Interim Report 1 January-30 September 2004

Interim Report 1 January-30 September 2004 2004:3 2004:2 2004:1 0409 0309 Earnings per share, SEK 4.09 4.32 4.34 12.75 15.77 Cash flow from current operations per share, SEK 9.59 2.27 3.48 15.34 23.71 Net sales, SEK M 22,812 22,340 21,687 66,839 64,185 Earnings after financial items, SEK M 1,377 1,502 1,472 4,351 5,181 Net earnings, SEK M 955 1,009 1,014 2,978 3,656 Compared with first nine months of 2003 · Net sales amounted to SEK 66,839 M (64,185). · Earnings after taxes (net earnings) amounted to SEK 2,978 M (3,656) [1]. · Earnings per share amounted to SEK 12.75 (15.77). Adjusted for currency effects and items affecting comparability, the decline was 9%. Compared with second quarter of 2004 · Net sales amounted to SEK 22,812 M (22,340). · Earnings per share amounted to SEK 4.09 (4.32). Other · It appears that the expected price recovery during the current year will be delayed. Additional cost-reduction measures will be accelerated. For further information please contact: Jan Åström, President and CEO. Telephone: +46 70 586 0701. Peter Nyquist, Senior Vice President, Communications and Investor Relations. Telephone: +46 70 575 2906. MARKET OUTLOOK AND NEW RATIONALIZATION PROGRAMS The demand trend in Western Europe has not created the conditions for the broad price recovery that was earlier expected to be implemented during the latter part of the current year. The reason is that the recovery in the general economy in Continental Europe is proceeding slowly, while at the same time the competitive situation continues to be intensive in the Group's most important product areas. In North America it was possible to implement general price increases as of October. However, raw materials and energy costs continue to rise. Growth in demand in publication papers continues, particularly for magazine papers, which results in an improved capacity utilization. Considering the prolonged margin pressure, a number of cost-reduction measures will be accelerated. In total, it is estimated that the number of employees will be reduced by 1,200 persons, beginning in the fourth quarter of 2004 and to be concluded during 2005. The costs of the program will amount to about SEK 700 M, of which most will be charged in 2004. The annual cost savings are estimated at slightly more than SEK 1,000 M. These will be realized successively during 2005. The program is described in detail on page 8. NET SALES AND EARNINGS Earnings per share amounted to SEK 12.75 (15.77) and consolidated net earnings amounted to SEK 2,978 M (3,656). Excluding items affecting comparability of SEK 40 M (154), earnings per share and net earnings declined by 16%. Adjusted for currency effects, the decline was 9%. Consolidated net sales amounted to SEK 66,839 M (64,185). Adjusted for currency and price effects, net sales rose by 8%. The Group's operating profit amounted to SEK 5,017 M (5,793). Excluding items affecting comparability (expenses of SEK 44 M during 2004 pertaining to restructuring within Hygiene Products and SEK 197 M in the corresponding period in 2003) operating profit declined by 10%. Currency movements had a negative impact of 6% on operating profit. Adjusted for currency effects, the decline was 4%. Operating profit for Hygiene Products was SEK 3,378 M (3,636), a decline of 7%, of which 3% was due to currency movements. Operating profit for Packaging amounted to SEK 1,778 M (1,944), a decline of 9%, of which 3% was due to currency movements. Operating profit for Forest Products rose 1% to SEK 1,104 M (1,090); negative currency effects impacted earnings by 19%. Operating margin for the Group was 8% (9). Operating margin for Hygiene Products was 10% (11), 8% (9) for Packaging and 10% (11) for Forest Products. Financial items increased by SEK 54 M to an expense of SEK 666 M (expense: 612). The Group's earnings after financial items amounted to SEK 4,351 M (5,181), excluding items affecting comparability, SEK 4,325 M (4,984). Currency movements affected operating profit adversely by 7%. Return on shareholders' equity was 9% (11) and return on capital employed was 9% (11). Comparison with second quarter of 2004 Earnings per share during the third quarter amounted to SEK 4.09 (4.32). Consolidated net sales amounted to SEK 22,812 (22,340) M and, accordingly, were 2% higher than in the second quarter of 2004, due to company acquisitions that were carried out successively during the second quarter. Operating profit for the Group amounted to SEK 1,648 M (1,742), a decline of 5%. The operating profit for Hygiene Products was 8% lower than in the preceding quarter, while Packaging's earnings increased by 4% and Forest Products' declined by 3%. Currency movements had only a marginal effect on earnings. Operating margin for the Group declined to 7% (8). The margin for Hygiene Products fell to 9% (10). Packaging was unchanged at 8% and Forest Products at 10%. Financial items amounted to an expense of SEK 271 M (expense: 240). Consolidated earnings after financial items amounted to SEK 1,377 M (1,502). Currency movements had only a marginal effect on earnings after financial items. Earnings analysis SEK M 2004:31 2004:22 2004:13 04094 03095 Hygiene Products 1,068 1,157 1,153 3,378 3,636 Packaging 636 609 533 1,778 1,944 Forest Products 374 385 345 1,104 1,090 Other6 -116 -114 -118 -348 -43 Operating profit, before goodwill amortization 1,962 2,037 1,913 5,912 6,627 Goodwill amortization -314 -295 -286 -895 -834 Operating profit 1,648 1,742 1,627 5,017 5,793 Financial items6 -271 -240 -155 -666 -612 Earnings after financial items 1,377 1,502 1,472 4,351 5,181 Income tax -412 -488 -449 -1,349 -1,503 Minority interest -10 -5 -9 -24 -22 Net earnings 955 1,009 1,014 2,978 3,656 Earnings per share, SEK 4.09 4.32 4.34 12.75 15.77 1Including items affecting comparability, SEK 70 M before taxes and SEK 70 M after taxes. 2Including items affecting comparability, SEK -14 M before taxes and SEK -9 M after taxes. 3Including items affecting comparability, SEK -30 M before taxes and SEK -21 M after taxes. 4Including items affecting comparability, SEK 26 M before taxes and SEK 40 M after taxes. 5Including items affecting comparability, SEK 197 M before taxes and SEK 154 M after taxes. 6Including items affecting comparability. CASH FLOW The operating cash surplus amounted to SEK 10,366 M (10,160), corresponding to 16% (16) of net sales. Net current capital expenditures amounted to SEK 2,674 M (2,352). Working capital, which was unusually low at the beginning of the year, increased by SEK 1,575 M (693), as a result of such activities as major investments during the latter part of 2003 and the related increased accounts payable, which were paid in the beginning of 2004. Operating cash flow totaled SEK 5,957 M (6,934). Taxes paid attributable to operating profit amounted to SEK 1,921 M (1,038) and free cash flow, accordingly, totaled SEK 4,036 M (5,896). The deviation in tax payments is attributable to the fact that the preceding year's low tax payments were affected by recovered taxes from earlier years. Cash flow from current operations - defined as cash flow before strategic investments and dividends - amounted to SEK 3,582 M (5,503) or SEK 15.34 per share (23.71). Company acquisitions amounted to SEK 7,583 M (958) calculated on a debt- free basis and primarily pertain to the acquisitions of hygiene-products companies in Australia, Mexico and Malaysia, additional shares in SCA's Asian packaging company and an Italian packaging company. Strategic investments in plants and machinery, primarily in the hygiene-products area, and structural measures amounted to SEK 1,909 M (2,440). Comparison with second quarter of 2004 The operating cash surplus amounted to SEK 3,516 M (3,556), corresponding to 15% (16) of net sales. Cash flow from current operations amounted to SEK 2,238 M (531). This deviation is attributable mainly to a favorable working capital trend and lower tax payments. Cash flow analysis SEK M 2004:3 2004:2 2004:1 0409 0309 Net sales 22,812 22,340 21,687 66,839 64,185 Operating cash surplus 3,516 3,556 3,294 10,366 10,160 % of net sales 15 16 15 16 16 Current capital expenditures, net -1,071 -1,020 -583 -2,674 -2,352 % of net sales 5 5 3 4 4 Change in working capital 552 -773 -1,354 -1,575 -693 Other operating cash flow changes 6 -119 -47 -160 -181 Operating cash flow 3,003 1,644 1,310 5,957 6,934 Tax payment etc¹ -582 -950 -389 -1,921 -1,038 Free cash flow 2,421 694 921 4,036 5,896 Per share, SEK 10.36 2.97 3.95 17.28 25.41 Interest payment after taxes -183 -163 -108 -454 -393 Cash flow from current operations 2,238 531 813 3,582 5,503 Per share, SEK 9.59 2.27 3.48 15.34 23.71 Strategic investments and divestments -363 -7,591 -1,538 -9,492 -2,448 Cash flow before dividend 1,875 -7,060 -725 -5,910 3,055 Dividend -21 -2,450 - -2,471 -2,235 Conversion of debentures, warrants - - 1 1 723 Sale of own shares 2 3 4 9 12 Net cash flow 1,856 -9,507 -720 -8,371 1,555 ¹ Tax attributable to operating profit. FINANCING Financial items were higher than in the year-earlier period, an expense of SEK 666 M (expense: 612). The change is due to a higher average net debt as a result of company acquisitions. This was partly offset by a capital gain of SEK 70 M on the sale of shares in Industrivärden to a pension foundation. As a result of the acquisitions in the second quarter, financial items increased by SEK 75 M in the third quarter. Net debt amounted to SEK 31,249 M, an increase of SEK 8,943 M since the beginning of the year. Net cash flow showed a deficit of SEK 8,371 M and negative currency effects of SEK 572 M. Consolidated shareholders' equity rose during the period by SEK 712 M to SEK 50,466 M. Net earnings for the period increased equity by SEK 2,978 M, while dividends reduced shareholders' equity by SEK 2,450 M. The sale of own shares as part of the employee stock options program and conversion of debenture loans increased shareholders' equity by SEK 10 M and currency effects impacted positively on shareholders' equity by SEK 174 M. The debt/equity ratio amounted to 0.61 (0.42) at the end of the quarter. At the beginning of the year, the debt/equity ratio was 0.44. The interest coverage multiple was 7.5 (9.5). HYGIENE PRODUCTS BUSINESS AREA SEK M 2004:3 2004:2 2004:1 0409 0309 Net sales 11,761 11,149 10,545 33,455 32,450 Consumer Tissue 4,226 3,853 3,721 11,800 11,065 Tissue for bulk consumers - AFH 3,023 2,799 2,638 8,460 8,761 Personal Care 4,512 4,497 4,186 13,195 12,624 Operating surplus 1,855 1,848 1,768 5,471 5,533 Consumer Tissue 669 601 635 1,905 1,782 Tissue for bulk consumers - AFH 374 407 335 1,116 1,328 Personal Care 812 840 798 2,450 2,423 Operating profit, before goodwill amortization 1,068 1,157 1,153 3,378 3,636 Consumer Tissue 327 329 385 1,041 1,014 Tissue for bulk consumers - AFH 153 210 168 531 823 Personal Care 588 618 600 1,806 1,799 Operating surplus margin, % 16 17 17 16 17 Consumer Tissue 16 16 17 16 16 Tissue for bulk consumers - AFH 12 15 13 13 15 Personal Care 18 19 19 19 19 Operating margin, % 9 10 11 10 11 Consumer Tissue 8 9 10 9 9 Tissue for bulk consumers - AFH 5 8 6 6 9 Personal Care 13 14 14 14 14 Volume growth, % Consumer Tissue 6.8¹ 11.8¹ -0.6¹ 11.6² 4.1² Tissue for bulk consumers - AFH 6.0¹ 5.0¹ 0.4¹ 2.7² 3.6² Personal Care 5.0¹ 8.9¹ 2.4¹ 8.5² -4.0² 1Compared with the immediately preceding quarter. 2Compared with corresponding period previous year. See also pages 15 and 20-21. Net sales amounted to SEK 33,455 M (32,450), and were thereby 3% higher than in the year-earlier period. The positive effect of the completed company acquisitions was offset partly by lower prices and mainly by negative currency movements. Operating profit amounted to SEK 3,378 M (3,636), a decline of 7%. Adjusted for currency effects, the decline was 4%. Operating profit declined as a result of reduced profit in the AFH tissue area, mainly in North America. Operating profit in the third quarter was 8% lower than during the second quarter and amounted to SEK 1,068 M (1,157). The earnings decline is attributable to lower operating profit in the AFH tissue area in North America and a seasonal decline for Personal Care. Consumer Tissue Operating profit amounted to SEK 1,041 M (1,014). Lower production and distribution costs as well as company acquisitions compensated for lower prices. Operating profit in the third quarter was at the level reported in the second quarter and amounted to SEK 327 M (329). Competition in many markets outside Europe has intensified, which during the quarter limited the contribution from newly acquired operations, mainly in Mexico. Tissue for bulk consumers - AFH Operating profit for tissue for bulk consumers (AFH) amounted to SEK 531 M (823), which was 35% lower than in the preceding year. Higher recovered paper prices in North America and lower prices, mainly in the North American operations, affected operating profit negatively. Compared with the second quarter, operating profit declined in the third quarter by 27% to SEK 153 M (210). The European operations posted improved results, while operations in North America weakened as a result of increase raw materials prices as well as changes in healthcare and pension plans, with retroactive effect. However, it was possible to increase product prices at the end of the quarter by 4%. Personal Care Operating profit amounted to SEK 1,806 M (1,799) and was therefore in line with the year-earlier period. The company acquisitions in Malaysia and Australia/New Zealand, combined with a positive volume had a positive effect on operating profit. The effects of this were offset by generally lower prices for baby diapers in the area of retailers' brands and a changed product mix for feminine hygiene products. Compared with the second quarter, the operating profit was somewhat lower and amounted to SEK 588 M (618) due mainly to lower prices for baby diapers in the area of retailers' brands as well as lower production due to vacation stoppages in July and August. Company acquisitions affected operating profit positively. PACKAGING BUSINESS AREA SEK M 2004:3 2004:2 2004:1 0409 0309 Net sales 7,928 7,939 7,830 23,697 22,570 Operating surplus 1,096 1,046 975 3,117 3,159 Operating profit, before goodwill amortization 636 609 533 1,778 1,944 Operating surplus margin, %¹ 14 13 12 13 14 Operating margin, %¹ 8 8 7 8 9 Production Liner products, kton 644 685 650 1,979 1,885 Deliveries Liner products, kton 640 668 663 1,971 1,884 Corrugated board, Mm2 1,056² 1,060² 1,068² 3,184² 3,097² ¹ Adjusted for the external trading with linerboard, margins increase by about 2 percentage points. ² Volumes do not include volumes from protective packaging and other high-value segments. See also pages 15 and 20-21. Net sales were 5% higher than in the preceding year and amounted to SEK 23,697 M (22,570). Company acquisitions in North America and Asia raised net sales, while lower prices had a negative impact. Operating profit amounted to SEK 1,778 M (1,944), a decline of 9%. Adjusted for currency effects, the decline was 6%. Lower prices for corrugated board were partly offset by improved productivity and improved paper integration as well as company acquisitions and lower energy costs. The North American packaging operations were affected by a sharp increase in raw materials prices driven by oil prices, which to date could not be offset by price hikes. Compared with the second quarter, operating profit increased by 4% and amounted to SEK 636 M (609). Certain price increases were implemented in North America and in selected European markets. FORESTPRODUCTS BUSINESS AREA SEK M 2004:3 2004:2 2004:1 0409 0309 Net sales 3,586 3,741 3,813 11,140 10,345 Publication papers 1,909 1,790 1,905 5,604 5,376 Pulp, timber and solid-wood products 1,677 1,951 1,908 5,536 4,969 Operating surplus 700 709 667 2,076 1,981 Publication papers 334 309 310 953 1,081 Pulp, timber and solid-wood products 366 400 357 1,123 900 Operating profit, before goodwill amortization 374 385 345 1,104 1,090 Publication papers 121 96 96 313 454 Pulp, timber and solid-wood products 253 289 249 791 636 Operating surplus margin, % 20 19 17 19 19 Publication papers 17 17 16 17 20 Pulp, timber and solid-wood products 22 21 19 20 18 Operating margin, % 10 10 9 10 11 Publication papers 6 5 5 6 8 Pulp, timber and solid-wood products 15 15 13 14 13 Production Publication papers, kton 365 366 357 1,088 1,014 Solid- wood products, km3 326 362 370 1,058 961 Deliveries Publication papers, kton 366 344 370 1,080 998 Solid- wood products, km3 324 443 340 1,107 929 See also pages 15 and 20-21. Net sales for the Forest Products business area were 8% higher than in the preceding year and amounted to SEK 11,140 M (10,345). The positive effects of higher volumes and the acquisition of Scaninge's forestry and sawmill operations were partly countered by lower paper prices. Currency movements had a negative impact on net sales of 2%. Operating profit amounted to SEK 1,104 M (1,090) and, accordingly, was on the same level as the year-earlier period despite currency movements had a negative effect of 19%. Lower operating profit in the publication papers business were offset by improved results in the forestry, sawmill and pulp operations. In the third quarter, operating profit declined by 3% compared with the second quarter and totaled SEK 374 M (385). Improved results in publication papers were offset by maintenance stops in the pulp operations. Currency movements affected earnings positively by 3%. Publication papers Operating profit in the publication paper operations totaled SEK 313 M (454), a decline of 31%, of which 28% due to currency effects. The decline in operating profit was primarily attributable to lower prices and higher raw materials costs. However this was offset by somewhat higher volumes and the subsequent higher capacity utilization. Operating profit in the third quarter amounted to SEK 121 M (96), an improvement due mainly to higher volumes. Pulp, timber and solid-wood products Operating profit amounted to SEK 791 M (636) and was thereby 24% higher than in the preceding year. The improvement is mainly attributable to the acquisition of Scaninge's forestry and sawmill operations, but also higher volumes and the related increased capacity utilization. Lower prices for solid wood products and negative currency movements restricted the improvement. Compared with the second quarter, the operating profit amounted to SEK 253 M (289), a decline of 12%, due mainly to the maintenance stops in the pulp operations. GOODWILL Consolidated goodwill amounted to SEK 16,433 M (14,081)[2]. Goodwill is amortized over 20 years. Goodwill amortization by business area is presented on pages 12 and 17. Earnings excluding goodwill amortization SEK M 2004:31 2004:22 2004:13 04094 03095 Operating profit 1,962 2,037 1,913 5,912 6,627 Earnings after financial items 1,691 1,797 1,758 5,246 6,014 Net earnings 1,255 1,291 1,287 3,833 4,453 Earnings per share (SEK) 5.37 5.53 5.51 16.41 19.20 1Including items affecting comparability, SEK 70 M before taxes and SEK 70 M after taxes. 2Including items affecting comparability, SEK -14 M before taxes and SEK -9 M after taxes. 3Including items affecting comparability, SEK -30 M before taxes and SEK -21 M after taxes. 4Including items affecting comparability, SEK 26 M before taxes and SEK 40 M after taxes. 5Including items affecting comparability, SEK 197 M before taxes and SEK 154 M after taxes. PERSONNEL The average number of employees at the close of the quarter was 50,917, compared with 42,962 at the end of the third quarter in 2003[3]. The increase is due to acquisitions carried out during the period, while at the same time various efficiency enhancement programs within the Group reduced the number of employees. RATIONALIZATION PROGRAM The previously mentioned cost-reduction measures mainly include the following projects: Within Personal Care in France, all production of incontinence products from the plant in Macôn is being moved to the plant in Linselles. In addition, production of feminine hygiene products in Europe will be concentrated to Gemerská-Hôrka in Slovakia. These two projects result in personnel reductions in France and the Netherlands. In the European packaging operations, programs comprising savings in administration as well as efficiency enhancement measures in liner production and corrugated board converting have been initiated. With regard to the US tissue operations, the new plant in Barton has now reached full capacity and as a result costs-savings can be realized in other production units. A number of efficiency enhancement measures are being carried out in the Australian tissue operations, including shut down of an older tissue machine at the plant in Box Hill. ACQUISITIONS DURING THE YEAR Acquisitions Purchase price3 Consolidation date Vincor SEK 83 M 1 January 2004 Mark/Heritage SEK 13 M 1 March 2004 Drypers SEK 686 M 1 March 2004 Central Package Group SEK 266 M 1 April 2004 (increase by 27,5% to 92,5%) Carter Holt Harvey Tissue (100%) & SEK 4,837 M 19 May 2004 Sancella Australien (increase by 50% to100%) Copamex Tissue (50%) SEK 1,260 M 1 May 2004 Busto Tema SEK 309 M 30 June 2004 NOMINATION COMMITTEE The Nomination Committee, which is assigned to provide proposals regarding the composition of SCA's Board of directors to the 2005 Annual General Meeting, comprises Sverker Martin-Löf, Chairman of SCA, Curt Källströmer, Handelsbankens Personalstiftelse, Handelsbankens Pensionsstiftelse and Pensionkassan SHB Försäkringsförening, Ramsey Brufer, Alecta, Björn Lind, SEB Fonder, Thomas Halvorsen, Fourth AP Fund and Carl-Olof By, Industrivärden. CHANGED ACCOUNTING RULES In June 2002, the EU's Council of Ministers adopted the so-called IAS 2005 regulation, which requires that all exchange-listed companies within the Union, from and including fiscal year 2005, shall prepare consolidated financial statements fully in compliance with the International Accounting Standards (IAS). The recommendations of the Swedish Financial Accounting Standards Council have in recent years largely been adapted to IAS. Since SCA is compelled to follow the Swedish Financial Accounting Standards Council's recommendations, the company has gradually applied most of the rules. Comparison and information about effects The transition from national accounting standards to IAS places special demands on the first reporting submitted in accordance with the new standards. The rules specify that the comparison year 2004 shall also be reported in accordance with IAS, but that this reporting shall be provided no later than in conjunction with the first interim report in 2005. In SCA's case, the annual report for 2005 will contain two comparison years, in which the balance sheet and income statement for 2004 shall be prepared in accordance with the new rules and for 2003 in accordance with the former rules. The affected companies are obliged to provide information about the effects of the transition to IAS in conjunction with the first interim report in 2005. However, SCA has chosen to provide an overview describing the transition and its effects, already in conjunction with this report. The forthcoming rules SCA already complies with the standard applying to leases (IAS 17) in all essential respects. To the extent it can be assessed at this time, there are no leases in SCA for which reclassification will give rise to any material effects at Group level. SCA already follows the rule regarding employee benefits (IAS 19). However, due to the transition rules, the opening balance for 2004 must be zeroed out. This means that the existing pension deficit (difference between pension assets and commitments made in defined-benefit pension plans), which amounts to SEK 4.1 billion, will increase net debt. After taking into account the tax effects, the impact on shareholders' equity is a charge of SEK 2.8 billion. Consequently, there is no longer a need in the income statement to amortize the pension deficit, which results in an improvement in operating profit of about SEK 0.3 billion. With regard to reporting of agriculture and forestland (IAS 41), biological assets shall be reported at fair value on each reporting date. Thereafter, the change in this value will be included in the next period's results. Accordingly, the current income statement will also reflect an assessed net growth and will not only depend on actual felling. The market valuation of forest assets shall reflect the current value of the future net cash flow. SCA's assessment is that the fair value, accounted in accordance with the rules in IAS 41, amounts to SEK 18 billion, thereby exceeding the book value by SEK 9 billion. After deduction of deferred taxes, the effect will be that shareholders' equity increases by SEK 5.8 billion. This new way of earnings reporting results in an increase in reported operating profit by about SEK 0.4 billion. Rules applying to reporting of business combinations (IFRS 3) result in relatively large changes in the manner of reporting company acquisitions. This includes that a more detailed purchase price allocation is made in which value is also assigned to a number of intangible assets that are acquired, such as customer relations, brands, patents, un-patented technology, and more. In addition, the estimated lifetime of these assets is to be determined and amortization applied according to plan. Only if it is probable that the asset has a sustainable value in the business is amortization omitted. Acquisitions carried out in 2004 will be accounted for in accordance with the new rules in reporting during 2005, while acquisitions prior to 2004 do not need to be adjusted. For these acquisitions, the only difference is that goodwill will not be amortized according to plan, but will instead undergo an impairment test annually for any need for write down of goodwill. For SCA, the new standards result in an increase in reported operating profit of about SEK 1.2 billion. For the company acquisitions carried out by SCA in 2004, no major difference in reported earnings is expected to arise as a result of the new rule, other than what was mentioned regarding goodwill amortization. The aforementioned rules will therefore affect the comparative figures that are shown in the 2005 reporting of earnings. IAS 32 and 39, which both deal with financial instruments, will be applied in reporting for 2005, but not in restating of the 2004 comparative figures. Summary of transition's financial effects The preliminary effects of how the restating of the 2004 comparative figures affects the consolidated income statement and balance sheet are shown in the table below. Change in shareholders' equity, net debt, capital employed and earnings: (SEK Gross Deferred Shareholders' Net debt Capital Earnings billion, tax equity employed 2004) Forestland 9.0 3.3 5.8 5.8 0.4 Pension 4.1 -1.4 -2.8 4.1 1.4 0.3 liabilities Goodwill 1.2 1.2 1.2 Earnings 0.2 1.7 0.2 impact on equity Total 2.1 4.7 4.1 8.6 Operating 1.9 profit Taxes -0.2 Net 1.7 earnings Change in key figures Return on capital employed + 1.3 percentage points Return on equity + 2.3 percentage points Debt/equity ratio increases 0.02 Earnings per share SEK +7.23 All of the above information is preliminary and could change since a review of the new recommendations is still under way. OTHER SCA already follows the recommendations of the Swedish Financial Accounting Standards Council principle RR 29, Employee Benefits. The deficit in the Group's defined-benefit pension plans amounted at the end of the third quarter to approximately SEK 4,330 M and, accordingly, has declined by SEK 86 M since year-end. In accordance with the guidelines on Interim Reports, RR20, it is noted that the Group's parent company, Svenska Cellulosa Aktiebolaget SCA (publ), owns the forestlands and other fixed properties that are part of the Group's forestry operations and provide felling rights for standing timber to its subsidiary SCA Skog AB. In other respects, the parent company is a holding company whose main task is to own and manage shares in a number of business-group companies and to provide Group-wide management and administration. Operating revenues during the period January-September 2004 amounted to SEK 108 M (96) and earnings before appropriations and taxes totaled SEK 2,369 M (2,534). During the period, the Parent Company made no investments in shares and participations. Investments in properties and plant amounted to SEK 26 M (38) during the period. Liquid funds at the end of the period amounted to SEK 3 M (11). SHARE DISTRIBUTION 30 September 2004 Series A Series B Total Registered number of shares 40,427,857 194,608,841 235,036,698 Of which treasury shares - (1,668,452) (1,668,452) During the third quarter, no Series A shares were converted into Series B shares. The proportion of Series A shares at the end of the quarter totaled 17.2%. Conversion of the shares can be made at the request of the shareholders in question and with support of the reservation for conversion contained in the Articles of Association from 1999. Calculated in accordance with the recommendations of the Swedish Financial Accounting Standards Council, the effects of outstanding convertible debenture and employee stock options programs amount to a maximum dilution of 0.1%, which was taken into consideration when calculating earnings per share for the period. Stockholm, 26 October 2004 SVENSKA CELLULOSA AKTIEBOLAGET SCA (publ) Jan Åström President and CEO Auditors' statement We have reviewed this six-month report and in this connection have followed the Recommendation 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 fulfill the requirements of the Exchange and Clearing Operations Act and the Annual Accounts Act. Stockholm, 26 October 2004 PricewaterhouseCoopers AB Robert Barnden Authorized Public Accountant Reporting dates The year-end report for 1 January - 31 December 2004 will be published on 27 January 2005. In 2005, interim reports will be published on 26 April, 21 July and 26 October. STATEMENT OF EARNINGS 2004:3 2003:3 2004:2 0409 0309 SEK M SEK M SEK M SEK M SEK M Net sales 22,812 21,064 22,340 66,839 64,185 Operating expenses¹ -19,229 -17,629 -18,842 -56,457 -53,542 Operating surplus 3,583 3,435 3,498 10,382 10,643 Depreciation and write- down, properties and plant -1,630 -1,397 -1,473 -4,496 -4,113 Goodwill amortization -314 -276 -295 -895 -834 Share in earnings of associated companies 9 40 12 26 97 Operating profit 1,648 1,802 1,742 5,017 5,793 Financial items² -271 -199 -240 -666 -612 Earnings after financial items 1,377 1,603 1,502 4,351 5,181 Income taxes -412 -465 -488 -1,349 -1,503 Minority interest -10 -7 -5 -24 -22 Net earnings 955 1,131 1,009 2,978 3,656 Earnings per share, SEK - before dilution effects 4.09 4.88 4.32 12.76 15.84 - after dilution effects 4.09 4.88 4.32 12.75 15.77 Operating margin 7 % 9 % 8 % 8 % 9 % Return on shareholders' equity 9 % 11 % 9 % 9 % 11 % Return on capital employed 9 % 11 % 10 % 9 % 11 % Specification of earnings per share Net earnings for the period 955.0 1,131.0 1,009.0 2,978.0 3,656.0 Interest on convertible debentures 0.0 1.6 0.0 0,0 4.6 Adjusted net earnings 955.0 1,132.6 1,009.0 2,978.0 3,660.6 Average number of shares before dilution 233.3 230.9 233.3 233.3 230.9 Employee convertibles 0.0 1.0 0.0 0.0 1.0 Outstanding warrants 0.2 0.3 0.2 0.2 0.3 Average number of shares after dilution 233.5 232.2 233.5 233.5 232.2 Specifications of items affecting comparability 1Operating expenses - - -14 -44 197 - Sale of shares in Metsä Tissue - - - - 197 - Rationalization costs - - -14 -44 - 2 Financial items - Sale of shares in Industrivärden 70 - - 70 - STATEMENT OF EARNINGS 2004:3 2003:3 2004:2 0409 0309 EUR M1 EUR M1 EUR M1 EUR M2 EUR M3 Net sales 2,491 2,300 2,444 7,299 7,010 Operating expenses -2,100 -1,925 -2,061 -6,165 -5,848 Operating surplus 391 375 383 1,134 1,162 Depreciation and write- down, properties and plant -178 -152 -161 -491 -449 Goodwill amortization -35 -30 -32 -98 -91 Share in earnings of associated companies 1 5 1 3 11 Operating profit 179 198 191 548 633 Financial items -30 -22 -26 -73 -67 Earnings after financial items 149 176 165 475 566 Income taxes -45 -51 -53 -147 -164 Minority interest -1 0 -1 -3 -3 Net earnings 103 125 111 325 399 ¹ Isolated quarterly amounts have been calculated as the difference between two accumulated results. 2The average exchange rate of 9.16 was applied in translation to EUR. 3The average exchange rate of 9.16 was applied in translation to EUR. OPERATING PROFIT 1 January-30 September SEK M 2004 2003 Hygiene Products 3,378 3,636 Consumer Tissue 1,041 1,014 Tissue for bulk consumers - AFH 531 823 Personal Care 1,806 1,799 Packaging 1,778 1,944 Forest Products 1,104 1,090 Publication papers 313 454 Pulp, timber and solid-wood products 791 636 Other -348 -43 Operating profit, before goodwill amortization 5,912 6,627 Goodwill amortization¹ -895 -834 Total operating profit 5,017 5,793 ¹ Goodwill amortization: 2004 2003 Hygiene Products 336 302 Packaging 301 280 Common 258 252 Group 895 834 BALANCE SHEET 30 September 2004 31 December 2003 SEK M EUR M¹ SEK M EUR M¹ Assets Goodwill 16,433 1,813 14,586 1,607 Other intangible assets 1,909 211 897 99 Tangible assets 65,762 7,255 62,402 6,873 Shares and participations 722 80 658 72 Long-term financial receivables² 3,134 346 3,247 358 Other long- term receivables 424 47 241 26 Operating receivables and inventories 26,627 2,938 22,880 2,520 Short-term investments 865 95 749 82 Cash and bank balances 1,453 160 1,696 187 Total assets 117,329 12,945 107,356 11,824 Equity, provisions and liabilities Shareholders' equity 50,466 5,568 49,754 5,480 Minority interest 775 86 751 83 Provisions for pensions 2,406 266 2,569 283 Other provisions 11,116 1,226 11,051 1,217 Long-term interest- bearing debt 17,067 1,883 15,500 1,707 Other long- term interest- free liabilities 120 13 163 18 Short-term interest- bearing debt³ 17,041 1,880 9,766 1,075 Operating liabilities 18,338 2,023 17,802 1,961 Total equity, provisions and liabilities 117,329 12,945 107,356 11,824 Debt/equity ratio 0.61 0.44 Equity/assets 44 % 47 % 1The period-end exchange rate of 9.06 (9.08) was applied in translation to EUR. 2Of which pension assets: 2,364 261 2,289 252 ³ SCA has contracted unutilized lines of credit amounting to SEK 24,723 M. Of this, SEK 16,020 M is intended to cover current interest-bearing liabilities and amortization within a year. The remaining unutilized lines of credit totaling SEK 8,587 M, and centrally available liquid assets of SEK 324 M, represent the Group's liquidity reserve totaling SEK 8,911 M. The corresponding contracted unutilized lines of credit at the end of the preceding quarter amounted to SEK 24,172 M and current interest-bearing liabilities and amortization within a year totaled SEK 16,235 M. CHANGE IN SHAREHOLDERS' EQUITY, SEK M Jan-Sept 2004 Jan-Sept 2003 Shareholders' equity, 1 January 49,754 47,983 Conversion of debentures, warrants 1 723 Sale of own shares 9 12 Translation differences 329 -3,295 Exchange rate differences on hedging instruments -155 1,435 Dividend -2,450 -2,212 Net earnings for the period 2,978 3,656 Shareholders' equity, 30 September 50,466 48,302 OPERATING CASH FLOW ANALYSIS 1 January-30 September SEK M 2004 2003 Operating cash surplus 10,366 10,160 Changes in working capital -1,575 -693 Current capital expenditures, net -2,674 -2,352 Other operating cash flow changes -160 -181 Operating cash flow 5,957 6,934 Financial items -666 -612 Income taxes paid -1,721 -854 Other 12 35 Cash flow from current operations 3,582 5,503 Acquisitions -7,583 -958 Strategic capital expenditures, properties -1,729 -2,106 Strategic structural expenditures -180 -334 Divestments 0 950 Cash flow before dividend -5,910 3,055 Dividend -2,471 -2,235 Cash flow after dividend -8,381 820 Conversion of debentures, warrants 1 723 Sale of own shares 9 12 Net cash flow -8,371 1,555 Net debt at beginning of period -22,306 -23,899 Net cash flow -8,371 1,555 Currency effects -572 1,899 Net debt at end of period -31,249 -20,445 Debt payment capacity 38 % 54 % Debt/equity ratio 0.61 0.42 Quarterly data STATEMENT OF EARNINGS Group 2004 2003 SEK M III II I IV III II I Net sales 22,812 22,340 21,687 21,153 21,064 21,231 21,890 Operating expenses¹ -19,229 -18,842 -18,386 -17,551 -17,629 -17,838 -18,075 Operating surplus 3,583 3,498 3,301 3,602 3,435 3,393 3,815 Depreciation and write- down, properties and plant² -1,630 -1,473 -1,393 -1,369 -1,397 -1,353 -1,363 Goodwill amortization -314 -295 -286 -296 -276 -273 -285 Share in earnings of associated companies 9 12 5 27 40 24 33 Operating profit 1,648 1,742 1,627 1,964 1,802 1,791 2,200 Financial items -271 -240 -155 -178 -199 -187 -226 Earnings after financial items 1,377 1,502 1,472 1,786 1,603 1,604 1,974 Income taxes -412 -488 -449 -358 -465 -466 -572 Minority interest -10 -5 -9 -9 -7 -8 -7 Net earnings 955 1,009 1,014 1,419 1,131 1,130 1,395 Earnings per share, SEK - before dilution effects 4.09 4.32 4.35 6.08 4.88 4.90 6.06 - after dilution effects 4.09 4.32 4.34 6.07 4.88 4.87 6.02 Specification of items affecting comparability ¹Operating expenses - -14 -30 212 - - 197 - Sale of shares in Metsä Tissue - - - - - - 197 - Release of badwill, Scaninge - - - 418 - - - - Rationalisation costs - -14 -30 -158 - - - - Write-down of shares, Otor - - - -48 - - - 2Depreciation and write-down, properties and plant - - - -57 - - - - Write-down of property, Taiwan - - - -57 - - - 3 Financial items - Sale of shares in Industrivärden 70 - - - - - - Quarterly data OPERATING CASH FLOW ANALYSIS Group 2004 2003 SEK M III II I IV III II I Operating cash surplus 3,516 3,556 3,294 3,348 3,270 3,291 3,599 Changes in working capital 552 -773 -1,354 1,430 714 -709 -698 Current capital expenditures, net -1,071 -1,020 -583 -1,550 -817 -928 -607 Other operating cash flow changes 6 -119 -47 -60 -75 -28 -78 Operating cash flow 3,003 1,644 1,310 3,168 3,092 1,626 2,216 Financial items -271 -240 -155 -178 -199 -187 -226 Income taxes paid -501 -878 -342 -297 -485 -113 -256 Other 7 5 0 -62 77 -38 -4 Cash flow from current operations 2,238 531 813 2,631 2,485 1,288 1,730 Acquisitions 4521 -7,047 -988 -3,850 -107 -307 -544 Strategic capital expenditures, properties -752 -512 -465 -843 -797 -756 -553 Strategic structural expenditures -63 -32 -85 -103 -109 -72 -153 Divestments 0 0 0 11 85 215 650 Cash flow before dividend 1,875 -7,060 -725 -2,154 1,557 368 1,130 Dividend -21 -2,450 - - -19 -2,216 - Cash flow after dividend 1,854 -9,510 -725 -2,154 1,538 -1,848 1,130 Conversion of debentures, warrants - - 1 - 723 - - Sale of own shares 2 3 4 4 7 4 1 Net cash flow 1,856 -9,507 -720 -2,150 2,268 -1,844 1,131 1Preference shares have been reclassified and are treated as loans. Quarterly data Business areas NET SALES 2004 2003 SEK M III II I IV III II I Hygiene Products 11,761 11,149 10,545 10,531 10,753 10,791 10,906 Consumer Tissue 4,226 3,853 3,721 3,759 3,618 3,630 3,817 Tissue for bulk consumers - AFH 3,023 2,799 2,638 2,628 2,928 2,920 2,913 Personal Care 4,512 4,497 4,186 4,144 4,207 4,241 4,176 Packaging 7,928 7,939 7,830 7,459 7,434 7,421 7,715 Forest Products 3,586 3,741 3,813 3,736 3,378 3,406 3,561 Publication papers 1,909 1,790 1,905 1,891 1,810 1,802 1,764 Pulp, timber and solid-wood products 1,677 1,951 1,908 1,845 1,568 1,604 1,797 Other 265 268 256 126 155 331 419 Intra-group deliveries -728 -757 -757 -699 -656 -718 -711 Total net sales 22,812 22,340 21,687 21,153 21,064 21,231 21,890 OPERATING SURPLUS 2004 2003 SEK M III II I IV III II I Hygiene Products 1,855 1,848 1,768 1,747 1,824 1,814 1,895 Consumer Tissue 669 601 635 614 574 562 646 Tissue for bulk consumers - AFH 374 407 335 340 438 433 457 Personal Care 812 840 798 793 812 819 792 Packaging 1,096 1,046 975 965 1,036 1,023 1,100 Forest Products 700 709 667 763 644 634 703 Publication papers 334 309 310 420 339 316 426 Pulp, timber and solid-wood products 366 400 357 343 305 318 277 Other -68 -105 -109 127 -69 -78 117 Total operating surplus 3,583 3,498 3,301 3,602 3,435 3,393 3,815 OPERATING PROFIT 2004 2003 SEK M III II I IV III II I Hygiene Products 1,068 1,157 1,153 1,184 1,169 1,192 1,275 Consumer Tissue 327 329 385 402 308 311 395 Tissue for bulk consumers - AFH 153 210 168 178 264 271 288 Personal Care 588 618 600 604 597 610 592 Packaging 636 609 533 538 631 622 691 Forest Products 374 385 345 469 352 331 407 Publication papers 121 96 96 208 140 103 211 Pulp, timber and solid-wood products 253 289 249 261 212 228 196 Other -116 -114 -118 69 -74 -81 112 Operating profit before goodwill amortization 1,962 2,037 1,913 2,260 2,078 2,064 2,485 Goodwill amortization¹ -314 -295 -286 -296 -276 -273 -285 Total operating profit 1,648 1,742 1,627 1,964 1,802 1,791 2,200 ¹Goodwill amortization: Hygiene Products 126 107 103 110 98 96 108 Packaging 100 102 99 97 93 94 93 Common 88 86 84 89 85 83 84 Group 314 295 286 296 276 273 285 OPERATING SURPLUS MARGINS 2004 2003 Percent III II I IV III II I Hygiene Products 16 17 17 17 17 17 17 Consumer Tissue 16 16 17 16 16 15 17 Tissue for bulk consumers - AFH 12 15 13 13 15 15 16 Personal Care 18 19 19 19 19 19 19 Packaging 14 13 12 13 14 14 14 Forest Products 20 19 17 20 19 19 20 Publication papers 17 17 16 22 19 18 24 Pulp, timber and solid-wood products 22 21 19 19 19 20 15 OPERATING MARGINS, excluding goodwill amortization 2004 2003 Percent III II I IV III II I Hygiene Products 9 10 11 11 11 11 12 Consumer Tissue 8 9 10 11 9 9 10 Tissue for bulk consumers - AFH 5 8 6 7 9 9 10 Personal Care 13 14 14 15 14 14 14 Packaging 8 8 7 7 8 8 9 Forest Products 10 10 9 13 10 10 11 Publication papers 6 5 5 11 8 6 12 Pulp, timber and solid-wood products 15 15 13 14 14 14 11 Group MARGINS 1 January-30 September Percent 2004 2003 Operating surplus margin 15.5 16.3 Operating margin, excl. goodwill amortization 8.8 10.3 Operating margin 7.5 9.0 Financial net margin -1.0 -1.0 Profit margin 6.5 8.0 Tax and minority -2.1 -2.3 Net margin 4.4 5.7 MARGINS - quarterly data 2004 2003 Percent III II I IV III II I Operating surplus margin 15.7 15.7 15.2 17.0 16.3 16.0 17.4 Operating margin, excl. goodwill amortization 8.6 9.1 8.8 10.7 9.9 9.7 11.4 Operating margin 7.2 7.8 7.5 9.3 8.6 8.4 10.1 Financial net margin -1.2 -1.1 -0.7 -0.9 -0.9 -0.8 -1.1 Profit margin 6.0 6.7 6.8 8.4 7.7 7.6 9.0 Tax and minority -1.8 -2.2 -2.1 -1.7 -2.3 -2.3 -2.6 Net margin 4.2 4.5 4.7 6.7 5.4 5.3 6.4 FIVE-YEAR SUMMARY Full year 2003 2002 2001 2000¹ 1999¹ Earnings after financial items, SEK M 6,967 8,078 8,090 9,327 5,521 Earnings per share, SEK 21.84 24.54 24.05 30.64 16.73 Earnings per share, before goodwill amortization, SEK 26.51 29.15 28.40 33.76 19.52 Debt/equity ratio, times 0.44 0.49 0.51 0.39 0.69 Return on capital employed, % 11 13 14 18 12 Return on shareholders' equity, % 10 12 13 20 12 ¹ Adjusted historically to reflect new issues. CASH FLOW ANALYSIS (in accordance with the Swedish Financial Accounting Standards Council's recommendation, RR 7) 1 January-30 September SEK M 2004 2003 Current operations Earnings after financial items 4,351 5,181 Adjustment for items not included in cash flow 5,045 3,851 9,396 9,032 Taxes paid -1,721 -854 Cash flow from current operations before changes in working capital 7,675 8,178 Cash flow from changes in working capital Change in inventories -351 34 Change in current receivables -130 172 Change in operating liabilities -1,094 -899 Cash flow from current operations 6,100 7,485 Investment activities Acquisition of subsidiaries -6,440 -916 Divested units - 950 Acquisition of tangible and intangible fixed assets -4,676 -4,458 Proceeds from sale of equipment 308 - Repayment of loans from external parties 221 103 Cash flow from investment activities -10,587 -4,321 Financing activities Conversion of debentures, warrants - 435 Sale of own shares 9 12 Borrowings 7,252 - Amortization of debt - -451 Dividend paid -2,471 -2,235 Cash flow from financing activities 4,790 -2,239 Cash flow for the period 303 925 Liquid funds at beginning of year 1,929 2,826 Translation differences in liquid funds 13 -59 Liquid funds at end of period 2,245 3,692 Reconciliation between cash flow analysis according to RR 7 and operating cash flow Cash flow for the period according to RR 7 303 925 Deducted items: Repayment of loans from external parties -221 -103 Increase/amortization of debt -7,252 451 Added items: Net debt in acquired companies -1,143 -42 Accrued interests -24 36 Investments through financial leasing -35 - Conversion of loan to shareholders' equity 1 288 Net cash flow according to operating cash flow -8,371 1,555 Press conference SCA's interim report for the period 1 January-30 September 2004 will be published on 26 October 2004. A press conference will be held at 11:00 CET in Stockholm, where Jan Åström, President and CEO, will present the results. Venue: Salén Konferenser, Aulan, Norrlandsgatan 15, Stockholm. Telephone conference The telephone conference will be held on 26 October 2004, at 15:00 CET, where Jan Åström will comment on the results. To participate, please call the number below at least 5 minutes prior to the conference call. Dial-in number UK: +44 (0) 207 162 0180 quote: SCA Dial-in number US: +1 334 420 4951 quote: SCA The interim report and the slide presentation will be available at www.sca.com/Investors. Webcasting The telephone conference will be webcasted live (listen-only). On 26 October around 7 p.m. a recorded version will be available on our web site www.sca.com/Investors. Requirements: Windows Media Player or Real Player. ------------------------------------------------------------------------ [1]Earnings during 2004 were affected by costs for personnel reductions and sale of shares. During 2003, earnings in the first quarter were affected by sale of shares (see also page 13). [2] The acquisition balance for companies acquired during the year are not finalized. [3]Including SCA's portion of joint-venture companies. 3On debt-free basis. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2004/10/26/20041026BIT20140/wkr0001.pdf The full report