Interim Report 1 January–30 September 2005

Third quarter 2005 compared with second quarter 2005 · Net sales amounted to SEK 24,740 M (23,986). · Earnings after taxes amounted to a loss of SEK 2,411 M (gain: 1,006). · Earnings per share amounted to a loss of SEK 10:31 (gain: 4:27). · Earnings after financial items amounted to a loss of SEK 3,396 M (gain: 1,361). Adjusted for items affecting comparability totaling expenses of SEK 4,940 M in the third quarter, earnings after financial items amounted to SEK 1,544 M (1,361). 1 January–30 September 2005 compared with preceding year · Net sales amounted to SEK 71,244 M (66,839). · Earnings after taxes amounted to a loss of SEK 743 M (gain: 4,110). · Earnings per share amounted to a loss of SEK 3:22 (gain: 17:49). · Earnings after financial items amounted to a loss of SEK 1,141 M (gain: 5,614). Adjusted for items affecting comparability totaling an expense of SEK 5,365 M (26), earnings after financial items amounted to SEK 4,224 M (5,588). Earnings and cash flow 2005:3 2005:2 2005:1 0509 0409 Earnings per share, SEK -10.31 4.27 2.82 -3.22 17.49 Cash flow from current operations per share, SEK 7.16 4.64 -0.11 11.70 16.11 Net sales, SEK M 24,740 23,986 22,518 71,244 66,839 Earnings after financial items, SEK M -3,396 1,361 894 -1,141 5,614 Net earnings, SEK M -2,411 1,006 662 -743 4,110 Excluding items affecting comparability Earnings after financial items, SEK M 1,544 1,361 1,319 4,224 5,588 Net earnings, SEK M 1,256 1,006 976 3,238 4,070 Earnings per share, SEK 5.48 4.27 4.16 13.91 17.32 Effective 2005, the Group’s financial reports are prepared in accordance with International Financial Reporting Standards (IFRS). According to EU directive, the application is mandatory for publicly listed companies. The effects of the conversion are reported as an adjustment in the opening balance of shareholders’ equity for 2004. All comparative figures for 2004 have been recalculated. A detailed description of the effects of the conversion from Swedish accounting standards to IFRS on opening and closing balance sheet totals for 2004, and earnings in 2004, is presented in the Annual Report for 2004 (Note 33). Effects of the conversion to IAS 32 and 39 as per January 1, 2005 are presented in detail in the interim report for the first quarter 2005. The first-quarter report also includes a presentation of the conversion’s effects on Group earnings and equity per quarter during 2004. For further information please visit www.sca.com. COMMENTS BY THE CEO Our efforts to reduce the cost level within the Group are beginning to show results. Within the framework of the program initiated in the fourth quarter of 2004 and the first quarter of 2005, we have cut costs to date by about SEK 400 M. Our employees are working in a focused manner with implementing the cost-savings program and work is proceeding according to plan. Consolidated sales increased in the third quarter by 3% compared with the second quarter and amounted to SEK 24,740 M. Adjusted for restructuring costs of SEK 4,940 M, earnings after financial items improved by 13% compared with the second quarter, of which 5% was attributable to currency effects. The improved result are attributable to volume increases in personal care products and within our US tissue operations. The effects of the savings programs also contributed significantly to the improvement. The price picture for tissue in the consumer sector has stabilized since April. During the third quarter, SCA gained acceptance for price increases in certain European markets. The price increases are expected to gain effect at the end of the fourth quarter of 2005 and in the first quarter of 2006. Prices for consumer tissue in the German market were increased for the first time in four years. Prices were increased in our American Away-from-Home (AFH) operations at the end of the quarter. The rising volume of sales of publication papers also contributed to the improvement. The substantially increasing energy costs are affecting us on all markets. The effects are still limited as a result of our long-term contracts. We expect that the effects will be notable in the fourth quarter of 2006, if the high cost level remains. SCA’s European packaging operations reported satisfactory volumes during the seasonally weak third quarter. Prices for corrugated board are stable as of the beginning of the third quarter, while prices for containerboard declined. After the price declines in the summer, price hikes have been announced for kraftliner and testliner. The packaging market in Europe is still characterized, however, by overcapacity for containerboard. Accordingly, the competition is intensive in containerboard. In addition to SCA, other players have announced restructuring measures, which is leading to a continued necessary consolidation of the industry. The market trends that affect our operations remain in all significant respects challenging. Despite this situation, we are seeing certain signs of increased stability and opportunities for price increases. Our long-term focus on reducing costs within the Group means a stronger SCA. Jan Åström President and CEO EARNINGS TREND (excluding items affecting comparability) Earnings comments through page 6 are excluding the costs for the efficiency enhancement program. SEK M 2005:3 2005:2 2005:1 0509 0409 Net sales 24,740 23,986 22,518 71,244 66,839 Operating expenses -21,190 -20,711 -19,343 -61,244 -55,948 Operating surplus 3,550 3,275 3,175 10,000 10,941 Depreciation -1,616 -1,564 -1,519 -4,699 -4,456 Share in earnings of associated companies 3 8 6 17 16 Operating profit 1,937 1,719 1,662 5,318 6,501 Financial items -393 -358 -343 -1,094 -913 Earnings after financial items 1,544 1,361 1,319 4,224 5,588 Income tax -288 -355 -343 -986 -1,518 Net earnings 1,256 1,006 976 3,238 4,070 Earnings per share, SEK 5.48 4.27 4.16 13.91 17.32 Of which operating profit per business area and segment Hygiene Products 1,083 962 908 2,953 3,457 - Tissue 428 391 379 1,198 1,618 - Personal Care 655 571 529 1,755 1,839 Packaging 444 455 458 1,357 2,024 Forest Products 516 416 401 1,333 1,320 - Publication papers 206 113 121 440 333 - Pulp, timber and solid-wood products 310 303 280 893 987 Other -106 -114 -105 -325 -300 1,937 1,719 1,662 5,318 6,501 Third quarter 2005 compared with second quarter of 2005 (excl. items affecting comparability) Net sales increased by 3%. Currency movements had a positive impact of 2% on net sales. Operating profit rose 13%, of which positive currency movements accounted for 5 percentage points of the improvement. Forest Products improved operating profit by 24% and Hygiene Products by 13%, while Packaging’s operating profit was 2% lower than in the preceding quarter. Financial items amounted to an expense of SEK 393 M (expense: 358). The second quarter includes dividends of SEK 23 M. Consolidated earnings after financial items excluding items affecting comparability amounted to SEK 1,544 M (1,361), up 13%. Currency movements had a positive impact of 5%. 1 January–30 September 2005 compared with preceding year (excl. items affecting comparability) Net sales increased by 7%, of which acquisitions contributed 4 percentage points. Currency movements affected net sales only marginally. Excluding items affecting comparability totaling an expense of SEK 5,365 M (expense: 44), the operating profit declined by 18%. Currency movements had only a marginal impact. Return on equity amounted to 8% (10) and return on capital employed was 8% (10), excluding items affecting comparability. BUSINESS SEGMENTS TISSUE The demand for consumer tissue in Western Europe was satisfactory during the third quarter. Despite overcapacity and continued intense competition, prices stabilized since April. However, the earnings trend remains weak due to rising energy costs. The need for price hikes has existed for some time and SCA has announced price increases in all major markets and has gained acceptance on some of them. The price increases will gain effect late in the fourth quarter of 2005 and in the first quarter of 2006. An increase in the prices of consumer tissue in the retail sector in Germany for the first time in four years marks a breakthrough. Demand in the European segment for AFH tissue was seasonally somewhat lower during the third quarter. Competition remains intensive. A successive upgrading of the product mix contributed to sustained margins. At the beginning of the third quarter, production was started at the new plant in Valls, Spain, which was earlier than planned. The plant has an annual capacity of 60,000 tons. SCA is forming a new production structure for SCA’s European tissue operations. It will lower cost and enhance efficiency by using joint plants for consumer and AFH tissue. The volume trend in the North American AFH operations was strong in the third quarter. Another price increase was implemented in September (earlier price hikes were carried out in the first quarter), which partially offset the increased energy costs. Order bookings are favorable. SCA has continued work with upgrading the product mix. Combined with high production outputs, this has also contributed to a positive earnings trend. Net sales in the third quarter amounted to SEK 7,917 M, up 5% compared with the year-earlier quarter. The increase is mainly attributable to volume increases in North America. Compared with January–September 2004, net sales rose 12%, of which 10 percentage points are attributable to the acquisitions in Mexico and Australia. Operating profit for SCA’s tissue operations for the third quarter was SEK 428 M, an increase of 9% compared with the preceding quarter, of which 3 percentage points are currency effects. Operating profit were affected positively by volume increases in North America. Compared with the January– September period in the preceding year, operating profit declined by 26%. The decline is attributable to the earlier price pressures in the European consumer tissue operations and higher raw material and energy costs. PERSONAL CARE Demand for personal care products overall was favorable, with stable prices. Competition remains intense, particularly in the baby diapers and feminine hygiene product areas. The incontinence segment, in which SCA is the global market leader, continues to show favorable growth. The health care sector in Europe had a seasonally weak start of the quarter, but sales rose successively. However, the growth pattern varies within Europe, primarily due to different healthcare reimbursement systems. Growth in the retail market is favorable. New launches within the framework of the global brand TENA are driving sales and contributing to maintaining SCA’s global market- leading position. Tena Discreet, a new pant diaper sold through the retail trade with advanced design and fit, was launched in the US during the summer. The launch is strategic since it focuses on the largest segment in terms of sales. Broad consumer marketing was started during the third quarter. Sales of baby diapers rose in the third quarter. Baby pant diaper Libero Up&Go was successfully relaunched on the important Nordic market. The market for feminine hygiene products is still intensely competitive. Many new products are being launched in the low-price and premium segments. During the quarter, SCA increased its marketing activities for its brands. At the same time, preparations are under way for launch of an entirely new product family in 2006. SCA’s sales of feminine hygiene products in Australia continued to increase, with favorable earnings contribution. Net sales in the third quarter amounted to SEK 5,026 M, an increase of 6% compared with the preceding quarter. The increase is due to a positive volume trend, primarily in incontinence products. Compared with the January–September period in 2004, net sales rose by 8%, of which 5 percentage points are attributable to acquisitions. Operating profit for the third quarter was SEK 655 M, up 15% compared with the preceding quarter. The currency effect was 4 percentage points. The earnings improvement is attributable to lower costs and favorable volume development. Compared with the January–September period in 2004, operating profit declined by 5%, which is due primarily to increases in raw material costs. PACKAGING After a weak first half of the year, sales improved within the European packaging operations during the end of the third quarter. The substantial overcapacity within the containerboard area in Europe, combined with weak demand, has characterized the market for some time. Prices for testliner as well as kraftliner have fallen since the beginning of the year, but stabilized toward the end of the third quarter. SCA has announced price hikes for testliner and kraftliner that are expected to yield effects successively toward the end of the fourth quarter. The prices for corrugated board have also fallen since the beginning of the year, but were stable during the third quarter. However, price increases are needed to regain profitability. Recovered paper prices were unchanged in the third quarter. SCA’s European operations for integrated packaging solutions developed favorably. Compared with the preceding year, growth among strategic customers (key accounts) was 8%. The growth is the result of SCA focusing on the consumer products companies’ specific needs for packaging, design and information solutions. The American packaging operations reported unchanged volumes during the quarter. Increased costs for oil-based raw materials were offset by higher prices. The Chinese market is characterized by favorable demand and growth under intense competition. Net sales in the third quarter amounted to SEK 8,351 M, up 3% compared with the preceding quarter of which currency effects 2%. Compared with the January–September period in 2004, net sales rose 2%. Operating profit for the third quarter was SEK 444 M, a decline of 2% compared with the preceding quarter. The effects of the savings programs impacted positively on the earnings decline. Compared with the January–September period in 2004, operating profit declined 33%, an effect of lower prices in corrugated board and containerboard. PUBLICATION PAPERS Demand for publication papers rose in Western Europe during the third quarter, with slightly rising prices. Customer inventories in magazine papers are now at normal levels after the Finnish strike. Accordingly, deliveries have been high. The advertising market has strengthened, particularly in Germany. SCA’s order bookings are favorable, primarily with regard to LWC paper. Net sales for SCA’s publication papers in the third quarter amounted to SEK 2,034 M, an increase of 4% compared with the preceding quarter. Compared with the January–September period in 2004, the increase in net sales was 6%. Operating profit in the third quarter was SEK 206 M, up 82% compared with the second quarter. High capacity utilization, seasonally strong volumes and somewhat better prices contributed to the increase. Compared with the year-earlier January–September period, operating profit was up 32%. The earnings improvement is due to increased prices in which the effects were offset by higher energy costs. PULP, TIMBER AND SOLID-WOOD PRODUCTS The price situation for long-fiber pulp is unchanged since the summer. Prices for short-fiber pulp declined due to surplus supply. The market balance for solid-wood products improved during the third quarter and prices for pine increased. The price for spruce follows earlier trends, with stable prices in the quality segments. In the lower grades, supply has increased due to heavy storm felling in southern Sweden, resulting in lower prices. Deliveries from SCA’s sawmills were high during the past quarters which resulted in declining inventory levels. Net sales of pulp, timber and solid-wood products during the third quarter amounted to SEK 1,952 M, a decline of 9% compared with the preceding quarter. The decline is attributable to high deliveries during the second quarter. Compared with the January–September period in 2004, net sales rose by 7%. Operating profit for the third quarter was SEK 310 M, up 2% compared with the preceding quarter. Higher prices for solid-wood products contributed to the result improvement. Compared with the January–September period a year earlier, operating profit was down 10%, due to the higher price levels for pulp and solid-wood products in 2004. OPERATING CASH FLOW ANALYSIS SEK M 2005:3 2005:2 2005:1 0509 0409 Net sales 24,740 23,986 22,518 71,244 66,839 Operating 3,425 cash surplus 3,155 3,087 9,667 10,737 % of net 14 sales 13 14 14 16 Current -785 capital expenditures, net -1,163 -750 -2,698 -2,674 % of net -3 sales -5 -3 -4 -4 Change in 284 working capital -175 -1,266 -1,157 -1,588 Structural -364 costs etc. -169 -156 -689 -160 Operating 2,560 cash flow 1,648 915 5,123 6,315 Tax payment -596 etc¹ -311 -704 -1,611 -1,974 Free cash 1,964 flow 1,337 211 3,512 4,341 Per share, 8.41 SEK 5.73 0.90 15.04 18.59 Interest -291 payment after taxes -253 -237 -781 -578 Cash flow 1,673 from current operations 1,084 -26 2,731 3,763 Per share, 7.16 SEK 4.64 -0.11 11.70 16.11 Strategic investments and divestments -456 -741 -662 -1,859 -9,492 Cash flow 1,217 before dividend 343 -688 872 -5,729 Dividend -21 -2,455 - -2,476 -2,471 Conversion of - debentures, warrants - - - 9 Sale of own 3 shares 1 2 6 1 Net cash flow 1,199 -2,111 -686 -1,598 -8,190 ¹ Tax attributable to operating profit. Third quarter 2005 compared with second quarter of 2005 Cash flow from current operations improved compared with the second quarter and amounted to SEK 1,673 M (1,084). Expenditures for the ongoing efficiency enhancement program rose from SEK 72 M to SEK 423 M. Despite this, cash flow improved. The improvement is due mainly to higher operating cash surplus, positive development in working capital and lower current capital expenditures. 1 January–30 September 2005 compared with 2004 Compared with the first nine months of 2004, operating cash flow declined, due mainly to the effect of lower operating cash surplus, increased expenditures for the ongoing efficiency enhancement program and higher interest expenses. Tax payments declined somewhat compared with the preceding year. FINANCIAL ITEMS AND TAXES Financial expenses rose to SEK 1,094 M (843). The increase is primarily attributable to higher net debt due, among other factors, to the company acquisitions carried out. The tax expense for current earnings is calculated based on the income distribution that SCA currently has among the countries. The average tax rate for the current year is calculated to amount to 24%, compared with the earlier estimated 26%. As a result, the tax expense in the third quarter was affected retroactively by this reduction. The distribution among the countries of the restructuring costs is expected to result in an average tax rate of 26% for these expenses. FINANCING AND SHAREHOLDERS’ EQUITY Net debt amounted to SEK 40,460 M, an increase of SEK 4,637 M from the beginning of the year. The increase is due to a negative cash flow of SEK 1,598 M, negative currency effects of SEK 2,729 M and changes in valuations, in accordance with IAS 19, for pensions and, in accordance with IAS 39, for financial instruments, amounting to a negative SEK 310 M. The Group’s pension liabilities increased by SEK 693 M during the year. The increase was attributed primarily to lower interest rates and currency effects. A higher yield on assets held in funds helped to limit the increase. Negative effects on equity amounted to SEK 286 M[1] after taxes. Consolidated shareholders’ equity rose during the period by SEK 67 M to SEK 55,037 M. Net earnings for the period reduced equity by SEK 743 M. Currency effects impacted positively on shareholders’ equity by SEK 3,280 M, while dividends had a negative impact of SEK 2,476 M. Effects of revaluations in compliance with IAS 19 for pensions, and IAS 39 for financial instruments, had a negative impact of SEK 156 M after taxes. The debt/equity ratio, which amounted to 0.65 at the beginning of the year, totaled 0.73 (0.64) at the close of the period. After taking into account the restructuring costs, interest coverage multiple was 0.0 (7.7). PERSONNEL The average number of employees at the close of the quarter was 51,585, compared with 50,917 at the end of the third quarter in 2004. The increase represents the net amount of acquisitions and rationalization programs implemented within the Group. RATIONALIZATION PROGRAM ETC. The savings program that was announced in August 2005 and which will yield annual savings of SEK 1,550 M, with full effect in 2008, is proceeding as planned. The previously initiated information and negotiation process means that the third quarter is charged with the restructuring costs for the entire program of SEK 4,940 M, of which SEK 2,321 M is write-downs. Other restructuring costs, SEK 2,619 M, are related primarily to the release of personnel. The cash expenditures and savings effects during the third quarter were marginal. The program's savings during the fourth quarter are estimated at SEK 50 M. To date, negotiations on closures have been conducted, among others, with the testliner plants in Argovia, Switzerland and Djursland, Denmark. A total of 245 full-time positions are affected and the plants have a combined capacity of 310,000 tons. The plant in Argovia is being closed during November 2005, while Djursland will be closed in March 2006. In addition, negotiations are under way about the closure of the tissue plant in Tilburg, Netherlands. The closure affects 130 full-time positions and the plant has a production capacity of 30,000 tons. The plant is scheduled to be closed during the second half of 2006. Moreover, negotiations about cutbacks are being carried out within the Nordic tissue operations in Lilla Edet and Jönköping, Sweden, and Drammen, Norway. The cutbacks involve 150 full-time positions. SCA’s savings program also includes converting plants and administrative personnel. Information about the measures has been provided to the organizations representing the affected employees. Programs announced earlier, which were largely completed during the current year, are proceeding according to plan. The effect on full-year 2005 is estimated at SEK 600 M, of which about SEK 400 M affected earnings in the first nine months. The testliner mill in Aschaffenburg, Germany, is being rebuilt to meet the demand for light-weight liner, which makes Aschaffenburg one of our more important strategic projects. The rebuild will involve a lengthy production stop and, accordingly, will affect earnings in the fourth quarter. A maintenance program for the kraftliner mill in Obbola, Sweden, will resolve in the existing soda recovery boiler being replaced. The investment amounts to about SEK 800 M, and will be distributed over the years 2006 and 2007. The investment is included in the Group’s maintenance capital expenditures. NOMINATION COMMITTEE The Nomination Committee, whose task is to present proposals to the 2006 Annual General Meeting regarding the composition of SCA’s Board of Directors and other matters, comprises Carl-Olof By, AB Industrivärden, also Chairman of the Nomination Committee, Curt Källströmer, SHB pension funds and foundations, etc., Björn Lind, SEB Fonder, Björn Fransson, Fourth Swedish National Pension Fund, Caroline af Ugglas, Skandia Liv, and Sverker Martin-Löf, Chairman of the Board of SCA. SCA’s Annual General Meeting will be held on Thursday, 6 April 2006 in Stockholm. OTHER This interim report was prepared in accordance with IAS 34 and the Swedish Financial Accounting Standards Council’s recommendation RR 31 and, with regard to the Parent Company, RR 32. Actuarial gains and losses from calculating of pensions are reported directly in shareholders’ equity. The EU has not yet approved this supplement to IAS 19. The EU’s expert body for accounting, EFRAG, is in favor of approval. The Group’s Parent Company, Svenska Cellulosa Aktiebolaget SCA (publ), owns the forestlands and other fixed properties that are part of the Group’s forestry operations and provide felling rights for standing timber to its subsidiary SCA Skog AB. In other respects, the Parent Company is a holding company whose main task is to own and manage shares in a number of business-group companies and to provide Group-wide management and administration. Operating revenues during the period January–September 2005 totaled SEK 116 M (108) and earnings before appropriations and taxes amounted to SEK 704 M (2,373). During the quarter, the Parent Company made no investments in shares and participations. Investments in properties and plant amounted to SEK 23 M (26) during the period. Liquid funds at the close of the period amounted to SEK 0 M (3). The Nordic tissue operations of Munksjö were acquired during the period. The acquisition amount was SEK 249 M on a debt-free basis and goodwill preliminarily amounts to SEK 80 M. The acquisition balance is expected to be finally determined during the fourth quarter. The operations were consolidated as per 18 May 2005. The year-end report for 2005 will be released on 31 January 2006. SHARE DISTRIBUTION 30 September 2005 Series A Series B Total Registered number of shares 38,445,535 196,591,163 235,036,698 Of which treasury shares - (1,626,117) (1,626,117) During the first nine months of 2005, 1,982,322 Series A shares were converted into Series B shares. The proportion of Series A shares at the close of the period totaled 16.4%. Computed in accordance with IFRS recommendations, the effects of outstanding personnel options programs correspond to a maximum dilution effect of 0.06%, which was taken into account in calculations of earnings per share during the period under review. Stockholm, 26 October 2005 SVENSKA CELLULOSA AKTIEBOLAGET SCA (publ) Jan Åström President and CEO Auditors’ statement We have reviewed this interim report and in this connection have followed the Recommendation issued by the Swedish Institute of Authorized Public Accountants (FAR). A review is considerably limited in scope compared with an audit. Nothing has come to our attention that causes us to believe that the interim report does not fulfill the requirements of the Exchange and Clearing Operations Act and the Annual Accounts Act. Stockholm, 26 October 2005 PricewaterhouseCoopers AB Robert Barnden Authorized Public Accountant Appendices, tables: Pages 9-11: Consolidated statement of earnings January–September and quarterly data Page 12: Consolidated balance sheet Page 13: Operating cash flow statement Pages 14-17: Business areas Page 17: Five-year summary Page 18: Cash flow statement STATEMENT OF EARNINGS, GROUP 2005:3 2004:3 2005:2 0509 0409 SEK M Net sales 24,740 22,812 23,986 71,244 66,839 - Operating expenses1, 2 -23,809 -19,099 -20,711 64,257 -55,942 Operating surplus 931 3,713 3,275 6,987 10,897 Depreciation and write-down, properties and plant3 -3,937 -1,588 -1,564 -7,051 -4,456 Share in earnings of associated companies 3 4 8 17 16 Operating profit -3,003 2,129 1,719 -47 6,457 Financial items4 -393 -330 -358 -1,094 -843 Earnings before taxes -3,396 1,799 1,361 -1,141 5,614 Income taxes5 985 -465 -355 398 -1,504 Net earnings -2,411 1,334 1,006 -743 4,110 Earnings attributable to: Parent company shareholders -2,408 1,324 998 -752 4,086 Minority interest -3 10 8 9 24 Earnings per share, SEK - before dilution effects -10.32 5.66 4.27 -3.22 17.50 - after dilution effects -10.31 5.66 4.27 -3.22 17.49 Return on shareholders’ equity -17 % 10 % 7 % 2 % 10 % Return on capital employed -12 % 10 % 7 % 3 % 10 % Margins(percent) Gross margin 3.8 16.3 13.7 9.8 16.3 Operating margin -12.1 9.3 7.2 -0.1 9.7 Financial net margin -1.6 -1.4 -1.5 -1.5 -1.3 Profit margin -13.7 7.9 5.7 -1.6 8.4 Tax and minority 4.0 -2.0 -1.5 0.6 -2.3 Net margin -9.7 5.9 4.2 -1.0 6.1 Specification of earnings per share - -685.0 Net earnings for the period 2,353.0 1,334.0 1,006.0 4,110.0 Minority interest 3.0 -10.0 -8.0 -9.0 -24.0 - -694.0 Adjusted earnings 2,350.0 1.324.0 998.0 4,086.0 Average number of shares before dilution 233.4 233.3 233.4 233.4 233.3 Outstanding warrants 0.1 0.2 0.1 0.1 0.2 Average number of shares after dilution 233.5 233.5 233.5 233.5 233.5 ¹ Change in the fair value of growing trees, included in ”other value changes, net” 82 63 81 245 189 Specifications of items affecting comparability 2Operating expenses - Rationalization costs -2,619 - - -3,013 -44 3 Depreciation and write- down, properties and plant - Write-down in connection with rationalization programs -2,321 - - -2,352 - 4Financial items - Sale of shares in Industrivärden - 70 - - 70 5 Taxes - Effects of restructuring program 1,273 - - 1,384 14 CONSOLIDATED INCOME AND EXPENSES REPORTED DIRECTLY IN SHAREHOLDERS’ EQUITY January-September 2005 2004 Actuarial gains and losses related to pensions -416 0 Financial assets that can be sold: - Result of valuation to fair value reported in shareholders’ equity 107 - - Transferred to income statement at sale - - Cash flow hedges: - Result from revaluation of derivatives reported in shareholders’ equity 43 - - Transferred to income statement for the period -2 - - Transferred to acquisition value for hedged investments -13 - Translation difference in foreign operations 2,846 306 Result from hedging of net investments in foreign operations 434 -155 Tax on items reported directly in/transferred from shareholders’ equity 125 0 Total transactions reported directly in shareholders’ equity 3,124 151 Net earnings during the period -743 4,110 Totalfor the period 2,381 4,261 Attributable to: - Parent Company shareholders 2,333 4,216 - Minority interests 48 45 2,381 4,261 Other changes in shareholders’ equity: - dividend to Parent Company shareholders -2,451 -2,450 - dividend to minority interest -25 -21 - sale of own shares 6 9 - conversion of debentures, warrants - 1 - transition to IAS 32 and IAS 39 as of 1 January 2005 95 - - other changes 61 56 STATEMENT OF EARNINGS, GROUP, additional information 2005:3 2004:3 2005:2 0509 0409 EUR M1 EUR M1 EUR M1 EUR M2 EUR M3 Net sales 2,646 2,491 2,608 7,737 7,299 Operating expenses -2,550 -2,086 -2,252 -6,978 -6,109 Operating surplus 96 405 356 759 1,190 Depreciation and write- down, properties and plant -425 -174 -170 -766 -487 Share in earnings of associated companies 0 1 1 2 2 Operating profit -329 232 187 -5 705 Financial items -42 -36 -39 -119 -92 Earnings after financial items -371 196 148 -124 613 Income taxes 107 -51 -38 43 -164 Net earnings -264 145 110 -81 449 1Isolated quarterly amounts have been calculated as the difference between two accumulated results. 2The average exchange rate of 9.21 was applied in translation to EUR. 3The average exchange rate of 9.16 was applied in translation to EUR. Quarterly data STATEMENT OF EARNINGS, GROUP 2005 2004 SEK M III II I IV III II I Net sales 24,740 23,986 22,518 23,128 22,812 22,340 21,687 Operating - expenses1, 2 23,809 -20,711 -19,737 -20,222 -19,099 -18,644 -18,199 Operating surplus 931 3,275 2,781 2,906 3,713 3,696 3,488 Depreciation and write-down, properties and plant3 -3,937 -1,564 -1,550 -1,696 -1,588 -1,473 -1,395 Share in earnings of associated companies 3 8 6 2 4 8 4 Operating profit -3,003 1,719 1,237 1,212 2,129 2,231 2,097 Financial items4 -393 -358 -343 -241 -330 -299 -214 Earnings after financial items -3,396 1,361 894 971 1,799 1,932 1,883 Income taxes5 985 -355 -232 111 -465 -540 -499 Net earnings -2,411 1,006 662 1,082 1,334 1,392 1,384 Earnings per share, SEK - before dilution effects -10.32 4.27 2.83 4.63 5.67 5.94 5.90 - after dilution effects -10.31 4.27 2.82 4.62 5.67 5.94 5.89 Margins (percent) Gross margin 3.8 13.7 12.4 12.6 16.3 16.5 16.1 Operating margin -12.1 7.2 5.5 5.2 9.3 10.0 9.7 Financial net margin -1.6 -1.5 -1.5 -1.0 -1.4 -1.3 -1.0 Profit margin -13.7 5.7 4.0 4.2 7.9 8.7 8.7 Tax and minority 4.0 -1.5 -1.0 0.5 -2.0 -2.4 -2.3 Net margin -9.7 4.2 3.0 4.7 5.9 6.3 6.4 ¹Change in the fair value of growing trees included in ”other value changes,net” 82 81 82 63 63 63 63 Specifications of items affecting comparability 2Operating expenses - Rationalization costs -2,619 - -394 -555 - -14 -30 3 Depreciation and write-down, properties and plant - Write-down in connection with rationalization programs -2,321 - -31 -171 - - - 4Financial items - Sale of shares in Industrivärden - - - 100 70 - - 5Taxes - Effects of restructuring program 1,273 - 111 320 - 5 9 BALANCE SHEET, GROUP 30 September 2005 31 December 2004 SEK M EUR M¹ SEK M EUR M¹ Assets Goodwill 19,432 2,083 17,131 1,906 Other intangible assets 2,032 218 2,025 225 Tangible assets 75,989 8,147 74,714 8,314 Shares and participations 561 60 696 77 Long-term financial receivables² 1,909 205 1,126 125 Other long- term receivables 1,201 129 682 76 Total fixed assets3 101,124 10,842 96,374 10,723 Operating receivables and inventories 29,313 3,143 25,774 2,868 Short-term investments 461 49 891 99 Assets held for sale 93 10 - - Cash and bank balances 1,564 168 2,735 304 Total current assets4 31,431 3,370 29,400 3,271 Total assets 132,555 14,212 125,774 13,994 Shareholders’ equity Equity excluding minority interest 54,246 5,822 54,202 6,031 Minority interest 791 85 768 85 Total equity 55,037 5,907 54,970 6,116 Liabilities Provisions for pensions 5,081 545 4,388 488 Other provisions 11,528 1,230 12,346 1,374 Long-term interest- bearing debt 15,652 1,678 19,155 2,131 Other long- term interest- free liabilities 274 29 90 10 Total long- term liabilities5 32,535 3,482 35,979 4,003 Short-term interest- bearing debt7 23,563 2,526 15,776 1,755 Operating liabilities 21,420 2,297 19,049 2,120 Total current liabilities6 44,983 4,823 34,825 3,875 Total liabilities 77,518 8,305 70,804 7,878 Total equity and liabilitites 132,555 14,212 125,774 13,994 Debt/equity ratio 0.73 0.658 Equity/assets 42 % 44 % 1The average exchange rate of 9.33 (8.99) was applied in translation to EUR. 2Of which pension assets 413 44 418 46 3Of which derivative instruments 570 61 - - 4Of which derivative instruments 107 12 - - 5Of which derivative instruments 413 44 - - 6Of which derivative instruments 409 44 - - 7Contracted committed credit lines amount to SEK25.794 M. 8As per 1 January 2005 including adjustments for IAS 32 and IAS 30. OPERATING CASH FLOW ANALYSIS 1 January–30 September SEK M 2005 2004 Operating cash surplus 9,667 10,737 Changes in working capital -1,157 -1,588 Current capital expenditures, net -2,698 -2,674 Structural costs etc. -689 -160 Operating cash flow 5,123 6,315 Financial items -1,094 -843 Income taxes paid -1,283 -1,721 Other -15 12 Cash flow from current operations 2,731 3,763 Acquisitions -352 -7,583 Strategic capital expenditures, properties -1,453 -1,729 Strategic structural expenditures -55 -180 Divestments 1 0 Cash flow before dividend 872 -5,729 Dividend -2,476 -2,471 Cash flow after dividend -1,604 -8,200 Conversion of debentures, warrants - 1 Sale of own shares 6 9 Net cash flow -1,598 -8,190 Acquisitions Strategic capital expenditures, properties -35,823 -26,533 Strategic structural expenditures -1,598 -8,190 Divestments -310 0 Cash flow before dividend -2,729 -635 Dividend -40,460 -35,358 Debt payment capacity 26 % 39 % Debt/equity ratio 0.73 0.64 OPERATING CASH FLOW ANALYSIS PER QUARTER 2005 2004 SEK M III II I IV III II I Operating cash surplus 3,425 3,155 3,087 3,371 3,634 3,658 3,445 Changes in working capital 284 -175 -1,266 942 552 -771 -1,369 Current capital expenditures, net -785 -1,163 -750 -1,596 -1,071 -1,020 -583 Other operating cash flow changes -364 -169 -156 -195 6 -88 -78 Operating cash flow 2,560 1,648 915 2,522 3,121 1,779 1,415 Financial items -393 -358 -343 -241 -330 -299 -214 Income taxes paid -478 -204 -601 -367 -501 -878 -342 Other -16 -2 3 11 5 5 2 Cash flow from current operations 1,673 1,084 -26 1,925 2,295 607 861 Acquisitions -47 -256 -49 -1,757 4521 -7,047 -988 Strategic capital expenditures, properties -379 -473 -601 -669 -752 -512 -465 Strategic structural expenditures -31 -12 -12 -46 -63 -32 -85 Divestments 1 0 0 0 0 0 0 Cash flow before dividend 1,217 343 -688 -547 1,932 -6,984 -677 Dividend -21 -2,455 - - -21 -2,450 - Cash flow after dividend 1,196 -2,112 -688 -547 1,911 -9,434 -677 Conversion of debentures, warrants - - - - - - 1 Sale of own shares 3 1 2 6 2 3 4 Net cash flow 1,199 -2,111 -686 -541 1,913 -9,431 -672 1Preference shares have been reclassified and are treated as loans. BUSINESS AREA HYGIENE PRODUCTS SEK M 2005:3 2005:2 2005:1 0509 0409 Net sales 12,943 12,258 11,606 36,807 33,455 Tissue 7,917 7,531 7,144 22,592 20,260 Personal Care 5,026 4,727 4,462 14,215 13,195 Operating surplus 1,888 1,701 1,636 5,225 5,550 Tissue 999 892 888 2,779 3,068 Personal Care 889 809 748 2,446 2,482 Operating profit 1,083 962 908 2,953 3,457 Tissue 428 391 379 1,198 1,618 Personal Care 655 571 529 1,755 1,839 Gross margin, % 14.6 13.9 14.1 14.2 16.6 Tissue 12.6 11.8 12.4 12.3 15.1 Personal Care 17.7 17.1 16.8 17.2 18.8 Operating margin, % 8.4 7.8 7.8 8.0 10.3 Tissue 5.4 5.2 5.3 5.3 8.0 Personal Care 13.0 12.1 11.9 12.3 13.9 Volume trend, % Tissue 2.6¹ 4.6¹ -2.1¹ 9.72 7.82 Personal Care 1.4¹ 8.0¹ -2.7¹ 7.52 8.52 1Compared with the immediately preceding quarter. 2Compared with corresponding period previous year. BUSINESS AREA PACKAGING SEK M 2005:3 2005:2 2005:1 0509 0409 Net sales 8,351 8,094 7,642 24,087 23,697 Operating surplus 900 919 898 2,717 3,373 Operating profit 444 455 458 1,357 2,024 Gross margin, %¹ 10.8 11.4 11.8 11.3 14.2 Operating margin, %¹ 5.3 5.6 6.0 5.6 8.5 Production Liner products, kton 651 689 666 2,006 1,979 Deliveries Liner products, kton 660 690 651 2,001 1,971 Corrugated board, Mm2 1,076² 1,105² 1,052² 3,233 3,184 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 2005:3 2005:2 2005:1 0509 0409 Net sales 3,986 4,116 3,762 11,864 11,140 Publication papers 2,034 1,965 1,932 5,931 5,604 Pulp, timber and solid-wood products 1,952 2,151 1,830 5,933 5,536 Operating surplus 853 758 738 2,349 2,295 Publication papers 420 330 334 1,084 974 Pulp, timber and solid-wood products 433 428 404 1,265 1,321 Operating profit 516 416 401 1,333 1,320 Publication papers 206 113 121 440 333 Pulp, timber and solid-wood products 310 303 280 893 987 Gross margin, % 21.4 18.4 19.6 19.8 20.6 Publication papers 20.6 16.8 17.3 18.3 17.4 Pulp, timber and solid-wood products 22.2 19.9 22.1 21.3 23.9 Operating margin, % 12.9 10.1 10.7 11.2 11.8 Publication papers 10.1 5.8 6.3 7.4 5.9 Pulp, timber and solid-wood products 15.9 14.1 15.3 15.1 17.8 Production Publication papers, kton 370 352 367 1,089 1,088 Solid- wood products, km³ 367 372 372 1,111 1,058 Deliveries Publication papers, kton 369 358 366 1,093 1,080 Solid- wood products, km³ 383 407 369 1,159 1,107 Quarterly data – Business areas 2005 2004 SEK M III II I IV III II I NET SALES Hygiene Products 12,943 12,258 11,606 11,904 11,761 11,149 10,545 Tissue 7,917 7,531 7,144 7,336 7,249 6,652 6,359 Personal Care 5,026 4,727 4,462 4,568 4,512 4,497 4,186 Packaging 8,351 8,094 7,642 7,804 7,928 7,939 7,830 ForestProducts 3,986 4,116 3,762 3,814 3,586 3,741 3,813 Publication papers 2,034 1,965 1,932 2,005 1,909 1,790 1,905 Pulp, timber and solid-wood products 1,952 2,151 1,830 1,809 1,677 1,951 1,908 Other 247 288 232 298 265 268 256 Intra-group deliveries -787 -770 -724 -692 -728 -757 -757 Total net sales 24,740 23,986 22,518 23,128 22,812 22,340 21,687 OPERATING SURPLUS Hygiene Products 1,888 1,701 1,636 1,712 1,878 1,881 1,791 Tissue 999 892 888 907 1,056 1,028 984 Personal Care 889 809 748 805 822 853 807 Packaging 900 919 898 1,036 1,172 1,138 1,063 ForestProducts 853 758 738 800 773 782 740 Publication papers 420 330 334 354 340 317 317 Pulp, timber and solid-wood products 433 428 404 446 433 465 423 Other -2,710 -103 -491 -642 -110 -105 -106 Total operating surplus 931 3,275 2,781 2,906 3,713 3,696 3,488 OPERATING PROFIT Hygiene Products 1,083 962 908 998 1,093 1,186 1,178 Tissue 428 391 379 408 495 556 567 Personal Care 655 571 529 590 598 630 611 Packaging 444 455 458 580 706 697 621 ForestProducts 516 416 401 457 446 457 417 Publication papers 206 113 121 137 127 104 102 Pulp, timber and solid-wood products 310 303 280 320 319 353 315 Other -5,046 -114 -530 -823 -116 -109 -119 Total operating profit -3,003 1,719 1,237 1,212 2,129 2,231 2,097 2005 2004 Percent III II I IV III II I GROSS MARGINS Hygiene Products 14.6 13.9 14.1 14.4 16.0 16.9 17.0 Tissue 12.6 11.8 12.4 12.4 14.6 15.5 15.5 Personal Care 17.7 17.1 16.8 17.6 18.2 19.0 19.3 Packaging 10.8 11.4 11.8 13.3 14.8 14.3 13.6 ForestProducts 21.4 18.4 19.6 21.0 21.6 20.9 19.4 Publication papers 20.6 16.8 17.3 17.8 17.8 17.7 16.6 Pulp, timber and solid-wood products 22.2 19.9 22.1 24.5 25.8 23.8 22.2 OPERATING MARGINS Hygiene Products 8.4 7.8 7.8 8.4 9.3 10.6 11.2 Tissue 5.4 5.2 5.3 5.6 6.8 8.4 8.9 Personal Care 13.0 12.1 11.9 12.9 13.3 14.0 14.6 Packaging 5.3 5.6 6.0 7.4 8.9 8.8 7.9 ForestProducts 12.9 10.1 10.7 12.0 12.4 12.2 10.9 Publication papers 10.1 5.8 6.3 6.9 6.7 5.8 5.4 Pulp, timber and solid-wood products 15.9 14.1 15.3 17.6 19.0 18.1 16.5 FIVE-YEAR SUMMARY IFRS Swedish Accounting Principles Full year 2004 2003 2002 2001 2000¹ 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 historically to reflect new issues. CASH FLOW ANALYSIS 1 January–30 September SEK M 2005 2004 Current operations Earnings after financial items -1,141 5,614 Adjustment for items not included in cash flow¹ 8,875 3,976 7,734 9,590 Taxes paid -1,283 -1,721 Cash flow from current operations before changes in working capital 6,451 7,869 Cash flow from changes in working capital Change in inventories -279 -351 Change in current receivables 767 -130 Change in operating liabilities -1,645 -1,107 Cash flow from current operations 5,294 6,281 Investment activities Acquisition of subsidiaries -333 -6,440 Acquisition of tangible and intangible fixed assets 1 0 Proceeds from sale of equipment -4,534 -4,676 Payment of loans to external parties 407 308 Repayment of loans from external parties 2 221 Cash flow from investment activities -4,457 -10,587 Financing activities Sale of own shares 6 9 Borrowings 23 7,071 Dividend paid -2,476 -2,471 Cash flow from financing activities -2,447 4,609 Cash flow for the period -1,610 303 Liquid funds at beginning of year 3,498 1,929 Translation differences in liquid funds 133 13 Liquid funds at end of period 2,021 2,245 Reconciliation with the operative cash flow analysis Cash flow for the period -1,610 303 Deducted items: Repayment of loans from external parties -2 -221 Increase of debt -23 -7,071 Added items: Net debt in acquired companies -19 -1,143 Accrued interests 80 -24 Investments through financial leasing -24 -35 Conversion of loan to shareholders’ equity - 1 Net cash flow according to operating cash flow -1,598 -8,190 ¹ Depreciation and write-down of fixed assets 7,051 4,456 Fair value valuation of trees -245 -189 Non-cash items related to restructuring program 2,320 - Other -251 -291 Total 8,875 3,976 Press conference SCA invites media, analysts and investors to a press conference at Salénhuset, Aulan, Norrlandsgatan 15 at 13.00 CET on 26 October. A telephone conference and webcast will be held at 15.00 CET on 26 October. For information how to participate and to download slide presentation, visit www.sca.com/investors. For further information please contact: Jan Åström, President and CEO. Phone: +46 70 586 0701. Bodil Eriksson, Senior Vice President, Communications and Investor Relations. Phone: 08-7885234 or +46 70-6296634. ------------------------------------------------------------------------ [1]Actuarial gains and losses from calculation of pensions are reporting directly in shareholders’ equity.