Interim report 1 January–30 June 2006

First half of 2006 compared with 2005 · Net sales amounted to SEK 50,694m (46,504). · Net profit for the period amounted to SEK 2,490m (1,668). · Earnings per share amounted to SEK 10.58 (7.09). · Profit before tax amounted to SEK 3,277m (2,255). In the previous year, profit before tax, adjusted for items affecting comparability, amounted to SEK 2,680m, an improvement of 22%. Second quarter of 2006 compared with the first quarter of 2006 · Net sales amounted to SEK 25,294m (25,400). · Net profit for the period amounted to SEK 1,321m (1,169). · Earnings per share amounted to SEK 5.62 (4.96). · Profit before tax amounted to SEK 1,708m (1,569), an improvement of 9%. · Debt/equity ratio amounted to 0.70 (0.65). EARNINGS TREND[1] SEKm 2006:2 2006:1 0606 0506 Net sales 25,294 25,400 50,694 46,504 Operating -43,532 expenses -21,653 -21,879 -40,448 Operating 7,162 surplus 3,641 3,521 6,056 Depreciation -3,108 and write- downs -1,537 -1,571 -3,114 Share of profits of associated companies 9 5 14 14 Operating 4,068 profit 2,113 1,955 2,956 Financial -791 items -405 -386 -701 Profit 3,277 before tax 1,708 1,569 2,255 Tax -387 -400 -787 -587 Net profit 2,490 for the period 1,321 1,169 1,668 Earnings per 10.58 share, SEK 5.62 4.96 7.09 Of which, operating profit per business area Personal 1,392 Care 693 699 1,100 Tissue 401 300 701 770 Packaging 476 438 914 913 Forest 1,208 Products 631 577 817 - 442 Publication papers 237 205 234 - Pulp, timber and solid-wood products 394 372 766 583 Other -88 -59 -147 -644 2,113 1,955 4,068 2,956 CEO’S MESSAGE During the first half of 2006, SCA’s profit before tax improved by 22% compared with the previous year, adjusted for items affecting comparability. Second-quarter earnings provided the highest operating profit for three years. Continued strong volume growth for Personal Care contributed to this improvement in earnings with sales of incontinence products to the retail sector performing particularly well. The publication papers business also contributed to this earnings improvement through high production and increased prices. The same applies to solid-wood products. Net sales increased by 9% compared with the first half of 2005 and amounted to SEK 50,694m (46,504). Volume growth contributed SEK 2,200m while the price effect was SEK 500m. Exchange rate fluctuations accounted for SEK 1,400m of the increase in net sales. Profit before tax improved by 22% to SEK 3,277m (2,680) adjusted for items affecting comparability. Of the earnings improvement, SEK 660m was due to increased volumes, SEK 400m to an improved price and changed product mix, and SEK 680m to the effects of the efficiency programmes. Exchange rate fluctuations also had a positive earnings impact of SEK 200m. Increased costs for energy and raw materials, on the other hand, had a negative earnings impact of approximately SEK 870m. Net sales in the second quarter amounted to SEK 25,294m compared with SEK 25,400m in the first quarter. Exchange rate fluctuations had a negative impact on net sales of SEK 210m. Profit before tax in the second quarter amounted to SEK 1,708m compared with SEK 1,569m in the first quarter, an increase of 9%. Exchange rate fluctuations had a 4% negative impact on earnings. The Group’s tissue operations for bulk consumers, AFH, performed well primarily in the US but also in Europe. Energy costs, which increased dramatically compared with the previous year, decreased in the second quarter but remain at a high level. The European market for consumer tissue was still affected by intense competition and continued overcapacity. The demand trend remains good, however, which means that the market balance will gradually improve. We introduced price increases, although these took a long time to implement. Since earnings remain unsatisfactory, we are actively engaged in a number of market activities. Development within our European packaging operations is proceeding according to plan with regard to programmes for efficiency enhancements and the market situation has stabilized. Another key step will be taken in July with the closure of the liner mill in Castelfranco, Italy, with a capacity of 70,000 tonnes. Several price increases for liner have paved the way for the first increases for corrugated board. Compared with the situation at the start of the year, we gained acceptance for price increases of approximately 5% of which approximately half is expected to have an impact on earnings during the third quarter. The packaging operations in China continued to show a positive development with good growth. Lower energy and raw material costs in the US provided some improvement in earnings. GROUP CASH FLOW AND FINANCING The operating cash surplus was SEK 6,878m compared with SEK 6,242m in the previous year. Tied-up working capital was slightly higher during the period than in the previous year, mainly due to good growth and price increases. Current capital expenditures amounted to SEK 2,040m (1,913), corresponding to approximately 4% of net sales. Expenditures for the ongoing savings programmes are running according to plan and the impact on cash flow for the first half of 2006 was SEK 564m compared with SEK 325m in the previous year. Operating cash flow amounted to SEK 2,387m (2,563). In Packaging, in addition to high tied-up working capital, restructuring costs and current capital expenditures were higher than in the same period last year. For Personal Care, the improvement primarily relates to an improved operating cash surplus. Operating cash flow[2] June 2006 June 2005 Change Personal Care 1,331 774 72% Tissue 261 295 -12% Packaging -184 758 n/a Forest Products 1,191 908 31% Other -212 -172 n/a Total 2,387 2,563 -7% Financial items increased to SEK -791m compared with SEK -701m in the previous year. The increase is attributable to higher interest rate levels. Tax payments were at the previous year’s level and amounted to SEK 825m (805). After financial items and income taxes paid, cash flow from current operations was SEK 772m (1,058). During the period strategic investments amounted to SEK 447m (1,403) primarily within the incontinence and tissue operations. The dividend for the year of SEK 2,574m (2,455) was paid in April. Net cash flow for the period amounted to SEK -2,187m (-2,797). Net debt amounted to SEK 38,962m at the end of the six month period, a decrease of SEK 864m since the start of the year. A negative cash flow of SEK 2,187m increased the net debt. Currency effects, resulting from a strengthening of the Swedish krona, reduced the net debt by SEK 1,609m. Remeasurements according to IAS 19, for pensions, and IAS 39, for financial instruments, had a combined positive effect of SEK 1,442m, most of which is attributable to pensions. SHAREHOLDERS’ EQUITY Consolidated shareholders’ equity decreased during the period by SEK 1,280m to SEK 55,830m. Net profit for the period and the effects of remeasurements according to IAS 19, for pensions, and IAS 39, for financial instruments, increased equity by SEK 2,490m and SEK 1,004m respectively. Dividends and currency effects had a negative impact on equity of SEK 2,574m and SEK 2,200m respectively. The debt/equity ratio amounted to 0.70 (0.74) and was 0.70 at year-end 2005. The interest coverage ratio amounted to 5.1 (4.2). PERSONNEL At the end of the second quarter, the average number of employees was approximately 50,000 compared with approximately 50,500 at the end of the first quarter of 2006 and 52,000 at the end of the second quarter of 2005. The decrease is mainly an effect of efficiency programmes. EFFICIENCY ENHANCEMENT PROGRAMME The efficiency programme announced in August 2005 and which will provide annual savings of SEK 1,550m with full effect as from 2008, is proceeding according to plan. Savings thus far amount to SEK 280m, of which SEK 30m in additional savings in the second quarter of 2006. BUSINESS AREAS PERSONAL CARE Net sales increased by 15% compared with the first half of 2005, of which volume growth was 10 percentage points, currency effects 4 percentage points as well as some positive price effects. Net sales during the quarter totalled SEK 5,249m, a decrease of 2% compared with the first quarter of 2006. Currency effects had a negative impact on net sales of 2 percentage points. Operating profit rose 27 % compared with the first half of 2005, primarily due to increased volumes, 34 percentage points, and positive currency effects, 6 percentage points. Higher raw material costs and increased costs for advertising and promotion had a negative impact on earnings. Operating profit during the quarter amounted to SEK 693m, a decrease of less than 1% compared with the first quarter of 2006. Improved volumes did not fully compensate for higher raw material costs and negative currency effects. Incontinence products:Sales during the second quarter remained strong in Europe and the product mix was improved with a number of recently launched products with improved performance and margins. Volume growth within the retail sector continued. Mini Magic, a product for light incontinence, was launched during the second quarter. This segment showed strong growth. Sales to the retail sector in North America developed well during the quarter. SCA strengthened its marketing activities for the recently launched Discreet Activewear incontinence product during the second quarter. Sales to the healthcare sector remained high with favourable growth for incontinence protection in pant models. In Australia, sales improved during the second quarter following a seasonally weak first quarter. Baby diapers:The sales trend remained good in the second quarter. Libero increased or maintained its strong market shares in the Nordic region, Russia and Central Europe. Sales volumes for retailers’ brands increased during the second quarter. Deliveries of baby diapers in Australia and Malaysia were slightly lower than in the first quarter. Earnings in both markets are at the same level as earnings during the first quarter. In South America, last year’s product launches continued to have positive effect on the product mix which contributed to improved earnings. Feminine hygiene products: Competition within this segment remains intense in Europe with many price initiatives. Sales of SCA’s brands increased during the quarter while the proportion of panty liners continued to increase in relation to pads. The sales trend in Australia and New Zealand was stable and margins continued to improve. In South America, and particularly in Mexico, the segment developed well with increased sales and improved profitability. TISSUE Net sales increased by 7% compared with the first half of 2005, of which 3 percentage points were attributable to increased volumes, 3 percentage points to positive currency effects, together with a marginal price increase. In the second quarter, net sales amounted to SEK 7,787m, a decrease of 2% compared with the first quarter of 2006. Marginally higher prices and slightly higher volumes were counteracted by negative currency effects of 3 percentage points. Operating profit decreased by 9% compared with the first half of 2005, of which increased volumes and higher prices contributed 26 percentage points, although this did not compensate for substantially higher energy costs of 35 percentage points and increased raw material costs of 7 percentage points. During the second quarter operating profit was SEK 401m, an increase of 34 % compared with the first quarter of 2006. Higher prices and lower energy costs improved earnings while negative currency effects reduced this improvement. Consumer tissue: The European market continues to be affected by overcapacity and competition remains intensive. The underlying market growth, however, remained favourable. Among retail customers a clear orientation towards Eastern Europe can be seen where the establishment of new stores continues. SCA has strong sales development in this region. SCA’s total volume development in Europe, however, was slightly lower in the second quarter than in the first quarter. Price increases were partly able to compensate for the lower volume. Operations in Australia and New Zealand were at the same level as the first quarter. In Latin America, the effects of increased prices had a positive earnings impact, mainly in Mexico. The sales trend was also good in Latin America, particularly in Mexico where sales of retailers’ brands increased. Tissue for bulk consumers, AFH: SCA’s European operations continue to show stable development with good profitability. Volume was slightly better in the second quarter compared with the first quarter but the trend varied between the regions. Volumes in Eastern Europe during the quarter were the highest ever, mainly driven by a positive trend in Russia. Implemented price increases had positive effects on earnings in several regions but above all the product and country mix was further improved. SCA’s operations in the US had a strong second quarter with seasonally good volume development and high capacity utilization which led to a considerable improvement in earnings. The effects of implemented price increases also contributed to the improved quarterly earnings. The tissue plant in Tilburg, the Netherlands, was closed. After the end of the quarter, a small facility in Italy was divested. PACKAGING Net sales increased by 6% compared with the first half of 2005 of which volume growth accounted for 3 percentage points with especially strong growth within the Asian packaging operations which grew by 29%. Exchange rate fluctuations had a positive impact on net sales of 3%. During the quarter net sales amounted to SEK 8.231m, a decrease of 2% compared with the first quarter of 2006. Despite higher prices, negative exchange rate fluctuations and slightly lower external sales of liner led to reduced net sales. Operating profitwas on a par with the first half of 2005. Higher volumes and higher prices as well as effects of efficiency programmes counteracted the increased energy costs. During the second quarter, operating profit was SEK 476m, an increase of 9% compared with the first quarter of 2006. Higher prices, a positive volume trend for corrugated board and reduced energy costs contributed to this improvement. The paper market continues to strengthen and in Europe additional price increases were announced for kraftliner and testliner during the second quarter. For SCA, which has an integrated business model where production of containerboard is roughly the same size as consumption, the price of corrugated board is decisive for the earnings trend. Price erosion has ceased here. Compared with year-end 2005, we have gained acceptance for price increases of approximately 5% of which approximately half is expected to have an impact on earnings during the third quarter. Volumes during the second quarter were at the same level as volumes in the first quarter. Including the closure of the containerboard mill in Castelfranco, Italy, SCA closed three mills with a combined capacity of almost 400,000 tonnes as well as a number of conversion plants. Efficiency enhancements are proceeding according to plan. Profitability in the American packaging operations improved during the second quarter. A seasonally favourable volume trend for protective packaging and temperature-assurance packaging solutions, as well as price increases for industrial packaging, contributed to the improved profitability. In addition, lower prices for energy and oil-based raw materials contributed to the earnings improvement. SCA’s packaging operations in China continued to show improved volumes during the second quarter. Market growth in southern China has now been overtaken by development in eastern China, which will benefit SCA since it has its largest operations in this region. Customers in China are demanding increasingly integrated packaging solutions where suppliers that can provide complete solutions are rewarded. SCA has a strong customer offering here. Earnings improved primarily due to volume growth which more than compensated for continued increased raw material costs. FOREST PRODUCTS Publication papers: Net sales increased by 15 % compared with the first half of 2005 due to a favourable price and volume trend. Net sales amounted to SEK 2,339m in the second quarter, an increase of 9 % over the first quarter of 2006. The increase is attributable to favourable volume growth, primarily within LWC paper. Operating profit increased by 89% compared with the first half of 2005, despite rising energy costs, due to higher prices and volumes as well as positive currency effects. Operating profit was SEK 237m in the second quarter, an increase of 16% compared with the first quarter of 2006. Continued strong production led to lower energy costs and contributed to this earnings improvement. The market for newsprint was stable. Demand for LWC and SC paper, however, was seasonally slightly weaker during the second quarter. Pulp, Timber and Solid-Wood Products: Net sales increased by 9% compared with the first half of 2005, primarily due to higher prices for the pulp and sawmill operations. During the second quarter net sales amounted to SEK 2,115m, a decrease of 5% compared with the first quarter of 2006. Temporarily lower volumes within the pulp operations and negative currency effects contributed to this decrease. Operating profit increased by 31% compared with the first half of 2005 due to higher prices, mainly for the sawmill operations, and positive currency effects. Operating profit for the second quarter was SEK 394m, an increase of 6% compared with the first quarter of 2006 which mainly comprised improved prices within the pulp business. The market for pulp remained strong and prices continued to rise. The market for solid-wood products was also strong during the second quarter with good demand in all SCA’s export markets, with the exception of the UK. It is mainly raw material shortages in Finland and Russia that are having a positive impact on the market. There is strong demand for Nordic spruce with stable prices while price increases have been implemented for Nordic pine. OTHER This interim report is prepared according to IAS 34 the Swedish Financial Accounting Standards Council’s recommendation RR 31 and, with regard to the Parent Company, RR 32. Applied accounting principles are in accordance with the Annual Report for 2005. The Group’s Parent Company, Svenska Cellulosa Aktiebolaget SCA (publ), owns the forest land and other real property that are part of the forestry operations and grants felling rights for standing timber to its subsidiary SCA Skog AB. The Parent Company is in other respects a holding company whose key task is to own and manage shares in a number of business-group companies and exercise Group-wide management and administration. Operating income during the period January – June 2006 amounted to SEK 62m (74) and profit before appropriations and tax was SEK 1,075m (994). The Parent Company made no investments in shares and participations during the period. Investments in properties and plant totalled SEK 14m (10) during the period. Cash and cash equivalents at the end of the period amounted to SEK 19m (20). SHARE DISTRIBUTION 30 June 2006 Class A Class B Total Registered number of shares 38,214,069 196,822,629 235,036,698 Of which treasury shares - (1,322,071) (1,322,071) During the period 201,066 Class A shares were converted to Class B shares. At the end of the quarter, the proportion of Class A shares was 16.3 %. Calculated according to IFRS recommendations, the effects of outstanding employee option programmes correspond to a maximum dilution of 0.05 %, which was taken into account when calculating earnings per share for the period. FUTURE REPORTS The next interim report in 2006 will be released on 31 October. Stockholm, 25 July 2006 SVENSKA CELLULOSA AKTIEBOLAGET SCA (publ) Jan Åström President and CEO This report has not been reviewed by the Company’s auditors. Press conference SCA invites media representatives, analysts and investors to a press conference at Salén Konferenser, Norrlandsgatan 15, Stockholm, at. 14.00 CET on 25 July. The presentation will be held in English and web cast. For more information, visit www.sca.com/investors. The presentation can also be followed by telephone, Sweden +46 8 505 202 66, UK +44 (0) 207 154 2638 or US +1(0)718 354 1226. For further information, please contact: Jan Åström, President and CEO. Telephone: +46 8 788 51 25. Bodil Eriksson, SVP, Communications and Investor Relations. Telephone: +46 8 788 52 34 or +46 70 629 66 34. IR: Andreas Koch. Telephone: +46 8 788 51 30 or +46 70 666 02 09. Media: Pär Altan. Telephone: +46 8 788 52 37 or +46 70 386 52 37. This report has been prepared in both Swedish and English. In case of variation in the content of the two versions, the Swedish version shall prevail. OPERATING CASH FLOW ANALYSIS 1 January–30 June SEKm 2006 2005 Operating cash surplus 6,878 6,242 Change in working capital -1,887 -1,441 Current capital expenditures, net -2,040 -1,913 Restructuring costs, etc. -564 -325 Operating cash flow 2,387 2,563 Financial items -791 -701 Income taxes paid -825 -805 Other 1 1 Cash flow from current operations 772 1,058 Acquisitions -36 -305 Strategic capital expenditures, fixed assets -393 -1,074 Strategic structural expenditures -18 -24 Divestments 0 0 Cash flow before dividend 325 -345 Dividend -2,574 -2,455 Cash flow after dividend -2,249 -2,800 Sale of treasury shares 62 3 Net cash flow -2,187 -2,797 Net debt at the start of the period -39,826 -35,823 Net cash flow -2,187 -2,797 Remeasurement to equity 1,442 -715 Currency effects 1,609 -3,215 Net debt at the end of the period -38,962 -42,550 Debt payment capacity 28% 24% Debt/equity ratio 0.70 0.74 OPERATING CASH FLOW ANALAYSIS, QUARTERLY DATA SEKm 2006 2005 II I IV III II I Cash operating surplus 3,497 3,381 3,446 3,425 3,155 3,087 Change in working capital -326 -1,561 1,395 284 -175 -1,266 Current capital expenditures, net -1,106 -934 -2,161 -785 -1,163 -750 Restructuring costs, etc. -271 -293 -332 -364 -169 -156 Operating cash flow 1,794 593 2,348 2,560 1,648 915 Financial items -405 -386 -401 -393 -358 -343 Income taxes paid -492 -333 -346 -478 -204 -601 Other 0 1 30 -16 -2 3 Cash flow from current operations 897 -125 1,631 1,673 1,084 -26 Acquisitions -27 -9 -76 -47 -256 -49 Strategic capital expenditures, fixed assets -185 -208 -633 -379 -473 -601 Strategic structural expenditures -9 -9 -26 -31 -12 -12 Divestments 0 0 0 1 0 0 Cash flow before dividend 676 -351 896 1,217 343 -688 Dividend -2,574 - -2 -21 -2,455 - Cash flow after dividend -1,898 -351 894 1,196 -2,112 -688 Sale of treasury shares 3 59 7 3 1 2 Net cash flow -1,895 -292 901 1,199 -2,111 -686 CONSOLIDATED INCOME STATEMENT SEKm 2006:2 2005:2 2006:1 0606 0506 Net sales 25,294 23,986 25,400 50,694 46,504 Other income 726 694 679 1,405 1,076 Change in fair value of biological assets 88 81 86 174 164 Change in inventories of finished goods and work in progress -181 -91 185 4 -19 Work performed and capitalized 46 57 48 94 116 Raw materials and consumables -8,958 -8,180 -9,213 -18,171 -15,553 Personnel costs1 -4,992 -4,998 -5,015 -10,007 -9,798 Other operating expenses -8,382 -8,274 -8,649 -17,031 -14,703 Depreciation -1,536 -1,563 -1,569 -3,105 -3,082 Write-downs2 -1 -1 -2 -3 -1 Share of profits of associated companies 9 8 5 14 14 Operating profit 2,113 1,719 1,955 4,068 2,956 Financial items -405 -358 -386 -791 -701 Profit before tax 1,708 1,361 1,569 3,277 2,255 Tax3,4 -387 -355 -400 -787 -587 Net profit for the 1,006 2,490 period 1,321 1,169 1,668 Earnings attributable to: Equity holders of 998 2,473 the Parent Company 1,314 1,159 1,656 Minority interests 7 8 10 17 12 Earnings per share, SEK - before dilution 4.27 10.58 effects 5.62 4.96 7.10 - after dilution 4.27 10.58 effects 5.62 4.96 7.09 Return on equity 9% 7% 8% 8% 7% Return on capital employed 9% 7% 8% 9% 7% Margins (%) Gross margin 14.4 13.7 13.9 14.1 13.0 Operating margin 8.4 7.2 7.7 8.0 6.4 Net financial margin -1.6 -1.5 -1.5 -1.6 -1.5 Profit margin 6.8 5.7 6.2 6.4 4.9 Tax -1.5 -1.5 -1.6 -1.6 -1.3 Net margin 5.3 4.2 4.6 4.8 3.6 Calculation of earnings per share Earnings attributable to equity holders of the Parent Company 1,314.0 998.0 1,159.0 2,473.0 1,656.0 Average number of shares before dilution, millions 233.7 233.4 233.5 233.7 233.4 Warrants 0.1 0.1 0.2 0.1 0.1 Average number of shares after dilution 233.8 233.5 233.7 233.8 233.5 Specification of items affecting comparability 1Operating expenses - Costs related to efficiency programmes - - - - -394 2Write-downs - Write-downs in conjunction with efficiency programmes - - - - -31 3Tax - Effects of efficiency programmes - - - - 111 4Tax rate for the year is expected to be 24% compared with 25% in the previous report. The effects of this change affected the second quarter. CONSOLIDATED STATEMENT OF RECOGNIZED INCOME AND EXPENSE January-June SEKm 2006 2005 Actuarial gains and losses related to pensions, incl. payroll tax 1,539 -724 Available-for-sale financial assets: - Gains from fair value measurement taken to equity -62 9 Cash flow hedges: - Gains from remeasurement of derivatives taken to equity 56 18 - Transfer to profit or loss for the period -58 0 - Transfer to cost of hedged investments -7 0 Translation difference in foreign operations -2,233 3,244 Gains from hedging of net investments in foreign operations -32 529 Tax on items taken to/ transferred from equity -464 231 Total transactions taken to equity -1,261 3,307 Net profit for the period recognized in the income statement 2,490 1,668 Total income and expenses recognized for the period 1,229 4,975 Attributable to: - Equity holders of the Parent Company 1,238 4,915 - Minority interests -9 60 1,229 4,975 Other changes in equity: - sale of treasury shares 62 3 - transition to IAS 32 and IAS 39 as of 1 January 2005 - 95 - dividend -2,574 -2,455 - remeasurement owned portion at successive acquisitions, within window period 3 - FIVE-YEAR SUMMARY IFRS Swedish accounting standards Full year 2005 2004 2003 2002 2001 Profit after financial items, SEKm 433 6,585 6,967 8,078 8,090 Earnings per share, SEK 1.84 22.11 21.84 24.54 24.05 Earnings per share, before goodwill amortization, SEK 1.84 22.11 26.51 29.15 28.40 Debt/equity ratio, multiple 0.70 0.63 0.44 0.49 0.51 Return on capital employed, % 2 9 11 13 14 Return on equity, % 1 10 10 12 13 ¹ Adjusted historically to reflect new issues. CONSOLIDATED BALANCE SHEET 30 June 2006 31 December 2005 SEKm EURm¹ SEKm EURm¹ Assets Goodwill 18,644 2,022 19,823 2,104 Other intangible assets 2,422 263 2,431 258 Tangible assets 75,255 8,161 77,843 8,261 Shares and participations 572 62 573 61 Financial investments held as fixed assets² 2,056 222 2,035 216 Other long- term receivables 1,102 119 1,170 124 Total fixed assets 100,051 10,849 103,875 11,024 Operating receivables and inventories 29,778 3,229 29,356 3,116 Short-term financial assets 608 66 237 25 Fixed assets held for sale 87 9 68 7 Liquid funds 1,252 136 1,684 179 Total current assets 31,725 3,440 31,345 3,327 Total assets 131,776 14,289 135,220 14,351 Shareholders’ equity Equity, equity holders of the Parent Company 55,075 5,972 56,343 5,980 Minority interests 755 82 767 81 Total shareholders’ equity 55,830 6,054 57,110 6,061 Liabilities Provisions for pensions 3,259 353 4,810 510 Other provisions 12,270 1,331 12,225 1,298 Long-term financial liabilities 17,246 1,870 18,638 1,978 Other long- term liabilities 217 24 208 22 Total long- term liabilities 32,992 3,578 35,881 3,808 Short-term financial liabilities3 22,244 2,412 20,190 2,143 Operating liabilities 20,710 2,245 22,039 2,339 Total current liabilities 42,954 4,657 42,229 4,482 Total liabilities 75,946 8,235 78,110 8,290 Total equity and liabilities 131,776 14,289 135,220 14,351 Debt/equity ratio 0.70 0.70 Visible equity/assets ratio 42% 42% 1Closing day rate 9.22 (9.42) was applied in translation to EUR. 2Of which pension assets 846 92 470 50 3Contracted committed credit lines amount to SEK 25,691m. Capital employed 94,792 96,936 – of which working capital 10,893 9,573 Net debt 38,962 39,826 Shareholders’ equity 55,830 57,110 Of which provisions for restructuring costs Other provisions 518 834 Operating liabilities 1,446 1,776 CASH FLOW STATEMENT 1 January–30 June SEKm 2006 2005 Operating activities Profit after financial items 3,277 2,255 Adjustment for non-cash items¹ 2,180 2,838 5,457 5,093 Paid tax -825 -805 Cash flow from operating activities before change in working capital 4,632 -4,288 Cash flow from changes in working capital Change in inventories -463 -610 Change in operating receivables -1,542 232 Change in operating liabilities 118 -1,063 Cash flow from operating activities 2,745 2,847 Investing activities Acquisition of operations -36 -282 Acquisition of tangible and intangible fixed assets -2,616 -3,050 Sale of equipment 212 80 Repayment of loans from external parties - 33 Payment of loans to external parties -989 - Cash flow from investing activities -3,429 -3,219 Financing activities Sale of treasury shares 62 3 Borrowings 2,833 1,156 Dividends paid -2,574 -2,455 Cash flow from financing activities 321 -1,296 Cash flow for the period -363 -1,668 Cash and cash equivalents at the beginning of the year 1,684 3,498 Exchange differences in cash and cash equivalents -69 142 Cash and cash equivalents at the end of the period 1,252 1,972 Reconciliation with operating cash flow analysis Cash flow for the period -363 -1,668 Deducted items: Payment of loans to external parties 989 - Repayment of loans from external parties - -33 Borrowings -2,833 -1,156 Added items: Net debt in acquired companies 0 -23 Accrued interest 49 100 Investments through finance leases -29 -17 Net cash flow according to operating cash flow analysis -2,187 -2,797 ¹ Depreciation and write-downs, fixed assets 3,108 3,114 Fair value valuation of forest assets -174 -164 Unpaid related to efficiency programmes - 394 Payments related to efficiency programmes previously recognized as liabilities -578 -356 Other -176 -150 Total 2,180 2,838 CONSOLIDATED EARNINGS TREND, supplementary disclosures 2006:2 2005:2 2006:1 0606 0506 EURm1 EURm1 EURm2 EURm3 EURm4 Net sales 2.714 2.608 2.717 5.439 5.091 Operating expenses -2.323 -2.252 -2.340 -4.671 -4.428 Operating surplus 391 356 377 768 663 Depreciation and -333 write-downs -165 -170 -168 -341 Share of profits of associated companies 1 1 1 2 2 Operating profit 227 187 210 437 324 Financial items -43 -39 -41 -85 -77 Profit before tax 184 148 169 352 247 Tax -41 -38 -43 -84 -64 Net profit for the 268 183 period 143 110 126 1Isolated quarterly amounts have been calculated as the difference between two accumulated results. 2Average exchange rate of 9.35 was applied in translation to EUR. 3Average exchange rate of 9.32 was applied in translation to EUR. 4Average exchange rate of 9.13 was applied in translation to EUR. Quarterly data CONSOLIDATED EARNINGS TREND 2006 2005 SEKm II I IV III II I Net sales 25,294 25,400 25,141 24,740 23,986 22,518 Operating expenses1,2 -21,653 -21,879 -21,552 -23,809 -20,711 -19,737 Operating surplus 3,641 3,521 3,589 931 3,275 2,781 Depreciation and write- downs3 -1,537 -1,571 -1,622 -3,937 -1,564 -1,550 Share of profits of associated companies 9 5 8 3 8 6 Operating profit 2,113 1,955 1,975 -3,003 1,719 1,237 Financial items -405 -386 -401 -393 -358 -343 Profit/loss before tax 1,708 1,569 1,574 -3,396 1,361 894 Tax4 -387 -400 -377 985 -355 -232 Net profit/ loss for the period 1,321 1,169 1,197 -2,411 1,006 662 Earnings per share, SEK - before dilution effects 5.62 4.96 5.06 -10.32 4.27 2.83 - after dilution effects 5.62 4.96 5.06 -10.31 4.27 2.82 Margins (%) Gross margin 14.4 13.9 14.3 3.8 13.7 12.4 Operating margin 8.4 7.7 7.9 -12.1 7.2 5.5 Net financial margin -1.6 -1.5 -1.6 -1.6 -1.5 -1.5 Profit margin 6.8 6.2 6.3 -13.7 5.7 4.0 Tax -1.5 -1.6 -1.5 4.0 -1.5 -1.0 Net margin 5.3 4.6 4.8 -9.7 4.2 3.0 1 Incl. change in the fair value of biological assets 88 86 41 82 81 82 Specification of items affecting comparability 2Operating expenses - Costs related to efficiency programmes - - - -2,619 - -394 3Depreciation and write- downs - Write-downs in conjunction with efficiency programmes - - - -2,321 - -31 4Income taxes - Effects of efficiency programmes - - - 1,273 - 111 PERSONAL CARE SEKm 2006:2 2006:1 0606 0506 Net sales 5,249 5,348 10,597 9,189 Operating surplus 939 950 1,889 1,557 Operating profit 693 699 1,392 1,100 Gross margin, % 17.9 17.8 17.8 16.9 Operating margin, % 13.2 13.1 13.1 12.0 Volume growth, % 0.6¹ 2.8¹ 10.3² 7.3² 1Compared with immediately preceding quarter. 2Compared with the same period in the previous year. TISSUE SEKm 2006:2 2006:1 0606 0506 Net sales 7,787 7,962 15,749 14,675 Operating surplus 924 850 1,774 1,780 Operating profit 401 300 701 770 Gross margin, % 11.9 10.7 11.3 12.1 Operating margin, % 5.1 3.8 4.5 5.2 Volume growth, % 0.2¹ -1.4¹ 3.5² 14.4² 1Compared with immediately preceding quarter. 2Compared with the same period in the previous year. PACKAGING MSEK 2006:2 2006:1 0606 0506 Net sales 8,231 8,389 16,620 15,736 Operating 1,742 1,817 surplus 888 854 Operating 914 913 profit 476 438 Gross 10.5 11.5 margin, %¹ 10.8 10.2 Operating 5.5 5.8 margin, %¹ 5.8 5.2 Production Liner 1,201 products, kt 557 644 1,355 Deliveries Liner 1,270 products, kt 622 648 1,341 2,193² Corrugated board, million m² 1,097² 1,096² 2,157² ¹ Adjusted for external trading with liner, margins increased by approximately 2 percentage points. ² Volumes from corrugated board plants. FOREST PRODUCTS SEKm 2006:2 2006:1 0606 0506 Net sales 4,454 4,378 8,832 7,878 4,484 Publication papers 2,339 2,145 3,897 Pulp, 4,348 timber and solid-wood products 2,115 2,233 3,981 Operating 1,889 surplus 970 919 1,496 882 Publication papers 456 426 664 Pulp, 1,007 timber and solid-wood products 514 493 832 Operating 1,208 profit 631 577 817 442 Publication papers 237 205 234 Pulp, 766 timber and solid-wood products 394 372 583 Gross margin, 21.4 % 21.8 21.0 19.0 19.7 Publication papers 19.5 19.9 17.0 Pulp, 23.2 timber and solid-wood products 24.3 22.1 20.9 Operating 13.7 margin, % 14.2 13.2 10.4 9.9 Publication papers 10.1 9.6 6.0 Pulp, 17.6 timber and solid-wood products 18.6 16.7 14.6 Production 779 Publication papers, kt 389 390 719 Solid-wood 792 products, km³ 393 399 744 Deliveries 761 Publication papers, kt 385 376 724 Solid-wood 805 products, km³ 424 381 776 Quarterly data – Business areas 2006 2005 SEKm II I IV III II I NET SALES Personal Care 5,249 5,348 5,136 5,026 4,727 4,462 Tissue 7,787 7,962 8,109 7,917 7,531 7,144 Packaging 8,231 8,389 8,272 8,351 8,094 7,642 Forest Products 4,454 4,378 4,071 3,986 4,116 3,762 Publication papers 2,339 2,145 2,067 2,034 1,965 1,932 Pulp, timber and solid-wood products 2,115 2,233 2,004 1,952 2,151 1,830 Other 296 233 301 247 288 232 Intra-group deliveries -723 -910 -748 -787 -770 -724 Total net sales 25,294 25,400 25,141 24,740 23,986 22,518 OPERATING SURPLUS Personal Care 939 950 983 889 809 748 Tissue 924 850 941 999 892 888 Packaging 888 854 841 900 919 898 Forest Products 970 919 910 853 758 738 Publication papers 456 426 456 420 330 334 Pulp, timber and solid-wood products 514 493 454 433 428 404 Other -80 -52 -86 -2,710 -103 -491 Total operating surplus 3,641 3,521 3,589 931 3,275 2,781 OPERATING PROFIT Personal Care 693 699 719 655 571 529 Tissue 401 300 379 428 391 379 Packaging 476 438 418 444 455 458 Forest Products 631 577 553 516 416 401 Publication papers 237 205 222 206 113 121 Pulp, timber and solid-wood products 394 372 331 310 303 280 Other -88 -59 -94 -5,046 -114 -530 Total operating profit 2,113 1,955 1,975 -3,003 1,719 1,237 % GROSS MARGINS Personal Care 17.9 17.8 19.1 17.7 17.1 16.8 Tissue 11.9 10.7 11.6 12.6 11.8 12.4 Packaging 10.8 10.2 10.2 10.8 11.4 11.8 Forest Products 21.8 21.0 22.4 21.4 18.4 19.6 Publication papers 19.5 19.9 22.1 20.6 16.8 17.3 Pulp, timber and solid-wood products 24.3 22.1 22.7 22.2 19.9 22.1 OPERATING MARGINS Personal Care 13.2 13.1 14.0 13.0 12.1 11.9 Tissue 5.1 3.8 4.7 5.4 5.2 5.3 Packaging 5.8 5.2 5.1 5.3 5.6 6.0 Forest Products 14.2 13.2 13.6 12.9 10.1 10.7 Publication papers 10.1 9.6 10.7 10.1 5.8 6.3 Pulp, timber and solid-wood products 18.6 16.7 16.5 15.9 14.1 15.3 ------------------------------------------------------------------------ [1]First half of 2005 includes items affecting comparability, operating expenses SEK -394m, write-downs SEK -31m and tax effects SEK 111m. [2] Operating cash flow comprises the total of operating cash surplus and change in working capital, with deduction for current capital expenditures and restructuring costs.