Interim Report 1 January–31 March 2005

2005:1 2004:1 2004:4 Earnings per share, SEK 2.82 5.89 4.62 Cash flow from current operations per share, SEK -0.11 3.68 8.24 Net sales, SEK M 22,518 21,687 23,128 Earnings after financial items, SEK M 894 1,883 971 Net earnings, SEK M 662 1,384 1,082 2005 compared with2004 · Net sales amounted to SEK 22,518 M (21,687). · Earnings after taxes amounted to SEK 662 M (1,384)[1]. · Earnings per share amounted to SEK 2.82 (5.89). · Earnings after financial items amounted to SEK 894 M (1,883). Adjusted for items affecting comparability, earnings after financial items amounted to SEK 1,319 M (1,914), a decline of 31%. Compared with fourth quarter of 2004 · Net sales amounted to SEK 22,518 M (23,128). · Earnings after taxes amounted to SEK 662 M (1,082) [1]. · Earnings per share amounted to SEK 2.82 (4.62). · Earnings after financial items amounted to SEK 894 M (971). Adjusted for items affecting comparability, earnings after financial items amounted to SEK 1,319 M (1,597), a decline of 17%. Rationalization Programs · Costs during the quarter for the rationalization programs approved in January amounted to SEK 425 M. Effective 2005, the Group reports are prepared in accordance with International Financial Reporting Standards (IFRS). According to an EU directive, the application is obligatory for publicly listed companies. The effects of the transition are reported as an adjustment in the opening balance of shareholders’ equity for 2004.All comparative figures for 2004 are recalculated.For additional information, see page 18. COMMENTS BY THE CEO The first quarter of 2005 was characterized by strongly shifting trends in different parts of the world. In Europe, the continued weak economic growth was reflected in our operations by low or negative growth, intense competition and continued pressure on prices, particularly within consumer tissue and corrugated board. The much stronger North American economy has resulted in improved demand for our products, with rising prices, which are now offsetting the increases in raw material costs during 2004. In the hygiene sector, Personal Care in Europe posted low delivery volumes in the beginning of the year; the trend reversed toward the close of the quarter, however, when normal order bookings were reached. For European tissue operations, the beginning of the year was characterized by a continued, although slowly subsiding, decline in prices. The price decline has been offset partly by the ongoing efficiency enhancement and rationalization programs. Price increases were implemented during the first quarter in the Away- From-Home segment for both the European and North American tissue operations. Delivery volumes for European packaging operations were low during the first quarter, resulting in a volume loss of 3% compared with the corresponding period in 2004. Prices also continued to decline, falling 1% during the period. Volumes normalized toward the close of the quarter and in the early part of the second quarter. In the publication paper segment, price increases announced in 2004 have led to increases of about 5% for newsprint and 2% for LWC and SC paper. In parallel, energy and raw material costs have continued to rise. In terms of market share, some strengthening was noted in certain segments. In the product category comprising baby diapers, SCA strengthened its leadership position in the Nordic market with the Libero brand. The market share in Sweden has increased during the past six months from about 50% to 62%. In the segment comprising retailers’ brands for baby diapers, SCA won two major contracts during the quarter and, accordingly, will strengthen its positions, particularly in southern Europe. In the category comprising incontinence products for the retail trade in Europe, SCA has maintained its market share at 70% over the past six months and strengthened its share of the North American market during the same period. To improve SCA’s competitiveness and market positions, all categories within Personal Care will launch new products during 2005. Examples include a new generation of baby pant diapers to be launched in the European market and new incontinence products for the American retail trade. New feminine hygiene products and a new global brand platform will also be introduced gradually in all markets during 2005 and 2006. The ongoing cost-savings programs are proceeding according to plan. MARKET OUTLOOK Within the tissue segment, demand remains strong but the consumer sector of the market in Europe is characterized by overcapacity and price pressure. Demand in the European packaging market was weak during the quarter, affected partly by delayed deliveries to grocery markets in southern Europe. In North America, price increases were implemented both for tissue and packaging operations. The higher prices will gradually offset cost increases for energy and raw materials. In the segment comprising personal care products, volume growth remained stable in Europe, although combined with intense price competition. The markets in Eastern Europe, Latin America and Asia continue to show strong growth. For publication papers the supply and demand situation is presently less favourable. EARNINGS TREND SEK M 2005:1[1] 2004:1[2] 2004:4[3] Hygiene Products 908 1,178 998 - Tissue 379 567 408 - Personal Care 529 611 590 Packaging 458 621 580 Forest Products 401 417 457 - Publication papers 121 102 137 - Pulp, timber and solid-wood products 280 315 320 Other -530 -119 -823 Operating profit 1,237 2,097 1,212 Financial items -343 -214 -241 Earnings after financial items 894 1,883 971 Income tax -232 -499 111 Net earnings 662 1,384 1,082 Earnings per share, SEK 2.82 5.89 4.62 [1]Including items affecting comparability, SEK -425 M before taxes and SEK -314 M after taxes. [2]Including items affecting comparability, SEK -30 M before taxes and SEK -21 M after taxes. [3]Including items affecting comparability, SEK -626 M before taxes and SEK -81 M after taxes. Compared with first quarter of 2004 Net sales increased by 4%. Currency movements had a negative impact of 2% on net sales. The operating profit was charged with SEK 425 M for the expansion of the efficiency enhancement program that was approved in January. Combined with costs for measures approved during the fourth quarter of 2004, total costs for the programs amounted to SEK 1,150 M. Savings are expected to total SEK 1,200 M annually, with their full impact beginning in 2006. Excluding items affecting comparability amounting to an expense of SEK 425 M (exp: 30), the operating profit declined by 22%, while earnings after financial items were down by 31% and net earnings and earnings per share by 30%. Currency movements had a negative impact of about 2% on operating profit. Return on equity amounted to 8% (10), and the return on capital employed was 8% (10). Compared with fourth quarter of 2004 Net sales declined by 3%. Currency movements had a marginal impact on net sales. Excluding items affecting comparability totaling an expense of SEK 425 M (exp: 726), the operating profit declined by 14%. Currency movements had a marginal impact on earnings. The operating profit for Hygiene Products was 9% lower than the preceding quarter, while Packaging’s earnings were down 21% and the operating profit of Forest Products declined by 12%. Financial items amounted to an expense of SEK 343 M (exp: 241). Financial items in the fourth quarter included items affecting comparability totaling SEK 100 M. The Group’s consolidated earnings after financial items, accordingly, amounted to SEK 894 M (971), and SEK 1,319 M (1,597) excluding items affecting comparability, a decline of 17%. Currency movements had only a marginal effect on earnings. Tax expenses during the fourth quarter of 2004 were impacted by a positive non-recurring effect of SEK 320 M. Earnings per share during the first quarter amounted to SEK 2.82 (4.62). TISSUE Compared with first quarter 2004 Continued intensive competition resulted in lower operating profit. The decline in profit attributed to operations in Europe was mainly a result of lower prices for consumer tissue. This was partly offset, however, by price adjustments within the AFH segment, which were implemented toward the end of the fourth quarter, and lower production costs attributable to the ongoing efficiency enhancement programs. Favorable trends were noted in the North American AFH operations as a result of higher prices, which were partly offset by rising energy costs. In Latin America, price increases were implemented during the first quarter. Compared with fourth quarter 2004 Competition remained strong in the European consumer tissue segment, which resulted in lower prices. Delivery volumes were also lower during the quarter, due to a high level of deliveries toward year-end 2004. In the AFH segment, somewhat higher prices had a positive effect on earnings. Price increases and higher capacity utilization led to improved earnings in the North American operations, despite higher energy costs. PERSONAL CARE Compared with first quarter of 2004 Price pressure in the European markets, combined with increased raw material costs, led to a decline in operating profit that was offset in part by more effective raw materials utilization and acquisitions. Compared with fourth quarter of 2004 High deliveries of incontinence products in December impacted volume trends during the first quarter. Some continued price pressure and cost increases for oil-based input goods also had negative effects on earnings. PACKAGING Compared with first quarter of 2004 Earnings of the European packaging operations declined due to lower volumes and higher energy costs. The structural changes initiated during 2004 resulted in reduced personnel costs and other indirect costs. In the North American packaging operations, cost increases for oil-based raw materials and energy have not been fully offset by gradual price increases. Compared with fourth quarter of 2004 Operating profit also declined compared with the fourth quarter due to slightly lower volumes, lower prices and higher energy costs. PUBLICATION PAPERS Compared with first quarter of 2004 Despite negative currency effects, an improvement was noted in operating profit of publication paper operations. The improvement was mainly attributable to higher prices and higher capacity utilization, which were offset, however, by slightly higher raw material and energy costs. Compared with fourth quarter of 2004 Price increases were implemented during the quarter but did not fully offset the effects of lower volumes and higher costs for energy and raw materials. PULP, TIMBER AND SOLID-WOOD PRODUCTS Compared with first quarter of 2004 The operating profit was lower compared with the preceding year due to lower prices for solid-wood products. Compared with fourth quarter of 2004 First-quarter earnings of pulp operations were impacted negatively by higher raw material costs and the earnings trend for sawmill operations remained weak. CASH FLOW SEK M 2005:1 2004:1 2004:4 Net sales 22,518 21,687 23,128 Operating cash surplus 3,087 3,445 3,371 % of net sales 14 16 15 Current capital expenditures, net -750 -583 -1,596 % of net sales 3 3 7 Change in working capital -1,266 -1,369 942 Other operating cash flow changes -156 -78 -195 Operating cash flow 915 1,415 2,522 Tax payment etc¹ -704 -406 -439 Free cash flow 211 1,009 2,083 Per share, SEK 0.90 4.32 8.91 Interest payment after taxes -237 -148 -158 Cash flow from current operations -26 861 1,925 Per share, SEK -0.11 3.68 8.24 Strategic investments and divestments -662 -1,538 -2,472 Cash flow before dividend -688 -677 -547 Conversion of debentures, warrants - 1 - Sale of own shares 2 4 6 Net cash flow -686 -672 -541 ¹ Tax attributable to operating profit. Compared with first quarter of 2004 The operating cash surplus declined compared with the first quarter 2004, while some increase was noted in current capital expenditures. Working capital increased during the first quarter, in line with seasonal trends noted in previous years. Taxes paid rose compared with the first quarter of 2004, when taxes from earlier years were recovered. Interest payments also increased, mainly as a result of acquisitions during 2004. Cash flow from current operations, accordingly, amounted to SEK -26 M (861). Compared with fourth quarter of 2004 Due to seasonal effects, working capital increased during the first quarter, while current capital expenditures were lower than corresponding expenditures during the fourth quarter. FINANCING Financial items increased to an expense of SEK 343 M (exp: 214). The increase was mainly attributable to acquisitions. Net debt amounted to SEK 37,598 M, an increase of SEK 1,775 M from the beginning of the year. Net cash flow showed a deficit of SEK 686 M and negative currency effects, among other things, of SEK 1,089 M. Consolidated shareholders’ equity rose during the period by SEK 2,023 M to SEK 57,088 M. Net earnings for the period increased equity by SEK 662 M. Currency effects impacted positively on shareholders’ equity by SEK 1,263 M. The effects from valuation in accordance with IFRS contributed SEK 79 M to the total increase in equity. The debt/equity ratio, which amounted to 0.65 (0.42) at the beginning of the year, was 0.66 (0.51) at the close of the quarter. The interest coverage multiple was 3.6 (9.8). PERSONNEL The average number of employees at the close of the quarter was 52,211, compared with 46,107 at the end of the first quarter in 2004. The increase is due to acquisitions during 2004, while at the same time various efficiency enhancement programs within the Group reduced the number of employees. RATIONALIZATION PROGRAMS The programs that were approved by the Board of Directors in January have been started and are proceeding according to plan. Combined with the measures approved during the fourth quarter of 2004, total costs for the programs amount to SEK 1,150 M, of which SEK 425 M was charged against earnings during the first quarter. The savings effects will be realized gradually during 2005. For full- year 2005, the effects are expected to total approximately SEK 600 M, of which SEK 80 M impacted earnings already during the first quarter. Full effects of the programs, totaling SEK 1,200 M, will be realized during 2006. OTHER This report is prepared in accordance with IAS 34 and the Swedish Financial Accounting Standards Council’s recommendation RR 31 and, with respect to the Parent Company, RR 32. 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-March 2005 totaled SEK 42 M (40) and earnings before appropriations and taxes amounted to a loss of SEK 263 M (loss: 285). During the period, the Parent Company made no investments in shares and participations. Investments in properties and plant amounted to SEK 2 M (3) during the period. Liquid funds at the end of the period amounted to SEK 18 M (19). Acquisitions during the period relate to two small packaging companies and adjustment of the purchase price of prior year’s acquisitions. SHARE DISTRIBUTION 31 March 2005 Series A Series B Total Registered number of shares 40.427.755 194.608.943 235.036.698 Of which treasury shares - (1.643.117) (1.643.117) During the first quarter, 102 Series A shares were converted into Series B shares. The proportion of Series A shares at the end of the quarter totaled 17.2%. Conversions of the shares are made at the request of the shareholders in question and with the support of the reservation for conversion contained in the Articles of Association from 1999. Computed in accordance with IFRS recommendations, the effects of outstanding employee stock options programs correspond to a maximum dilution effect of 0.1%, which was taken into account in calculations of earnings per share during the period under review. Stockholm, 26 April 2005 SVENSKA CELLULOSA AKTIEBOLAGET SCA (publ) Jan Åström President and CEO This report is unaudited. BUSINESS AREA HYGIENE PRODUCTS SEK M 2005:1 2004:1 2004:4 Net sales 11,606 10,545 11,904 Tissue 7,144 6,359 7,336 Personal Care 4,462 4,186 4,568 Operating surplus 1,636 1,791 1,712 Tissue 888 984 907 Personal Care 748 807 805 Operating profit 908 1,178 998 Tissue 379 567 408 Personal Care 529 611 590 Gross margin, % 14 17 14 Tissue 12 16 12 Personal Care 17 19 18 Operating margin, % 8 11 8 Tissue 5 9 6 Personal Care 12 15 13 Volume trend, % Tissue -2.1¹ 15.32 -0.2¹ 4.5¹ Personal Care -2.7¹ 8.72 2.4¹ 10.1¹ 1Compared with the immediately preceding quarter. 2Compared with corresponding period previous year. BUSINESS AREA PACKAGING SEK M 2005:1 2004:1 2004:4 Net sales 7,642 7,830 7,804 Operating surplus 898 1,063 1,036 Operating profit 458 621 580 Gross margin, %¹ 12 14 13 Operating margin, %¹ 6 8 7 Production Liner products, kton 666 650 637 Deliveries Liner products, kton 651 663 630 Corrugated board, Mm2 1,052² 1,068² 1,062² 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. BUSINESS AREA FOREST PRODUCTS SEK M 2005:1 2004:1 2004:4 Net sales 3,762 3,813 3,814 Publication papers 1,932 1,905 2,005 Pulp, timber and solid-wood products 1,830 1,908 1,809 Operating surplus 738 740 800 Publication papers 334 317 354 Pulp, timber and solid-wood products 404 423 446 Operating profit 401 417 457 Publication papers 121 102 137 Pulp, timber and solid-wood products 280 315 320 Gross margin, % 20 19 21 Publication papers 17 17 18 Pulp, timber and solid-wood products 22 22 25 Operating margin, % 11 11 12 Publication papers 6 5 7 Pulp, timber and solid-wood products 15 17 18 Production Publication papers, kton 367 357 383 Solid- wood products, km³ 372 370 404 Deliveries Publication papers, kton 366 370 392 Solid- wood products, km³ 369 340 393 OPERATING CASH FLOW ANALYSIS 1 January–31 March SEK M 2005 2004 Operating cash surplus 3,087 3,445 Changes in working capital -1,266 -1,369 Current capital expenditures, net -750 -583 Other operating cash flow changes -156 -78 Operating cash flow 915 1,415 Financial items -343 -214 Income taxes paid -601 -342 Other 3 2 Cash flow from current operations -26 861 Acquisitions -49 -988 Strategic capital expenditures, properties -601 -465 Strategic structural expenditures -12 -85 Divestments - - Cash flow before dividend -688 -677 Conversion of debentures, warrants - 1 Sale of own shares 2 4 Net cash flow -686 -672 Net debt at beginning of period -35,823 -26,533 Net cash flow -686 -672 Change via shareholders’ equity 65 - Currency effects -1,154 -1,223 Net debt at end of period -37,598 -28,428 Debt payment capacity 20 % 43% Debt/equity ratio 0.66 0.51 STATEMENT OF EARNINGS 2005:1 2004:1 2004:4 SEK M SEK M SEK M Net sales 22,518 21,687 23,128 Operating expenses¹ -19,737 -18,199 -20,222 Operating surplus 2,781 3,488 2,906 Depreciation and write-down, properties and plant² -1,550 -1,395 -1,696 Share in earnings of associated companies 6 4 2 Operating profit 1,237 2,097 1,212 Financial items³ -343 -214 -241 Earnings before taxes 894 1,883 971 Income taxes4 -232 -499 111 Net earnings 662 1,384 1,082 Earnings attributable to: Parent company shareholders 658 1,375 1,078 Minority interest 4 9 4 Earnings per share, SEK - before dilution effects 2.83 5.90 4.63 - after dilution effects 2.82 5.89 4.62 Return on shareholders’ equity 5% 10% 8% Return on capital employed 5% 10% 5% Margins(percent) Gross margin 12.4 16.1 12.6 Operating margin 5.5 9.7 5.2 Financial net margin -1.5 -1.0 -1.0 Profit margin 4.0 8.7 4.2 Tax and minority -1.0 -2.3 0.5 Net margin 3.0 6.4 4.7 Specification of earnings per share Net earnings for the period 662.0 1,384.0 1,082.0 Minority interest -4.0 -9.0 -4.0 Adjusted earnings 658.0 1,375.0 1,078.0 Average number of shares before dilution 233.4 233.3 233.3 Outstanding warrants 0.1 0.2 0.2 Average number of shares after dilution 233.5 233.5 233.5 Specifications of items affecting comparability 1Operating expenses - Rationalization costs -394 -30 -555 2 Depreciation and write-down, properties and plant - Write-down in connection with rationalization programs -31 - -171 3 Financial items - Sale of shares in Industrivärden - - 100 4Income taxes - Tax treatment of loss carryforwards and changed tax rates - - 320 STATEMENT OF EARNINGS 2005:1 2004:1 2004:4 EUR M1 EUR M2 EUR M3 Net sales 2,483 2,364 2,568 Operating expenses -2,176 -1,984 -2,244 Operating surplus 307 380 324 Depreciation and write- down, properties and plant -171 -152 -188 Share in earnings of associated companies 1 0 0 Operating profit 137 228 136 Financial items -38 -23 -27 Earnings after financial items 99 205 109 Income taxes -26 -54 11 Net earnings 73 151 120 ¹ The average exchange rate of 9.07 was applied in translation to EUR. 2The average exchange rate of 9.17 was applied in translation to EUR. 3Isolated quarterly amounts have been calculated as the difference between two accumulated results. BALANCE SHEET 31 March 2005 31 December 2004 SEK M EUR M¹ SEK M EUR M¹ Assets Goodwill 17,831 1,953 17,131 1,906 Other intangible assets 2,114 231 2,025 225 Tangible assets 76,057 8,329 74,714 8,314 Shares and participations 670 73 696 77 Long-term financial receivables² 1,819 199 1,126 125 Other long- term receivables 809 89 682 76 Total fixed assets3 99,300 10,874 96,374 10,723 Operating receivables and inventories 28,282 3,097 25,774 2,868 Short-term investments 473 51 891 99 Cash and bank balances 1,787 196 2,735 304 Total current assets4 30,542 3,344 29,400 3,271 Total assets 129,842 14,218 125,774 13,994 Shareholders’ equity Equity excluding minority interest 56,299 6,165 54,202 6,031 Minority interest 789 86 768 85 Total equity 57,088 6,251 54,970 6,116 Liabilities Provisions for pensions 4,303 471 4,388 488 Other provisions 12,628 1,383 12,346 1,374 Long-term interest- bearing debt 15,276 1,673 19,155 2,131 Other long- term interest- free liabilities 155 17 90 10 Total long- term liabilities5 32,362 3,544 35,979 4,003 Short-term interest- bearing debt 21,984 2,407 15,776 1,755 Operating liabilities 18,408 2,016 19,049 2,120 Total current liabilities6 40,392 4,423 34,825 3,875 Total liabilities7 72,754 7,967 70,804 7,878 Total equity and liabilitites 129,842 14,218 125,774 13,994 Debt/equity ratio 0.66 0.63 Equity/assets 44% 44% CHANGE IN SHAREHOLDERS’ EQUITY, SEK M Jan–Mar 2005 Jan–Mar 2004 Shareholders’ equity, 1 January8 54,970 49,754 Adjustment to IFRS rules9 95 3,588 Shareholders’ equity, 1 January, in accordance with IFRS 55,065 53,342 Result from fair value valuation - financial assets available for sale -16 - - change in actuarial gains and losses of pensions 76 - Cash-flow hedging 19 - Translation differences on hedge instruments of net investments 143 -823 Translation differences 1,120 1,756 Changes in minority interests incl. translation differences 17 65 Conversion of debentures, warrants - 1 Sale of own shares 2 4 Earnings for the period 662 1,384 Shareholders’ equity, 31 March 57,088 55,729 1The average exchange rate of 9.13 (8.99) was applied in translation to EUR. 2Of which pension assets 328 36 418 46 3Of which derivative instruments 582 64 4Of which derivative instruments 254 28 5Of which derivative instruments 239 26 6Of which derivative instruments 425 47 7SCAhas contracted committed credit lines amounting to SEK25.686 M. Commitments exceeding one year of SEK 17,807 M cover short-term interest-bearing liabilities, utilization of syndicated bank loans and amortizations within one year. The remaining committed credit lines of SEK 7,879 M together with centrally available liquid funds of SEK 596 M, comprise the Group’s liquidity reserve totaling SEK 8,475 M. 82005 in accordance with IFRS as of 31 December 2004. 2004 in accordance with Swedish GAAP. 92005 pertains to IAS 32 and IAS 39. 2004 transition to IFRS at 1 January 2004. For more information see page 18. Quarterly data Group OPERATING CASH FLOW ANALYSIS 2005 2004 SEK M I IV III II I Operating cash surplus 3,087 3,371 3,634 3,658 3,445 Changes in working capital -1,266 942 554 -771 -1,369 Current capital expenditures, net -750 -1,596 -1,071 -1,020 -583 Other operating cash flow changes -156 -195 5 -88 -78 Operating cash flow 915 2,522 3,122 1,779 1,415 Financial items -343 -241 -330 -299 -214 Income taxes paid -601 -367 -501 -878 -342 Other 3 11 4 7 2 Cash flow from current operations -26 1,925 2,295 609 861 Acquisitions -49 -1,757 4521 -7,047 -988 Strategic capital expenditures, properties -601 -669 -752 -512 -465 Strategic structural expenditures -12 -46 -63 -32 -85 Divestments 0 0 0 0 0 Cash flow before dividend -688 -547 1,932 -6,982 -677 Dividend - - -21 -2,450 - Cash flow after dividend -688 -547 1,911 -9,432 -677 Conversion of debentures, warrants - - - - 1 Sale of own shares 2 6 2 3 4 Net cash flow -686 -541 1,913 -9,429 -672 1Preference shares have been reclassified and are treated as loans. . Quarterly data Group STATEMENT OF EARNINGS 2005 2004 SEK M I IV III II I Net sales 22,518 23,128 22,812 22,340 21,687 Operating expenses¹ -19,737 -20,222 -19,099 -18,644 -18,199 Operating surplus 2,781 2,906 3,713 3,696 3,488 Depreciation and write-down, properties and plant² -1,550 -1,696 -1,588 -1,473 -1,395 Share in earnings of associated companies 6 2 4 8 4 Operating profit 1,237 1,212 2,129 2,231 2,097 Financial items3 -343 -241 -330 -299 -214 Earnings after financial items 894 971 1,799 1,932 1,883 Income taxes4 -232 111 -465 -540 -499 Net earnings 662 1,082 1,334 1,392 1,384 Earnings per share, SEK - before dilution effects 2.83 4.63 5.67 5.93 5.90 - after dilution effects 2.82 4.62 5.67 5.93 5.89 Margins (percent) Gross margin 12.4 12.6 16.3 16.5 16.1 Operating margin 5.5 5.2 9.3 10.0 9.7 Financial net margin -1.5 -1.0 -1.4 -1.3 -1.0 Profit margin 4.0 4.2 7.9 8.7 8.7 Tax and minority -1.0 0.5 -2.0 -2.4 -2.3 Net margin 3.0 4.7 5.9 6.3 6.4 Specifications of items affecting comparability 1Operating expenses - Rationalization costs -394 -555 - -14 -30 2 Depreciation and write-down, properties and plant - Write-down in connection with rationalization programs -31 -171 - - - 3Financial items - Sale of shares in Industrivärden - 100 70 - - 4Income taxes - Tax treatment of loss carryforwards and changed tax rates - 320 - - - Quarterly data Business areas 2005 2004 SEK M I IV III II I NET SALES Hygiene Products 11,606 11,904 11,761 11,149 10,545 Tissue 7,144 7,336 7,249 6,652 6,359 Personal Care 4,462 4,568 4,512 4,497 4,186 Packaging 7,642 7,804 7,928 7,939 7,830 ForestProducts 3,762 3,814 3,586 3,741 3,813 Publication papers 1,932 2,005 1,909 1,790 1,905 Pulp, timber and solid-wood products 1,830 1,809 1,677 1,951 1,908 Other 232 298 265 268 256 Intra-group deliveries -724 -692 -728 -757 -757 Total net sales 22,518 23,128 22,812 22,340 21,687 OPERATING SURPLUS Hygiene Products 1,636 1,712 1,878 1,881 1,791 Tissue 888 907 1,056 1,028 984 Personal Care 748 805 822 853 807 Packaging 898 1,036 1,172 1,138 1,063 ForestProducts 738 800 773 782 740 Publication papers 334 354 340 317 317 Pulp, timber and solid-wood products 404 446 433 465 423 Other -491 -642 -110 -105 -106 Total operating surplus 2,781 2,906 3,713 3,696 3,488 OPERATING PROFIT Hygiene Products 908 998 1,093 1,186 1,178 Tissue 379 408 495 556 567 Personal Care 529 590 598 630 611 Packaging 458 580 706 697 621 Forest Products 401 457 446 457 417 Publication papers 121 137 127 104 102 Pulp, timber and solid-wood products 280 320 319 353 315 Other -530 -823 -116 -109 -119 Total operating profit 1,237 1,212 2,129 2,231 2,097 2005 2004 Percent I IV III II I GROSS MARGINS Hygiene Products 14 14 16 17 17 Tissue 12 12 15 16 16 Personal Care 17 18 18 19 19 Packaging 12 13 15 14 14 Forest Products 20 21 22 21 19 Publication papers 17 18 18 18 17 Pulp, timber and solid-wood products 22 25 26 24 22 OPERATING MARGINS Hygiene Products 8 8 9 11 11 Tissue 5 6 7 8 9 Personal Care 12 13 13 14 15 Packaging 6 7 9 9 8 Forest Products 11 12 12 12 11 Publication papers 6 7 7 6 5 Pulp, timber and solid-wood products 15 18 19 18 17 FIVE-YEAR SUMMARY Full year 20041 2003 2002 2001 20002 Earnings after financial items, SEK M 6,585 6,967 8,078 8,090 9,327 Earnings per share, SEK 22.11 21.84 24.54 24.05 30.64 Earnings per share, before goodwill amortization, SEK 22.11 26.51 29.15 28.40 33.76 Debt/equity ratio, times 0.63 0.44 0.49 0.51 0.39 Return on capital employed, % 9 11 13 14 18 Return on shareholders’ equity, % 10 10 12 13 20 ¹ Adjusted to IFRS. 2Adjusted historically to reflect new issues. CASH FLOW ANALYSIS 1 January–30 March SEK M 2005 2004 Current operations Earnings after financial items 894 1,883 Adjustment for items not included in cash flow 1,620 1,124 2,514 3,007 Taxes paid -601 -342 Cash flow from current operations before changes in working capital 1,913 2,665 Cash flow from changes in working capital Change in inventories -460 -267 Change in current receivables 368 -810 Change in operating liabilities -1,174 -292 Cash flow from current operations 647 1,296 Investment activities Acquisition of subsidiaries -49 -799 Acquisition of tangible and intangible fixed assets -1,345 -1,254 Proceeds from sale of equipment 11 206 Payment of loans to external parties -307 -89 Cash flow from investment activities -1,690 -1,936 Financing activities Sale of own shares 2 4 Borrowings 0 1,812 Amortization of debt -572 0 Cash flow from financing activities -570 1,816 Cash flow for the period -1,613 1,176 Liquid funds at beginning of year 3,498 1,929 Translation differences in liquid funds 56 33 Liquid funds at end of period 1,941 3,138 Reconciliation with the operative cash flow analysis Cash flow for the period -1,613 1,176 Deducted items: Payment of loans to external parties 307 89 Increase/amortization of debt 572 -1,812 Added items: Net debt in acquired companies 0 -189 Accrued interests 65 63 Investments through financial leasing -17 0 Conversion of loan to shareholders’ equity - 1 Net cash flow according to operating cash flow -686 -672 ACCOUNTING PRINCIPLES Accounting principles and effects of transition to IFRS As of 2005, SCA prepares its consolidated accounts in accordance with the International Financial Reporting Standards Board (IFRS). A detailed description of the effects of the transition from Swedish GAAP to IFRS, on the opening and closing balances 2004 as well as on 2004 earnings, is provided in the 2004 Annual Report (Note 33). The transition to IFRS is 1 January 2004, which means that comparable figures for 2004 are adjusted to IFRS rules. IAS 39 and 32 are applied from 1 January 2005 and forward. The effect on the opening balance 2005 of the application is provided below. IFRS 5 Non-current Assets Held for Sale and Discontinued Operations is a new standard that the Group applies as of 2005. In recent years, Swedish GAAP has adapted largely to IFRS regulations and large sections of IFRS’ regulations, accordingly, are already applied in the Group. However, the transition has resulted in the following more significant or principle differences compared with 2004: - Biological assets, growing trees, are valued and reported at fair value. Fair value is calculated on the current value of the expected future cash flow from the assets. (IAS 41) - Goodwill is tested annually to identify any impairment requirements and reported at acquisition value less accumulated write-downs; Amortization of goodwill is no longer applied. (IFRS 3) - Intangible assets can have indefinite lifetime, such assets, currently only trademarks, are treated in the same manner as goodwill and are tested annually to identify any necessary impairment requirement. (IAS 38) - Derivative instruments, as well as financial assets held for trading, are valued at fair value and reported in the balance sheet. The results from revaluation are reported in the statement of earnings in the period they arise. (IAS 39, for further information see below) - Securities classified as financial assets available for sale are valued at fair value. Unrealized earnings from revaluation are reported in shareholders’ equity, Realized gains as well as any write-downs are recognized in the statement of earnings. (IAS 39, for further information see below) - Rules for hedge accounting in accordance with IAS 39 are applied and described in detail below. - Offsetting is no longer reported in securitization. (IAS 32 and IAS 39) - Actuarial gains and losses from calculation of pensions are reported directly in shareholders’ equity. The EU has not yet approved this supplement to IAS 19. The EU’s expert authority for accounting, EFRAG, has recommended approval. - Reported share in earnings of associated companies pertains to the Group’s share after tax. - Minority interests are included in the reported earnings of the period and are part of the Group’s shareholders’ equity. (IAS 1) The accounting presented in this report is based on IFRS standards in their current form. Changes and interpretations may be published during 2005 and affect the year’s final accounting. Financial instruments, recognition and measurement in accordance with IAS 39 SCA classifies its financial instruments in the following classes. Classification is determined in conjunction with implementing the transaction. Financial assets valued at fair value through the statement of earnings. A financial asset is assigned to this category if it is held for trading. Derivative instruments with positive market value are assigned to this category if they are not identified as hedging transactions. Value changes in this category are recognized in the statement of earnings. Loan receivables and other accounts receivable. This includes financial assets that arise as a result of the Group providing money, goods or services directly to customers without the intention of trading in the resulting receivable. This category does not contain any derivative instruments. These financial assets are reported at accrued acquisition value and are impairment tested. Available-for-sale financial assets. A financial asset not classified in any of the above and is not a derivative instrument is classified in this category. These financial assets are reported at fair value and the value change is recognized in shareholders’ equity. Financial liabilities valued at fair value through the statement of earnings. Derivative instruments with negative market value are assigned to this category, if they are not identified as hedging transactions. The value changes in these instruments are reported directly in the statement of earnings. Other liabilities. This includes all liabilities except derivative instruments. Liabilities are reported at the accrued acquisition value, if they are not identified for hedge accounting. Hedge accounting Derivative instruments are reported at fair value and the result of revaluations normally affects the statement of earnings continually. The exception to this rule occurs in transactions in which derivative instruments qualify as hedge accounting. The following hedge areas have been identified within the Group: Cash flow hedging may be applied for hedging of value changes in a highly probable forecast cash flow in a highly probable forecast cash flow. The change in market value of a derivative instruments applied in such a hedging transaction is reported in shareholders’ equity. Hedging of fair value of assets and liabilities. Changes in market values of derivative instruments used to hedge fair values are recognized in the statement of earnings with the changes in fair value on the asset or liabilities for which hedged risk originated. Hedging of net investmentsin foreign operations. Gains and losses that arise in revaluation of the derivative instruments used for such hedges, and which are attributable to currency movements, are recognized in shareholders’ equity. To meet the goals and policies for financial risk management in the Group, financial derivative instruments are used. SCA has created hedging relations that meet the conditions for hedge accounting for all derivative instruments that are intended to hedge the Group’s net investments, for those derivatives intended to secure desired fixed interest rates and which can be linked to a specific loan and for those derivative instruments intended for hedging of flows linked to investments. The goal for other derivative instruments is to create hedging relations during the year that meet the conditions for hedge accounting in order to limit to the most possible extent short-term earnings volatility where this is possible at a reasonable cost. Effects on the consolidated balance sheet 1 January 2005 of transition to IAS 32 and IAS 39 In the transition to IAS 32 and 39, previously offset reporting of securitization transactions were recognized gross. No embedded derivatives have been identified in the Group. The effect on the opening balance in other respects is due to market valuation of financial instruments. The starting point is the balance sheet in accordance with IFRS at 31 December 2004 as presented in the annual report. Effects of transition to reporting financial instruments in accordance with IAS39 BALANCE SHEET, 1 January 2005 Financial assets valued at fair In Financial value in In accordance assets the accordance with IFRS available statement Hedging Cash with IFRS excl. Asset of of fair flow incl. IAS SEK M IAS 39*) securitization for sale earnings value hedging 39 Assets Goodwill 17,131 17,131 Other intangible fixed assets 2,025 2,025 Tangible fixed assets 74,714 74,714 Shares and participations 696 197 0 893 Long-term financial investments 1,126 1 514 1,641 Other long- term receivables 682 1 683 Total fixed assets 96,374 0 197 2 514 0 97,087 Operating receivables and inventories 25,774 1,250 64 2 27,090 Short-term investments 891 -53 -178 660 Cash and bank balances 2,735 2,735 Total current assets 29,400 1,250 0 11 -178 2 30,485 Total assets 125,774 1,250 197 13 336 2 127,572 Shareholders’ equity Equity excluding minority interest 54,202 0 197 -87 -4 -11 54,297 Minority interest 768 768 Total equity 54,970 0 197 -87 -4 -11 55,065 Liabilitites Provisions for pensions 4,388 4,388 Other provisions 12,346 -34 -2 -4 12,306 Long-term interest- bearing debt 19,155 1 549 19,705 Other long- term liabilities 90 7 2 99 Total long- term liabilities 35,979 0 0 -26 547 -2 36,498 Current interest- bearing debt 15,776 1,250 -34 -207 16,785 Operating liabilities 19,049 160 15 19,224 Total current liabilities 34,825 1,250 0 126 -207 15 36,009 Total liabilities 70,804 1,250 0 100 340 13 72,507 Total quity and liabilities 125,774 1,250 197 13 336 2 127,572 *) Agrees with the balance sheet in accordance with IFRS as of 31 December 2004 presented in the 2004 Annual Report. Effects of transition to IFRS on the consolidated statement of earnings per quarter 2004 STATEMENT OF EARNINGS January - March 2004 January-June 2004 In In accordance accordance with Effects of with Effects of previously transition In previously transition In applied accordance applied accordance SEK M principles to IFRS with IFRS principles to IFRS with IFRS Net sales 21,687 0 21,687 44,027 0 44,027 Operating expenses 1) -18,386 187 -18,199 -37,228 385 -36,843 Operating surplus 3,301 187 3,488 6,799 385 7,184 Depreciation and write-downs, fixed assets 2) -1,393 -2 -1,395 -2,866 -2 -2,868 Goodwill amortization -286 286 0 -581 581 0 Share in earnings of associated companies 5 -1 4 17 -5 12 Operating profit 1,627 470 2,097 3,369 959 4,328 Financial items 3) -155 -59 -214 -395 -118 -513 Operating profit before taxes 1,472 411 1,883 2,974 841 3,815 Taxes -449 -50 -499 -937 -102 -1,039 Minority interest in net earnings for the year -9 9 0 -14 14 0 Net earnings for the period 1,014 370 1,384 2,023 753 2,776 Earnings attributable to: Parent company shareholders 1,375 2,762 Minority interest 9 14 1,384 2,776 1) Operating expenses Change in fair value of growing trees 63 126 Changed expenses for pensions as a result of changed treatment of actuarial gains and losses 123 258 Effect of reclassification of operational leasing contracts to financial 2 4 Reversal of negative goodwill recognized in income -1 -3 187 385 2)Depreciation according to plan Reversal of amortization of trademarks with indefinite lifetimes 0 0 Effect of reclassification of operational leases to financial -2 -2 -2 -2 3) Financial items Changed expenses for pensions as a result of changed treatment of actuarial gains and losses -58 -117 Effect of reclassification of operational leases to financial -1 -1 -59 -118 Earnings per share, SEK - before full dilution 4.35 1.55 5.90 8.67 3.17 11.84 - after full dilution 4.34 1.55 5.89 8.66 3.17 11.83 Effects of transition to IFRS on the segments’ operating profit January - March 2004 January – June 2004 In In accordance accordance with Effects of with Effects of previously transition In previously transition In applied accordance applied accordance principles to IFRS with IFRS principles to IFRS with IFRS Hygiene Products 1,153 25 1,178 2,310 54 2,364 Tissue 553 14 567 1,092 31 1,123 Personal Care 600 11 611 1,218 23 1,241 Packaging 533 88 621 1,142 176 1,318 Forest Products 345 72 417 730 144 874 Publication papers 96 6 102 192 14 206 Pulp, timber 249 66 315 538 130 668 Other -118 -1 -119 -232 4 -228 Operating profit before goodwill amortization 1,913 184 2,097 3,950 378 4,328 Goodwill amortization -286 286 0 -581 581 0 Operating profit 1,627 470 2,097 3,369 959 4,328 Financial items -155 -59 -214 -395 -118 -513 Earnings after financial items 1,472 411 1,883 2,974 841 3,815 Effects of transition to IFRS on the consolidated statement of earnings per quarter 2004 STATEMENT OF EARNINGS January – September 2004 January – December 2004 In In accordance accordance with Effects of with Effects of previously transition In previously transition In applied accordance applied accordance SEK M principles to IFRS with IFRS principles to IFRS with IFRS Net sales 66,839 0 66,839 89,967 0 89,967 Operating expenses 1) -56,501 559 -55,942 -76,924 760 -76,164 Operating surplus 10,338 559 10,897 13,043 760 13,803 Depreciation and write-downs, fixed assets 2) -4,452 -4 -4,456 -6,172 20 -6,152 Goodwill amortization -895 895 0 -1,213 1,213 0 Share in earnings of associated companies 26 -10 16 32 -14 18 Operating profit 5,017 1,440 6,457 5,690 1,979 7,669 Financial items 3) -666 -177 -843 -851 -233 -1,084 Operating profit before taxes 4,351 1,263 5,614 4,839 1,746 6,585 Taxes -1,349 -155 -1,504 -1,172 -221 -1,393 Minority interest in net earnings for the year -24 24 0 -28 28 0 Net earnings for the period 2,978 1,132 4,110 3,639 1,553 5,192 Earnings attributable to: Parent company shareholders 4,086 5,164 Minority interest 24 28 4,110 5,192 1) Operating expenses Change in fair value of growing trees 189 252 Changed expenses for pensions as a result of changed treatment of actuarial gains and losses 383 519 Effect of reclassification of operational leasing contracts to financial 6 8 Reversal of negative goodwill recognized in income -19 -19 559 760 2)Depreciation according to plan Reversal of amortization of trademarks with indefinite lifetimes 0 24 Effect of reclassification of operational leases to financial -4 -4 -4 20 3) Financial items Changed expenses for pensions as a result of changed treatment of actuarial gains and losses -176 -231 Effect of reclassification of operational leases to financial -1 -2 -177 -233 Earnings per share, SEK - before full dilution 12.76 4.74 17.50 15.59 6.53 22.12 - after full dilution 12.75 4.74 17.49 15.58 6.53 22.11 Effects of transition to IFRS on the segments’ operating profit January - September 2004 January – December 2004 In In accordance accordance with Effects of with Effects of previously transition In previously transition In applied accordance applied accordance principles to IFRS with IFRS principles to IFRS with IFRS Hygiene Products 3,378 79 3,457 4,321 134 4,455 Tissue 1,572 46 1,618 1,950 76 2,026 Personal Care 1,806 33 1,839 2,371 58 2,429 Packaging 1,778 246 2,024 2,268 336 2,604 Forest Products 1,104 216 1,320 1,487 290 1,777 Publication papers 313 20 333 442 28 470 Pulp, timber 791 196 987 1,045 262 1,307 Other -348 4 -344 -1,173 6 -1,167 Operating profit before goodwill amortization 5,912 545 6,457 6,903 766 7,669 Goodwill amortization -895 895 0 -1,213 1,213 0 Operating profit 5,017 1,440 6,457 5,690 1,979 7,669 Financial items -666 -177 -843 -851 -233 -1,084 Earnings after financial items 4,351 1,263 5,614 4,839 1,746 6,585 Effects of transition to IFRS on shareholders’ equity Opening balance Jan-Mar Jan-Jun Jan-Sep Jan-Dec 2004-01-01 2004 2004 2004 2004 Opening shareholders’ equity in accordance with previously applied principles 49,754 49,754 49,754 49,754 49,754 Changed accounting principles - - - - 87 Conversions of debentures, options 1 1 1 1 Sales of own shares 4 7 9 15 Translation differences 1,917 1.083 329 -1,201 Exchange-rate differences in hedging instruments -823 -474 -155 192 Dividend - -2,450 -2,450 -2,450 Net earnings for the period 1,014 2,023 2,978 3,639 Closing shareholders’ equity in accordance with previously applied principles 49,754 51,867 49,944 50,466 50,037 Effects of shareholders’ equity of transition to IFRS attributable to: - change in opening shareholders’ equity, 1 January 2004 3,588 3,588 3,588 3,588 - valuation of growing trees at fair value 5,589 45 91 136 181 - changed pension accounting - 45 98 143 199 - changed pension accounting, nondistributable equity -2,853 - - - -244 - reclassification of operational leasing contracts to financial 50 -1 1 1 2 - change accounting for negative goodwill 51 -1 -3 -19 -19 - reversal of amortization of trademarks with indefinite lifetimes - - - - 17 - reversals of goodwill amortization - 273 552 847 1,145 - changed accounting for succesive acquisitions, restricted reserves - - - 36 36 - translation differences on IFRS adjustments - -161 -119 -44 11 - minority interests included in shareholders’ equity 751 74 30 24 17 Total effect, opening balance 1 January 2004 3,588 Closing shareholders’ equity; in accordance with IFRS 53,342 55,729 54,182 55,178 54,970 Press conference SCA’s interim report for the period 1 January-31 March 2005 will be published on 26 April 2005. A press conference will be held at 10:00 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 April 2005, 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 0185 quote: SCA Dial-in number US: +1 334 323 6203 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) at www.sca.com. On 26 April in the evening, a recorded version will be available at www.sca.com/Investors. Requirements: Windows Media Player or Real Player. 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. ------------------------------------------------------------------------ 1As in the first and fourth quarters of 2004, earnings in the quarter were affected byefficiency enhancementmeasures. In addition, during the fourth quarter, financial items and taxes were affected positively by items affecting comparability, see also page 10.