Year-end Report 1 January–31 December 2004

2004:4 2004:3 2004:2 2004:1 0412 0312 Earnings per share, SEK 2.83 4.09 4.32 4.34 15.58 21.84 Cash flow from current operations per share, SEK 7.93 9.59 2.27 3.48 23.27 34.98 Net sales, SEK M 23,128 22,812 22,340 21,687 89,967 85,338 Earnings after financial items, SEK M 488 1,377 1,502 1,472 4,839 6,967 Net earnings, SEK M 661 955 1,009 1,014 3,639 5,075 Dividend per share, SEK 10.50¹ 10.50 See page 11 for specifications of items affecting comparability. ¹Board of Directors’ proposal. Dividend · The Board proposes an unchanged dividend of SEK 10.50 per share. 2004 compared with2003 · Net sales amounted to SEK 89,967 M (85,338). · Earnings after taxes (net earnings) amounted to SEK 3,639 M (5,075). · Earnings per share amounted to SEK 15.58 (21.84). · Earnings after financial items amounted to SEK 4,839 M (6,967). Adjusted for items affecting comparability, earnings after financial items amounted to SEK 5,439 M (6,615), a decline of 18%, of which currency effects 6%. Compared with third quarter of 2004 · Net sales amounted to SEK 23,128 M (22,812). · Earnings after taxes (net earnings) amounted to SEK 661 M (955) · Earnings per share amounted to SEK 2.83 (4.09). · Earnings after financial items amounted to SEK 488 M (1,377). Adjusted for items affecting comparability, earnings after financial items amounted to SEK 1,114 M (1,307), a decline of 15%, of which currency effects 3%. Rationalization program · The costs for efficiency enhancement programs amounting to SEK 726 M were charged in the quarter. In addition, a decision was made regarding expansion of the earlier programs at a cost of about SEK 425 M, with a savings effect of about SEK 200 M per year. NET SALES AND EARNINGS The Group’s operations in Western Europe had a continued weak development also during the fourth quarter. The reason is primarily the continuing intense competitive pressure within SCA’s most important product areas, which has resulted in persistent price pressures. However, price increases were implemented in North America during the fourth quarter, which provided certain compensation for the sharp increases in energy and raw material costs during the year. The costs for the previously decided efficiency enhancement programs amount to SEK 726 M, which in its entirety was charged against earnings in the fourth quarter. During the first quarter of 2005, the programs will be expanded in a number of specific points, resulting in restructuring expenses of about SEK 425 M, with annual savings effect of SEK 200 M. The programs are described in more detail on page 8. _______________________ Earnings per share amounted to SEK 15.58 (21.84) and consolidated net earnings amounted to SEK 3,639 M (5,075). Consolidated net sales amounted to SEK 89,967 M (85,338). Adjusted for currency and price effects, net sales rose by 8%. The Group’s operating profit amounted to SEK 5,690 M (7,757). Excluding items affecting comparability of an expense of SEK 770 M (income: 352) operating profit amounted to SEK 6,460 M (7,405), a decline by 13%, of which currency effects 5%. Operating profit for Hygiene Products was SEK 4,321 M (4,820), a decline of 10%, of which 2% was due to currency movements. Operating profit for Packaging amounted to SEK 2,268 M (2,482), a decline of 9%, of which currency effects 3%. Operating profit for Forest Products declined 5% to SEK 1,487 M (1,559), with currency effects impacting earnings negatively by 14%. Operating margin for the Group excluding items affecting comparability was 7% (9). Operating margin for Hygiene Products was 10% (11), 7% (8) for Packaging and 10% (11) for Forest Products. Financial items increased by SEK 61 M to an expense of SEK 851 M (expense: 790). Excluding items affecting comparability of SEK 170 M, financial items increased to SEK 231 M. The Group’s earnings after financial items amounted to SEK 4,839 M (6,967), excluding items affecting comparability SEK 5,439 M (6,615), a decrease 18%, of which currency movements accounted for 6%. Return on shareholders’ equity was 7% (10) and return on capital employed was 7% (11). Comparison with third quarter of 2004 Earnings per share during the fourth quarter amounted to SEK 2.83 (4.09). Consolidated net sales amounted to SEK 23,128 M (22,812) and, accordingly, were somewhat higher than in the third quarter of 2004 despite negative currency effects of 3%. Operating profit for the Group amounted to SEK 673 M (1,648). Excluding items affecting comparability of an expense of SEK 726 M, operating profit declined by 15% to SEK 1,399 M (1,648). Currency movements affected earnings negatively by 4%. The operating profit for Hygiene Products was 12% lower than in the preceding quarter, for Packaging 23% lower, while Forest Products improved by 2%. Operating margin for the Group, excluding items affecting comparability, weakened to 6% (7). The margin for Hygiene Products declined to 8% (9). Packaging was down to 6% (8). Operating margin for Forest Products was unchanged at 10%. Financial items amounted to an expense of SEK 185 M (expense: 271). Financial items include items affecting comparability of SEK 100 M (70). The Group’s earnings after financial items amounted to SEK 488 M (1,377). Excluding items affecting comparability, consolidated earnings after financial items amounted to SEK 1,114 M (1,307), a decline of 15%, of which currency movements accounted for 3%. Tax expenses in the fourth quarter were affected by a legal restructuring in Germany, which means that unutilized tax-loss carryforwards may be used in the future for tax reduction and, accordingly, is reported as deferred tax assets. In addition, reduced tax rates in certain countries resulted in a revaluation of deferred tax liabilities. All in all, the tax expenses for the quarter was positively affected by SEK 320 M. Earnings analysis SEK M 2004:4 2004:3 2004:2 2004:1 0412 0312 Hygiene Products 943 1,068 1,157 1,153 4,321 4,820 Packaging 490 636 609 533 2,268 2,482 Forest Products 383 374 385 345 1,487 1,559 Other -825 -116 -114 -118 -1,173 26 Operating profit, before goodwill amortization 991 1,962 2,037 1,913 6,903 8,887 Goodwill amortization -318 -314 -295 -286 -1,213 -1,130 Operating profit 673 1,648 1,742 1,627 5,690 7,757 Financial items -185 -271 -240 -155 -851 -790 Earnings after financial items 488 1,377 1,502 1,472 4,839 6,967 Income tax 177 -412 -488 -449 -1,172 -1,861 Minority interest -4 -10 -5 -9 -28 -31 Net earnings 661 955 1,009 1,014 3,639 5,075 Earnings per share, SEK 2.83 4.09 4.32 4.34 15.58 21.84 See page 11 for specifications of items affecting comparability. CASH FLOW The operating cash surplus amounted to SEK 13,596 M (13,508), corresponding to 15% (16) of net sales. Net current capital expenditures amounted to SEK 4,270 M (3,902). Working capital, which was unusually low at the beginning of the year, increased by SEK 620 M, compared with a decline in the preceding year of SEK 737 M. The year-on-year change included a result of 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 8,351 M (10,102). Taxes paid attributable to operating profit amounted to SEK 2,343 M (1,388) and free cash flow, accordingly, totaled SEK 6,008 M (8,714). The deviation in tax payments is attributable to the fact that the preceding year’s low tax payments were affected positively by recovered taxes from earlier years. Cash flow from current operations – defined as cash flow before strategic investments and dividends – amounted to SEK 5,435 M (8,134) or SEK 23.27 per share (34.98). Expenditures for company acquisitions amounted to SEK 9,340 M (4,808) including assumed loans 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 capital investments in plant and machinery, primarily in the hygiene-products area, and structural measures amounted to SEK 2,624 M (3,386). Comparison with third quarter of 2004 The operating cash surplus amounted to SEK 3,230 M (3,516), corresponding to 14% (15) of net sales. Cash flow from current operations amounted to SEK 1,853 M (2,238). A favorable working capital trend and lower tax payments largely offset higher current investments. Cash flow analysis SEK M 2004:4 2004:3 2004:2 2004:1 0412 0312 Net sales 23,128 22,812 22,340 21,687 89,967 85,338 Operating cash surplus 3,230 3,516 3,556 3,294 13,596 13,508 % of net sales 14 15 16 15 15 16 Current capital expenditures, net -1,596 -1,071 -1,020 -583 -4,270 -3,902 % of net sales 7 5 5 3 5 5 Change in working capital 955 552 -773 -1,354 -620 737 Other operating cash flow changes -195 6 -119 -47 -355 -241 Operating cash flow 2,394 3,003 1,644 1,310 8,351 10,102 Tax payment etc¹ -422 -582 -950 -389 -2,343 -1,388 Free cash flow 1,972 2,421 694 921 6,008 8,714 Per share, SEK 8.44 10.36 2.97 3.95 25.72 37.47 Interest payment after taxes -119 -183 -163 -108 -573 -580 Cash flow from current operations 1,853 2,238 531 813 5,435 8,134 Per share, SEK 7.93 9.59 2.27 3.48 23.27 34.98 Strategic investments and divestments -2,472 -363 -7,591 -1,538 -11,964 -7,233 Cash flow before dividend -619 1,875 -7,060 -725 -6,529 901 Dividend - -21 -2,450 - -2,471 -2,235 Conversion of debentures, warrants - - - 1 1 723 Sale of own shares 6 2 3 4 15 16 Net cash flow -613 1,856 -9,507 -720 -8,984 -595 ¹Tax attributable to operating profit. FINANCING Financial items rose to an expense of SEK 851 M (expense: 790). An average higher net debt as a result of implemented company acquisitions resulted in higher interest expenses that were partly offset by a capital gain of SEK 170 M from the sale of shares in Industrivärden to the SCA employees' pension foundations. Net debt amounted to SEK 30,527 M, an increase of SEK 8,221 M since the beginning of the year. Net cash flow showed a deficit of SEK 8,984 M and currency effects amounted to SEK 763 M. Consolidated shareholders’ equity rose during the period by SEK 283 M to SEK 50,037 M. Net earnings for the period increased equity by SEK 3,639 M, while dividends reduced shareholders’ equity by SEK 2,450 M. The sale of own shares as part of the employee option program and conversion of debenture loans increased shareholders’ equity by SEK 16 M and currency effects impacted negatively on shareholders’ equity by SEK 1,009 M. Change in accounting principles (payroll tax on adjustment of pension obligations) in accordance with RR 29 increased shareholders’ equity by SEK 87 M. The debt/equity ratio amounted to 0.60 (0.44) at the end of the year. The interest coverage multiple was 6.7 (9.8). HYGIENE PRODUCTS BUSINESS AREA SEK M 2004:4 2004:3 2004:2 2004:1 0412 0312 Net sales 11,904 11,761 11,149 10,545 45,359 42,981 Consumer Tissue 4,395 4,226 3,853 3,721 16,195 14,824 Tissue for bulk consumers – AFH 2,941 3,023 2,799 2,638 11,401 11,389 Personal Care 4,568 4,512 4,497 4,186 17,763 16,768 Operating surplus 1,679 1,855 1,848 1,768 7,150 7,280 Consumer Tissue 531 669 601 635 2,436 2,396 Tissue for bulk consumers – AFH 356 374 407 335 1,472 1,668 Personal Care 792 812 840 798 3,242 3,216 Operating profit, before goodwill amortization 943 1,068 1,157 1,153 4,321 4,820 Consumer Tissue 232 327 329 385 1,273 1,416 Tissue for bulk consumers – AFH 146 153 210 168 677 1,001 Personal Care 565 588 618 600 2,371 2,403 Operating surplus margin, % 14 16 17 17 16 17 Consumer Tissue 12 16 16 17 15 16 Tissue for bulk consumers – AFH 12 12 15 13 13 15 Personal Care 17 18 19 19 18 19 Operating margin, % 8 9 10 11 10 11 Consumer Tissue 5 8 9 10 8 10 Tissue for bulk consumers – AFH 5 5 8 6 6 9 Personal Care 12 13 14 14 13 14 Volume growth, % Consumer Tissue 6.9¹ 6.8¹ 11.8¹ -0.6¹ 13.5² 3.6² Tissue for bulk consumers – AFH 1.0¹ 6.0¹ 5.0¹ 0.4¹ 4.5² 3.3² Personal Care 10.1¹ 5.0¹ 8.9¹ 2.4¹ 10.1² 1.4² 1Compared with the immediately preceding quarter. 2Compared with corresponding period previous year. See also pages 13 and 18-19. Net sales amounted to SEK 45,359 M (42,981), and were thereby 6% higher than in the preceding year. The effects of the completed company acquisitions and higher volumes were partly offset by lower prices but primarily by negative currency movements. Operating profit amounted to SEK 4,321 M (4,820), a decline of 10%. Adjusted for currency effects, the decline was 8%. Earnings declined as a result of reduced earnings in the AFH tissue area, mainly in North America. Operating profit in the fourth quarter was 12% lower than during the third quarter and amounted to SEK 943 M (1,068). Negative currency effects amounted to 2%. The earnings decline is attributable to lower prices, increased advertising and promotions expenses, and costs for production stops. Consumer Tissue Operating profit amounted to SEK 1,273 M (1,416). Lower prices, about 3.5%, were offset partially by lower production and distribution costs, while energy and raw material costs were largely unchanged. Operating profit in the fourth quarter was 29% lower than in the third quarter and amounted to SEK 232 M (327) M. Despite higher volumes and somewhat lower pulp prices, earnings weakened mainly due to lower prices as well as to higher energy costs, and production stops toward year-end. Tissue for bulk consumers – AFH Operating profit for AFH products amounted to SEK 677 M (1,001), which was 32% lower than in the preceding year. Higher prices in North America did not offset increased raw material and energy costs and the negative currency effects. In the European operations, increased production costs and costs for enhancing the efficiency of the British production and distribution structure affected earnings adversely. Compared with the third quarter, operating profit declined in the fourth quarter by 5% to SEK 146 M (153). As a result of price increases, the American operations posted improved earnings, despite the production cutbacks at year-end. Earnings in the European operations weakened as a result of seasonally related production stops, as well as costs for improving the efficiency of the British production and distribution structure and higher energy costs. Personal Care Operating profit amounted to SEK 2,371 M (2,403) and was therefore somewhat lower than prior year. The company acquisitions, combined with a positive volume development, had a positive affect on earnings. The effects of this were counteracted by generally lower prices for baby diapers in the area of retailers’ brands and a changed product mix towards thinner feminine hygiene products. In addition, the costs for advertising and promotion were higher than in the preceding year. Compared with the third quarter, operating profit declined by 4% and amounted to SEK 565 M (588). The decline is due to lower earnings in feminine hygiene products, mainly due to a continued product shift toward thinner products. In addition, the costs for advertising and promotion were higher than in the preceding quarter. PACKAGING BUSINESS AREA SEK M 2004:4 2004:3 2004:2 2004:1 0412 0312 Net sales 7,804 7,928 7,939 7,830 31,501 30,029 Operating surplus 945 1,096 1,046 975 4,062 4,124 Operating profit, before goodwill amortization 490 636 609 533 2,268 2,482 Operating surplus margin, %¹ 12 14 13 12 13 14 Operating margin, %¹ 6 8 8 7 7 8 Production Liner products, kton 637 644 685 650 2,616 2,512 Deliveries Liner products, kton 630 640 668 663 2,601 2,505 Corrugated board, Mm2 1,062² 1,056² 1,060² 1,068² 4,246² 4,138² 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 13 and 18-19. Net sales were 5% higher than in the preceding year and amounted to SEK 31,501 M (30,029). Company acquisitions increased net sales, while lower prices had a negative impact. Operating profit amounted to SEK 2,268 M (2,482), 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 lower energy costs. The North American packaging operations were affected by sharp price increases for oil-based raw materials, which to date could not yet be offset by implemented price increases. Compared with the third quarter, operating profit declined by 23% and amounted to SEK 490 M (636), partly as a result of seasonal declines in conjunction with the Christmas and New Year’s holidays and partly due to planned repair and maintenance stops in the liner operations. Lower raw material prices did not offset the lower prices for corrugated board. FOREST PRODUCTS BUSINESS AREA SEK M 2004: 2004:4 2004:3 2004:2 1 0412 0312 Net sales 3,814 3,586 3,741 3,813 14,954 14,081 Publication papers 2,005 1,909 1,790 1,905 7,609 7,267 Pulp, timber and solid-wood products 1,809 1,677 1,951 1,908 7,345 6,814 Operating surplus 724 700 709 667 2,800 2,744 Publication papers 345 334 309 310 1,298 1,501 Pulp, timber and solid-wood products 379 366 400 357 1,502 1,243 Operating profit, before goodwill amortization 383 374 385 345 1,487 1,559 Publication papers 129 121 96 96 442 662 Pulp, timber and solid-wood products 254 253 289 249 1,045 897 Operating surplus margin, % 19 20 19 17 19 19 Publication papers 17 17 17 16 17 21 Pulp, timber and solid-wood products 21 22 21 19 20 18 Operating margin, % 10 10 10 9 10 11 Publication papers 6 6 5 5 6 9 Pulp, timber and solid-wood products 14 15 15 13 14 13 Production Publication papers, kton 383 365 366 357 1,471 1,376 Solid- wood products, km3 404 326 362 370 1,462 1,338 Deliveries Publication papers, kton 392 366 344 370 1,472 1,378 Solid- wood products, km3 393 324 443 340 1,500 1,312 See also pages 13 and 18-19. Net sales for the Forest Products business area were 6% higher than in the preceding year and amounted to SEK 14,954 M (14,081). 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 1,487 M (1,559) and, accordingly, was 5% lower than in the preceding year. Currency movements had a negative effect on operating profit of 14%. Lower earnings in the publication papers business were offset by improved earnings in the forestry, sawmill and pulp operations. In the fourth quarter, earnings increased by 2% compared with the third quarter and totaled SEK 383 M (374). Currency movements affected earnings negatively by 10%. However, this was offset by improved earnings in the publication papers operations. Publication papers Operating profit in the publication papers operations totaled SEK 442 M (662), a decline of 33%, of which 22% due to currency effects. The decline in earnings was primarily attributable to lower prices and higher production costs. However, this was offset by higher volumes and the related higher capacity utilization. Operating profit in the fourth quarter amounted to SEK 129 M (121), an improvement due mainly to higher volumes and related higher capacity utilization. Pulp, timber and solid-wood products Operating profit amounted to SEK 1,045 M (897) and was thereby 16% 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. Operating profit in the fourth quarter amounted to SEK 254 M (253). GOODWILL Consolidated goodwill amounted to SEK 15,970 M (14,586)[1]. Goodwill is amortized over 20 years. Goodwill amortization by business area is presented on pages 13 and 18. Earnings excluding goodwill amortization SEK M 2004:4 2004:3 2004:2 2004:1 0412 0312 Operating profit 991 1,962 2,037 1,913 6,903 8,887 Earnings after financial items 806 1,691 1,797 1,758 6,052 8,097 Net earnings 977 1,255 1,291 1,287 4,810 6,160 Earnings per share (SEK) 4.18 5.37 5.53 5.51 20.59 26.51 See page 11 for specifications of items affecting comparability. PERSONNEL The average number of employees at the close of the quarter was 51,718, compared with 43,617 at the end of 2003[2]. The increase is due to acquisitions carried out during the year, while at the same time various efficiency enhancement programs within the Group reduced the number of employees. RATIONALIZATION PROGRAM In conjunction with the third quarter interim report, SCA announced an efficiency enhancement program, with estimated costs of SEK 700 M and an annual savings effect of slightly more than SEK 1,000 M. After the announcement, additional programs were identified within the North American operations, the European hygiene products operations and in newly acquired units. The cost for these supplementary programs, which in total affect 450 persons, is estimated to SEK 425 M, of which most in the form of expenditures and the annual savings is estimated to SEK 200 M. Against this background, SCA’s Board of Directors today approved an increase in the original program by about SEK 425 M. Based on the communication prior to the year-end with affected employees, the fourth quarter was charged with SEK 726 M in the form of structural costs and the related asset write-downs. The costs for the expansion of the program, about SEK 425 M, are expected to be charged in the first quarter of 2005. STORM DAMAGE SCA’s forest holdings were not significantly affected by the storm that devastated large parts of southern Sweden’s forestlands in the beginning of 2005. Since the reported earnings for 2005 (in accordance with IFRS) comprise the sum of results from felling and the net growth of forest, the earnings in the forestry operations will not be affected by changes in short-term felling plans that may arise as a result of the storm. However, cash flow is affected. MARKET OUTLOOK No notable change in the market situation and demand picture for the Group’s products is expected in the nearest future. This means that the intensive competitive situation is expected to remain although certain price adjustments are planned in the North American operations and in the publication papers area in Europe. The internal measures for cost reductions and integration of acquired units will be assigned high priority during the year, while at the same time acquisition activities will be sharply limited. ACQUISITIONS DURING THE YEAR Acquisitions Purchase price3 Consolidation date Vincor SEK 83 M 1 January 2004 Mark/Heritage SEK 14 M 1 March 2004 Drypers SEK 684 M 1 March 2004 Central Package Group SEK 262 M 1 April 2004 (increase by 27,5% to 92,5%) Carter Holt Harvey Tissue (100%) & SEK 4,869 M 19 May 2004 Sancella Australia (increase by 50% to 100%) Copamex Tissue (50%) SEK 1,260 M 1 May 2004 Busto & Tema SEK 306 M 30 June 2004 Copamex Tissue & Sancela de Mexico (increase by 50% to SEK 1,715 M 9 December 2004 100%) ANNUAL GENERAL MEETING The Annual General Meeting will be held on Tuesday, 5 April 2005, at 15: 00 p.m. at the Aula Magna, University of Stockholm, Sweden. The proposed record date for dividend entitlement is Friday, 8 April. Payment through VPC is expected on Wednesday, 13 April. The 2004 Annual Report is expected to be released in mid-March 2005. Interim reports during 2005 will be released on 26 April, 21 July and 26 October. The Nomination Committee, which is assigned the task of preparing proposals regarding composition of the SCA Board of Directors, includes Sverker Martin-Löf, SCA Board Chairman, Curt Källströmer, Handelsbankens Personalstiftelser, Handelsbankens Pensionsstiftelser and Pensionkassan SHB Försäkringsförening, Ramsay Brufer, Alecta, Björn Lind, SEB Fonder, Thomas Halvorsen, Fjärde AP-fonden, and Carl-Olof By, Industrivärden. CHANGED ACCOUNTING RULES (IFRS) The table below presents an update of the preliminary information released in the interim report on 26 October. The table shows the preliminary effects of how an adjustment of the 2004 comparable figures affects the consolidated income statement and balance sheet. Change in shareholders’ equity, net debt, capital employed and earnings: (SEK Gross Deferred Shareholders’ Net debt Capital Earnings billion, tax equity employed 2004) Forestland 8.9 3.4 5.5 5.5 0.3 Pension 4.1 - 1.3 - 2.8 4.1 1.3 0.5 liabilities Goodwill 1.2 Earnings impact on 0.3 1.5 -0.3 1.2 balance sheet Total 2.4 4.2 3.8 8.0 Operating 2.0 profit Financial -0.2 items Earnings after 1.8 financial items Taxes - 0.3 Net 1.5 earnings Change in key figures Return on capital employed + 1.6 percentage points Return on equity + 2.2 percentage points Debt/equity ratio increases 0.02 Earnings per share SEK +6.42 OTHER SCA follows the accounting recommendation RR 29, Employee Benefits. The deficit in the Group’s defined-benefit pension plans amounted at the end of the year to approximately SEK 3,964 M and, accordingly, has declined by SEK 452 M since the preceding year-end. In accordance with the guidelines regarding interim reporting in accounting recommendation RR 20, it is reported 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-December 2004 amounted to SEK 135 M (118) and earnings before appropriations and taxes totaled SEK 2,998 M (2,180). During the period, the Parent Company made no investments in shares and participations. Investments in properties and plant amounted to SEK 60 M (71) during the period. Liquid funds at the end of the period amounted to SEK 79 M (35). DIVIDEND The Board of Directors has decided to propose to the Annual General Meeting an unchanged dividend of SEK 10.50 per share. Accordingly, the average dividend growth during the past five years will amount to 9%. In total, the dividend will amount to about SEK 2,450 M. SHARE DISTRIBUTION 31 December 2004 Series A Series B Total Registered number of shares 40,427,857 194,608,841 235,036,698 Of which treasury shares - (1,653,952) (1,653,952) During the fourth 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%. The conversion of the shares was made at the request of the shareholders in question and with 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 options programs amount to a maximum dilution of 0.1%, which was taken into consideration when calculating earnings per share for the period. Stockholm, 27 Januari 2005 SVENSKA CELLULOSA AKTIEBOLAGET SCA (publ) Jan Åström President and CEO This report has not been subject to examination by the auditors. STATEMENT OF EARNINGS 31 Dec. 31 Dec. 2004:4 2004:3 2003:4 04 03 SEK M SEK M SEK M SEK M SEK M Net sales 23,128 22,812 21,153 89,967 85,338 Operating expenses¹ -20,423 -19,273 -17,551 -76,924 -71,093 Operating surplus 2,705 3,539 3,602 13,043 14,245 Depreciation and write-down, properties and plant² -1,720 -1,586 -1,369 -6,172 -5,482 Goodwill amortization -318 -314 -296 -1,213 -1,130 Share in earnings of associated companies 6 9 27 32 124 Operating profit 673 1,648 1,964 5,690 7,757 Financial items³ -185 -271 -178 -851 -790 Earnings after financial items 488 1,377 1,786 4,839 6,967 Income taxes4 177 -412 -358 -1,172 -1,861 Minority interest -4 -10 -9 -28 -31 Net earnings 661 955 1,419 3,639 5,075 Earnings per share, SEK - before dilution effects 2.83 4.09 6.08 15.59 21.92 - after dilution effects 2.83 4.09 6.07 15.58 21.84 Operating margin 3 % 7 % 9 % 6 % 9 % Return on shareholders’ equity 7 % 9 % 10 % 7 % 10 % Return on capital employed 7 % 9 % 11 % 7 % 11 % Specification of earnings per share Net earnings for the period 661.0 955.0 1,419.0 3,639.0 5,075.0 Interest on convertible debentures 0.0 0.0 0.0 0.0 4.6 Adjusted net earnings 661.0 955.0 1,419.0 3,639.0 5,079.6 Average number of shares before dilution 233.3 233.3 231.5 233.3 231.5 Employee convertibles 0.0 0.0 0.7 0.0 0.7 Outstanding warrants 0.2 0.2 0.3 0.2 0.3 Average number of shares after dilution 233.5 233.5 232.5 233.5 232.5 Specifications of items affecting comparability 1Operating expenses -555 - 212 -599 409 - Sale of shares in Metsä Tissue - - - - 197 - Rationalization costs -555 - -158 -599 -158 - Release of badwill, Scaninge - - 418 - 418 - Write-down of shares, Otor - - -48 - -48 ² Depreciation and write-down, properties and plant -171 - -57 -171 -57 - Write-down of property, Taiwan - - -57 - -57 - Write-downs in conjunction with rationalization program -171 - - -171 - 3 Financial items - Sale of shares in Industrivärden 100 70 - 170 - 4 Income taxes - Tax treatment of loss carryforwards and changed tax rates 320 - - 320 - STATEMENT OF EARNINGS 31 Dec. 31 Dec. 2004:4 2004:3 2003:4 04 03 EUR M1 EUR M1 EUR M1 EUR M2 EUR M² Net sales 2,568 2,491 2,358 9,867 9,368 Operating expenses -2,267 -2,105 -1,956 -8,437 -7,804 Operating surplus 301 386 402 1,430 1,564 Depreciation and write- down, properties and plant -191 -173 -153 -677 -602 Goodwill amortization -35 -35 -33 -133 -124 Share in earnings of associated companies 1 1 3 4 14 Operating profit 76 179 219 624 852 Financial items -20 -30 -20 -93 -87 Earnings after financial items 56 149 199 531 765 Income taxes 18 -45 -40 -129 -204 Minority interest 0 -1 -1 -3 -3 Net earnings 74 103 158 399 558 1Isolated quarterly amounts have been calculated as the difference between two accumulated results. ² The average exchange rate of 9.12 was applied in translation to EUR. OPERATING PROFIT 1 January–31 December SEK M 2004 2003 Hygiene Products 4,321 4,820 Consumer Tissue 1,273 1,416 Tissue for bulk consumers - AFH 677 1,001 Personal Care 2,371 2,403 Packaging 2,268 2,482 Forest Products 1,487 1,559 Publication papers 442 662 Pulp, timber and solid-wood products 1,045 897 Other -1,173 26 Operating profit, before goodwill amortization 6,903 8,887 Goodwill amortization1 -1,213 -1,130 Total operating profit 5,690 7,757 ¹ Goodwill amortization: 2004 2003 Hygiene Products 472 412 Packaging 403 377 Common 338 341 Group 1,213 1,130 BALANCE SHEET 31 December 2004 31 December 2003 SEK M EUR M¹ SEK M EUR M¹ Assets Goodwill 15,970 1,777 14,586 1,607 Other intangible assets 1,997 222 897 99 Tangible assets 65,387 7,276 62,402 6,873 Shares and participations 696 77 658 72 Long-term financial receivables² 2,916 324 3,247 358 Other long- term receivables 682 76 241 26 Operating receivables and inventories 25,774 2,868 22,880 2,520 Short-term investments 891 99 749 82 Cash and bank balances 2,735 304 1,696 187 Total assets 117,048 13,023 107,356 11,824 Equity, provisions and liabilities Shareholders’ equity 50,037 5,567 49,754 5,480 Minority interest 768 85 751 83 Provisions for pensions 2,046 228 2,569 283 Other provisions 10,218 1,137 11,051 1,217 Long-term interest- bearing debt 19,092 2,124 15,500 1,707 Other long- term interest- free liabilities 90 10 163 18 Short-term interest- bearing debt³ 15,753 1,753 9,766 1,075 Operating liabilities 19,044 2,119 17,802 1,961 Total equity, provisions and liabilities 117,048 13,023 107,356 11,824 Debt/equity ratio 0.60 0.44 Equity/assets 43 % 47 % 1The period-end exchange rate of 8.99 (9.08) was applied in translation to EUR. 2Of which pension assets: 2,209 246 2,289 252 ³ SCA has committed unutilized credit facilities amounting to SEK 24,723 M. Of this amount, SEK 16,020 M is intended to cover short-term interest-bearing liabilities and amortization within one year. The remaining unutilized committed credit facilities of SEK 8,587 M and centrally available liquid funds of SEK 324 M comprise the Group’s liquidity reserve totaling SEK 8,911 M. The corresponding committed unutilized credit facilities at the end of the preceding quarter amounted to SEK 24,172 M and short-term interest-bearing liabilities and amortization within one year was SEK 16,235 M. CHANGE IN SHAREHOLDERS’ EQUITY, SEK M Jan.–Dec. 2004 Jan.–Dec. 2003 Shareholders’ equity, 1 January 49,754 47,983 Changed accounting principles 87 - Conversion of debentures, warrants 1 723 Sale of own shares 15 16 Translation differences -1,201 -2,945 Exchange rate differences on hedging instruments 192 1,114 Dividend -2,450 -2,212 Net earnings for the period 3,639 5,075 Shareholders’ equity, 31 December 50,037 49,754 OPERATING CASH FLOW ANALYSIS 1 January–31 December SEK M 2004 2003 Operating cash surplus 13,596 13,508 Changes in working capital -620 737 Current capital expenditures, net -4,270 -3,902 Other operating cash flow changes -355 -241 Operating cash flow 8,351 10,102 Financial items -851 -790 Income taxes paid -2,088 -1,151 Other 23 -27 Cash flow from current operations 5,435 8,134 Acquisitions -9,340 -4,808 Strategic capital expenditures, properties -2,398 -2,949 Strategic structural expenditures -226 -437 Divestments 0 961 Cash flow before dividend -6,529 901 Dividend -2,471 -2,235 Cash flow after dividend -9,000 -1,334 Conversion of debentures, warrants 1 723 Sale of own shares 15 16 Net cash flow -8,984 -595 Net debt at beginning of period -22,306 -23,899 Net cash flow -8,984 -595 Currency effects 763 2,188 Net debt at end of period -30,527 -22,306 Debt payment capacity 35 % 54 % Debt/equity ratio 0.60 0.44 Quarterly data STATEMENT OF EARNINGS Group 2004 2003 SEK M IV III II I IV III II I Net sales 23,128 22,812 22,340 21,687 21,153 21,064 21,231 21,890 Operating - - - - expenses¹ 20,423 19,273 18,842 18,386 -17,551 -17,629 -17,838 -18,075 Operating surplus 2,705 3,539 3,498 3,301 3,602 3,435 3,393 3,815 Depreciation and write- down, properties and plant² -1,720 -1,586 -1,473 -1,393 -1,369 -1,397 -1,353 -1,363 Goodwill amortization -318 -314 -295 -286 -296 -276 -273 -285 Share in earnings of associated companies 6 9 12 5 27 40 24 33 Operating profit 673 1,648 1,742 1,627 1,964 1,802 1,791 2,200 Financial items³ -185 -271 -240 -155 -178 -199 -187 -226 Earnings after financial items 488 1,377 1,502 1,472 1,786 1,603 1,604 1,974 Income taxes4 177 -412 -488 -449 -358 -465 -466 -572 Minority interest -4 -10 -5 -9 -9 -7 -8 -7 Net earnings 661 955 1,009 1,014 1,419 1,131 1,130 1,395 Earnings per share, SEK - before dilution effects 2.83 4.09 4.32 4.35 6.08 4.88 4.90 6.06 - after dilution effects 2.83 4.09 4.32 4.34 6.07 4.88 4.87 6.02 Specification of items affecting comparability 1Operating expenses -555 - -14 -30 212 - - 197 - Sale of shares in Metsä Tissue - - - - - - - 197 - Release of badwill, Scaninge - - - - 418 - - - - Rationalization costs -555 - -14 -30 -158 - - - - Write-down of shares, Otor - - - - -48 - - - ²Depreciation and write-down, properties and plant -171 - - - -57 - - - - Write-down of property, Taiwan - - - - -57 - - - - Write-downs in conjunction with rationalization program -171 - - - - - - - 3 Financial items - Sale of shares in Industrivärden 100 70 - - - - - - 4 Income taxes - Tax treatment of loss carryforwards and changed tax rates 320 - - - - - - - Quarterly data OPERATING CASH FLOW ANALYSIS Group 2004 2003 SEK M IV III II I IV III II I Operating cash surplus 3,230 3,516 3,556 3,294 3,348 3,270 3,291 3,599 Changes in working capital 955 552 -773 -1,354 1,430 714 -709 -698 Current capital expenditures, net -1,596 -1,071 -1,020 -583 -1,550 -817 -928 -607 Other operating cash flow changes -195 6 -119 -47 -60 -75 -28 -78 Operating cash flow 2,394 3,003 1,644 1,310 3,168 3,092 1,626 2,216 Financial items -185 -271 -240 -155 -178 -199 -187 -226 Income taxes paid -367 -501 -878 -342 -297 -485 -113 -256 Other 11 7 5 0 -62 77 -38 -4 Cash flow from current operations 1,853 2,238 531 813 2,631 2,485 1,288 1,730 Acquisitions -1,757 4521 -7,047 -988 -3,850 -107 -307 -544 Strategic capital expenditures, properties -669 -752 -512 -465 -843 -797 -756 -553 Strategic structural expenditures -46 -63 -32 -85 -103 -109 -72 -153 Divestments 0 0 0 0 11 85 215 650 Cash flow before dividend -619 1,875 -7,060 -725 -2,154 1,557 368 1,130 Dividend 0 -21 -2,450 - - -19 -2,216 - Cash flow after dividend -619 1,854 -9,510 -725 -2,154 1,538 -1,848 1,130 Conversion of debentures, warrants - - - 1 - 723 - - Sale of own shares 6 2 3 4 4 7 4 1 Net cash flow -613 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 IV III II I IV III II I Hygiene Products 11,904 11,761 11,149 10,545 10,531 10,753 10,791 10,906 Consumer Tissue 4,395 4,226 3,853 3,721 3,759 3,618 3,630 3,817 Tissue for bulk consumers - AFH 2,941 3,023 2,799 2,638 2,628 2,928 2,920 2,913 Personal Care 4,568 4,512 4,497 4,186 4,144 4,207 4,241 4,176 Packaging 7,804 7,928 7,939 7,830 7,459 7,434 7,421 7,715 Forest Products 3,814 3,586 3,741 3,813 3,736 3,378 3,406 3,561 Publication papers 2,005 1,909 1,790 1,905 1,891 1,810 1,802 1,764 Pulp, timber and solid-wood products 1,809 1,677 1,951 1,908 1,845 1,568 1,604 1,797 Other 298 265 268 256 126 155 331 419 Intra-group deliveries -692 -728 -757 -757 -699 -656 -718 -711 Total net sales 23,128 22,812 22,340 21,687 21,153 21,064 21,231 21,890 OPERATING SURPLUS 2004 2003 SEK M IV III II I IV III II I Hygiene Products 1,679 1,855 1,848 1,768 1,747 1,824 1,814 1,895 Consumer Tissue 531 669 601 635 614 574 562 646 Tissue for bulk consumers - AFH 356 374 407 335 340 438 433 457 Personal Care 792 812 840 798 793 812 819 792 Packaging 945 1,096 1,046 975 965 1,036 1,023 1,100 Forest Products 724 700 709 667 763 644 634 703 Publication papers 345 334 309 310 420 339 316 426 Pulp, timber and solid-wood products 379 366 400 357 343 305 318 277 Other -643 -112 -105 -109 127 -69 -78 117 Total operating surplus 2,705 3,539 3,498 3,301 3,602 3,435 3,393 3,815 OPERATING PROFIT 2004 2003 SEK M IV III II I IV III II I Hygiene Products 943 1,068 1,157 1,153 1,184 1,169 1,192 1,275 Consumer Tissue 232 327 329 385 402 308 311 395 Tissue for bulk consumers - AFH 146 153 210 168 178 264 271 288 Personal Care 565 588 618 600 604 597 610 592 Packaging 490 636 609 533 538 631 622 691 Forest Products 383 374 385 345 469 352 331 407 Publication papers 129 121 96 96 208 140 103 211 Pulp, timber and solid-wood products 254 253 289 249 261 212 228 196 Other -825 -116 -114 -118 69 -74 -81 112 Operating profit before goodwill amortization 991 1,962 2,037 1,913 2,260 2,078 2,064 2,485 Goodwill amortization 1 -318 -314 -295 -286 -296 -276 -273 -285 Total operating profit 673 1,648 1,742 1,627 1,964 1,802 1,791 2,200 ¹Goodwill amortization: Hygiene Products 136 126 107 103 110 98 96 108 Packaging 102 100 102 99 97 93 94 93 Common 80 88 86 84 89 85 83 84 Group 318 314 295 286 296 276 273 285 OPERATING SURPLUS MARGIN 2004 2003 Percent IV III II I IV III II I Hygiene Products 14 16 17 17 17 17 17 17 Consumer Tissue 12 16 16 17 16 16 15 17 Tissue for bulk consumers - AFH 12 12 15 13 13 15 15 16 Personal Care 17 18 19 19 19 19 19 19 Packaging 12 14 13 12 13 14 14 14 Forest Products 19 20 19 17 20 19 19 20 Publication papers 17 17 17 16 22 19 18 24 Pulp, timber and solid-wood products 21 22 21 19 19 19 20 15 OPERATING MARGINS, excluding goodwill amortization 2004 2003 Percent IV III II I IV III II I Hygiene Products 8 9 10 11 11 11 11 12 Consumer Tissue 5 8 9 10 11 9 9 10 Tissue for bulk consumers - AFH 5 5 8 6 7 9 9 10 Personal Care 12 13 14 14 15 14 14 14 Packaging 6 8 8 7 7 8 8 9 Forest Products 10 10 10 9 13 10 10 11 Publication papers 6 6 5 5 11 8 6 12 Pulp, timber and solid-wood products 14 15 15 13 14 14 14 11 Group data MARGINS 1 January–31 December Percent 2004 2003 Operating surplus margin 14.5 16.7 Operating margin, excl. goodwill amortization 7.7 10.4 Operating margin 6.3 9.1 Financial net margin -0.9 -0.9 Profit margin 5.4 8.2 Tax and minority -1.3 -2.3 Net margin 4.1 5.9 MARGINS – quarterly data Percent IV III II I IV III II I Operating surplus margin 11.7 15.5 15.7 15.2 17.0 16.3 16.0 17.4 Operating margin, excl. Goodwill amortization 4.3 8.6 9.1 8.8 10.7 9.9 9.7 11.4 Operating margin 2.9 7.2 7.8 7.5 9.3 8.6 8.4 10.1 Financial net margin -0.8 -1.2 -1.1 -0.7 -0.9 -0.9 -0.8 -1.1 Profit margin 2.1 6.0 6.7 6.8 8.4 7.7 7.6 9.0 Tax and minority 0.7 -1.8 -2.2 -2.1 -1.7 -2.3 -2.3 -2.6 Net margin 2.8 4.2 4.5 4.7 6.7 5.4 5.3 6.4 FIVE-YEAR SUMMARY Full year 2004 2003 2002 2001 2000¹ Earnings after financial items, SEK M 4,839 6,967 8,078 8,090 9,327 Earnings per share, SEK 15.58 21.84 24.54 24.05 30.64 Earnings per share, before goodwill amortization, SEK 20.59 26.51 29.15 28.40 33.76 Debt/equity ratio, times 0.60 0.44 0.49 0.51 0.39 Return on capital employed, % 7 11 13 14 18 Return on shareholders’ equity, % 7 10 12 13 20 ¹Adjusted historically to reflect new issues. CASH FLOW ANALYSIS (in accordance with the Swedish Financial Accounting Standards Council’s recommendation, RR 7) 1 January–31 December SEK M 2004 2003 Current operations Earnings after financial items 4,839 6,967 Adjustment for items not included in cash flow 7,363 5,100 12,202 12,067 Taxes paid -2,088 -1,151 Cash flow from current operations before changes in working capital 10,114 10,916 Cash flow from changes in working capital Change in inventories -320 191 Change in current receivables 942 743 Change in operating liabilities -1,242 -197 Cash flow from current operations 9,494 11,653 Investment activities Acquisition of subsidiaries -7,430 -1,581 Divested units - 961 Acquisition of tangible and intangible fixed assets -7,096 -6,763 Proceeds from sale of equipment 513 - Repayment of loans from external parties 299 8 Cash flow from investment activities -13,714 -7,375 Financing activities Conversion of debentures, warrants - 435 Sale of own shares 15 16 Loans assumed 8,278 - Amortization of debt - -3,339 Dividend -2,471 -2,235 Cash flow from financing activities 5,822 -5,123 Cash flow for the period 1,602 -845 Liquid funds at beginning of year 1,929 2,826 Translation differences in liquid funds -33 -52 Liquid funds at end of period 3,498 1,929 Reconciliation between cash flow analysis according to RR 7 and operating cash flow Cash flow for the year according to RR 7 1,602 -845 Deducted items: Repayment of loans from external parties -299 -8 Loans assumed/ amortization of debt -8,278 3,339 Added items: Net debt in acquired companies -1,910 -3,227 Accrued interests -15 -54 Investments by financial leasing -85 -88 Conversion of loans to shareholders’ equity 1 288 Net cash flow according to operating cash flow -8,984 -595 Press conference SCA’s year-end report for the period 1 January–31 December 2004 will be published on 27 January 2005. A press conference will be held at 14:00 CET, where Jan Åström, President and CEO, will present the results. Venue: Salén Konferenser, Olympia, Norrlandsgatan 15, Stockholm, Sweden. Telephone conference The telephone conference will be held on 27 January 2005, at 16:00 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). Later the same day a recorded version will be available on our web site 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. ------------------------------------------------------------------------ [1]The acquisition balance for companies acquired during the year are not finalized. [2]Including SCA’s portion of joint-venture companies. 3On debt-free basis.