -83 -79 -77 -78 common Total operating profit 1,710 1,545 1,4541,4601,532 1,5021,934 of which nonrecurring - - - - - - 400 items Operating profit excluding nonrecurring items 1,710 1,545 1,4541,4601,532 1,5021,534 Business Areas - Operating surplus margins 1999 1998 % III II I IV III II I Hygiene Products 14 14 14 13 14 14 15 Consumer products 12 11 11 11 12 12 13 AFH and incontinence 17 17 17 17 17 16 18 products Packaging 17 17 15 14 16 16 15 Graphic Paper 18 17 16 16 17 18 16 Wood-containing 26 28 28 27 28 28 24 publication papers Fine papers, paper merchanting, 12 10 8 8 10 12 10 market pulp Forest and Timber 21 19 20 24 19 21 21 Quarterly Data Business Areas - Operating margins 1999 1998 % III II I IV III II I Hygiene Products 9 9 9 8 9 9 10 Consumer products 6 5 6 6 6 7 7 AFH and incontinence 13 13 13 12 14 11 14 products Packaging 10 10 8 8 11 10 10 Graphic Paper 11 10 9 9 10 9 10 Wood-containing 17 19 18 19 19 18 15 publication papers Fine papers, paper merchanting, 7 4 3 3 5 4 7 market pulp Forest and Timber 18 16 17 21 16 18 18 Group - margins Operating surplus margin 16.8 16.0 15.6 15.6 16.5 16.3 19.1 Operating margin 10.3 9.4 9.0 9.2 10.1 10.1 12.7 Financial net margin -1.9 -1.6 -2.0 -2.2 -2.2 -2.0 -1.8 Profit margin 8.4 7.8 7.0 7.0 7.9 8.1 10.9 Volumes Thousand metric tons 99:3 99:2 99:1 98:4 98:3 98:2 98:1 Liner products Production 535 562 550 497 562 555 554 Deliveries 559 582 557 516 518 543 586 Wood-containing publication papers Production 307 295 302 295 301 303 301 Deliveries 304 295 290 311 300 300 288 Fine papers Production 193 197 186 179 190 183 184 Deliveries 197 203 183 182 193 164 181 Five-year summary Full year 1998 1997 1996 1995 1994 Earnings after financial 5,169 4,457 3,573 5,731 1,060 items, SEK M Earnings per share after 17.07 13.98 10.71 17.55 2.94 tax, SEK Debt/equity ratio, times 0.72 0.73 0.67 0.69 0.52 Return on capital employed, 14 12 11 16 6 % Return on shareholders' 13 12 10 17 3 equity, % APPENDIX 1, page 1 (2) ADDITIONAL INFORMATION - BUSINESS AREAS Business Areas - Earnings excluding goodwill amortization 1 January - 30 September SEK M 1999 1998 Hygiene Products 1,866 1,870 Consumer products 728 795 AFH and incontinence products 1,138 1,075 Packaging 1,479 1,183 Graphic Paper 1,363 1,383 Wood-containing publication 981 954 papers Fine papers, paper merchanting, 382 429 market pulp Forest and Timber 488 516 Other operations -75 315 Divested units - 4 Goodwill amortization* -412 -303 Total operating profit 4,709 4,968 Financial items -899 -916 Earnings after financial items 3,810 4,052 of which nonrecurring items - 400 Earnings after financial items excluding nonrecurring items 3,810 3,652 * Goodwill amortization: Hygiene Products 65 49 Packaging 108 19 Fine papers, paper merchanting, 0 1 market pulp Common** 239 234 Group 412 303 ** Goodwill reported on a Groupwide basis pertains to surplus values in companies acquired in 1990, with operations that were integrated in SCA's various business areas. Goodwill attributable to later acquisitions has been charged to the business area that made the purchase. APPENDIX 1, page 2 (2) ADDITIONAL INFORMATION - BUSINESS AREAS Business Areas - Operating profit excluding goodwill amortization 1999 1998 SEK M III II I IV III II I Hygiene Products 649 602 615 602 620 619 631 Consumer products 260 218 250 257 247 285 263 AFH and 389 384 365 345 373 334 368 incontinence products Packaging 550 505 424 327 401 405 377 Graphic Paper 500 458 405 469 492 426 465 Wood-containing 309 352 320 380 358 317 279 publication papers Fine papers, paper merchanting, 191 106 85 89 134 109 186 market pulp Forest and 175 152 161 206 140 188 188 Timber Other operations -19 -40 -16 -30 -16 -34 365 Divested units - - - -1 -1 - 5 Goodwill -145 -132 -135 -113 -104 -102 -97 amortization* Total 1.710 1.545 1.454 1.460 1.532 1.502 1.934 operating profit of which - - - - - - 400 nonrecurring items Operating profit 1.710 1.545 1.454 1.460 1.532 1.502 1.534 excluding nonrecurring items * Goodwill amortization: Hygiene 27 19 19 19 20 14 15 Products Packaging 40 31 37 11 5 10 4 Fine papers, -1 1 0 0 0 1 0 paper merchanting, market pulp Common 79 81 79 83 79 77 78 Group 145 132 135 113 104 102 97 Business Areas - Operating margins excluding goodwill amortization 1999 1998 % III II I IV III II I Hygiene Products 10 9 9 9 10 10 10 Consumer products 7 6 7 6 6 8 7 AFH and incontinence products 14 13 13 12 14 12 14 Packaging 11 11 9 9 11 11 10 Graphic Paper 11 10 9 9 10 9 10 Wood-containing publication 16 19 18 19 19 18 15 papers Fine papers, paper merchanting, 7 4 3 3 5 4 7 market pulp Forest and Timber 18 16 17 21 16 18 18 Operating margin excl goodwill 11.210.2 9.8 9.9 10.7 10.8 13.3 amortization INFORMATION SVENSKA CELLULOSA AKTIEBOLAGET SCA (publ) [REMOVED GRAPHIC Corporate Communications Box 7827, SE-103 97 STOCKHOLM, Sweden Tel +46 8-788 51 00, Fax +46 8-678 81 30 www.sca.se SCA acquires hygiene products and packaging companies SCA has acquired two smaller companies - one in the tissue segment and the second in corrugated board packaging. The projects are part of the ongoing acquisition being implemented for the purpose of increasing the Group's market shares in the hygiene products and packaging sectors in Europe. Acquisition of Panosa The first acquisition involves all shares in Papelera Noya S.A. (Panosa), a Spanish tissue manufacturing company. Panosa is a privately owned company with operations concentrated in the private-label sector. It has a market share of about 12% and ranks as Spain's fourth largest manufacturer of tissue products. The acquisition will nearly double SCA's share of the Spanish tissue market to 26% and establish the Group as the market leader in Spain. After the acquisition, SCA's total sales of hygiene products (including incontinence products and feminine hygiene products) in the Spanish market will amount to approximately SEK 1.3 billion annually. The Spanish market is showing highly favorable market growth in the area (4-5%), due among other factors to the lower per capita consumption of 5.5 kilograms of consumer tissue, compared with the 19 kilograms in Sweden. Sales by Panosa in 1999 are estimated at about EUR 50 million, or about SEK 430 million. The company's total conversion and paper capacity is about 35,000 tons. Panosa has approximately 140 employees. As a result of this acquisition and the acquisition of Marpo in the beginning of 1998, SCA's annual sales in Spain amount to about 75,000 tons of tissue. All converting capacity maintains modern and high technical standards, but the paper machines are small and older. SCA, however, plans to replace the paper machines with a modern unit. Depending on the technical specifications, this investment amount is estimated at SEK 700 to 900 M, which will cover SCAs total tissue capacity needs in the region. This measure will secure a very favorable competitiveness for SCA's operations on the Iberian Peninsula. The acquisition of Panosa, even with due consideration for the investment in a new tissue machine, shows profitability that exceeds SCA's weighted capital costs by about 30% (CVA-index 1.3). At the request of the seller, the purchase price is not being disclosed. Based on the company's results over the past 12 months, the purchase price corresponds to a multiple of about 5 times the operating surplus (EBITDA). The acquisition is subject to approval by the Spanish competition authorities. Acquisition of Len-Pak In the second acquisition, SCA purchased the privately owned Irish packaging company Len-Pak for IEP 8.3 M, nearly SEK 100 M, on a debt-free basis. The acquisition corresponds to 5,8 times operating surplus (EBITDA), respectively 7,8 times operating profit (EBIT), based on expected earnings in 1999. The multiples are lower than the acquisitions of Rexam, Danapak Papemballage and Nicollet. It is assessed that the acquisition can exceed SCA's weighted capital costs by about 80% (CVA-index 1.8) when coordination effects with SCA's current operations and the company's special tax status are taken into account. After the acquisition, SCA's market share will amount to 20% in one of Europe's most consolidated markets. Len-Pak's corrugated board production amounts to 9 million sq. m., with sales of about SEK 120 M and some 80 employees. Len-Pak conducts converting operations in two sheet plants located near Dublin and in Dundalk. Production includes standard and advanced products. Stockholm, 28 October 1999 SVENSKA CELLULOSA AKTIEBOLAGET SCA (publ) Corporate Communications For further information please contact: Sverker Martin-Löf, President and CEO. Phone 46 8 788 51 51 or Sten Lindholm, Senior VP, Corporate Communciations. Phone 46 8 788 51 62. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/10/28/19991028BIT00460/bit0001.doc http://www.bit.se/bitonline/1999/10/28/19991028BIT00460/bit0002.pdf