MoDo Annual Report 1996investors.holmen.com/afw/files/press/holmen/Holmen_1996_AR_en.… · 32 MoDo...

Contents

1 Highlights 1996

2 This is MoDo

4 Comments by the Chief Executive Officer

Annual Report 1996

6 Report of the Directors

8 Consolidated profit and loss account

10 Consolidated balance sheet

12 Consolidated cash flow statement

14 Parent company

15 Definitions of financial ratios

16 Accounting principles

18 Notes

22 List of shareholdings

24 Financial risks

25 Proposed treatment of unappropriated

earnings

25 Report of the Auditors

26 Quarterly comparisons

27 Review of the Group

28 Group sales

29 Operations by country

29 Production capacity

30 MoDo shares

Review of the business areas 1996

32 MoDo Paper

34 Holmen Paper

36 Iggesund Paperboard

38 MoDo Merchants

38 Iggesund Timber

40 MoDo Skog

42 Investments and Development

45 MoDo and the environment

46 Board of Directors

47 Group functions – Business area presidents

48 Addresses

49 Annual General Meeting

Financial information

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Earnings and dividendper share, SKr

11

MoDo 1996

Highlights 1996 1995

Sales, SKr million 20,115 22,319Profit after net financial items, SKr million 2,919 5,216Net profit after tax, SKr million 1,979 3,671Earnings per share, SKr 22.30 41.30Dividend, SKr 9.00* 8.50Debt/equity ratio 0.26 0.41Capital expenditure, SKr million 2,415 2,654Average number of employees 9,899 9,707*Proposal of the Board of Directors

■ Second best result ever

■ Financial position further improved

■ Investments to strengthen competitiveposition

Workington

Pont Sainte Maxence

Alizay

Husum

StrömsbrukIggesund

Hallstavik

Stockholm

Braviken

Silverdalen

Vargön

Domsjö

Production unitsMarketing companies:

Head Office

MoDo Skog

Holmen Paper

MoDo Paperfine paperMoDo Paperpulp

Iggesund Timbersawn timber

wood-containing printing paper

Iggesund Paperboardpaperboard

MoDo Merchantssale anddistributionof writing andprinting paperand paperboard

regional andpurchasing offices

2

The CompanyMoDo in Europe

This is MoDo

Products

Fine paper

Wood-containing printing paper

Paperboard

Sawn timber

Pulp

MoDo is one of Sweden’s topexporters. MoDo’s main marketsare in Western Europe, and morethan 80 per cent of the Group’soutput is sold in the EU.

The Group has its own pro-duction facilities in Sweden,Great Britain and France.

There are marketing organisa-tions in most European countriesand in the USA. MoDo’s pro-ducts are also marketed byagents and distributors in manyother countries.

The average number ofemployees in 1996 was 9,899,of whom 2,790 were employedoutside Sweden.

3

President

Organisation Share of Group

MoDo Paper

Holmen Paper

IggesundPaperboard

MoDoMerchants

IggesundTimber

MoDo Skog

Groupfunctions

Sales Capital employed

Fine paper for offices, printed matter, continuousstationery and books. Pulp and dissolving pulp.Mills in Husum, Domsjö and Silverdalen inSweden, and Alizay and Pont Sainte Maxencein France.

Wood-containing printing paper, mainly for dailynewspapers, printed matter and telephonedirectories. Holmen Paper also includes MoDo’spower business, which is responsible for procuringelectricity for MoDo’s mills in Sweden.Mills in Norrköping, Hallstavik and Vargön.

High-quality paperboard for packaging and printedmatter. It is used for food, chocolate, tobacco andcosmetics as well as for book and brochure covers.Mills in Iggesund and Strömsbruk in Sweden, andWorkington in Great Britain.

Paper merchanting, mainly fine paper.Activities in Sweden, Norway, Great Britain,Belgium, the Netherlands and Spain.

Sawn timber, with a growing proportion ofcustomised special products.Sawmills in Iggesund and Domsjö in Sweden, andtimber distributors in the Netherlands and France(wholly-owned or associates).

Wood procurement and management of MoDo’sown forests.Regional offices in Lycksele, Robertsfors,Örnsköldsvik, Iggesund, Strängnäs andNorrköping. Purchasing companies in Estonia,Latvia and Russia.

27% 34%

33% 25%

19% 17%

17% 2%

4% 2%

27% 22%

4

Comments by the Chief Executive Officer

MoDo achieved a strong result in1996, despite the weak state ofthe market for several of its

product areas.The profit of SKr 2,919 million after

net financial items is the second best ever.Around half of this profit, or SKr 1,470

million, represents an operating resultaffected by the spot exchange rates thatwere prevailing during the year, while theother half, or SKr 1,449 million, is theresult of currency hedging.

Given the global environment, theoperating profit can be considered to berelatively good. The prices of fine paperand pulp, which were running at a highlevel during the first half of 1995, beganto come under pressure in the late autumnof 1995, and continued to fall rapidlyduring the first half of 1996. Deliverieswere low, as a result of destocking by cus-tomers and distributors. The order intakeand deliveries revived during the autumnof 1996, but the price level remained low,despite some price increases towards theend of the year.

The fluctuations in paperboard priceswere considerably less than for fine paperand pulp, although order and delivery pat-terns were similar. The market for wood-containing printing paper, especially news-print, was strong during the first sixmonths, but deteriorated towards the endof the year, with falling prices as a result.Sawn timber experienced a very weakmarket throughout 1996, albeit the situa-tion improved during the autumn.

In 1996, the Group’s wood consumptionwas lower than in 1995. Extensive pro-duction restrictions in the industry in1995–1996 resulted in rising stocks ofwood in Sweden, which in turn meant thatpulpwood prices could gradually belowered by 15–20 per cent.

Currency hedging contributed SKr1,449 million to the result. MoDo has apolicy of hedging its currency flows. Theextent of the hedging is decided partly oncommercial considerations, and partly onassessments of the currency risk. In 1995,MoDo sold forward a large proportion ofits estimated currency flows in 1996. Asthe krona exchange rate improved – espe-cially during the three first quarters – the

Group was able to realise substantialprofits on these forward contracts.

Over the year, the degree of hedgingwas gradually reduced, and by the end of1996, it corresponded to some fivemonths’ currency flows.

Financial positionfurther improvedThe market situation for MoDo’s productsthus altered dramatically during 1995 and1996. This development clearly illustratesthe fact that MoDo is active in a cyclicalindustry, where the opportunities to influ-ence conditions in our external environ-ment are limited.

MoDo’s consistent policy of givingpriority to strengthening the company’sfinancial position throughout the years ofeconomic growth in 1994 and 1995 is nowturning out to be justified, in the light ofthe cyclical conditions in which MoDooperates. The net debt was reduced also in1996, and the amount of equity was incre-ased, so that the closing debt/equity ratiowas down to 0.26, a level which MoDohas never in the past even approached.

Together with lower interest rates, thismeans that interest costs on an annualbasis are now down to some 1.5 per centof sales. Even extremely low operatingmargins would therefore still make a posi-tive net contribution to the result.

The need for a strong financial positionis now well satisfied, and MoDo’s policynow is not to jeopardise the position it hasachieved. The strong balance sheet givesMoDo considerable freedom of action,and enables the company to continue withconsistent and planned investmentprogrammes, even in a recession.

Profitability over aneconomic cycle insufficientMoDo’s profitability, seen over a completeeconomic cycle, is still not satisfactory,and needs to be improved in order to gene-rate a rate of capital growth that satisfiesthe demands of the capital market. Thehighly cyclical nature of MoDo’s businessmeans that the profits fluctuate widely,and its earnings should therefore be asses-sed over a longer period of time, say six

years, including both years of growth andeconomic downturns.

During the period 1991–1996 the returnon capital employed was 9.6 per cent, eventhough 1995 and 1996 were good years interms of earnings. During this period thereturn should have amounted to at least 13per cent.

For the average return to be satisfactory,the profit level has to be maintained at ahigher level than it has been so far, especi-ally during recession years. Tight controlover the costs we can influence ourselvesis very important here. A programme istherefore now being carried out within theGroup to contain fixed costs. The aim isthat in 1997 these costs should not exceedthe cost level, for comparable units, in1995. In line with this programmepersonnel cuts are being made in 1996and 1997 affecting around 400 people,mainly in the Swedish operations.

Investments to strengthencompetitive positionMoDo’s three main product areas are finepaper, wood-containing printing paper andpaperboard. The Group’s strategy is todevelop these areas, primarily in the formof organic growth in pace with the market.Product quality, customer service and costefficiency are the decisive factors influen-cing the competitive position and thus theprofitability. The investment policy isintended to strengthen the competitiveposition, primarily within these three mainareas.

MoDo’s largest investment in 1996 wasthe new PM 53 newsprint machine at theBraviken paper mill. This machine, whichgives Braviken a very cost-effective millstructure, was commissioned at the end ofApril. The start-up was remarkablysmooth, and after a week the machine wasalready producing paper of commercialquality. This was a great advantage, sincethe paper from the new machine was laun-ched in time to gain a firm foothold on themarket before it turned down.

At Iggesunds Bruk, the trimming of thepaperboard machine, which was rebuiltduring the later part of 1995 continuedduring the year. Three new grades of fully-bleached paperboard have been tested with

favourable results and introduced. In 1997,these will be launched on a full scale onthe market. The new service warehousesat Iggesunds Bruk and Workington, and anew distribution system, have given Igge-sund Paperboard customer service of thehighest class.

MoDo Paper continued with the modern-isation of the pulp mill that is integratedwith the Husum fine paper mill. A newwood handling department was started upin August, and a decision was made tobuild a new evaporation unit at Husum.This is scheduled for completion by theend of 1997. The planning for the moder-nisation of the pulp digester house hascontinued, and an application will be sub-mitted for this project to the National Fran-chise Board for Environmental Protectionthis spring.

A final decision on the possible en-largement of Husum’s pulp capacity aswell as on the future of the Domsjö mill isscheduled for 1998.

MoDo Paper’s fine paper is focusingincreasingly on the office paper segment.One phase in this process is that a line forpaper in A4 format is being installed at themill in Alizay, France, which is expectedto be ready for commissioning in theautumn of 1997.

The acquisition of the sales organisationThomesto Paper Merchants in April 1996is also intended to strengthen the positionin the office paper segment. MoDo PaperEast – as the company is now called –gives the Group access to new sales chan-nels in Eastern Europe.

Most of the Group’s production is loca-ted in Sweden. The decision announced atthe beginning of February 1997 to beginthe early phase-out of nuclear power inSweden will most probably lead to higherelectricity costs, which is extremelyserious for the future competitive position.

The Group’s ability to compete success-fully and to achieve satisfactory profit-ability, is also critical for our ability topursue active and forward-looking envi-ronmental programmes. Nowadays, theconcept of product quality also incorpora-tes significant environmental factors. Asbefore, MoDo will this year publish aseparate environmental report, whichdescribes MoDo’s environmental policy

and discusses the financial effects ofenvironmental measures.

The environmental report also high-lights issues relating to the forest environ-ment. The certification of forestry is acurrent concern here. We are workingactively to find ways of doing this. How-ever, economic consequences must also beincluded in the assessments in this con-text. Sweden – together with Finland –already has the world’s highest woodcosts, and our products have to competeon international markets.

Uncertain marketoutlook for 1997At the time of writing, the markets arepresenting a rather mixed picture. Whereassawn timber is characterised by rising

prices, the price of newsprint is underpressure. The market for paperboard isrelatively stable and at the beginning of1997 the order intake for fine paper isgood, while a slight weakening may benoted for pulp. It is therefore difficult toforecast what will happen to the prices anddeliveries of MoDo’s products in 1997.

Stockholm, February 1997

5

BENGT PETTERSSONPRESIDENT AND CHIEF EXECUTIVE OFFICER

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The profit after net financial items declinedby 44 per cent.

Profit/loss after netfinancial items, SKr million

The Board of Directors and the Presidentof Mo och Domsjö AB (publ) herewithsubmit their annual report on the activitiesof the parent company and the Group in1996. Information concerning the result ofthe year’s operations and the financialposition of the parent company and theGroup is provided in the following profitand loss accounts and balance sheetstogether with the notes on the financialstatements.

The marketThe global economic situation showed arather fragmented picture in 1996. Clearsigns of a weakening were noted inWestern Europe (except for Britain), whilesustained growth characterised the USAand Asia except for Japan. The demand forfine paper in Western Europe strengthenedduring the second half of 1996, after aweak start to the year. The markets formarket pulp, paperboard and sawn timbergradually recovered in the same way.The market for wood-containing printingpaper showed the reverse trend, with adistinct tendency for demand to weakenafter the year had begun strongly. Thechanges in demand are mainly explainedby stock adjustments by producers andcustomers.

The market for fine paper improvedduring the summer months and in theautumn a slight increase in prices becamepossible. Demand in Western Europe roseby 7 per cent during 1996, with uncoatedgrades up by 4 per cent and coated finepaper by 11 per cent. MoDo Paper’sdelivery volumes increased in 1996 toreach 829,000 (770,000) tonnes. Capacityutilisation at MoDo Paper’s mills was 87(86) per cent.

The market for market pulp was veryweak at the beginning of the year, butrecovered later in terms of volume. Pricescontinued to fall during the early monthsof 1996, after which they stabilised tosome extent. In the late summer pricesrose slightly, only to come under pressureonce again during the final quarter. TheGroup’s deliveries of market pulp amount-ed to 375,000 (403,000) tonnes. Netdeliveries (external sales volume lessexternally purchased pulp) fell to a totalof 304,000 (330,000) tonnes. Capacity

utilisation at MoDo Paper’s pulp mills was82 (88) per cent.

The market for wood-containing print-ing paper was very firm at the beginningof the year, but it then levelled off.Demand for newsprint on the West Euro-pean market fell by 6 per cent. HolmenPaper’s total delivery volumes rose to1,168,000 (1,135,000) tonnes. This figureincludes 101,000 tonnes from the newPM 53 newsprint machine at Braviken.Capacity utilisation at Holmen Paper’smills was 93 (98) per cent. The prices ofmost of Holmen Paper’s products werelowered around the end of June/beginningof July. However, on average for 1996market prices exceeded the level for 1995.

Demand for solid bleached board andfolding boxboard rose gradually duringthe year, after a weak start. In WesternEurope, total deliveries rose by 2 per centcompared with 1995. Expressed in localcurrencies, the prices of Iggesund Paper-board’s solid bleached board remainedlargely unchanged during the year, whilethe price of folding boxboard was reducedduring the first half of the year. Duringthat period, production was adjusted to thelower demand. At that time the rebuiltKM 2 paperboard machine was being runin at Iggesunds Bruk. In terms of volume,Iggesund Paperboard’s total deliveriesamounted to 373,000 (386,000) tonnes.Capacity utilisation was 84 (88) per cent.

Market deliveries at the merchantingstage expanded strongly during the secondhalf of the year, after a slack first half.MoDo Merchants’ deliveries declined by1 per cent.

The demand for sawn timber in Europefell by 4 per cent on an annual basis.A weak first half was followed by animprovement in the state of the marketduring the second half of the year. Themarket situation made production restric-tions necessary at Iggesund Timber’ssawmills during the spring. Capacityutilisation was 82 (91) per cent for theyear as a whole, and deliveries from thecompany’s sawmills amounted to 347,000(350,000) m3 for the year.

In 1996, the consumption of wood bythe Group fell in relation to 1995. In orderto prevent stocks of wood from buildingup, purchases were reduced from private

Report of the Directors

MoDo Annual Report 1996

forest-owners in Sweden and imports.For the year as a whole, the cost of wooddeclined by 6 per cent.

Result and financingMoDo’s profit after net financial itemsamounted to SKr 2,919 million (5,216m),a decline of SKr 2,297 million. The effectsof currency hedging accounted for SKr1,449 million (555m). The deterioration inthe result was mainly due to lower prices.The Group’s operating costs remainedunchanged compared with 1995.

A provision of SKr 100 million hasbeen charged against the consolidatedresult to cover the estimated cost of earlyretirements and other personnel costsarising out of the current programme ofpersonnel cutbacks.

The pattern of earnings was relativelystable during the first three quarters of theyear, but the result declined during thefourth quarter, partly due to the gradualdisappearance of currency hedging effects.

Earnings per share amounted to SKr22.30 (41.30).

The return on equity was 13.1 (28.5)per cent.

The cash flow amounted to SKr 1,914million (3,030m), and net financial liabili-ties had declined to SKr 4,096 million

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Average numberof employees

The average number of employees increased,mainly due to the acquisition of MoDo PaperEast.


Earnings per share fell from SKr 41.30to SKr 22.30.

Quarterly profit after netfinancial items, SKr million

Lower income from currency hedging, toget-her with provisions, led to a lower result inthe fourth quarter.

Earnings per share, SKr

(5,884m) at the end of the year. Thedebt/equity ratio was 0.26 (0.41).

The Board’s proposed treatment ofunappropriated earnings is shown on page 25.

Production and deliveriesIn 1996, MoDo’s total production of paper,paperboard and pulp for external deliveryamounted to 2,734,000 (2,794,000) ton-nes. Capacity utilisation was lower than inthe previous year, although it rose slightlyduring the second half of 1996.

In 1996, MoDo’s deliveries of paper,paperboard and pulp amounted to2,763,000 (2,709,000) tonnes, an increaseof 2 per cent on 1995.

Capital expenditureThe Group’s capital expenditure amountedto SKr 2,415 million (2,654m) in 1996.Depreciation according to plan was SKr1,239 million (1,151m) during the sameperiod.

The modernisation of the Husumsulphate pulp mill continued in 1996.The new wood handling plant, costing atotal of SKr 534 million, was commis-sioned in August. The construction of anew evaporation unit was begun in 1996.The total cost of this project is estimatedat SKr 700 million, of which the amount

taken into the 1996 accounts was SKr 183million.

The new newsprint machine – PM 53– and the new de-inked pulp line at theBraviken paper mill were started up asplanned in April 1996. The running-in ofPM 53, which will add 270,000 tonnes tothe mill’s annual newsprint capacity onceit is operating at full capacity, was verysuccessful. The total investment costamounts to SKr 2,040 million, of whichSKr 844 (1,021m) million were accountedfor in 1996.

EnvironmentDuring 1996, MoDo’s environmental workwas carried out and developed in accor-dance with the environmental policyestablished by the Board.

The authorities’ permits for businessactivities with an environmental impactwere satisfied, except for minor exceedingof limits at Pont Sainte Maxence andWorkington mills. The Group has co-operated with trade associations andgovernment authorities with the aim ofdeveloping its environment work andthe methods used to calculate and reportenvironmental effects. MoDo’s environ-mental activities are described in detailin MoDo’s Environmental Report for1996.

TaxesThe Swedish tax authority, after examin-ing MoDo’s tax returns for fiscal years1995 and 1996, has not approved alldeductions claimed. These deductionsmainly relate to fixed assets acquired byMoDo, which were then depreciated toperiodise the Group’s tax costs. MoDointends to appeal against all the points inthe tax authority’s decision. See note 6 onpage 18.

PersonnelThe average number of employees in theGroup in 1996 was 9,899 (9,707), ofwhom 7,109 (7,074) were employed inSweden. During the year, SKr 2,497 milli-on (2,400m) were paid in wages, salariesand other remunerations, of which SKr1,842 million (1,722m) were paid toemployees in Sweden. Statutory andcontractual social security charges onbehalf of personnel in Sweden amountedto SKr 773 million (709m). The corre-sponding cost for employees abroad wasSKr 181 million (180m) – see note 20 onpage 21.

8

SKr million 1996 1995

By product area, SKr million Sales Operating profit/loss

Sales 20,115 22,319

Operating costs – 15,601 – 15,692

Non-recurring items (Note 2) 11 282

Interest in earnings of associate companies (Note 3) 4 73

Depreciation according to plan (Note 4) – 1,239 – 1,151

Operating profit 3,290 5,831

Net financial items (Note 5) – 371 – 615

Profit after net financial items 2,919 5,216

Estimated full tax (Note 6) – 940 –1,545

Net profit 1,979 3,671

Earnings per share, SKr 22.30 41.30

1996 1995 1996 1995

Fine paper 5,508 6,631 285 1,476

Wood-containing printing paper 6,664 6,130 1,858 1,552

Paperboard 3,662 3,919 620 765

Pulp 2,211 3,166 –216 1,000

Merchanting operations 3,482 4,135 76 175

Sawn timber 764 856 –53 17

Forests – – 357 391

Group adjustments and other –2,176 – 2,518 352 173

Non-recurring items – – 11 282

Group 20,115 22,319 3,290 5,831

By business area, SKr million Sales Operating profit/loss

1996 1995 1996 1995

MoDo Paper 6,917 8,919 97 2,331

Holmen Paper 7,109 6,565 1,824 1,570

Iggesund Paperboard 3,845 4,232 591 896

MoDo Merchants 3,482 4,135 76 175

Iggesund Timber 764 856 –53 17

MoDo Skog – – 357 391

Group adjustments and other –2,002 – 2,388 387 169

Non-recurring items – – 11 282

Group 20,115 22,319 3,290 5,831

Consolidated profit and loss account


9

SalesThe Group’s sales amounted to SKr20,115 million (22,319m). The decreaseon 1995 was of 10 per cent, largely dueto lower prices. The value of sales to cus-tomers outside Sweden corresponded to85 (85) per cent of total sales.

Operating profitThe Group’s operating profit amountedto SKr 3,290 million (5,831m), of whichcurrency hedging contributed income ofSKr 1,449 million (555m). The operatingprofit includes net non-recurring incomeof SKr 11 million (282m).

Holmen Paper’s operating profitimproved but the ones of the other bu-siness areas decreased.

The deterioration compared with 1995is mainly due to lower prices of especial-ly fine paper and pulp as well as of sawntimber. For wood-containing printingpaper, however, price levels have had afavourable effect on the result comparedwith last year.

The development of the 1996 deliveryvolumes affected the result of all theproduct areas favourably with theexception of paperboard and sawntimber.

The operating costs were on the samelevels as those of 1995. Lower costs forraw material have improved the result,while higher electricity costs deterioratedthe result. Fixed costs were unchangedapart from operations added in 1996.

Operating margin was 16.3 per cent(24.5).

Profit after net financial itemsIn 1996 net financial items amounted to acost of SKr 371 million compared witha cost of SKr 615 million in 1995. Netinterest costs decreased by SKr 255 mil-lion due to lower net financial liabilityand lower market interest rates.

The consolidated profit after net finan-cial items was SKr 2,919 million(5,216m).

The consolidated net profit after esti-mated full tax was SKr 1,979 million(3,671m).

TaxThe Group’s tax charge amounted toSKr 940 million (charge 1,545m), ofwhich SKr 452 million (charge 492m)are deferred tax charge and tax charges inassociate companies.

ReturnReturn on capital employed was 14.5 percent (25.8). The return on equity was13.1 per cent (28.5).

Earnings per shareEarnings per share amounted to SKr22.30 (41.30).

Operating profit/loss, SKr million

Operating margin, %

The operating margin declined from 24.5per cent to 16.3 per cent.


Change in profit after net financial items1996 cf. 1995, SKr million

The decline in the result is mainly due to lower prices.

10

Consolidated balance sheet

as per December 31, SKr million 1996 1995


ASSETS

Current assets

Liquid funds (Note 7) 2,133 1,296

Accounts receivable 3,341 3,592

Other current receivables (Note 8) 1,076 1,281

Inventories (Note 9) 3,088 3,290

Felling rights 300 544

9,938 10,003

Fixed assets

Shares and participations (Note 10) 190 641

Long-term receivables 35 36

Other fixed assets (Note 11) 19,113 18,063

19,338 18,740

TOTAL ASSETS 29,276 28,743

LIABILITIES AND EQUITY

Current liabilities

Operating liabilities (Note 12) 4,510 4,666

Interest-bearing liabilities (Note 13) 2,683 1,361

7,193 6,027

Long-term liabilities (Note 14)

Bond loans 57 1,948

Other long-term liabilities 1,928 2,313

Pension provisions

FPG/PRI pensions 1,407 1,393

Other pensions 107 118

Subordinated loans 47 47

3,546 5,819

Deferred tax liability (Note 6) 2,862 2,421

Minority interests 5 5

Equity (Note 16)

Restricted equity

Share capital 4,443 4,443

Restricted reserves 6,244 5,408

Non-restricted equity

Non-restricted reserves 3,004 949

Net profit 1,979 3,671

15,670 14,471

TOTAL LIABILITIES AND EQUITY 29,276 28,743

Pledged assets (Note 18) 769 933

Contingent liabilities (Note 19) 176 173

11

Return on capital employed, % Return on equity, %Capital employed and financingat Dec. 31, 1996, SKr million

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3,295 4,096*

22,633 22,633

15,670

2,862

19,338

Net financialliabilities

Deferred taxliability

Minorityinterests

Equity

Fixedassets

*of which pension liabilities SKr 1,514 million

Average capital employed, SKr million 1996 1995

MoDo Paper . . . . . . . . . . . . . . . . 7,740 7,763Holmen Paper . . . . . . . . . . . . . . . 5,688 4,874Iggesund Paperboard . . . . . . . . . . . . 3,841 3,601MoDo Merchants . . . . . . . . . . . . . . 549 492Iggesund Timber . . . . . . . . . . . . . . 394 421MoDo Skog . . . . . . . . . . . . . . . . 5,108 5,150Divested areas . . . . . . . . . . . . . . . – 565

Capital employed, business areas . . . . . . . 23,320 22,866Group adjustments . . . . . . . . . . . . . – 613 –308

22,707 22,558

In 1996 the Group’s balance sheet increa-sed by SKr 533 million to SKr 29,276million (28,743m). Current assets lessliquid funds decreased by SKr 902 mil-lion, of which the main part consists ofdecreased accounts receivable, inven-tories and felling rights. Investments infixed assets amounted to SKr 2,415million (2,654m). These were in the firstplace a new paper machine at Bravikenamounting to SKr 844 million andrenovation of the sulphate mill at Husum

amounting to Skr 459 million, and theacquisition of MoDo Paper East, of SKr123 million. The Group’s fixed assetsamounted to SKr 19,338 million.

The capital employed by the Groupamounted to SKr 22,707 million(22,558m). Information concerning thebreakdown of capital employed bybusiness area is shown in the tablebelow.

Net financial liabilities amounted toSKr 4,096 million (5,884m), of which

pension liabilities SKr 1,514 million(1,511m).

Equity increased by SKr 1,199 millionand amounted at December 31, 1996, toSKr 15,670 million (14,471m).

The debt/equity ratio was 0.26 (0.41) atthe end of December 1996.

The equity ratio increased to 53.5 percent from the opening level of 50.4 percent.

The return on capital employed declinedfrom 25.8 per cent to 14.5 per cent.

The return on equity declined from 28.5per cent to 13.1 per cent.


12

Consolidated cash flow statement


Cash flow from operations 4,515 6,806

Change in working capital, etc. 723 – 943

Capital expenditure –2,415 – 2,654

Non-recurring items and capital gains/losses 492 1,470

Net financial items (Note 5) –371 – 615

Realised foreign exchange differences on loans 134 108

Paid tax (Note 6) –409 – 652

Cash flow after capital expenditure 2,669 3,520

Dividend to shareholders –755 – 490

Cash flow 1,914 3,030

Change in net financial liabilities not affecting cash position

Unrealised foreign currency translation differences* –126 193

Decrease in net financial liabilities 1,788 3,223

Liquid funds (Note 7) 2,133 1,296

Financial liabilities

Current liabilities (Note 13) –2,683 –1,361

Long-term liabilities –3,546 –5,819

Net financial liabilities –4,096 – 5,884

*Relates to translation of accounts of foreign subsidiaries and unrealised foreign exchange differences on loans.


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–8,000

–6,000

–4,000

–2,000

SKrmillion

96959493920.0

0.2

0.4

0.6

0.8

1.0

1.4

1.2

96959493920

10

20

30

40

50

%

9695949392

Net financial liabilities Debt/equity ratio Equity ratio

Capital expenditure, SKr million 1996 1995 1994 1993 1992

MoDo Paper . . . . . . . . . . . . . . 875 571 221 188 297Holmen Paper . . . . . . . . . . . . . 1,183 1,170 279 157 270Iggesund Paperboard . . . . . . . . . 180 807 346 153 205MoDo Merchants . . . . . . . . . . . 25 13 32 6 46Iggesund Timber . . . . . . . . . . . 55 15 30 8 20MoDo Skog . . . . . . . . . . . . . . 50 35 34 11 19Divested areas . . . . . . . . . . . . . – – 66 33 40Other . . . . . . . . . . . . . . . . . . 12 14 72 7 40

2,380 2,625 1,080 563 937

Shares and participations . . . . . . . 35 29 51 31 5

2,415 2,654 1,131 594 942

Cash flow from operationsThe Group’s cash flow from operationsamounted to SKr 4,515 million, which isa decrease of SKr 2,291 million com-pared with 1995.

Working capitalWorking capital decreased by SKr 723million (increase 943m) during the year.

The amount of working capitalemployed by the business areas decreasedby SKr 668 million (excluding foreignexchange differences). The change ismainly due to decreased accounts receiv-able, inventories and felling rights.

Capital expenditureThe Group’s total capital expenditure in1996 amounted to SKr 2,415 million(2,654m), of which acquisition of sharesSKr 35 million (29m). Other capitalexpenditure amounted to SKr 2,380 mil-lion (2,625m), of which SKr 303 million(143m) were investments in the Group’sforeign operations.

Non-recurring itemsand capital gains/lossesNon-recurring items and capitalgains/losses amounted to SKr 492 mil-lion (1,470m), of which the divestmentof the associate company MD Papieraccounted for SKr 469 million.

FinancingThe Group’s net financial liabilities de-clined during the year by SKr 1,788 mil-lion to SKr 4,096 million. The Group’scash flow after capital expenditure amo-unted to SKr 2,669 million, in addition towhich a dividend of SKr 755 million hasbeen paid. Net financial liabilities arealso influenced by certain effects of fluc-tuations in exchange rates which are notincluded in the cash flow (translation offoreign subsidiaries and unrealised foreignexchange differences on loans). Theseamounted to a deficit of SKr 126 million.

Financial liabilities declined by SKr951 million to SKr 6,229 million.

Contractual and early redemptions oflong-term loans of SKr 2,494 millionwere made. Otherwise, the liabilitieswere influenced by changes in currentliabilities and pension liabilities and bythe translation of loans denominated inforeign currencies.

The Group’s financial liabilities have hada short duration during the whole of 1996.

Liquid funds amounted to SKr 2,133million (1,296m), in addition to whichthe Group had binding credit facilities ofsome SKr 6,500 million available at yearend. Maturity of financial liabilities andcredit facilities are stated in the table onpage 24.

Net financial liabilities declined fromSKr 5,884 million to SKr 4,096 million.

The debt/equity ratio improved from0.41 to 0.26.

The equity ratio rose from 50.4 per centto 53.5 per cent.


14

Parent company

Profit and loss account, SKr million 1996 1995

Sales (Note 1) 14,955 15,952Operating costs –11,946 – 11,469Non-recurring items (Note 2) –1,900 – 79Depreciation according to plan (Note 4) –302 – 296Operating profit 807 4,108Net financial items (Note 5) 402 314Profit before appropriations and tax 1,209 4,422Group contributions 101 – 643Appropriations (Note 15) – 49 – 633Profit before tax 1,261 3,146Tax –139 – 891Net profit 1,122 2,255

Balance sheet as per December 31, SKr million 1996 1995

Cash flow statement, SKr million 1996 1995

AssetsLiquid funds (Note 7) 814 1,018Receivables from subsidiaries 697 567Accounts receivable 1,884 2,143Other current receivables (Note 8) 547 623Inventories (Note 9) 2,061 2,263Felling rights 298 543Shares and participations (Note 10) 18,686 15,471Long-term receivables 25 28Property and plant (Note 11) 4,823 4,425Total assets 29,835 27,081Liabilities and equityOperating liabilities (Note 12) 3,163 3,414Liabilities to subsidiaries 6,268 3,341Current interest-bearing liabilities (Note 13) 2,923 1,181Long-term liabilities (Note 14)

Bond loans – 1,862Other long-term liabilities 1,618 1,841Pension provisions

FPG/PRI pensions 1,375 1,363Other pensions 61 68

Subordinated loans 47 47Untaxed reserves (Note 15) 2,677 2,628Equity (Note 17) 11,703 11,336Total liabilities and equity 29,835 27,081

Pledged assets (Note 18) 245 248Contingent liabilities (Note 19) 212 227

Cash flow before changes in working capital and capital expenditure 5,724 3,205Changes in working capital, etc. 3,330 267Capital expenditure in shares and fixed assets –8,920 – 1,058Decrease in net financial liabilities 134 2,414


15

Definitions of financial ratios

CAPITAL RATIOS

Capital employedGroupBalance sheet total less liquid funds andcurrent interest-free operating liabilities.

When capital employed is calculated inaccordance with the recommendation ofthe Business Stock Exchange Committee(NBK), a reduction is also made fordeferred tax liability and liquid funds areadded.

Average is defined as:opening balance + closing balance

2

Business areasCurrent assets less liquid funds andcurrent interest-free operating liabilitiesplus fixed assets (including revaluations).

Average is defined as:opening balance + closing balance

2

EquityStated equity. For the period between1988 and 1994 convertible participatingloan (KVB) is included.

Average is defined as:Opening balance + closing balance

2

FINANCIAL RATIOS

Debt/equity ratioNet financial liabilities (interest-bearingliabilities less liquid funds) divided bythe sum of equity and minority interests.

Equity ratioEquity plus minority interests expressedas a percentage of the balance sheet total.

Interest coverageOperating profit/loss divided by netfinancial items.

PROFITABILITY RATIOS

Return on capital employedGroupOperating profit/loss expressed as apercentage of the average capitalemployed.

When the return on capital employedis being calculated in accordance withthe recommendation of the BusinessStock Exchange Committee (NBK),financial income shall be added to theoperating profit/loss.

Business areasOperating profit/loss expressed as apercentage of average capital employed.

Return on equityNet profit/loss after tax, expressed asa percentage of the average equity.

MARGINS

Operating marginOperating profit/loss (excluding non-recurring items, and interest in earningsof associate companies) expressed as apercentage of sales.

Net marginNet profit/loss after tax expressed as apercentage of sales.

OTHER RATIOS

Capital turnover rateSales divided by average capitalemployed (expressed as times per year).

Earnings per shareNet profit/loss after tax divided by theaverage number of shares and up to 1993also of KVBs.


16

Accounting principles

Commission companiesThe Group’s business is largely conduc-ted through the following commissioncompanies:

MoDo Paper ABHolmen Paper ABIggesund Paperboard ABMoDo Merchants ABIggesund Timber ABMoDo Skog AB

These companies are wholly-ownedsubsidiaries of Mo och Domsjö AB.The parent company is liable for all theundertakings and commitments of thesecommission companies. All income,costs, assets and liabilities, which arise inthe operations conducted by the commis-sion companies, are stated either in theaccounts of Mo och Domsjö AB, or inthe accounts of subsidiaries other thanthe commission companies.

Principles of consolidationThe consolidated financial statementsrelate to the parent company and compa-nies in which the parent company directlyor indirectly controls more than half thevotes.

The consolidated financial statementsare made up using the purchase method,which means that the shares of subsid-iaries are replaced by assets and liabilitiesof the subsidiaries, valued at the Group’sacquisition cost. The Group’s equity con-sequently includes – apart from theparent company’s equity – only thechanges in subsidiary equity arising afteracquisition. The differences between theacquisition value of the subsidiary sharesand the corresponding book value as stat-ed in each subsidiary’s balance sheet areallocated to the subsidiary’s assets insofaras these are judged to be over-valued orunder-valued in its balance sheet, and areotherwise stated as goodwill. Goodwilland excess values in respect of whose

value is declining are depreciated accord-ing to plan in the consolidated profit andloss account.

The balance sheets of foreign sub-sidiaries are translated using the currentmethod. This method involves the trans-lation of all items except the net result atclosing date rates. All items in profit andloss accounts are translated at averagerates for the year. Differences arising inconnection with currency translation aretaken directly to consolidated restrictedand non-restricted reserves.

SalesBy sales is meant invoiced sales, exclud-ing value added tax and after allowingfor discounts and similar reductions inincome, but before allowing for the costof delivery.

All sales of wood are stated as a reduc-tion in costs and are thus not included insales as the exchange and sale of woodare normal aspects of the procurement ofwood for the company’s own mills.

Accounting treatmentof interests in earningsof associate companiesCompanies which are not subsidiaries ofthe MoDo Group, but in which the Groupowns 20–50 per cent of the shares orcontrols 20–50 per cent of the votes, arestated as associate companies. Associatecompanies are stated using the capitalinterest method – except for certain pur-chasing companies and associate compa-nies of negligible significance in theearnings and financial position of theMoDo Group.

In the capital interest method the inter-est in the earnings of associate compani-es, after allowing for estimated full tax, isincluded in the MoDo Group’s consolida-ted net result. The book values of sharesand capital interests in associate compa-

nies are adjusted each year on the basisof the interest in earnings after tax for theyear in question, and after deduction ofdividends received. Non-dividend ear-nings of associate companies are statedunder restricted reserves within equity.

Non-recurring itemsIn accordance with the recommendationsof the Swedish Accounting StandardsBoard, MoDo applies a strict inter-pretation regarding what items maybe stated as extraordinary income andcosts.

Capital gains and losses on sales offixed assets and lines of business, as wellas restructuring costs, etc., are thereforenormally stated in the operating result ofthe business area in question or as groupadjustment.

Depreciation according to planDepreciation according to plan is basedon the acquisition value of the assets, andis depreciated on a straight-line basisduring the economic life of the assets.Depreciation is generally provided fromthe year after that in which the assetswere acquired.

The following economic lives areused:Power stations . . . . . . 40 yearsResidential property,administrative andwarehouse buildings . . . 20–33 yearsLand installations . . . . 20 yearsProduction buildings . . . 20 yearsMachinery for pulp, paperand paperboard production 20 yearsMachinery for sawmills . . 12 yearsOther machineryand equipment . . . . . . 4–10 yearsForest roads . . . . . . . 10 yearsGoodwill . . . . . . . . 3–20 years


17

TaxesEstimated full taxThe tax charge for the year is stated astax to be paid on taxable profit, changesin deferred tax and tax on the Group’sinterest in the earnings of associatecompanies. The tax charge is calculatedusing the tax rules applicable in eachcountry.

Deferred tax liabilityThe following are stated under the head-ing deferred tax liability in the balancesheet:– Deferred tax liability included in

untaxed reserves– The net of deferred tax liabilities and

deferred tax claims in Groupadjustments

– Deferred tax claims relating to lossallowances.

The tax rates applicable in each countryare used for calculating deferred tax.

Loss allowances are taken into accountif it is considered likely that the lossallowances can be utilised.

Receivables and liabilitiesin foreign currenciesReceivables and liabilities denominatedin foreign currencies are translated atclosing date rates or, if they have beenhedged, at forward rates. Any foreignexchange differences arising are includedin the operating result, except for dif-ferences relating to liquid funds and inter-est-bearing liabilities, which are statedamong net financial items. Exchange ratedifferences on hedging contracts forfuture currency flows are taken into theresult the same period as the underlyingflow. The result of internal hedgingagreements is stated within the operatingresult for each business area. Deviationsbetween internal and external hedging

transactions are included in the con-solidated operating result under the itemGroup adjustments and other.

The currency structure of long-termliabilities has been altered by means offorward contracts. This means that thepurchased/sold currency is regarded asa receivable/liability respectively andvalued at closing date rates. The forwardpremium/discount is treated as interestand is periodised and stated in the netinterest cost.

Hedging of foreign assetsLoans are raised and forward hedgingcontracts are entered into in foreign cur-rencies by the parent company to reducecurrency effects when the Group’s netforeign assets are translated into kronor(known as equity-loans, see also page24). The size of equity-loans is adjustedon the basis of the consolidated bookvalue of the net assets by currency.

To the extent the foreign currency dif-ferences on equity-loans are matched bytranslation differences on net foreignassets, these foreign currency differencesare eliminated from the profit and lossaccount, after taking account of taxeffects, and taken direct to equity in thebalance sheet.

Valuation of inventoriesInventories are valued at the lower ofacquisition value or production cost afterallowing for obsolescence at the standardrate of three per cent, or at actual value ifthis is lower. The actual value of finishedproducts is the sales value less estimatedselling costs. The actual value of timberand pulp wood or other raw materials,inventory materials and the like is thelower of replacement value or acquisitionvalue after allowing for actual obsole-scence.

Partnership financingUnder the terms of partnership financingagreements from 1983, 1988 and 1990,MoDo sold hydro-electric power stationsto three companies (Junkaravan AB,Holmen Kraft AB and Iggesund KraftAB) owned by MoDo and a number ofSwedish pension funds and foundationsetc. MoDo’s equity and voting interestsdo not exceed 50 per cent in any case.

Under separate supply agreements,MoDo purchases all the power generatedat a cost which corresponds to productioncosts plus the financing costs of theinvestors. The financing costs are basedon a real return of four to five per centplus actual inflation.

Under the terms of option agreementsMoDo is entitled, but not bound, to buyback the hydro-electric power stations onspecified dates at prices which will givethe financiers the agreed real return. If inthe event of the options being exercised,the power assets have a higher marketvalue than the redemption price stated inthe options, this premium will be creditedto MoDo. The theoretic exercise pricesare estimated at some SKr 3,200 millionat December 31, 1996.


18

Notes(Amounts in million Swedish kronor, except where otherwise stated)

1. Parent company sales to and purchasesfrom subsidiaries

Of the parent company’s sales of SKr 14,955 million (15,952m), 16 percent (22) were sales to subsidiaries. The parent company’s purchases fromsubsidiaries are negligible.

2. Non-recurring itemsGroup Parent company

1996 1995 1996 1995

Capital gain/loss on sale ofAssociate company MD Papier GmbH 11 – 134 –MoDo Packaging . . . . . . . . – 69 – –Associate company Slave Lake PulpPartnership . . . . . . . . . . . – 213 – 50Subsidiaries . . . . . . . . . . . . . . . . . . . – – –1,921 –

Write-down in value of sharesin subsidiaries . . . . . . . . . . – – –112 –111Shareholder’s contributionto subsidiaries . . . . . . . . . . – – –1 –1Other . . . . . . . . . . . . . . – – – –17

11 282 –1,900 –79

In order to create a more suitable legal structure for the Group, all theparent company's shares in MoDo France SA were transferred in 1996to two wholly-owned subsidiaries of the parent company, namely MoDoFrance Holding SAS and MoDo France Finances SAS. The parent companyincurred a substantial book loss on this transfer.

3. Interest in earnings of associate companiesGroup

1996 1995

Interest in earnings after net financial items . . . . . . 4 73Change in tax rate . . . . . . . . . . . . . . . . . – –25Estimated full tax . . . . . . . . . . . . . . . . . . –2 –28

MoDo’s interest in earnings after tax . . . . . . . . . 2 20

The associate companies concerned are Les Bois de la Baltique SA, SvenskEtanolkemi AB and MD Papier GmbH up to and including 1995.

Sydved AB, Industriskog AB, Junkaravan AB, Holmen Kraft AB andIggesund Kraft AB, function in principle as purchasing companies and theinterest in earnings is included among operating costs.

4. Depreciation according to planGroup Parent company

1996 1995 1996 1995

Goodwill . . . . . . . . . . . 24 6 – –Leases . . . . . . . . . . . . . 1 3 – –Machinery and equipment . . . . 1,054 982 257 247Buildings . . . . . . . . . . . 129 125 34 36Forests and agricultural property 7 12 5 6Other real property . . . . . . . 24 23 6 7

1,239 1,151 302 296

5. Net financial items Group Parent company1996 1995 1996 1995

Dividend incomeoutside companies . . . . . . . 1 – 1 3subsidiaries . . . . . . . . . . – – 713 519

Interest income . . . . . . . . . 66 170 57 220Interest costs . . . . . . . . . . –426 –785 –370 –665Other financial itemsForeign exchange differenceson long-term loans . . . . . . . – – 46 235Other . . . . . . . . . . . . . –12 – –45 2

–371 –615 402 314

6. TaxesEstimated full tax – Group 1996 1995

Tax accounted for . . . . . . . . –488 –1,053Change in tax rates . . . . . . . – 35Estimated full tax in respect ofInterest in earnings ofassociate companies . . . . . . –2 –53Appropriations . . . . . . . . –148 –167Change in capitalisedloss allowances . . . . . . . . –302 –452 –307 –527

–940 –1,545

Paid tax in the cash flow analysis on page 12 consists of estimated full taxplus the change in tax liabilities as stated below and after adjustment fortranslation differences.

The breakdown of the Group's tax liabilities is as follows:1996 1995

Current liabilities . . . . . . . . 529 443Deferred tax liabilities . . . . . . 2,862 2,421

3,391 2,864

In the calculation of deferred tax, the loss allowances attributable to theGroup’s French companies have, for reasons of prudence, not been includedto the full.

Tax disputesThe examination of the tax returns submitted by the parent company andcertain subsidiary companies for the 1995 and 1996 tax years has resultedin the tax assessments of these companies being raised. The changes relatemainly to the method used for calculating capital losses and deficits in-curred by certain foreign companies.

MoDo has acquired interests in aircraft via foreign associate companies.The tax authority has questioned when the right to tax relief arose for theclaimed deductions to cover write-downs in value. The tax authority has notaccepted the deduction claimed for tax losses in respect of a promissorynote, nor has it accepted the method of calculation used by the company inconnection with the liquidation of a foreign subsidiary company.

For reasons of prudence, a provision has been made to meet additionaltax charges with the tax authority’s decision taken into consideration.MoDo intends to appeal against all aspects of the tax authority’s decision.

7. Liquid funds Group Parent company1996 1995 1996 1995

Cash and bank . . . . . . . . . 393 434 152 182Short-term placements . . . . . . 1,740 862 662 836

2,133 1,296 814 1,018

Short-term placements consist of easily realisable investments.


19

8. Other current receivablesGroup Parent company

1996 1995 1996 1995

Bills receivable . . . . . . . . . 171 205 5 8Prepaid costs and accrued income . 317 348 159 193Other current receivables . . . . 557 669 356 369Advance payments to suppliers . . 31 59 27 53

1,076 1,281 547 623

9. Inventories Group Parent company1996 1995 1996 1995

Finished goods and work-in-progress 1,657 1,760 1,024 1,117Timber and pulp wood . . . . . . 398 638 306 532Other inventories . . . . . . . . 1,033 892 731 614

3,088 3,290 2,061 2,263

10.Shares and participationsSubsidiary companiesDuring the year, the parent company transferred all the shares in MoDoFrance SA to MoDo France Holding SAS and MoDo France Finances SAS,two during the year newly-formed, wholly-owned subsidiary companies.The share capital in MoDo International Finance has been increased by SKr291 million by means of rights issues. 90 per cent of the shares in MoDoPaper East AB (formerly Thomesto Paper Merchants AB) were acquiredwith effect from April 1. All the shares in Nordic Aircraft Management ABwere acquired during the year.

Associate companiesMoDo’s 25 per cent interest in MD Papier GmbH was sold during the year.

Other companiesInvestments during the year in part-owned foreign companies amounted toSKr 31 million. Emerald Aviation Ltd, which had a book value of SKr 29million, was divested during the year.

Holdings and changes in holdings of shares and participations are listed onpages 22 and 23.

11. Fixed assets AccumulatedAcquisition depreciation Value as stated

cost according to plan in balance sheet

1996 1995 1996 1995 1996 1995

GroupGoodwill . . . . . . . 115 36 40 16 75 20Leases . . . . . . . . 32 25 11 10 21 15Advance payments andfixed plant underconstruction . . . . . 188 234 – – 188 234Machinery andequipment incl.ships . . 23,686 21,949 11,477 10,664 12,209 11,285Buildings . . . . . . . 3,565 3,341 1,897 1,765 1,668 1,576Forest andagricultural property . . 4,707 4,706 114 108 4,593 4,598Other real property . . . 622 575 263 240 359 335

32,915 30,866 13,802 12,803 19,113 18,063

The non-depreciatedproportion of therevaluations amounts to 4,384 4,384

AccumulatedAcquisition depreciation Value as stated

cost according to plan in balance sheet

1996 1995 1996 1995 1996 1995

Parent companyLeases . . . . . . . . 7 6 – – 7 6Advance payments andfixed plant underconstruction . . . . . 55 197 – – 55 197Machinery and equipment 5,564 5,018 3,057 2,986 2,507 2,032Buildings . . . . . . . 1,039 958 684 656 355 302Forest andagricultural property . . 1,887 1,886 80 75 1,807 1,811Other real property . . 184 163 92 86 92 77

8,736 8,228 3,913 3,803 4,823 4,425The non-depreciatedproportion of therevaluations amounts to 1,753 1,753

Tax assessment valuesThe tax assessment values relate to assets in Sweden.

Group Parent company1996 1995 1996 1995

Buildings . . . . . . . . . . . 4,851 4,890 1,019 1,022Forest and agricultural property 8,161 6,190 4,227 3,136Other real property . . . . . . . 336 343 49 52

13,348 11,423 5,295 4,210

12. Operating liabilitiesGroup Parent company

1996 1995 1996 1995

Bills payable . . . . . . . . . . 138 102 – –Liabilities to suppliers . . . . . . 1,939 2,254 1,512 1,837Advance payments from customers 1 – – –Accrued costs and deferred income 1,332 1,293 927 872Tax liability . . . . . . . . . . 529 443 322 360Other current liabilities . . . . . 571 574 402 345

4,510 4,666 3,163 3,414

13. Interest-bearing current liabilitiesGroup Parent company

1996 1995 1996 1995

Owing to banks . . . . . . . . . 2,244 765 2,596 783Current proportion of long-termliabilities . . . . . . . . . . . 421 592 309 394Other current liabilities . . . . . 18 4 18 4

2,683 1,361 2,923 1,181

14. Long-term liabilitiesLong-term liabilities, for which the MoDo Group has pledged security,amounted to SKr 113 million (182m) at December 31, 1996, while thoseof the parent company amounted to SKr 11 million (35m).

Pension liabilities correspond to the present value of pension commit-ments calculated on actuarial grounds.

Information on liabilities by currency and maturity is provided in thesection on Financials risks on page 24.


20

15. Untaxed reserves parent companyChanges during the year

Total TotalJanuary 1, Appro- December 31,

1996 priations 1996

Reserve for unrealisedcurrency gains . . . . . . 15 –15 –Profit equalisation reserve 797 – 797Accumulated depreciationin excess of plan . . . . . 1,816 64 1,880

2,628 49 2,677

16. Equity GroupRestricted equity Non-restricted equity

Non-Share Restricted restricted Netcapital reserves reserves profit Total

Opening balance,January 1, 1996 . . . . . . 4,443 5,408 949 3,671 14,471Transfer of net profit for 1995 – – 3,671 –3,671 –Dividend paid . . . . . . . – – –755 – –755Restatements betweenrestricted and non-restrictedequity and translationdifferences of foreignsubsidiaries andassociate companies . . . . – 836 –861 – –25Net profit for 1996 . . . . . – – – 1,979 1,979Closing balance,December 31, 1996 . . . . 4,443 6,244 3,004 1,979 15,670

It is not proposed to make any transfers to restricted equity.

17. Equity parent companyDecember 31, 1996 December 31, 1995

Number SKr million Number SKr million

Share capitalSeries “A” . . . . . 22,623,234 1,131.2 11,311,617 1,131.2Series “B” . . . . . 66,235,044 3,311.7 33,117,522 3,311.7

88,858,278 4,442.9 44,429,139 4,442.9

Further information concerning the MoDo shares is provided on pages30–31.

Restricted equity Non-restricted equityRevalua-

Share tion Legal Retained Netcapital reserve reserve earnings profit Total

Opening balanceJanuary 1, 1996 . . . . . 4,443 100 1,952 2,586 2,255 11,336Transfer of net profitfor 1995 . . . . . . . . – – – 2,255 –2,255 –Dividend paid . . . . . . – – – –755 – –755Net profit for 1996 . . . . . – – – – 1,122 1,122Closing balanceDecember 31, 1996 . . . 4,443 100 1,952 4,086 1,122 11,703

18. Pledged assetsGroup Parent company

1996 1995 1996 1995

Property mortgages company property . . . . . . . . 193 325 115 133Floating charges . . . . . . . . 140 140 95 95Fixed assets subject to lien . . . . 401 448 – –Accounts receivable . . . . . . . 35 20 35 20

769 933 245 248

19. Contingent liabilitiesGroup Parent company

1996 1995 1996 1995

Guarantees on behalfof subsidiaries . . . . . . . . . – – 60 79Other guarantees andcontingent liabilities . . . . . . . 176 173 152 148

176 173 212 227

The parent company has undertaken to accept liability for certain commit-ments which may be incumbent on subsidiaries.


21

20. Personnel, wages and salariesAverage number of employees (annual basis) 1996 1995

Sweden . . . . . . . . . . . . . . . . 7,109 7,074Belgium . . . . . . . . . . . . . . . . 26 24Belorussia . . . . . . . . . . . . . . . 16 –Denmark . . . . . . . . . . . . . . . . 10 9Estonia . . . . . . . . . . . . . . . . . 52 29France . . . . . . . . . . . . . . . . . 919 926Germany . . . . . . . . . . . . . . . . 73 71Great Britain . . . . . . . . . . . . . . 1,059 1,067Italy . . . . . . . . . . . . . . . . . . 5 8Latvia . . . . . . . . . . . . . . . . . 43 13Lithuania . . . . . . . . . . . . . . . . 28 –Netherlands . . . . . . . . . . . . . . . 230 230Norway . . . . . . . . . . . . . . . . 41 38Russia . . . . . . . . . . . . . . . . . 215 157Spain . . . . . . . . . . . . . . . . . 43 42Switzerland . . . . . . . . . . . . . . . 18 16Ukraine . . . . . . . . . . . . . . . . 10 –USA . . . . . . . . . . . . . . . . . . 2 3

Group total . . . . . . . . . . . . . . . 9,899 9,707

Parent company Sweden . . . . . . . . . 6,873 6,836

Of whom female employees . . . . . . . . 1,683 1,622

A separate statutory list shows the average number of employees by placeof work. A copy of this may be obtained upon request from MoDo.

Wages, salaries, and social security charges 1996 1995

Wages, salaries and other remunerationsBoards of Directors, Presidents andExecutiveVice Presidents . . . . . . . . . 46 50Other employeesSweden . . . . . . . . . . . . . . . . 1,833 1,712Belgium . . . . . . . . . . . . . . . . 7 8Belorussia . . . . . . . . . . . . . . . 1 –Denmark . . . . . . . . . . . . . . . 3 3Estonia . . . . . . . . . . . . . . . . 3 1France . . . . . . . . . . . . . . . . 240 256Germany . . . . . . . . . . . . . . . 26 29Great Britain . . . . . . . . . . . . . . 237 246Italy . . . . . . . . . . . . . . . . . 2 1Latvia . . . . . . . . . . . . . . . . . 2 1Lithuania . . . . . . . . . . . . . . . 1 –Netherlands . . . . . . . . . . . . . . 58 59Norway . . . . . . . . . . . . . . . . 10 12Russia . . . . . . . . . . . . . . . . 6 2Spain . . . . . . . . . . . . . . . . . 12 12Switzerland . . . . . . . . . . . . . . 7 7Ukraine . . . . . . . . . . . . . . . . 2 –USA . . . . . . . . . . . . . . . . . 1 1

2,497 2,400

Social security charges . . . . . . . . . . 954 889

Group total . . . . . . . . . . . . . . . 3,451 3,289

Wages, salaries, excluding social securitycharges parent company Sweden

Board of Directors, Presidentand Executive Vice President . . . . . . 7 8Other . . . . . . . . . . . . . . . . . 1,777 1,656

Information provided in compliance with the Business Stock ExchangeCommittee’s recommendation concerning the conditions of employmentof senior executives.

Chairman of the BoardFee: SKr 300,000

PresidentSalaries and other perquisites: Skr 4,258,468

PensionThe pension agreement provides for retirement at the age of 65, but witheither party being entitled to draw a pension from 61 years of age. Pensionwill be paid between 61 and 65 at 60 per cent of the salary, and correspondsthereafter to the ITP plan, complemented with certain old-age, sickness andfamily pension benefits for that part of the salary which exceeds 20 baseamounts.

Period of notice and severance payThe period of notice is twelve months on the part of the company and sixmonths on the part of the President. In the event of the company givingnotice, severance pay of two-years’ salary will be paid.

Managers of business areas and corporate staffs

PensionsPension agreements provide for retirement at the age of 65, but with eitherparty being entitled to claim/request retirement on pension after 60. Pensionwill be paid between 60 and 65 at 65 per cent of the salary providingentitlement to pension. The normal pension follows the ITP plan or equivalent. Over and above this, it will be complemented with certain pension benefits for the part of the annual salary which exceeds 20 baseamounts.

Period of notice and severance payThe period of notice is twelve months on the part of the company and sixmonths on the part of the employee. In the event of the company givingnotice, severance pay corresponding to between one year’s and 2.5 years’salary is paid, depending on age.


22

List of shareholdings

Parent company holdings of shares and participations in subsidiaries1996 1995

Nominal No. of shares Percen- Book No. of shares Bookvalue and parti- tage value and parti- value

2 1,000 cipations holding SKr 1,000 cipations SKr 1,000

MoDo Paper AB . . . . . . . . . . . . . . . . . SKr 50 500 100 45 500 45Holmen Paper AB . . . . . . . . . . . . . . . . SKr 100 100 100 100 100 100Iggesund Paperboard AB . . . . . . . . . . . . . SKr 50 500 100 50 500 50MoDo Merchants AB . . . . . . . . . . . . . . . SKr 75 750 100 120 750 120Iggesund Timber AB . . . . . . . . . . . . . . . SKr 50 500 100 50 500 50MoDo Skog AB . . . . . . . . . . . . . . . . . SKr 50 500 100 33 500 33AB Ankarsrums Skogar . . . . . . . . . . . . . . SKr 50 500 100 41,609 500 41,609Domsjö Klor AB . . . . . . . . . . . . . . . . . SKr 1,000 1,000 100 1,079 1,000 1,079Fiskeby AB . . . . . . . . . . . . . . . . . . . SKr 200,000 2,000,000 100 646,160 2,000,000 646,160Haradsskogarna AB . . . . . . . . . . . . . . . . SKr 10,064 100,640 100 129,450 100,640 129,450Harrsele Linjeaktiebolag . . . . . . . . . . . . . SKr 4,800 48,000 100 16,985 48,000 16,985Holmens Bruk AB . . . . . . . . . . . . . . . . SKr 1,237,855 49,514,201 100 4,061,703 49,514,201 4,061,703Husum Copy AB . . . . . . . . . . . . . . . . . SKr 50 50 100 50 50 50AB Iggesunds Bruk . . . . . . . . . . . . . . . . SKr 600,251 6,002,500 100 3,933,735 6,002,500 3,933,735AB Kinda Skogsprodukter . . . . . . . . . . . . . SKr 50 500 100 50 500 50Lammbi AB . . . . . . . . . . . . . . . . . . . SKr 100 1,000 100 66 1,000 66Lägernskog AB . . . . . . . . . . . . . . . . . SKr 148 1,480 100 1,385 1,480 1,385MoDo-Iggesund CTMP AB . . . . . . . . . . . . SKr 40,000 400,000 100 40,000 400,000 40,000MoDo Paper East AB . . . . . . . . . . . . . . . SKr 10,812 10,812 90.1 0 – –Nordic Aircraft Management AB . . . . . . . . . . SKr 50 50 100 16,200 – –AB PM 8 i Husum . . . . . . . . . . . . . . . . SKr 50 5,000 100 50 5,000 50Skärnäs Terminal AB . . . . . . . . . . . . . . . SKr 240 4,800 100 1,913 4,800 1,913Ströms Trävaru AB . . . . . . . . . . . . . . . . SKr 1,200 400 100 166,200 400 166,200Svenskt Papper AB . . . . . . . . . . . . . . . . SKr 38,000 380,000 95 86,400 380,000 86,400AB Överums Skogar . . . . . . . . . . . . . . . SKr 50 500 100 53,005 500 53,005Other Swedish subsidiaries . . . . . . . . . . . . SKr 6,162 5,962MoDo Ltd, Great Britain . . . . . . . . . . . . . £ 1,197 1,197 100 723,579 1,197 723,579MoDo France SA, France . . . . . . . . . . . . . – 27,346,512 4,520,597MoDo France Finances SAS, France . . . . . . . . FFr 220,001 2,200,007 100 856,824 – –MoDo France Holding SAS, France . . . . . . . . FFr 1,780,001 17,800,007 100 6,931,308 – –MoDo International Finance, Ireland . . . . . . . . SKr 823,556 823,566,363 100 823,565 532,565,413 532,565MoDo Merchants Benelux BV, the Netherlands . . . Fl 4,831 4,831 100 9,592 4,831 9,592Other foreign subsidiaries . . . . . . . . . . . . . 56,927 56,043Total Parent company holdings of sharesand participations in subsidiaries 18,604,395 15,028,576

Parent company holdings of shares and participations in other companiesAssociate companiesIggesund Kraft AB . . . . . . . . . . . . . . . . SKr 5,800 58,000 50.0 5,800 58,000 5,800Industriskog AB . . . . . . . . . . . . . . . . . SKr 2,500 25,000 33.3 2,503 25,000 2,503Junkaravan AB . . . . . . . . . . . . . . . . . . SKr 34,300 343,000 22.3 12,200 343,000 12,200Svensk Etanolkemi AB . . . . . . . . . . . . . . SKr 1,000 10,000 50.0 10,000 10,000 10,000Sydved AB . . . . . . . . . . . . . . . . . . . SKr 7,000 70,000 33.3 7,060 70,000 7,060UniTimber AB . . . . . . . . . . . . . . . . . . SKr 1,000 1,000 25.0 1,000 1,000 1,000Les Bois de la Baltique, France . . . . . . . . . . . FFr 7,500 75,000 37.5 7,591 75,000 7,591MD Papier GmbH, Germany . . . . . . . . . . . . – 335,424Miscellaneous shares . . . . . . . . . . . . . . . 8,636 5,722

Total Associate companies 54,790 387,300

Other companiesHolmen Kraft AB . . . . . . . . . . . . . . . . SKr 15,605 156,050 13.1 0 156,050 0Svenska Dagbladet Holding AB . . . . . . . . . . SKr 225 22,500 2.9 4,995 22,500 4,995Troponor AB . . . . . . . . . . . . . . . . . . . SKr 2,500 25,000 10.5 2,500 25,000 2,500Emerald Aviation Ltd, Ireland . . . . . . . . . . . – 69,300 29,014Nordic Aviation BV, the Netherlands . . . . . . . . Fl 3,843 8,128 20.3 17,948 8,128 17,948Miscellaneous shares . . . . . . . . . . . . . . . 896 870

Total Other companies 26,339 55,327

Total Parent company holdings of shares and participations in other companies 81,129 442,627


23

Group holdings of shares and participations in other companies1996 1995

Nominal No. of shares Percen- Book No. of shares Bookvalue and parti- tage value and parti- value

x 1,000 cipations holding SKr 1,000 cipations SKr 1,000

Associate companies 1)

Iggesund Kraft AB . . . . . . . . . . . . . . . . SKr 5,800 58,000 50.0 5,800 58,000 5,800Industriskog AB . . . . . . . . . . . . . . . . . SKr 2,500 25,000 33.3 2,503 25,000 2,503Junkaravan AB . . . . . . . . . . . . . . . . . . SKr 34,300 343,000 22.3 12,200 343,000 12,200Svensk Etanolkemi AB . . . . . . . . . . . . . . SKr 1,000 10,000 50.0 32,948 10,000 32,908Sydved AB . . . . . . . . . . . . . . . . . . . SKr 7,000 70,000 33.3 7,060 70,000 7,060UniTimber AB . . . . . . . . . . . . . . . . . . SKr 1,000 1,000 25.0 1,000 1,000 1,000Les Bois de la Baltique, France . . . . . . . . . . . FFr 7,500 75,000 37.5 21,465 75,000 19,548MD Papier GmbH, Germany . . . . . . . . . . . . – 458,059Miscellaneous shares . . . . . . . . . . . . . . . 9,929 7,306

Total Associate companies 92,905 546,384

1) Shares in associate companies are valued in the consolidated balance sheet, in accordance with the capital interest method,at the Group’s interest in the equity of each associate company – in some cases with a supplement for the non-depreciatedproportion of the excess value arising in connection with the acquisition. See also accounting principles on page 16.

Other companiesHolmen Kraft AB . . . . . . . . . . . . . . . . SKr 15,605 156,050 13.1 0 156,050 0Svenska Dagbladet Holding AB . . . . . . . . . . SKr 225 22,500 2.9 4,995 22,500 4,995Troponor AB . . . . . . . . . . . . . . . . . . . SKr 2,500 25,000 10.5 2,500 25,000 2,500Belaya Ltd, Isle of Man . . . . . . . . . . . . . . US$ 100 100,000 99* 19,113 100,000 18,855Eltasa Ltd, Isle of Man . . . . . . . . . . . . . . US$ 100 100,000 98** 1,345 – –Emerald Aviation Ltd, Ireland . . . . . . . . . . . – 69,300 29,014Guyla Ltd, Isle of Man . . . . . . . . . . . . . . US$ 100 100,000 99* 6,532 – –MoBaSa-MoDo Battistella Reflorestamento SA,Brazil . . . . . . . . . . . . . . . . . . . . . . Cr 412 411,604 1.9 12,349 411,604 12,349Nordic Aviation BV, the Netherlands . . . . . . . . Fl 3,843 8,128 20.3 17,948 8,128 17,948Turya Ltd, Isle of Man . . . . . . . . . . . . . . US$ 100 100,000 99* 22,801 – –Ukhta Ltd, Isle of Man . . . . . . . . . . . . . . US$ 100 100,000 99* 7,913 100,000 7,595Miscellaneous shares . . . . . . . . . . . . . . . 2,060 1,469

Total Other companies 97,556 94,725

Total Group holdings of sharesand participations in other companies 190,461 641,109

The complete statutory list of holdings of shares and participations may be obtained upon request from MoDo.

* Share of votes 9 per cent.**Share of votes 5 per cent.


24

Financial risks

MoDo’s financial activities are intended tominimise the cost of capital to the Groupby means of suitable financing and effecti-ve risk management. The business is con-ducted on the basis of the finance policyestablished by the Board and involves alow level of risk in all respects.

Financing riskMoDo’s financing is mainly long term.Agreed long-term credit facilities at fixedinterest margins reduce the risk of capitalbecoming difficult or expensive to raise inthe future. The structure of the financialdebt and existing credit facilities are shownin the tables below.

MoDo’s Swedish commercial paperprogramme was given a K-1 short-termrating by the rating institute Standard &Poor’s at the beginning of 1997.

Interest rate riskChanges in market interest rates affectMoDo’s net interest costs. MoDo’s closingnet financial liabilities amounted to SKr4,096 million (5,884m). A one percentagepoint change in the average interest ratethus corresponds to some SKr 40 millionin net interest cost, on an annual basis.How soon a lasting change in interest ratesshows through in a change in net interestcost depends on the period for which bor-rowing interest rates are fixed. Normallyloans have short duration, but it can belengthened in order to limit the adverseeffect of a rise in interest rates.

The Group’s finance policy controls theinterest risk associated with the placementof liquid assets by the use of limits for theprice risk, i.e. a maximum permitted chan-ge in the value of the investment in theevent of changes in market interest rates.

Currency riskMoDo is exposed in various ways to fluc-tuations in exchange rates. The businessgives rise to commercial and financialflows of payments in a variety of differentcurrencies. Items in the profit and lossaccounts for foreign Group companies, andassets and liabilities in foreign currenciesare translated into Swedish kronor on clo-sing dates. MoDo’s competitive position inrelation to producers whose productioncosts are incurred in other currencies isalso affected. Examples of such currenciesare US dollars, Canadian dollars and Fin-nish markka.

In order to reduce the impact on theresult of fluctuations in exchange rates, theGroup hedges its future estimated currencyflows. The extent to which this is done isdecided by the Board, and implementationis regulated in the Group’s finance policy.At the beginning of 1996 the Group hadhedged the currency flows expected forthe coming 14 months. The level ofhedging was successively reduced in pacewith the strengthening of the krona. By theend of 1996 the outstanding hedgingcontracts covered currency flows duringthe coming 5 months. At the exchange

rates prevailing at the beginning of 1997the effect of these forward contracts wouldreduce the profit by SKr 35 millon. In1996 currency hedging contributed SKr1,449 million to the consolidated result, ofwhich SKr 966 million are stated withinthe operating results of the business areas,and SKr 483 million under “Group adjust-ments and other” within the operatingresult. (See also under Accounting prin-ciples on page 17.)

MoDo hedges the Group’s net foreignassets, in full or in part, by incurringliabilities in the corresponding currencies.When translating into Swedish kronor, theeffect of exchange rate changes on theGroup’s equity is thus reduced. Otherliabilities are raised either in kronor or inthe local currency of the foreign sub-sidiary, and are neutral in terms of trans-lation. Items in the profit and loss accountsof foreign subsidiary and associate com-panies are not hedged.

Counterparty riskThe Group’s liquid funds are placed with-out any currency risk with banks or onthe Swedish money market. MoDo onlyinvests in securities having a high liquidityand a very low credit risk.

MoDo enters into financial contractsto limit interest rate and currency risks.The risk of a counterparty not fulfilling itsobligations under the terms of the contractis limited through the choice of credit-worthy counterparties and by limiting theexposure to each one of them.

Maturity Financial Creditliabilities at facilities at

Due December 31, 1996 December 31, 1996

1997 2,683 –1998 242 –1999 432 –2000 474 1,0002001 147 1,3752002 94 1,375>2002* 2,157 2,750

Amount in

SKr million 6,229 6,500*Including all pension liabilities.

Information per currency

Average rates Otheron hedging Capital Equity- financial

Estimated contracts employed loans liabilitiesannual December 31, December 31, December 31, December 31,

SKr million net flow 1996 1996 1996 1996

Swedish kronor . . . 17,860 – 457Sterling . . . . . . . 2,700 10.70 1,231 526 574Deutschemark . . . . 2,500 4.69 –10 – 34US dollars . . . . . 1,600 6.75 –1 – 6Guilders . . . . . . 700 4.08 121 – 82Pesetas . . . . . . . 600 0.053 28 – 35Lira . . . . . . . . 600 0.0042 3 – 1Belgian francs . . . . 400 0.22 18 – 16Danish kroner . . . . 400 1.18 2 – –Swiss francs . . . . . 300 5.66 6 – –Austrian schillings . . 200 0.65 – – –Norwegian kroner . . 200 1.07 32 – 30French francs . . . . 200 1.31 3,362 4,243 225Other . . . . . . . . 400 0 –19 – –

10,800 22,633 4,769 1,460


Proposed treatmentof unappropriated earnings

Report of the Auditors

At the disposal of the Annual General Meeting are the following unappropriated earnings of the parent company: SKrNet profit for the 1996 financial year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,122,314,000Retained earnings from previous years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,085,977,098

5,208,291,098The Board of Directors and the President propose

that a dividend of SKr 9 per share be paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 799,724,502and that the remaining amount be carried forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,408,566,596

5,208,291,098

Örnsköldsvik, February 19, 1997

Fredrik Lundberg

Dick Gidlöf Johnny Karlson Carl Kempe

Hans Larsson Arne Mårtensson Thomas Nilsson

Per Welin Christer Zetterberg Bengt PetterssonPresident

Our audit report was submitted on February 21, 1997.

KPMG Bohlins ABThomas Thiel

Authorised public accountant

Mo och Domsjö AktiebolagRegistration number 556001-3301

We have examined the annual report, the consolidated financial statements, the accounting records and the administration by the Boardof Directors and the President for 1996. Our examination was carried out in accordance with generally accepted auditing standards.

Parent companyThe annual report has been made up in accordance with theSwedish Companies Act.

We recommendthat the profit and loss account and the balance sheet be adopt-ed, that the unappropriated earnings be dealt with in accord-ance with the proposal in the report of the directors, and thatthe members of the Board of Directors and the President bedischarged from liability for 1996.

GroupThe consolidated financial statements have been made up inaccordance with the Swedish Companies Act.

We recommendthat the consolidated profit and loss account and the consolidat-ed balance sheet be adopted.

Örnsköldsvik, February 21, 1997KPMG Bohlins AB

Thomas ThielAuthorised public accountant


25

1996 1995

26

Quarterly comparisons

SKr million Full year IV III II I Full year IV III II I

SALES

MoDo Paper 6,917 1,683 1,612 1,732 1,890 8,919 1,774 2,289 2,498 2,358

Holmen Paper 7,109 1,933 1,743 1,709 1,724 6,565 1,772 1,671 1,631 1,491

Iggesund Paperboard 3,845 906 969 974 996 4,232 892 1,094 1,113 1,133

MoDo Merchants 3,482 870 757 844 1,011 4,135 1,004 972 1,076 1,083

Iggesund Timber 764 207 179 194 184 856 204 193 230 229

22,117 5,599 5,260 5,453 5,805 24,707 5,646 6,219 6,548 6,294

Intra-group sales –2,002 – 483 – 483 – 458 –578 –2,388 –588 –563 –615 –622

20,115 5,116 4,777 4,995 5,227 22,319 5,058 5,656 5,933 5,672

PROFIT/LOSS

MoDo Paper 97 –125 –34 –1 257 2,331 263 738 782 548

Holmen Paper 1,824 412 457 455 500 1,570 464 514 315 277

Iggesund Paperboard 591 103 185 129 174 896 43 294 285 274

MoDo Merchants 76 31 12 12 21 175 49 27 43 56

Iggesund Timber –53 –10 –12 –18 –13 17 –30* 1 9 37

MoDo Skog 357 141 87 64 65 391 90 100 96 105

Group adjustments and other 387 –27 178 250 –14 169 115 –15 4 65

3,279 525 873 891 990 5,549 994 1,659 1,534 1,362

Non-recurring items 11 – – 11 – 282 – 213 – 69

Operating profit 3,290 525 873 902 990 5,831 994 1,872 1,534 1,431

Net financial items –371 –75 –65 –99 –132 –615 –97 –160 –194 –164

Profit after net financial items 2,919 450 808 803 858 5,216 897 1,712 1,340 1,267

PROFIT/LOSS

Currency hedging

stated separately

MoDo Paper –319 –137 –84 –187 89 2,235 130 692 810 603

Holmen Paper 1,452 347 327 352 426 1,469 367 460 329 313

Iggesund Paperboard 412 93 148 65 106 881 16 277 286 302

MoDo Merchants 76 31 12 12 21 175 49 27 43 56

Iggesund Timber –52 –8 –12 –19 –13 11 –38* –2 11 40

MoDo Skog 357 141 87 64 65 391 90 100 96 105

Group adjustments and other –96 –17 –31 –22 –26 –168 – 60 –35 – 48 –25

1,830 450 447 265 668 4,994 554 1,519 1,527 1,394

Group’s currency hedging 1,449 75 426 626 322 555 440 140 7 –32

3,279 525 873 891 990 5,549 994 1,659 1,534 1,362

Non-recurring items 11 – – 11 – 282 – 213 – 69

Operating profit 3,290 525 873 902 990 5,831 994 1,872 1,534 1,431

*Including additional depreciation of SKr 23 million due to an adjustment into line with general practice in the industry.

27

Review of the Group

Consolidated profit and loss accounts, SKr millionSales

Customers in Sweden 3,084 3,323 2,853 2,452 2,519 2,834 3,360 3,555 4,063outside Sweden 17,031 18,996 17,403 14,631 13,240 14,580 15,075 15,214 15,469

20,115 22,319 20,256 17,083 15,759 17,414 18,435 18,769 19,532Operating costs –15,601 –15,692 –16,267 –15,053 –15,063 –15,385 –15,628 –15,215 –16,508Non-recurring items 11 282 –51 – 85 –280 418 49 19Interest in earnings of associate companies 4 73 –32 –82 –22 –8 34 44 127Depreciation according to plan –1,239 –1,151 –1,222 –1,261 –1,166 –992 –887 –815 –832Operating profit/loss after depreciation 3,290 5,831 2,684 687 –407 749 2,372 2,832 2,338Net financial items –371 –615 –859 –1,136 –1,104 –748 –715 –957 –723Profit/loss after net financial items 2,919 5,216 1,825 –449 –1,511 1 1,657 1,875 1,615Estimated full tax –940 –1,545 –497 193 568 112 –366 –325 –619Less minority interests (after tax) – – – – – 1 –4 –2 –264Net profit/loss after tax 1,979 3,671 1,328 –256 –943 114 1,287 1,548 732Interest on KVBs – – –37 – – –107 –199 –184 –154Net profit/loss 1,979 3,671 1,291 –256 –943 7 1,088 1,364 578

Consolidated balance sheets,December 31, SKr millionLiquid funds 2,133 1,296 1,140 3,996 4,423 2,682 3,542 3,879 3,079Other current assets 7,805 8,707 8,207 6,774 6,696 6,817 7,742 7,211 7,240Restricted accounts at Sveriges Riksbank – – – – 8 343 146 180 108Shares and participations 190 641 695 809 809 1,011 973 936 1,029Other fixed assets 19,148 18,099 17,721 18,010 18,113 18,686 14,739 14,045 14,168Total assets 29,276 28,743 27,763 29,589 30,049 29,539 27,142 26,251 25,624Current liabilities

Operating liabilities 4,510 4,666 4,288 3,463 4,017 3,840 3,966 4,173 4,058Financial liabilities 2,683 1,361 1,873 1,661 2,998 1,409 396 1,544 1,854

Long-term liabilities 3,546 5,819 8,374 12,785 12,519 11,852 10,028 9,016 9,488Deferred tax liability 2,862 2,421 1,938 1,394 1,724 2,514 2,540 2,360 2,252Minority interests 5 5 5 5 5 46 53 57 53Equity 15,670 14,471 11,285 10,281 8,786 9,878 10,159 9,101 7,919Total liabilities and equity 29,276 28,743 27,763 29,589 30,049 29,539 27,142 26,251 25,624

Ratios (see page 15 for definitions)Debt/equity ratio 0.26 0.41 0.81 1.02 1.26 1.07 0.67 0.73 1.04Equity ratio % 53.5 50.4 40.7 34.8 29.3 33.6 37.6 34.9 31.1Interest coverage 8.9 9.5 3.1 0.6 –0.4 1.0 3.3 3.0 3.2Return on capital employed % 14.5 25.8 12.1 3.1 –1.8 3.5 12.5 15.4 13.2Ditto, in accordance with NBK’srecommendations % 15.5 27.8 12.3 4.2 –0.3 5.5 14.0 17.2 14.6Return on equity % 13.1 28.5 12.3 –2.7 –10.1 1.1 13.4 18.2 8.7Operating margin % 16.3 24.5 13.7 4.5 –3.0 6.0 10.4 14.6 11.2Net margin % 9.8 16.4 6.6 –1.5 –6.0 0.7 7.0 8.2 3.7Capital turnover rate 0.9 1.0 0.9 0.8 0.7 0.8 1.0 1.0 1.1

Capital expenditureShares and participations SKr million 35 29 51 31 5 95 79 32 142Other fixed assets incl.company acquisition SKr million 2,380 2,625 1,080 563 937 5,195 1,582 1,954 1,657

PersonnelAverage number of employees 9,899 9,707 11,122 11,414 12,266 12,872 12,961 13,414 16,714Wages and salaries SKr million 2,497 2,400 2,648 2,628 2,617 2,635 2,498 2,300 2,522Social security charges SKr million 954 889 942 908 1,018 1,101 1,011 941 1,001

1996 1995 1994 1993 1992 1991 1990 1989 1988

28

Group sales

Newsprint Coated wood- PercentageFine and magazine containing ofpaper paper printing paper Paperboard Pulp Sawn timber Other Total total

MoDo Paper* 4,046 17 3 7 1,345 – 47 5,465 27.2

Holmen Paper – 6,024 436 – 16 – 196 6,672 33.2

Iggesund Paperboard – – – 3,565 173 – 10 3,748 18.6

MoDo Merchants 2,891 25 217 102 – – 231 3,466 17.2

Iggesund Timber – – – – – 686 78 764 3.8

Total 6,937 6,066 656 3,674 1,534 686 562 20,115 100

Per cent of total 34.5 30.1 3.3 18.3 7.6 3.4 2.8 100

*Including, apart from fine paper and pulp, other products sold through MoDo Paper East.

External sales 1996, SKr million

Printing and writing paper of various types accounted for a totalof 68 per cent of the Group’s external sales, paperboard for 18per cent, pulp for 8 per cent and other products for 6 per cent.

85 (85) per cent of the Group’s total sales in 1996 went tocountries outside Sweden. Some 84 per cent of total saleswent to customers in the EU area.

Great Britain

0 5

15

18

4

8

11

13

1 534

15

8

8

10 15 20

Germany

France

Netherlands

Sweden

Italy

Other EU-countries

Rest of Europe

Rest of the world

Newsprint andmagazine paper

0 2,000

6,937

6,066

3,674

1,534

686

656

562

4,000 6,000 8,000

Paperboard

Pulp

Sawn timber

Coated wood-containingprinting paper

Fine paper

Other

External sales by market, %External sales by product area, SKr million

Consumption of raw materials and electricityElectricity (GWh) Wood, m3*, net External fibre raw material,

tonnes

CompanySwedish units External production Total

Purchased electricity 3,215 – 3,215Partnership-financedpower companies 775 – 775Counter-pressure power – 630 630

Total 3,990 630 4,620Foreign unitsPurchased electricity 430 – 430Counter-pressure power – 270 270

Total 430 270 700

MoDo total 4,420 900 5,320

CompanyExternal forests Total

Swedish units

Swedish 3,906,000 1,983,000 5,889,000Imports 1,421,000 – 1,421,000

Total 5,327,000 1,983,000 7,310,000Foreign unitsTotal 1,189,000 – 1,189,000

MoDo total 6,516,000 1,983,000 8,499,0001) Of which saw timber 846,000 m3, and excluding chips from

internal sources, corresponding to 358,000 m3.

*Solid volume of logs inside bark

RecycledPulp fibre Total

Swedishunits 46,000 303,000 349,000

Foreignunits 88,000 – 88,000

MoDototal 134,000 303,000 437,000

1)

29

Operations by country

Production capacity

Sales Operating profit/loss Capital expenditure Average numberSKr million SKr million SKr million of employees

1,000 tonnes 1,000 tonnes 1,000 tonnes 1,000 tonnes 1,000 tonnes 1,000m3

*excluding fully integrated mechanical pulp

Pulp production Wood-containingFine of which to printing Sawnpaper total* ext. customers paper Paperboard timber

MoDo Paper Husum 525 630 120Domsjö 205 175Silverdalen 95Alizay 280 300 70Pont Sainte Maxence 120

Holmen Paper Hallsta 650Braviken 670Wargön 45 10 120

Iggesund Paperboard Iggesunds Bruk 325 20 300Ströms Bruk 40Workington 190

Iggesund Timber Iggesund Sawmill 315Domsjö Sawmill 85

Total 1,020 1,505 395 1,440 530 400of which to company paper mills, etc. –70 –1,110 – 40Production capacity for external deliveries 950 395 1,440 490 400

1996 1995 1996 1995 1996 1995 1996 1995Sweden 15,590 16,617 3,289 4,675 2,112 2,511 7,109 7,074Austria 3 4 – – – – – –Belorussia 15 – –1 – – – 16 –Belgium 135 170 2 1 – 1 26 24Denmark 6 8 – 4 1 2 10 9Estonia 31 – 1 – 23 1 52 29France 2,234 3,209 –247 529 109 66 919 926Germany 38 817 5 8 1 4 73 71Great Britain 2,519 3,048 165 283 122 58 1,059 1,067Italy 13 20 – 7 – – 5 8Latvia 43 – 7 – 7 2 43 13Lithuania 36 – 2 – 8 – 28 –Netherlands 881 1,043 47 46 14 5 230 230Norway 304 351 5 10 1 2 41 38Russia 116 – 1 – 12 1 215 157Spain 99 110 –5 – 1 – 43 42Switzerland 10 13 – 2 3 1 18 16Ukraine – – – – 1 – 10 –USA 1 3 –1 –1 – – 2 3Non-allocated 37 4 9 –15 – – – –Intra-Group sales –1,996 – 3,098 – – – – – –Non-recurring items – – 11 282 – – – –Total 20,115 22,319 3,290 5,831 2,415 2,654 9,899 9,707

30

MoDo shares

Earnings per share1) . . . . . . . . SKr 22.30 41.30 14.90 –3.60 –13.90 1.70 19 22.80Dividend per share . . . . . . . . . SKr 9 8.50 5.50 0 0 3 5.50 5Direct yield2) . . . . . . . . . . . % 5 6 3 – – 4 6 4Pay-out ratio3) . . . . . . . . . . . % 40 21 37 – – 179 30 23P/E ratio4) . . . . . . . . . . . . . 9 3 12 Neg Neg 47 5 5Return on1)

equity . . . . . . . . . . . . . . % 13 29 12 –3 –10 1 13 18capital employed . . . . . . . . . % 14 26 12 3 –2 3 10 13

Equity per share . . . . . . . . . . SKr 1765) 163 127 118 129 146 150 134Closing listed price, MoDo “B” . . . SKr 192 142 173 128 87 80 95 119MoDo’s closing market capitalisation SKr billion 17.1 12.7 15.4 11.0 6.4 5.8 6.2 8.5Highest price quoted during the year, “B” SKr 200 243 186 141 118 149 147 194Lowest price quoted during the year, “B” SKr 140 135 122 84 36 73 64 110Beta value (48 months), closing list price “B”6) 1.35 1.80 1.61 1.57 1.56 1.10 1.33 1.34Volatility (250 days), closing list price “B”7) % 27 26 28 38 77 60 58 42

MoDo’s two series of shares are listedon the Stockholm Stock Exchange listof the most heavily traded shares. Theturnover in 1996 was lower than in theprevious year. The highest turnover wasnoted by MoDo “B” shares, with an ave-rage of 349,000 “B” shares being tradedeach day, which represents a value ofSKr 59 million. This made MoDo thefifteenth most heavily traded stock on theStockholm Stock Exchange during theyear, and the second most heavily tradedforest company. Standardised equityoptions – MoDo “B” put and call – are

traded on the options market (OM) inStockholm.

Share structureAt the Annual General Meeting inMay it was resolved in favour of a sharesplit, whereby the par value of theshares would be altered from SKr 100to SKr 50. This involved each sharebeing split into two new ones. The newtotal number of shares in issue amountsto 88,858,278.

MoDo has 22.6 million “A” shares inissue and 66.2 million “B” shares. Each

“A” share carries ten votes and each “B”share one vote. Otherwise there are nodifferences between the two shares.

Information per shareEarnings per share amounted to SKr22.30 (41.30). It is proposed to pay adividend of SKr 9 per share (8.50), whichcorresponds to a direct yield of 5 per cent(6) on the basis of the closing marketprice as per December 31, 1996.The closing book value of equity pershare was SKr 176 (163).

Share data (adjusted for issues) 1996 1995 1994 1993 1992 1991 1990 1989

Shareholders at December 31, 1996 Ownership structure

5) Adjusted for an indicative premium over the book value of MoDo’s forests SKr 215 (see also page 40).6) Measures the sensitivity of the yield on the “B” shares in relation to the yield on the Affärsvärlden

General Index over a period of 48 months.7) Measures changes in the price of the “B” shares, expressed in percentage terms, over 250 days.

% of shares % of votes

LE Lundbergföretagen . . . . . 22.8 47.1Kempe Foundations . . . . . . 4.6 14.1Handelsbanken,

incl. pension funds . . . . . 2.8 8.4Fourth AP Fund . . . . . . . . 5.0 5.0Nordbanken Funds . . . . . . 4.2 1.3SPP, Insurance . . . . . . . . 3.4 1.1Handelsbanken Funds . . . . . 2.2 1.0Skandia . . . . . . . . . . . 2.1 0.6AMF Pension . . . . . . . . . 1.5 0.4Other 1) . . . . . . . . . . . 51.4 21.0

Total . . . . . . . . . . . . 100.0 100.01) of which non-Swedish shareholders 24.7 8.2

Percentage ofNumber of Number of total no.shares shareholders of shares

1– 1,000 . . . . . . . 22,464 61,001– 5,000 . . . . . . . 1,745 45,001– 10,000 . . . . . . . 190 2

10,001– 50,000 . . . . . . . 200 550,001–100,000 . . . . . . . 64 5

100,001– . . . . . . . . . . . 86 78

Total 24,749 100

1) See definitions on page 15.2) Dividend as a percentage of the closing listed price of “B” shares.3) Dividend divided by earnings per share.4) Closing listed price of ”B” shares divided by earnings per share.

30

60

90

120

150

180

210

240

270

300

330

360

390

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997

“B”share Affärsvärlden General Index

(c) SIX Findata

50

100

150

200

250

300

1995 1996

1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000

“B”share

Affärsvärlden General Index

Number of sharestraded, thousands(incl. after market)

(c) SIX Findata

31

MoDo’sweight

1996 1995 Change in index*

AffärsvärldenGeneral Index . . . 2,402.9 1,735.7 38 % 1.1 %

AffärsvärldenForest Industry Index 1,810.2 1,400.2 29 % 17.1 %

MoDo “B” . . . . . . 192 283 35 %*Indicates the weight of MoDo ”B” shares in each index at December 30, 1996.

Votes No. of shares No. of votes Par SKrvalue million

Share“A” . . . . 10 22,623,234 226,232,340 50 1,131.2“B” . . . . 1 66,235,044 66,235,044 50 3,311.7

Total 88,858,278 292,467,384 4,442.9

MoDo “B” share in relation to the index Share structure

Changes in share capital

Increase in no. Total no. Increase in share Total share capitalof shares of shares capital, SKr million SKr million

1980 . . . . . . . . . . . . . . . . . . 3,918,039 391.81984 Rights issue 1:4 . . . . . . . . . . . 979,509 4,897,548 98.0 489.8

Scrip issue 1:4 . . . . . . . . . . . . 979,509 5,877,057 97.9 587.71985 Scrip issue 1:3 . . . . . . . . . . . . 1,959,019 7,836,076 195.9 783.61986 Rights issue 1:4 . . . . . . . . . . . 1,959,019 9,795,095 195.9 979.5

Scrip issue 1:4 . . . . . . . . . . . . 1,959,019 11,754,114 195.9 1,175.41988 Conversion of KVBs . . . . . . . . . 1,155,859 12,909,973 115.6 1,291.01989 Conversion of KVBs . . . . . . . . . 2,771,314 15,681,287 277.1 1,568.11990 Conversion of convertible subordinated loan 1 15,681,288 0.0 1,568.1

Conversion of KVBs . . . . . . . . . 61,087 15,742,375 6.1 1,574.21991 Conversion of KVBs . . . . . . . . . 551 15,742,926 0.1 1,574.31992 Conversion of KVBs . . . . . . . . . 6,331 15,749,257 0.6 1,574.91993 Rights issue . . . . . . . . . . . . . 14,469,139 30,218,396 1,446.9 3,021.8

Conversion of KVBs . . . . . . . . . 204,285 30,422,681 20.4 3,042.21994 Conversion of KVBs . . . . . . . . . 3,978,257 34,400,938 397.8 3,440.11995 Conversion of KVBs . . . . . . . . . 10,028,201 44,429,139 1,002.8 4,442.91996 Share split . . . . . . . . . . . . . . 44,429,139 88,858,278 4,442.9

Price of ”B” shares between 1987 and Feb. 1997 Price of ”B” shares and number of shares traded

32

5000 1,000 1,500 2,000

UPM-Kymmene

Uncoated Coated

Enso

KNP-BTInternational Paper

MoDo

Stora

Metsä-Serla

SCA

AWA

Burgo

Sappi

UK Paper

Market positionFine paperWestern EuropeWest European producersannual capacity 1,000 tonnes

0 200 400 600 800 1,000 1,200

Market positionBleached chemical pulpWestern EuropeWest European producers,annual capacity for delivery toexternal customers, 1,000 tonnes

Portucel

Södra

Stora

UPM-Kymmene

Enso

ENCE

MoDo

La Rochette

Metsä-Serla

MoDo Paper’s sales declined by 22 per cent to SKr 6,917 million(8,919m), mainly as a result of lower prices.The operating profit decreased to SKr 97 million, compared withSKr 2,331 million in the previous year.

Fine paperThe market situation improved during the second quarter afteralmost a year of low capacity utilisation and falling prices. Thefavourable trend continued in the autumn.The earlier steeply declining price trend came to a halt in thesummer. At the beginning of October, the prices of both coatedand uncoated grades were raised by 6–8 per cent on most Euro-pean markets. On average, however, prices for the whole yearwere between 20 and 30 per cent lower than in the previous year.Deliveries of fine paper from European mills rose to 12.6 milliontonnes (11.7m), including exports to markets outside WesternEurope. Deliveries of coated paper to markets in Western Europerose by 11 per cent, while uncoated grades rose by 4 per cent.Deliveries to Eastern Europe showed a further increase.Deliveries of office paper to Western Europe – fine paper inA4 and A3 formats – increased by 10 per cent, and this gradeconsequently accounted for almost all of the increase in theuncoated paper segment.MoDo Paper’s deliveries of fine paper increased by 59,000tonnes.

PulpDeliveries of bleached chemical pulp in Western Europefluctuated widely during the year. In total, deliveries rose byabout 3 per cent.Prices fell from some US$ 1,000 per tonne in October, 1995 toaround US$ 500 per tonne at the beginning of April, 1996. Laterin the year, prices were raised, and they were US$ 560 per tonneby the end of the year. Average pulp prices for the whole yearwere 30 to 40 per cent lower than in the previous year.The stocks known as Norscan stocks rose sharply during thefirst quarter, from 1.95 million to 2.5 million tonnes. They were1.9 million tonnes at the year-end.Global capacity utilisation for bleached market pulp was 89 percent (92).MoDo Paper’s external deliveries of pulp fell by 23,000 tonnes.

ProductionCapacity utilisation at MoDo Paper’s pulp mills remained lowuntil the summer, but it rose in the autumn. On average, it was82 per cent (88).Capacity utilisation at the paper mills averaged 87 per cent (86).Fixed costs declined by 3 per cent.

MoDo Paper produces and markets fine paper and bleached chemical pulp. Production takesplace at mills in Husum, Domsjö and Silverdalen in Sweden, and at Alizay and Pont SainteMaxence in France. Most of the output is sold in Western Europe through sales companiesand fine paper merchants. The main buyers of fine paper are paper merchants, printers, paperconverters and publishers. Most of the pulp is converted in the company's own paper mills.The remaining quantities are mainly sold to paper mills on the Continent.

MoDo Paper

SKr million 1996 1995Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,917 8,919

of which to external customers . . . . . . . . . . . . . 5,465 7,143Operating profit* . . . . . . . . . . . . . . . . . . . . . . 97 2,331Average capital employed . . . . . . . . . . . . . . . . . 7,740 7,763Return on capital employed, % . . . . . . . . . . . . . . 1.3 30.0Capital expenditure . . . . . . . . . . . . . . . . . . . . . 875 571Average no. of employees . . . . . . . . . . . . . . . . . 3,393 3,160* including interest in earnings of associate companies

Operating profit/loss and sales by product areaOperating profit/loss Sales

SKr million 1996 1995 1996 1995Fine paper . . . . . . . . . . . . . . . . 285 1,476 5,502 6,562Pulp . . . . . . . . . . . . . . . . . . . –188 855 1,415 2,357

97 2,331 6,917 8,919

Operating profit/loss and operating margin

–1,500

–1,000

–500

0

500

1,000

1,500

2,000

2,500

SKr million

1996199519931992–15

–10

–5

0

5

10

15

20

25

%

1994

Operating profit/loss Operating margin

Production and deliveries Production Deliveries*

1 ,000 tonnes 1996 1995 1996 1995Fine paper . . . . . . . . . . . . . . . . 890 878 829 770Pulp . . . . . . . . . . . . . . . . . . . 940 1,016 340 363* including deliveries to other business areas in the Group

Product developmentPaper for digital printing represents a rapidly growing market.Digital printing makes possible the production of high qualityprinted matter in small print runs, and it makes new demands onthe characteristics of the paper. In 1996, the work of developingthe range of products suited to this printing method continued.There was also further development work in the coloured officepaper segment and for the types of office paper that will beproduced at Alizay.

Capital expenditureA new wood handling department was commissioned at Husum.This is the first stage in the extensive renovation of the mill.In 1997 a new evaporation unit will be installed, and a newdigester house is planned for a later stage. Over and above this, a number of investments were made toimprove efficiency, mainly at the paper mills.

Focus on Eastern EuropeIn order to strengthen its market position in Eastern Europe,MoDo Paper acquired 90 per cent of the shares in MoDo PaperEast (formerly Thomesto Paper Merchants) in April. The com-pany is active in Russia, Estonia, Latvia, Belorussia, and theUkraine.Following this acquisition, MoDo Paper is well placed to furtherdevelop its sales on these and nearby markets.

Market positionFine paperMoDo Paper has a strong position on the European marketsfor the segments office paper and uncoated fine paper forconversion. Although the company produces relatively smallvolumes of coated fine paper in sheets, it has a strong marketposition in Scandinavia, Great Britain and Benelux.In France, MoDo Paper holds a strong position on the marketsfor paper for commercial printers and uncoated fine paper onreels through its French units.MoDo Paper’s largest markets for fine paper are France, Germa-ny, Great Britain and Sweden. Approximately 60 per cent of itsoutput is sold in these countries.

Pulp

MoDo’s external deliveries of pulp have been gradually decliningdue to further integration. In total they amount to some 400,000tonnes per year inlcuding the market pulp that is produced atIggesund Paperboard and Holmen Paper.Approximately 90 per cent of MoDo’s market pulp is sold inWestern Europe, where annual consumption amounts to some14 million tonnes.

DataCopy® Option is a paper developed for therapidly growing market for digital printing.

27%shareof Group


34%shareof Group

President:Hans Pettersson

Head office:Örnsköldsvik

33

34

0 1,000 2,000 3,000 4,000 5,000

Market positionWood-containing printing paperWestern EuropeWest European producersannual capacity, 1,000 tonnes

UPM-Kymmene

Haindl

Norske Skog

Stora

Enso

MoDo

SCA

Holmen Paper

Holmen Paper produces and markets wood-containing printing paper – newsprint, MFspecial paper (yellow and white telephone directory paper, improved newsprint, pinknewsprint and continuous stationery), SC paper (uncoated paper for weekly magazines)and MWC paper (coated printing paper). Production takes place at Braviken Paper Mill,Hallsta Paper Mill and Wargön Paper Mill. Production of newsprint is based on a rawmaterial mix, half of it consisting of virgin fibre and half of it of recycled fibre. Most of theoutput is sold in Western Europe. MoDo’s power business is included in Holmen Paper.

SKr million 1996 1995Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,109 6,565

of which to external customers . . . . . . . . . . . . . 6,672 6,047Operating profit* . . . . . . . . . . . . . . . . . . . . . . 1,824 1,570Average capital employed** . . . . . . . . . . . . . . . . 5,659 4,829Return on capital employed**, % . . . . . . . . . . . . . 32.8 32.4Capital expenditure . . . . . . . . . . . . . . . . . . . . . 1,183 1,170Average no. of employees . . . . . . . . . . . . . . . . . 2,372 2,246* including interest in earnings of associate companies ** excluding MoDo’s power business


1,000 tonnes 1996 1995 1996 1995Standard newsprint . . . . . . . . . . 606 538 574 542MF special paper . . . . . . . . . . . . 399 369 381 363SC paper . . . . . . . . . . . . . . . . . 113 121 110 120Coated printing paper . . . . . . . . . 107 118 103 110Sulphite pulp . . . . . . . . . . . . . . 42 47 4 6* including deliveries to other business areas in the Group

MoDo’s electric power turnover in SwedenProduction/purchase GWh 1996 1995Company-owned and associatehydro-electric power stations . . . . . . . . 775 1,267Mills’ counter-pressure turbines . . . . . . 658 586Purchased electricity . . . . . . . . . . . . . 3,845 3,278

5,278 5,131

Holmen Paper’s sales rose by 8 per cent to SKr 7,109 million(6,565m). This increase was due to higher average price levelsand higher volumes following the commissioning of the newpaper machine at Braviken.The operating profit improved to SKr 1,824 million (1,570m).

NewsprintDemand for newsprint in Europe slackened, after having risen forseveral years. Deliveries fell by 6 per cent. Canadian shipmentsto Europe rose by 30 per cent as a consequence of weaker mar-kets in the USA and Asia. Growing volumes of Russian news-print were also coming onto the market, and at very low prices.New newsprint machines came on stream in Asia, especially inSouth Korea. On average prices of newsprint increased by 10 percent in 1996.An important goal for Holmen Paper in 1996 was to find marketsfor the additional quantities produced by the new newsprintmachine at Braviken. This paper was mainly sold to key custo-mers in Europe.New markets, such as Poland, the Baltic states, Ireland andPortugal, continued to develop well.In total, Holmen Paper’s deliveries of newsprint increased by32,000 tonnes.

MF special paperThe market for improved newsprint of high brightness rose byno less than 9 per cent. This is an important product area forHolmen Paper.The market for medium-brightness and low-brightness papers, onthe other hand, showed a further decline, as many customers arechanging over to standard newsprint. Demand for telephone directory paper in Europe rose by 3 percent. In the past, yellow directory paper grew most rapidly.As more and more customers begin to print the yellow back-ground as well as four-colour advertisements, the demand forwhite telephone directory paper will rise faster. In 1996 pricesof MF special paper rose by 8 per cent on average.Holmen Paper’s deliveries of MF special paper rose by 18,000tonnes.

SC paperDeliveries in Europe fell by 4 per cent, which was less thanexpected. Exports to markets outside Europe fell by 14 per cent.Demand slackened, especially in the USA.Prices of SC paper rose by 3 per cent on average in 1996.Holmen Paper’s deliveries of SC paper fell by 10,000 tonnes.

Coated printing paperDeliveries in Europe declined by 11 per cent. This was largelydue to destocking among buyers and to customers changing over

*

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

SKr million

19961995199419931992

Operating profit Operating margin

0

3

6

9

12

15

18

21

24

27

%

Operating profit and operating margin

35

to coated fine paper, for which prices had fallen to levels thatnarrowed the differential in relation to coated printing paper.Holmen Paper’s deliveries of coated printing paper fell by 7,000tonnes. On average prices of coated printing paper were 12 percent lower than in 1996.

Electric powerThe power business was adversely affected by the low flow intothe reservoirs following a winter with little snow and a summerwith little rain.

ProductionProduction rose by 79,000 tonnes to 1,225,000 tonnes, whichincludes 128,000 tonnes from the new PM 53 paper machine atBraviken. Capacity utilisation was 93 per cent (98).Variable costs per tonne were slightly lower than in the previousyear. Increases in the cost of energy and chemicals, for example,were offset by lower costs for wood, waste paper and sulphatepulp.Fixed costs were 3 per cent higher than in the previous year.

Capital expenditureCapital investments were dominated, as in the previous year, bythe new PM 53 paper machine at Braviken. The paper machine,the de-inked pulp line and other sections of the project werebrought on stream according to plan between February and April.The machine produced its first paper on April 30. Paper of a fullyacceptable commercial quality was already being produced afterone week.

Improved transportation systemAs one stage in improving the efficiency of shipments to marketsin Europe, a new vessel operated on a long-term charter wasbrought into operation at the end of September. The new shipdelivers paper to Chatham just outside London three times amonth, and on its return leg, it takes waste paper, which is animportant raw material for Braviken and Hallsta.

Market positionHolmen Paper’s main markets are in Europe, where approximate-ly 80 per cent of its output is sold. It has some 10 per cent of themarket for newsprint. Holmen Paper has built up a very strongposition in the MF special paper segment over the past ten years,and now has a market share of some 20 per cent.Holmen Paper produces relatively small volumes of SC paperand coated printing paper, and its market shares are 3 per centand 2 per cent respectively in these segments.

Rapid printing and advanced four-colour printing areimportant means of competition for daily newspapers.

The newsprint produced by Braviken’s new PM 53paper machine satisfies very high quality requirements.

President:Göran Lundin

Head office:Norrköping

33 %shareof Group


25 %shareof Group

36

0

200

400

600

800

SKrmillion

19961995199419931992


0

5

10

15

20

%

0 200 400 600 800 1,000 1,200

Market positionPaperboardWestern EuropeWest Eurepean producersannual capacity, 1,000 tonnes

Mayr Melnhof

Saffa

Stora

Metsä-Serla

MoDo

Enso

Cascades

Virgin fibre Recycled fibre


Iggesund Paperboard’s sales declined by 9 per cent to SKr 3,845million (4,232m), mainly as a result of lower prices for marketpulp and lower volumes for folding boxboard.The operating profit deteriorated to SKr 591 million, comparedwith SKr 896 million in 1995.

MarketsAfter a weak start, demand on the West European paperboardmarket rose successively during the year. Total consumptionequalled that of 1995, amounting to some 4.3 million tonnes,including unbleached board and imports.Demand for recycled fibre based paperboard, which representsmore than half of the total market, decreased slightly. Demandfor fully-bleached paperboard and folding boxboard, on theother hand, rose, by more than 2 per cent in each case.Demand for virgin fibre based paperboard developed strongly onthe two largest markets in Europe, Germany and Britain, whilethe consumption of recycled fibre based board declined.In France and Italy, demand for most types of paperboard wasweak.Exports by West European paperboard mills to countries outsideEurope, mainly in Asia, rose by some 10 per cent.Capacity utilisation at European paperboard mills was low duringthe first half of the year, but the level then picked up to almostfull utilisation. Iggesund Paperboard’s marketing activities during the later partof the year were concentrated on introducing new fully-bleachedpaperboard grades from Iggesunds Bruk and improved grades offolding boxboard from Workington. The sales organisation inAsia, based at Iggesund Paperboard’s office in Singapore, wasstrengthened.The average price of paperboard in Swedish kronor was 2 percent lower than in the previous year. After reductions of some10 per cent in the price of folding boxboard during the firsthalf of the year, prices remained broadly unchanged in localcurrencies. The prices of fully-bleached grades only changedmarginally in local currencies throughout the year.Iggesund Paperboard’s deliveries of paperboard declined by13,000 tonnes, or 3 per cent. Thanks to a relatively strong per-formance at the end of the year, the order intake increased by2 per cent overall.

ProductionCapacity utilisation at Iggesund Paperboard’s mills was 84 percent (88).The cost of wood and chemicals remained unchanged in relationto 1995. Also fixed costs were unchanged.


Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,845 4,232of which to external customers . . . . . . . . . . . . . 3,748 4,139

Operating profit . . . . . . . . . . . . . . . . . . . . . . . 591 896Average capital employed . . . . . . . . . . . . . . . . . 3,841 3,601Return on capital employed, % . . . . . . . . . . . . . . 15.4 24.9Capital expenditure . . . . . . . . . . . . . . . . . . . . . 180 807Average no. of employees . . . . . . . . . . . . . . . . . 2,094 2,156

Iggesund Paperboard

Iggesund Paperboard produces and markets high quality paperboardto be used as packaging and in the graphic industry. Productiontakes place at Iggesunds Bruk and Ströms Bruk in Sweden, and atWorkington in Great Britain. Paperboard is one of the most advancedproducts manufactured in the forest industry. The most important usesfor paperboard are as packaging for chocolates, tobacco, perfumes,cosmetics and food, and as covers for books and printed matter.


1,000 tonnes 1996 1995 1996 1995

Paperboard . . . . . . . . . . . . . . . 372 398 373 386Sulphate pulp . . . . . . . . . . . . . . 286 312 49 49* including deliveries to other business areas in the Group

19 %shareof Group


17%shareof Group

President:Erik Sjölund

Head office:Iggesund

Product developmentThree new grades of fully-bleached paperboard were introducedduring the second half of the year. They are intended to be usedfor printed matter and high-quality packaging. Moreover, animproved version of Invercote® G – the basic product in thefully-bleached range – was introduced.Deliveries of improved products based on folding boxboard witha new type of coating began in the fourth quarter. The newcoating represents a significant quality improvement, as well asallowing for more efficient production of this grade of paper-board.

Capital expenditureA fully-automated reel store has been commissioned in Work-ington. This will enable the mill to improve its service as well asraising capacity and improving efficiency. Within the frameworkof this project, a new rewinder will be installed in the spring of1997. The total project cost is SKr 125 million.Following the signing of an energy supply agreement in 1995, theelectricity supplier completed the installation of a highly efficientnatural gas-based combined heat and power station within themill site at Workington.

Market positionConsumption of paperboard in Western Europe amounts to some4.3 million tonnes per year. Almost the entire volume is manufac-tured in Europe.Paperboard based on virgin fibre is mainly produced in Scandi-navia, whereas the greater part of the recycled fibre-based boardis produced on the Continent. Paperboard made from virgin fibreaccounts for some 45 per cent of the market.No new capacity, apart from the effects of trimming at existingunits, was added to the European market in 1996. Nor are anysignificant additions to capacity foreseen for 1997.Iggesund Paperboard’s main markets are in Western Europe, butcountries particularly in South-East Asia are of growing interest.In 1996, the company’s share of the folding boxboard market fellslightly, while its share of the fully-bleached paperboard marketrose.The share of the total West European paperboard market is justunder 9 per cent. Iggesund Paperboard holds a leading position inthe highest quality segment.

In addition to various types of packaging, printed matterand books are an important segment in which high quality

paperboard from Iggesund Paperboard is used.

37

MoDo Merchants’ sales fell by 16 per cent to SKr 3,482 million,compared with SKr 4,135 million in 1995. The operating profitdeteriorated to SKr 76 million (175m), on account of lowerprices and margins, and a slightly lower sales volume.

MarketsDemand for fine paper was weak during the first half of the yearin those countries where MoDo Merchants is active. In theautumn, demand revived, and from time to time it was difficultto obtain adequate supplies of fine paper from the producers.Deliveries of fine paper in 1996 were slightly lower than in theprevious year.At the merchanting stage, however, sales are believed to haverisen by a few per cent. Most of the growth occurred in thecoated paper and office paper segments. Stocks of paper atmerchants, retailers and printers were low when the year began,but they gradually rose.

MoDo Merchants is engaged in the merchanting of mainly fine paper products withoperations in Sweden, Norway, The Netherlands, Belgium, Great Britain and Spain throughthe following subsidiaries: Svenskt Papper Group (Svenskt Papper, Basberg Papir), MoDoMerchants Benelux (MoDoVanGelder, MoDo Paper Belgium), MoDo Merchants Ltd, andComercial Papelera Aldi. Some two-thirds of the products sold are produced by MoDoitself, while the remaining third is purchased from a hundred or more external suppliers.Most of the customers are printers, paper converters, publishers and offices.

MoDo Merchants


Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,482 4,135of which to external customers . . . . . . . . . . . . . 3,466 4,134

Operating profit . . . . . . . . . . . . . . . . . . . . . . . 76 175Average capital employed . . . . . . . . . . . . . . . . . 549 492Return on capital employed, % . . . . . . . . . . . . . . 13.9 35.6Capital expenditure . . . . . . . . . . . . . . . . . . . . . 25 13Average no. of employees . . . . . . . . . . . . . . . . . 710 692

Deliveries1,000 tonnes 1996 1995

Svenskt Papper Group . . . . . . . . . . . . . . . . . . . 149 155MoDo Merchants Benelux . . . . . . . . . . . . . . . . . 69 71MoDo Merchants Ltd . . . . . . . . . . . . . . . . . . . . 128 128Comercial Papelera Aldi . . . . . . . . . . . . . . . . . . 13 10

359 364

Iggesund Timber’s sales fell by 11 per cent to SKr 764 million(856m). The operating result declined into a loss of SKr 53 mil-lion (profit17m), mainly due to lower prices as well as lowervolumes, partly due to production disturbances in December inconnection with the rebuilding and installation of new equipment.

MarketsThe year began with very weak demand, caused largely bythe severe winter that hampered building activity in Europe.The level of demand passed its low point in the summer, afterwhich market conditions improved successively. Deliveries toWestern Europe declined by 4 per cent compared with the pre-vious year. A large part of this reduction was due to extensive des-tocking among distributors during the first half of the year. Oneconsequence of this was that the revival in demand in the autumnwas partly due to the need to replenish the low stocksin Europe.During the autumn, the prices of sawn timber were raised by4 per cent, compared with the low point reached during the firsthalf of the year. On average, however, prices for the whole yearwere 18 per cent lower than in the previous year.Towards the end of the year, the production of sawn timber inboth Sweden and Finland was constrained by shortages of sawlogs and a weak market for sawmill chips. This improved thebalance between demand and supply, which in turn had a favour-able effect on prices.

Iggesund Timber produces and markets sawn timber. Its output consists of standardproducts and customised special products. Some 90 per cent of its output is shipped tocustomers outside Sweden. Iggesund Timber has sawmills in Iggesund and Domsjö. Salestake place through wholly-owned marketing companies, namely Noord Europese Hout-import, Holland, and Iggesund Timber Sales, Great Britain and through the associate compa-nies, Les Bois de la Baltique in France and UniTimber for markets outside Europe. IggesundTimber’s marketing companies also sell sawn timber from other sawmilling companies.

Iggesund Timber


Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 764 856of which to external customers . . . . . . . . . . . . . 764 856

Operating profit/loss* . . . . . . . . . . . . . . . . . . . . – 53 17Average capital employed . . . . . . . . . . . . . . . . . 394 421Return on capital employed, % . . . . . . . . . . . . . . –13.4 4.1Capital expenditure . . . . . . . . . . . . . . . . . . . . . 55 15Average no. of employees . . . . . . . . . . . . . . . . . 310 319* including interest in earnings of associates

Production and deliveries Production Deliveries*1,000 m3 1996 1995 1996 1995

Company sawmillssawn timber redwood . . . . . . . . 197 216 211 205sawn timber whitewood . . . . . . 129 148 136 145

Purchased sawn timber . . . . . . . . – – 106 74326 364 453 424

* including deliveries to other business areas in the Group

38

The downturn in prices that began during the later part of 1995continued during the spring. Prices were raised in the autumn.On average, however, they were 20 per cent lower than in theprevious year.The product range is changed to meet the demands made bythe growing use of digital printers in offices and digital printingpresses in the graphic industry. This is a development which willcontinue for several years. The marketing organisation is alsosuccessfully adapted to meet the changing conditions on themarket.

Market positionMoDo Merchants lost market share slightly in the direct salessegment during the first half-year. On the other hand, it wellmaintained its share of the important stock sales market.MoDo Merchants’ market share amounts to some 10 per cent inthose countries where the company is active.

0

40

80

120

160

SKrmillion

199619951994199319920

1

2

3

4

%


17%shareof Group


2 %shareof Group

President:Ulf Scharin

Head office:Stockholm

ProductionProduction at Iggesund Timber’s sawmills was restricted duringthe first half of the year, as a means of adjusting production to thestate of the order book. Capacity utilisation amounted to 82 percent (91). The cost of input materials fell by 12 per cent. Othercosts remained unchanged.

Capital expenditureA land-based log sorting unit was built at the Domsjö sawmill.At the Iggesund sawmill, equipment was installed for sortingnew-sawn timber according to a principle that is entirely new inScandinavia. The new sorting unit is efficient and flexible, andalso has the advantage that the timber is handled very carefully.

Product developmentThe work of developing products to meet specific customerrequirements continued. Relative sales of Industry Timber – aninput material for industrial users who convert sawn timber –continued to grow, and this product now accounts for almost halfof the delivered volume. Production of a new product, which is marketed under the DUOLIT

brand name, began at the Iggesund sawmill. This is a furtherdevelopment of MONOLIT®, which is doing well on the market asa material for the manufacture of furniture, for instance.

Operating profit/loss Operating margin

–80

–40

0

40

80

120

SKrmillion

19961995199419931992–10

–5

0

5

10

15

%

4 %shareof Group


2 %shareof Group

President:Per Erik Frick

Head office:Hudiksvall


Operating profit/loss and operating margin

39

40

MoDo Skog

MoDo Skog is responsible for procuring wood for the MoDo Group’s mills in Sweden, and alsoadministers MoDo’s holdings of some 1.3 million hectares of forest land of which just over onemilion hectares are used for forestry. Wood procurement is mainly administered through thecompany’s own forest regions Lycksele, Robertsfors, Örnsköldsvik, Iggesund, Strängnäs andNorrköping. Wood is also procured through a central wood department in Örnsköldsvik and localwood departments in Iggesund and Norrköping, as well as through the associate purchasingcompanies: Sydved AB in Jönköping, and Industriskog AB in Falun. There are also wholly-ownedand part-owned purchasing and harvesting companies in Russia, Estonia and Latvia.

MoDo Skog’s operating profit, which is largely generated byactivities in company-owned forests, fell to SKr 357 million,compared with SKr 391 million in 1995. The decline in the resultis due to lower wood prices.

Wood consumptionWood consumption at MoDo’s pulp mills amounted to 6.8million m3, which was slightly lower than in the previous year(7.1 million m3). The decrease was due to production restrictions,mainly during the first half of the year. Consumption of saw timber was also lower than in 1995.

Wood procurementWood procurement was adjusted to the lower level of consump-tion. Pulpwood prices were reduced, which led to a sharp fall insupplies from private forest-owners. Harvesting in MoDo’s ownforests was restricted, and the total volume harvested was1.9 million m3, which is lower than in the long-term harvestingplan.Imports of pulpwood were also reduced, and amounted to 1.4million m3, or 0.8 million m3 less than in 1995. Despite theserestrictions, stocks of pulpwood at MoDo’s mills were higherthan normal for most of the year.The operations in the wood purchasing companies in Estonia andLatvia progressed well. MoDo now has a strong position as apulpwood buyer in both these countries.

Unchanged costsThe cost of harvesting, silviculture and administration remainedat the same level as in the previous year. This was mainly due tolow inflation and interest rates in Sweden, and to rationalisationmeasures taken in all areas of MoDo Skog’s business.

Sustained focus on forest environmentInterest in the forest environment continued to be intense. Onequestion that often comes up in the occasionally heated debatewas how to protect “old growth forests”. This is a concept forwhich no unambiguous definition exists, and it is therefore opento many, different interpretations. Another question which causessome controversy is the extent to which it is acceptable to harvesta forest containing red-listed species, that is to say, species thatare on the Species Data Bank’s list of threatened species requi-ring exceptional consideration in the Swedish natural environ-ment.MoDo Skog’s view is that the environmentally-focused forestmanagement programme will create conditions that will enableall species to survive from a landscape perspective.MoDo is engaged in discussions with environmental organi-sations, customers, private forest owners and other Swedishforest industry companies on environmental certification offorestry in Sweden according to FSC.

0

100

200

300

400

500

SKrmillion

19961995199419931992

1996 1995

Harvesting in company forests, million m3* . . . . . . . 1.90 1.76Wood consumption at mills, million m3* . . . . . . . . . 7.31 7.65Operating profit, SKr million . . . . . . . . . . . . . . . . 357 391Average capital employed, SKr million . . . . . . . . . . 5,108 5,150Return on capital employed, % . . . . . . . . . . . . . . 7.0 7.6Capital expenditure, SKr million . . . . . . . . . . . . . . 50 35Average no. of employees . . . . . . . . . . . . . . . . . 742 765* solid volume of logs inside bark

Forest land

MoDo owns approximately 1,300,000 hectares of land inSweden, of which 1,020,000 hectares are productive forestland. Almost 800,000 hectares are located in the fournorthernmost counties, with the rest in central and southernSweden. This enables the Group to be 25–30 per cent self-sufficient in wood.

These assets are stated in MoDo's balance sheet at acquisi-tion cost with an addition for revaluations made over theyears. The closing book value at December 31, 1996 was SKr4,593 million, or around SKr 4,500 per hectare. The assessedvalue was SKr 8,161 million at December 31, 1996.

A calculation based on MoDo Skog’s actual and estimatedresult for the 1993–1997 period, and a required real return of4 per cent, indicates a yield value after tax at the end of 1996of some SKr 7,850 per hectare.

Operating profit

Capital employed

22 %shareof Group

President:Tore Erkén

Head office:Örnsköldsvik

Peter Hellström, who works for MoDo Skog in Ljusdal, is one of the company’s35 forest rangers with university-level training in ecological biology. MoDoSkog will then have qualified ecologists at each of its 30 districts in Sweden.

42

Investments and development

MoDo is in the middle of an intensivedevelopment phase. Two large invest-ment projects have just been con-cluded, at Braviken and Iggesund.At Husum the second stage in themodernisation and expansion of themill is now under way.

In addition, the establishment andconsolidation of the organisationsfor wood procurement and marketingin Eastern Europe continue.

New paper machineat BravikenThe new PM 53 newsprint machine at theBraviken paper mill outside Norrköpingwas brought on stream at the end of April,1996. After only a few days, the first paperwas delivered to customers. PM 53 hasproduced paper with very good characte-ristics from the very first day of produc-tion.

The new paper machine strengthensBraviken’s position as a leading supplierof newsprint. The machine has an annualcapacity of 270,000 tonnes. The re-allocation of production within HolmenPaper, and an increase in the proportionof special grades, means that only aroundhalf of PM 53’s production represents anet addition of newsprint on the market.In total, the Braviken paper mill now has

an annual capacity of some 700,000 ton-nes of newsprint and telephone directorypaper.

The pace of development in the mediafield is still intensive. The increasingspeed of printing presses makes greatdemands on the strength and runnabilityof newsprint. Four-colour printing is beco-ming standard practice in the daily news-paper industry, and this requires newsprintwhich can do full justice to today’s techni-cally advanced printing presses.

Newsprint from PM 53 more than satis-fies today’s high quality requirements. Themachine is equipped with the best availa-ble technology, which enables it to produ-ce newsprint for both offset printing andgravure.

The expansion project, which cost justover SKr 2 billion, also included a numberof other important parts:

The production of thermo-mechanicalpulp was raised by 75,000 tonnes.

An additional de-inked pulp line wasinstalled, which raised the productioncapacity for de-inked pulp by 140,000 ton-nes to 260,000 tonnes.

In addition, numerous measures weretaken to save energy and reduce theenvironmental impact of the mill. Eventhough production of paper has increasedby some 60 per cent, the expansion meansthat most permits for emissions into waterand air will remain unchanged, or in somecases be reduced.

The investment also involved markedlyraising the technical competence of thepersonnel, and extensive training courseswere organised. In all, 150 persons wererecruited to various posts. Most of the newemployees are qualified engineers.

Modernisation at HusumA comprehensive modernisation and reno-vation programme has been in progress atHusum since the end of 1995 with theobject of strengthening the mill’s interna-tional competitive position.

The first stage was completed in thesummer of 1996, when a new wood hand-ling department was commissioned. Inaddition to reducing costs, the project willimprove pulp quality through more effecti-ve debarking. It also provides advantagesfrom an environmental point of view,including a halving of water consumptioncompared with the previous unit.

The total investment cost for this stageis estimated at around SKr 530 million.

The second stage, which will be readyby the end of 1997, involves the installa-tion of a completely new evaporation unit.The use of only one unit to handle the en-tire flow of liquor will improve efficiency.This in turn will mean lower costs, prima-rily in the form of a reduction in energycosts. This investment will also bringenvironmental benefits. For instance,emissions of COD substances from theevaporation unit will be halved.

The new PM 53 paper machine at the Braviken paper mill was started up at the end of April, raising Braviken’s production capacity by 60 per cent.

43

The capacity of Husum’s new evapora-tion unit will be the highest in the world.The total investment cost is SKr 700 million.

As a further stage in the modernisationproject, a new digester house with greatercapacity is being planned. A decision willbe made in 1998.

The “new” Husum will be one of thelargest and most efficient mills on the mar-ket. The mill will also be better in terms ofenvironmental performance, as a result ofthe many integrated environmental impro-vement measures.

The total level of capital expenditure atHusum within the framework of this pro-gramme is estimated to amount to someSKr 2.1 billion.

Establishment and consolida-tion in Eastern Europe

MoDo has now established itself in theseveral countries in Eastern Europe, withits own harvesting and sales organisations.

Over the past three years, MoDo Skoghas gradually expanded its ventures in theeast. Today it has subsidiary companies inEstonia and Latvia, namely MoDo Mets

and MoDo Mesz respectively. In Russia,MoDo owns a 51 per cent interest in Nov-gorod Lespromhoz, a harvesting company.Moreover, MoDo has a minority holdingin Smiltene MRS, a Latvian harvestingcompany.

The main reason for MoDo Skog’sestablishment of its own procurement andharvesting organisations in these countriesis to secure the raw materials base for itsown mills. It is mainly birchwood whichis imported, but also some smaller quanti-ties of softwood. MoDo has importedwood from Eastern Europe for more thanthirty years. By building up its own opera-tions, it will gain tighter control over thesupply of raw materials. This also opensdoors to an exchange of experiences bet-ween forestry units in Sweden and in Eas-tern Europe.

In order to strengthen its marketposition in Eastern Europe, MoDo Paperacquired 90 per cent of the shares onMoDo Paper East (formerly ThomestoPaper Merchants) in April. This companyis active in Russia, Estonia, Latvia,Lithuania, Belorussia and the Ukraine.

MoDo Paper now has a strong platformfor further developing its sales to theseand neighbouring markets.

Even higher qualityat IggesundFollowing completion of the IGGE 93 pro-ject at Iggesunds Bruk, Iggesund Paperbo-ard introduced several new paperboardproducts in 1996. The project includedinvestments for some SKr 900 million.The final stage involved rebuilding oneof the mill’s two paperboard machines.An earlier stage included the constructionof a new fully-automated reel stores anda new finishing section for paperboard.

The IGGE 93 project has strengthenedIggesunds Bruk’s position as a leadingproducer of high quality paperboard. Therebuilt paperboard machine can now coatpaperboard with up to five different layers,which provides very good gloss, smooth-ness and printability characteristics. It alsoprovides capacity for equal-sided coating.For instance, the cover of this annualreport consists of the new gradeInvercote® Creato, fully coated on bothsides, which was introduced in 1996. Therebuilt paperboard machine will enableIggesund Paperboard to consolidate itsquality lead on the market within its cur-rent product areas. The new products will

As part of the ongoing modernisation of the integrated paper mill at Husum, a new wood handling department was brought into operation in the summer.

44

The investment projects at Iggesund Bruk strengthened Iggesund Paperbord’s position as a leading producer of high quality paperboard.

Personnel development

also enable the company to break into newmarket segments.

Customer service has also been impro-ved. The efficiency of the finishing sec-tion, where the paperboard is cut intosheets or reeled in accordance with custo-

mer specifications, has been improved bythe introduction of automated handlingof the finished stock. An important ele-ment in the system is the new automatedreel stores. All in all, the changes meanthat customer orders can be shipped more

quickly and reliably. In addition, a newdistribution system has also been establis-hed. The investments within the IGGE 93project also involve an increase in produc-tion capacity of 50,000 tonnes, to 300,000tonnes per annum.

The development of personal competenceamong individual employees and amongmanagement are two important elementsin MoDo's personnel policy. The com-petence level of MoDo's personnel willgradually be raised through a continuousprocess of training and development pro-grammes within the Group.

New technology and rapid developmentwithin the field of data processing makenew demands on personnel. The abilityto make full use of the potential offeredby the increasingly advanced technology

is a key issue in a rapidly changing anddemanding world.

Management methods will also changegradually. One very important aspect ofour personnel policy, therefore, is to giveemployees the opportunity to develop theircompetence in a variety of fields to meettoday's requirements and those of tomor-row. It is therefore especially important tocreate competence in breadth and flexibili-ty which will enable the personnel to adaptto rapidly changing external conditions.

MoDo UniversityMoDo University is the overall namefor a broad range of training activities wit-hin the Group. They include subject areassuch as management, marketing, businessadministration and economics, and tech-nology and provide a basic university-leveleducation. A Group induction course fornew employees at MoDo, mostly thosewith a university education, is also run byMoDo University.

Distance trainingwith the aid of ITIT technology will be used to an increas-ing extent in education. A university-level

correspondence course in economics wasstarted, together with Umeå University,at the end of 1996. A large part of thetraining is provided via Internet and inter-nal computer networks.

Modern IT technology will be usedto provide distance training, mainly innatural science subjects, at high schooland sixth form college level. This pro-gramme, which was started in 1996, hasaround 200 participants from differentparts of the Group and is run in colla-boration with Statens Skola för Vuxna.

A positive effect of the IT adaptedtraining forms is that knowledge ofIT media and practice in using thesealso increases and that it providesgreater opportunities for individualisedtraining.

Increased ecologicalcompetenceAn important element in MoDo’s environ-mentally-adapted forest management pro-gramme is to raise the level of ecologicalcompetence in forestry. As part of thisendeavour, around 30 field officers begana university-level course in nature conser-vation during 1996.

Göran From at MoDo Skog in Norrköping isstudying business administration and economicswith the aid of IT technology on a coursearranged by the Umeå University.

Costs ofenvironmental measuresInvestments in and the cost of environ-mental protection measures have beenstated in MoDo’s annual report for manyyears. Some of this information relates toinvestments and costs that are easy to de-fine. They include those which are directlyrelated to the environment, such as thecost of external purification plants.

Other costs are harder to identify sincea large proportion of the environmentalprotection work is integrated into theproduction processes. Measures are takenat source, instead of building externalpurification plants.

As yet, no fully reliable methods areavailable for stating what proportion of aninvestment cost these integrated environ-mental measures represent. But there is nodoubt that also the cost structure is influ-enced by measures of this type.

At MoDo we have ascertained that whatis feasible is to estimate in each individualcase what proportion of the costs relate toenvironmental measures. We take intoconsideration both environmental and pro-duction factors. Such an estimate placesconsiderable demands on the expertise andexperience of those who carry out thiswork. Today, we consider that this is bestdone by the company's own employeeswho are familiar with the issues.

This year, MoDo reports its environmen-tal investments in a different way than be-fore. As a part of the total cost of environ-mental investments we give the level ofenvironmental investments that are inte-grated into processes as an estimated amount.

It has not been possible this year tomake a similar division of the operatingand capital costs.

SKr million

Environmental investments 205 (304)of which estimated 133

Operations, capital, other 566 (450)

Environmental managementThe ISO 14001 environmental manage-ment standard was introduced at Husumduring the year. The mill was certificatedat the beginning of 1997.

Iggesund Paperboard has decided tointroduce ISO 14001 at Workington, Igge-sunds Bruk and Ströms Bruk within threeyears. Workington will be certificated in1997.

Preparations began at Braviken for cer-tification in accordance with ISO 14001.

Studies were begun to assess the feasi-bility of introducing ISO 14001 withinMoDo Skog.

Environmental policyMoDo’s environmental policy was up-dated and made more concrete on thefollowing points, among others:

The demand for “continuous improve-ments” that is incorporated into the EMASand ISO 14001 environmental manage-ment systems was added. The environ-mental demands on suppliers were givengreater precision.

WasteA proposal for a tax on waste was presen-ted in Sweden in 1996. This proposal will

affect MoDo, mainly in connection withpurification sludge, which is currentlydeposited. According to the proposal, a taxof SKr 250 per tonne of waste is to belevied. If the proposal is approved it willraise MoDo’s costs by around SKr 60 mil-lion per year.

New environmental permitsAll the environmental permits for theHusum pulp and paper mills will bereviewed in 1997. The application to theNational Franchise Board for EnvironmentProtection was prepared in 1996 and willbe submitted in 1997.

TransportationA study of the environmental effects andconsumption of resources in MoDo’stransportation system is being carried outin the form of a life cycle assessment.The study will provide the facts neededto tighten the environmental demands onsuppliers of transport services.

45

MoDo and the environment

Total emissions from MoDo’s Swedish mills AOXEmissions of chlorinated organic substances, measured in AOX, have declined by some 95 per cent since 1970.

1970

5

10

15

20tonnes/day

0

1980 1990 1996

0.75

SulphurEmissions of sulphur have been reduced toless than 10 per cent of their level in 1970.

At their current low levels, variations in emissions are mainly due to changes in output.

60

50

40

30

20

10

0

tonnes/day

1970 1980 1990 1996

6.5

CODEmissions of dissolved organic substances – COD– have been reduced dramatically, partly due to improved processes and external purification.

1 000

800

600

400

200

0

tonnes/day

1970 1980 1990 1996

172

More information on the environment:MoDo Environmental Report 1996MoDo’s Environmental Report, which isdistributed together with this Annual Report,provides more detailed information on MoDo’senvironmental activities. It is available inSwedish, English, German and French andmay be ordered fromMoDo, Group Public Relations, S-891 80 Örnsköldsvik.Tel: +46 (660) 751 31. Fax: +46 (660) 759 70.http://www.modo.se

Fredrik Lundberg, Djursholm. Born 1951. Member since 1988. Chairman of theBoard. President and CEO of LE Lundbergföretagen AB. Other significant appoint-ments: Chairman of the Board: SIAB and Östgöta Enskilda Bank, Member of theBoard: Catena.Shareholding in MoDo: 118,456 shares.

Carl Kempe, Örnsköldsvik. Born 1939. Member since 1983. Deputy chairman.Other significant appointments: Chairman of the Kempe Foundations. Member of theBoard: Troponor AB and deputy chairman of Umeå University.Shareholding in MoDo: 297,722 shares.

Dick Gidlöf, Husum. Born 1953. Member since 1988. Representative of the employees, LO. Deputy chairman of the Swedish Paper Workers’ Union, branch143, Husum. Member of the Swedish Paper Workers’ Union’s Industrial Committee.Member of the Board: Handelsbanken, Husum. Deputy member of the SwedishPaper Workers’ Union’s central board. Shareholding in MoDo: 0.

Johnny Karlson, Hallstavik. Born 1937. Member since 1988. Representative of theemployees, LO. Chairman of the Swedish Paper Workers’ Union, branch 68, Hallstavik. Deputy chairman of Roslagens Sparbank.Shareholding in MoDo: 0.

Hans Larsson, Stockholm. Born 1942. Member since 1990. President of NordstjernanAB. Other significant appointments: Chairman of the Board: BTL AB and Linjebuss.Member of the Board: Catena, Handelsbanken and NCC.Shareholding in MoDo: 0.

Arne Mårtensson, Djursholm. Born 1951. Member since 1991. CEO, Handelsbanken.Other significant appointments: Chairman of Swedish Bankers’Association. Deputychairman: Business Leadership Academy. Member of the Board: Handelsbanken,Vin & Sprit AB, the Swedish Association for Share Promotion, KSSS.Shareholding in MoDo: 0.

Thomas Nilsson, Åby. Born 1945. Member since 1988. Representative of the employees, PTK. Chairman of SIF branch Holmen-MoDo, Norrköping. Shareholding in MoDo: 0.

Bengt Pettersson, Stockholm. Born 1938. Member since 1994. President and CEO.Other significant appointments: Chairman: Employers’ Federation of Swedish ForestIndustries and ARBIO. Member of the Board: Federation of Swedish Industries,Swedish Employers’ Federation and Swedish Forest Industries Association.Shareholding in MoDo: 2,000 shares.

Per Welin, Stockholm. Born 1936. Member since 1991. Executive Vice President,LE Lundbergföretagen AB. Other significant appointments: Member of the Board:LE Lundbergföretagen AB, Östgöta Enskilda Bank, SIAB, Allgon and Autoliv. Shareholding in MoDo: 3,200 shares.

Christer Zetterberg, London. Born 1941. Member since 1994. Chairman of theBoard: IDI, Ellos and Ekman & Co. Other significant appointments:Member of the Board: Bylock & Nordsjöfrakt, Linjebuss, LE Lundbergföretagen ABand SIAB. Member of IVA.Shareholding in MoDo: 0.

Board of Directors

Deputy members

Ivar Frohm, Iggesund. Born 1932. Deputy member since 1988. Representative of theemployees, LO. Deputy chairman of the Swedish Paper Workers’ Union, branch 15,Iggesund. Member of the Swedish Paper Workers’ Union’s central board.Shareholding in MoDo: 11 shares.

Torgny Hammar, Hallstavik. Born 1943. Deputy member since 1993. Representativeof the employees, PTK. Chairman of SALF branch, Hallstavik, and chairman ofSALF’s Uppsala district. Shareholding in MoDo: 0.

Cennert Nilsson, Örnsköldsvik. Born 1945. Deputy member since 1992. Representa-tive of the employees, PTK. Chairman of SIF branch, Örnsköldsvik.Shareholding in MoDo: 172 shares.

Auditors

Fredrik Lundberg Carl Kempe Dick Gidlöf

Johnny Karlson Hans Larsson Arne Mårtensson

Thomas Nilsson

Christer Zetterberg

Bengt Pettersson Per Welin

Ivar Frohm Torgny Hammar Cennert Nilsson

KPMG Bohlins ABPrincipal auditor: Thomas Thiel, Authorised public accountant.

46

MoDo Paper: Hans PetterssonBorn 1951. Joined MoDo: 1991.Shareholding in MoDo: 0.

Holmen Paper: Göran LundinBorn 1940. Joined MoDo: 1964.Shareholding in MoDo: 0.

Iggesund Paperboard: Erik SjölundBorn 1941. Joined MoDo: 1969.Shareholding in MoDo: 500 shares.

MoDo Merchants: Ulf ScharinBorn 1944. Joined MoDo: 1991.Shareholding in MoDo: 500 shares.

Iggesund Timber: Per Erik FrickBorn 1938. Joined MoDo: 1966.Shareholding in MoDo: 2,282 shares.

MoDo Skog: Tore ErkénBorn 1936. Joined MoDo: 1970.Shareholding in MoDo: 500 shares.

Bengt PetterssonPresident and Chief Executive OfficerBorn 1938. Joined MoDo: 1994.Shareholding in MoDo: 2,000 shares.

Anders NordstrandExecutive Vice PresidentTechnologyBorn 1935. Joined MoDo: 1970.Shareholding in MoDo: 1,602 shares.

Johan FlodströmLegal AffairsCompany secretary.Born 1945. Joined MoDo: 1976.Shareholding in MoDo: 500 shares.

Ingalill LandforsPersonnelBorn 1939. Joined MoDo: 1964.Shareholding in MoDo: 0.

Christer LewellPublic RelationsBorn 1948. Joined MoDo: 1987.Shareholding in MoDo: 0.

Lennart SvenssonFinanceBorn 1945. Joined MoDo: 1977.Shareholding in MoDo: 0.

Central Group functions

Business area presidents

Bengt Pettersson Anders Nordstrand Johan Flodström

Ingalill Landfors Christer Lewell Lennart Svensson

Hans Pettersson Göran Lundin Erik Sjölund

Ulf Scharin Per Erik Frick Tore Erkén

47

48

Head officeMo och Domsjö AB(Strandvägen 1)P.O. Box 5407S-114 84 STOCKHOLMSwedenTel +46 8 666 21 00Fax +46 8 666 21 35http://www.modo.se

MoDo PaperMoDo Paper AB(Hörneborgsvägen 6)S-891 80 ÖRNSKÖLDSVIKSwedenTel +46 660 750 00Telex 6054Fax +46 660 754 09

MoDo Paper ABHusum MillS-890 35 HUSUMSwedenTel +46 663 180 00Telex 6070Fine paperFax +46 663 184 80PulpFax +46 663 184 84

MoDo Paper ABDomsjö MillsS-891 80 ÖRNSKÖLDSVIKSwedenTel +46 660 750 00Telex 6054Fax +46 660 121 41

MoDo Paper ABSilverdalen Paper MillS-577 02 SILVERDALENSwedenTel +46 495 151 00Fax +46 495 401 89

MoDo Paper AlizayAlipapZ.I. du Clos PréF-27460 ALIZAYFranceTel +33 235027272Fax +33 235020061

MoDo Paper AlizayAlicelZ.I. du Clos PréF-27460 ALIZAYFranceTel +33 235027272Fax +33 235021460

MoDo PaperPSM(1227, rue Pasteur)Boite Postale 319F-60723 PONT SAINTEMAXENCE FranceTel +33 344704200Telex 140433Fax +33 344725198

Holmen PaperHolmen Paper AB(Vattengränden 2)S-601 88 NORRKÖPINGSwedenTel +46 11 23 50 00Telex 50170Fax +46 11 23 63 04

Holmen Paper ABBraviken Paper MillS-601 88 NORRKÖPINGSwedenTel +46 11 23 50 00Fax +46 11 23 66 30

Holmen Paper ABHallsta Paper MillS-763 81 HALLSTAVIKSwedenTel +46 175 260 00Fax +46 175 264 01

Holmen Paper ABWargön Paper MillS-468 81 VARGÖNSwedenTel +46 521 27 75 00Fax +46 521 22 38 45

Iggesund PaperboardIggesund Paperboard ABS-825 80 IGGESUNDSwedenTel +46 650 280 00Fax +46 650 288 00

Iggesund Paperboard ABIggesunds BrukS-825 80 IGGESUNDSwedenTel +46 650 280 00Fax +46 650 285 32

Iggesund Paperboard ABStröms BrukP.O. Box 67S-820 72 STRÖMSBRUKSwedenTel +46 650 289 00Fax +46 650 404 80

Iggesund Paperboard(Workington) LtdWORKINGTON CumbriaCA14 1JXGreat BritainTel +44 1900 601000Fax +44 1900 605000

MoDo MerchantsMoDo Merhants AB(Strandvägen 1)P.O. Box 5407S-114 84 STOCKHOLMSwedenTel +46 8 666 21 00Fax +46 8 666 21 07

Iggesund TimberIggesund Timber ABP.O. Box 1203S-824 15 HUDIKSVALLSwedenTel +46 650 280 00Fax +46 650 280 57

Iggesund Timber ABIggesund SawmillP.O. Box 1203S-824 15 HUDIKSVALLSwedenTel +46 650 280 00Fax +46 650 178 65

Iggesund Timber ABDomsjö Sawmill(Domsjövägen 82)P.O. Box 44S-892 21 DOMSJÖSwedenTel +46 660 750 00Telex 6040Fax +46 660 759 88

MoDo SkogMoDo Skog AB(Hörneborgsvägen 6)S-891 80 ÖRNSKÖLDSVIKSwedenTel +46 660 750 00Telex 6054Fax +46 660 759 85

Other addressesMo och Domsjö AB(Hörneborgsvägen 6)S-891 80 ÖRNSKÖLDSVIKSwedenTel +46 660 750 00Telex 6054Fax +46 660 759 70

Addresses

The complete list of addressesmay be obtained fromMoDo,Group Public Relations,S-891 80 Örnsköldsvik,Sweden.

MoDo Annual Report 1996 is printed on paper and paperboardproduced by MoDo.Cover: Invercote® Creato 260 g.Inside pages: Silverblade® matt 130 g.Graphic design and printing: Nova Print AB, Linköping.Translation into English: Ian M Beck AB.Photo: Malcolm Hanes, Anders Engman, Bo Göran Backström and others.

Annual General MeetingThe Annual General Meeting of Mo och Domsjö AB will beheld at Grand Hotel (Vinterträdgården), Stockholm, at 4.00 p.m.on Wednesday, April 9, 1997.

Participation in Annual General MeetingShareholders who wish to take part in the Annual GeneralMeeting shall be entered in the register of shareholdersmaintained by Värdepapperscentralen VPC AB by no later thanThursday, March 27, 1997 and shall notify the company by nolater than 5 p.m. on Friday, April 4, 1997 at:Mo och Domsjö ABGroup Legal AffairsS-891 80 Örnsköldsvik, Sweden

Notification may also be made by telephone: +46 660 751 41or by fax +46 660 759 78.

Shareholders whose shares are registered in a nominee nameshould temporarily re-register their shares in their own namewith VPC by no later than Thursday, March 27, 1997 to be entitled to vote at the Annual General Meeting.

DividendThe Board of Directors has proposed that a dividend of SKr 9(8.50) per share be paid. The Board has also proposed Monday,April 14, 1997 as the record date for the register of shareholdersand the special list of pledgees etc. maintained by VPC.Provided the Annual General Meeting resolves in accordancewith this proposal, the dividend is expected to be distributed byVPC on Monday, April 21, 1997 to persons listed in the registerof shareholders or the special list on the record date.

Shareholders are requested to inform their account operator ofany changes of name or address.

Financial informationMoDo publishes the following financial reports in 1997:

February 19: Year-end communiqué – annual results 1996March: Annual Report 1996April 29: Interim report for January–MarchAugust 14: Interim report for January–JuneNovember 5: Interim report for January–September

The year-end communiqué and the interim reports are includedin MoDo Business Report which is published four times a year.

The annual report is sent by Värdepapperscentralen VPC ABto shareholders who have indicated their wish to receive it.MoDo Business Report is sent to all shareholders who areregistered with VPC.

MoDo’s financial information in Swedish and English maybe obtained from:Mo och Domsjö ABGroup Public RelationsS-891 80 Örnsköldsvik, SwedenTelephone: +46 660 751 31Fax: +46 660 759 70

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