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 MoDo 1996

Highlights 1996 1995

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

■ Second best result ever

■ Financial position further improved

■ Investments to strengthen competitive position

Net profit/loss after tax, Earnings and dividend SKr million per share, SKr

4,000 50 Earnings Dividend 40 3,000 30

2,000 20

10 1,000

0 0 –10

–1,000 –20 92 93 94 95 96 92 93 94 95 96

1 This is MoDo

MoDo in Europe The Company

MoDo is one of Sweden’s top

Head Office exporters. MoDo’s main markets Production units are in Western Europe, and more Marketing companies: MoDo Paper than 80 per cent of the Group’s fine paper MoDo Paper output is sold in the EU. pulp Holmen Paper The Group has its own pro- wood-containing printing paper duction facilities in Sweden, Iggesund Paperboard paperboard Great Britain and France. MoDo Merchants sale and There are marketing organisa- distribution of writing and tions in most European countries printing paper and paperboard and in the USA. MoDo’s pro- Iggesund Timber Husum sawn timber Domsjö ducts are also marketed by MoDo Skog Strömsbruk regional and agents and distributors in many purchasing offices Iggesund other countries. Hallstavik The average number of Vargön Stockholm employees in 1996 was 9,899, Braviken of whom 2,790 were employed Silverdalen outside Sweden. Workington

Alizay Pont Sainte Maxence Products

Fine paper Wood-containing printing paper Paperboard Sawn timber Pulp

2 Organisation Share of Group

Sales Capital employed

Fine paper for offices, printed matter, continuous 27% 34% President MoDo Paper stationery and books. Pulp and dissolving pulp. Mills in Husum, Domsjö and Silverdalen in Sweden, and Alizay and Pont Sainte Maxence in France.

Wood-containing printing paper, mainly for daily 33% 25% Group Holmen Paper newspapers, printed matter and telephone functions directories. Holmen Paper also includes MoDo’s power business, which is responsible for procuring electricity for MoDo’s mills in Sweden. Mills in Norrköping, Hallstavik and Vargön.

High-quality paperboard for packaging and printed 19% 17% Iggesund matter. It is used for food, chocolate, tobacco and Paperboard cosmetics as well as for book and brochure covers. Mills in Iggesund and Strömsbruk in Sweden, and Workington in Great Britain.

Paper merchanting, mainly fine paper. 17% 2% MoDo Activities in Sweden, Norway, Great Britain, Merchants Belgium, the Netherlands and Spain.

Sawn timber, with a growing proportion of 4% 2% Iggesund customised special products. Timber Sawmills in Iggesund and Domsjö in Sweden, and timber distributors in the Netherlands and France (wholly-owned or associates).

Wood procurement and management of MoDo’s 27% 22% MoDo Skog own forests. Regional offices in Lycksele, Robertsfors, Örnsköldsvik, Iggesund, Strängnäs and Norrköping. Purchasing companies in Estonia, Latvia and Russia.

3 Comments by the Chief Executive Officer

oDo achieved a strong result in Group was able to realise substantial years, including both years of growth and 1996, despite the weak state of profits on these forward contracts. economic downturns. Mthe market for several of its Over the year, the degree of hedging During the period 1991–1996 the return product areas. was gradually reduced, and by the end of on capital employed was 9.6 per cent, even The profit of SKr 2,919 million after 1996, it corresponded to some five though 1995 and 1996 were good years in net financial items is the second best ever. months’ currency flows. terms of earnings. During this period the Around half of this profit, or SKr 1,470 return should have amounted to at least 13 million, represents an operating result per cent. affected by the spot exchange rates that Financial position For the average return to be satisfactory, were prevailing during the year, while the further improved the profit level has to be maintained at a other half, or SKr 1,449 million, is the The market situation for MoDo’s products higher level than it has been so far, especi- result of currency hedging. thus altered dramatically during 1995 and ally during recession years. Tight control Given the global environment, the 1996. This development clearly illustrates over the costs we can influence ourselves operating profit can be considered to be the fact that MoDo is active in a cyclical is very important here. A programme is relatively good. The prices of fine paper industry, where the opportunities to influ- therefore now being carried out within the and pulp, which were running at a high ence conditions in our external environ- Group to contain fixed costs. The aim is level during the first half of 1995, began ment are limited. that in 1997 these costs should not exceed to come under pressure in the late autumn MoDo’s consistent policy of giving the cost level, for comparable units, in of 1995, and continued to fall rapidly priority to strengthening the company’s 1995. In line with this programme personnel cuts are being made in 1996 during the first half of 1996. Deliveries financial position throughout the years of and 1997 affecting around 400 people, were low, as a result of destocking by cus- economic growth in 1994 and 1995 is now mainly in the Swedish operations. tomers and distributors. The order intake turning out to be justified, in the light of and deliveries revived during the autumn the cyclical conditions in which MoDo operates. The net debt was reduced also in of 1996, but the price level remained low, 1996, and the amount of equity was incre- Investments to strengthen despite some price increases towards the ased, so that the closing debt/equity ratio competitive position end of the year. was down to 0.26, a level which MoDo The fluctuations in paperboard prices MoDo’s three main product areas are fine has never in the past even approached. were considerably less than for fine paper paper, wood-containing printing paper and Together with lower interest rates, this paperboard. The Group’s strategy is to and pulp, although order and delivery pat- means that interest costs on an annual develop these areas, primarily in the form terns were similar. The market for wood- basis are now down to some 1.5 per cent of organic growth in pace with the market. containing printing paper, especially news- of sales. Even extremely low operating Product quality, customer service and cost print, was strong during the first six margins would therefore still make a posi- efficiency are the decisive factors influen- months, but deteriorated towards the end tive net contribution to the result. cing the competitive position and thus the of the year, with falling prices as a result. The need for a strong financial position profitability. The investment policy is Sawn timber experienced a very weak is now well satisfied, and MoDo’s policy intended to strengthen the competitive market throughout 1996, albeit the situa- now is not to jeopardise the position it has position, primarily within these three main tion improved during the autumn. achieved. The strong balance sheet gives areas. In 1996, the Group’s wood consumption MoDo considerable freedom of action, MoDo’s largest investment in 1996 was was lower than in 1995. Extensive pro- and enables the company to continue with the new PM 53 newsprint machine at the duction restrictions in the industry in consistent and planned investment Braviken paper mill. This machine, which 1995–1996 resulted in rising stocks of programmes, even in a recession. gives Braviken a very cost-effective mill wood in Sweden, which in turn meant that structure, was commissioned at the end of pulpwood prices could gradually be April. The start-up was remarkably lowered by 15–20 per cent. Profitability over an smooth, and after a week the machine was Currency hedging contributed SKr economic cycle insufficient already producing paper of commercial 1,449 million to the result. MoDo has a MoDo’s profitability, seen over a complete quality. This was a great advantage, since policy of hedging its currency flows. The economic cycle, is still not satisfactory, the paper from the new machine was laun- extent of the hedging is decided partly on and needs to be improved in order to gene- ched in time to gain a firm foothold on the commercial considerations, and partly on rate a rate of capital growth that satisfies market before it turned down. assessments of the currency risk. In 1995, the demands of the capital market. The At Iggesunds Bruk, the trimming of the MoDo sold forward a large proportion of highly cyclical nature of MoDo’s business paperboard machine, which was rebuilt its estimated currency flows in 1996. As means that the profits fluctuate widely, during the later part of 1995 continued the krona exchange rate improved – espe- and its earnings should therefore be asses- during the year. Three new grades of fully- cially during the three first quarters – the sed over a longer period of time, say six bleached paperboard have been tested with

4 favourable results and introduced. In 1997, and discusses the financial effects of prices, the price of newsprint is under these will be launched on a full scale on environmental measures. pressure. The market for paperboard is the market. The new service warehouses The environmental report also high- relatively stable and at the beginning of at Iggesunds Bruk and Workington, and a lights issues relating to the forest environ- 1997 the order intake for fine paper is new distribution system, have given Igge- ment. The certification of forestry is a good, while a slight weakening may be sund Paperboard customer service of the current concern here. We are working noted for pulp. It is therefore difficult to highest class. actively to find ways of doing this. How- forecast what will happen to the prices and MoDo Paper continued with the modern- ever, economic consequences must also be deliveries of MoDo’s products in 1997. isation of the pulp mill that is integrated included in the assessments in this con- with the Husum fine paper mill. A new text. Sweden – together with Finland – wood handling department was started up already has the world’s highest wood in August, and a decision was made to costs, and our products have to compete Stockholm, February 1997 build a new evaporation unit at Husum. on international markets. This is scheduled for completion by the end of 1997. The planning for the moder- Uncertain market nisation of the pulp digester house has outlook for 1997 continued, and an application will be sub- At the time of writing, the markets are mitted for this project to the National Fran- presenting a rather mixed picture. Whereas BENGT PETTERSSON chise Board for Environmental Protection sawn timber is characterised by rising PRESIDENT AND CHIEF EXECUTIVE OFFICER this spring. A final decision on the possible en- largement of Husum’s pulp capacity as well as on the future of the Domsjö mill is scheduled for 1998. MoDo Paper’s fine paper is focusing increasingly on the office paper segment. One phase in this process is that a line for paper in A4 format is being installed at the mill in Alizay, France, which is expected to be ready for commissioning in the autumn of 1997. The acquisition of the sales organisation Thomesto Paper Merchants in April 1996 is also intended to strengthen the position in the office paper segment. MoDo Paper East – 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 at the beginning of February 1997 to begin the early phase-out of nuclear power in Sweden will most probably lead to higher electricity costs, which is extremely serious 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 to pursue active and forward-looking envi- ronmental programmes. Nowadays, the concept of product quality also incorpora- tes significant environmental factors. As before, MoDo will this year publish a separate environmental report, which describes MoDo’s environmental policy

5 MoDo Annual Report 1996

Report of the Directors

The Board of Directors and the President utilisation at MoDo Paper’s pulp mills was forest-owners in Sweden and imports. of Mo och Domsjö AB (publ) herewith 82 (88) per cent. For the year as a whole, the cost of wood submit their annual report on the activities The market for wood-containing print- declined by 6 per cent. of the parent company and the Group in ing paper was very firm at the beginning 1996. Information concerning the result of of the year, but it then levelled off. Result and financing the year’s operations and the financial Demand for newsprint on the West Euro- position of the parent company and the pean market fell by 6 per cent. Holmen MoDo’s profit after net financial items Group is provided in the following profit Paper’s total delivery volumes rose to amounted to SKr 2,919 million (5,216m), and loss accounts and balance sheets 1,168,000 (1,135,000) tonnes. This figure a decline of SKr 2,297 million. The effects together with the notes on the financial includes 101,000 tonnes from the new of currency hedging accounted for SKr statements. PM 53 newsprint machine at Braviken. 1,449 million (555m). The deterioration in Capacity utilisation at Holmen Paper’s the result was mainly due to lower prices. The Group’s operating costs remained The market mills was 93 (98) per cent. The prices of most of Holmen Paper’s products were unchanged compared with 1995. The global economic situation showed a lowered around the end of June/beginning A provision of SKr 100 million has rather fragmented picture in 1996. Clear of July. However, on average for 1996 been charged against the consolidated signs of a weakening were noted in market prices exceeded the level for 1995. result to cover the estimated cost of early Western Europe (except for Britain), while Demand for solid bleached board and retirements and other personnel costs sustained growth characterised the USA folding boxboard rose gradually during arising out of the current programme of and Asia except for Japan. The demand for the year, after a weak start. In Western personnel cutbacks. fine paper in Western Europe strengthened Europe, total deliveries rose by 2 per cent The pattern of earnings was relatively during the second half of 1996, after a compared with 1995. Expressed in local stable during the first three quarters of the weak start to the year. The markets for currencies, the prices of Iggesund Paper- year, but the result declined during the market pulp, paperboard and sawn timber board’s solid bleached board remained fourth quarter, partly due to the gradual gradually recovered in the same way. largely unchanged during the year, while disappearance of currency hedging effects. The market for wood-containing printing the price of folding boxboard was reduced Earnings per share amounted to SKr paper showed the reverse trend, with a during the first half of the year. During 22.30 (41.30). distinct tendency for demand to weaken that period, production was adjusted to the The return on equity was 13.1 (28.5) after the year had begun strongly. The lower demand. At that time the rebuilt per cent. changes in demand are mainly explained KM 2 paperboard machine was being run The cash flow amounted to SKr 1,914 by stock adjustments by producers and in at Iggesunds Bruk. In terms of volume, million (3,030m), and net financial liabili- customers. Iggesund Paperboard’s total deliveries ties had declined to SKr 4,096 million The market for fine paper improved amounted to 373,000 (386,000) tonnes. during the summer months and in the Capacity utilisation was 84 (88) per cent. autumn a slight increase in prices became Market deliveries at the merchanting Profit/loss after net possible. Demand in Western Europe rose stage expanded strongly during the second financial items, SKr million by 7 per cent during 1996, with uncoated half of the year, after a slack first half. grades up by 4 per cent and coated fine MoDo Merchants’ deliveries declined by paper by 11 per cent. MoDo Paper’s 1 per cent. The profit after net financial items declined by 44 per cent. delivery volumes increased in 1996 to The demand for sawn timber in Europe reach 829,000 (770,000) tonnes. Capacity fell by 4 per cent on an annual basis. 6,000 utilisation at MoDo Paper’s mills was 87 A weak first half was followed by an (86) per cent. improvement in the state of the market 5,000 The market for market pulp was very during the second half of the year. The weak at the beginning of the year, but market situation made production restric- 4,000 recovered later in terms of volume. Prices tions necessary at Iggesund Timber’s 3,000 continued to fall during the early months sawmills during the spring. Capacity of 1996, after which they stabilised to utilisation was 82 (91) per cent for the 2,000 some extent. In the late summer prices year as a whole, and deliveries from the rose slightly, only to come under pressure company’s sawmills amounted to 347,000 1,000 once again during the final quarter. The 3 (350,000) m for the year. 0 Group’s deliveries of market pulp amount- In 1996, the consumption of wood by ed to 375,000 (403,000) tonnes. Net the Group fell in relation to 1995. In order –1,000 deliveries (external sales volume less to prevent stocks of wood from building externally purchased pulp) fell to a total up, purchases were reduced from private –2,000 of 304,000 (330,000) tonnes. Capacity 92 93 94 95 96

6 MoDo Annual Report 1996

(5,884m) at the end of the year. The taken into the 1996 accounts was SKr 183 Taxes debt/equity ratio was 0.26 (0.41). million. The Swedish tax authority, after examin- The Board’s proposed treatment of The new newsprint machine – PM 53 ing MoDo’s tax returns for fiscal years unappropriated earnings is shown on – and the new de-inked pulp line at the 1995 and 1996, has not approved all page 25. Braviken paper mill were started up as deductions claimed. These deductions planned in April 1996. The running-in of mainly relate to fixed assets acquired by Production and deliveries PM 53, which will add 270,000 tonnes to MoDo, which were then depreciated to In 1996, MoDo’s total production of paper, the mill’s annual newsprint capacity once periodise the Group’s tax costs. MoDo paperboard and pulp for external delivery it is operating at full capacity, was very intends to appeal against all the points in amounted to 2,734,000 (2,794,000) ton- successful. The total investment cost the tax authority’s decision. See note 6 on nes. Capacity utilisation was lower than in amounts to SKr 2,040 million, of which page 18. the previous year, although it rose slightly SKr 844 (1,021m) million were accounted during the second half of 1996. for in 1996. Personnel In 1996, MoDo’s deliveries of paper, The average number of employees in the Group in 1996 was 9,899 (9,707), of paperboard and pulp amounted to Environment whom 7,109 (7,074) were employed in 2,763,000 (2,709,000) tonnes, an increase During 1996, MoDo’s environmental work of 2 per cent on 1995. Sweden. During the year, SKr 2,497 milli- was carried out and developed in accor- on (2,400m) were paid in wages, salaries dance with the environmental policy Capital expenditure and other remunerations, of which SKr established by the Board. 1,842 million (1,722m) were paid to The Group’s capital expenditure amounted The authorities’ permits for business employees in Sweden. Statutory and to SKr 2,415 million (2,654m) in 1996. activities with an environmental impact contractual social security charges on Depreciation according to plan was SKr were satisfied, except for minor exceeding behalf of personnel in Sweden amounted 1,239 million (1,151m) during the same of limits at Pont Sainte Maxence and to SKr 773 million (709m). The corre- period. Workington mills. The Group has co- sponding cost for employees abroad was The modernisation of the Husum operated with trade associations and SKr 181 million (180m) – see note 20 on sulphate pulp mill continued in 1996. government authorities with the aim of page 21. The new wood handling plant, costing a developing its environment work and total of SKr 534 million, was commis- the methods used to calculate and report sioned in August. The construction of a environmental effects. MoDo’s environ- new evaporation unit was begun in 1996. mental activities are described in detail The total cost of this project is estimated in MoDo’s Environmental Report for at SKr 700 million, of which the amount 1996.

Quarterly profit after net Average number Earnings per share, SKr financial items, SKr million of employees

Earnings per share fell from SKr 41.30 Lower income from currency hedging, toget- The average number of employees increased, to SKr 22.30. her with provisions, led to a lower result in mainly due to the acquisition of MoDo Paper the fourth quarter. East. 50 1,800 14,000

1,600 40 12,000 1,400 30 10,000 1,200

20 1,000 8,000

10 800 6,000 600 0 4,000 400 –10 2,000 200

–20 0 0 92 93 94 95 96 94 95 96 92 93 94 95 96

7 MoDo Annual Report 1996

Consolidated profit and loss account

SKr million 1996 1995

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

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

By product area, SKr million Sales Operating profit/loss

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

8 MoDo Annual Report 1996

Sales The development of the 1996 delivery The consolidated net profit after esti- The Group’s sales amounted to SKr volumes affected the result of all the mated full tax was SKr 1,979 million 20,115 million (22,319m). The decrease product areas favourably with the (3,671m). on 1995 was of 10 per cent, largely due exception of paperboard and sawn to lower prices. The value of sales to cus- timber. Tax tomers outside Sweden corresponded to The operating costs were on the same The Group’s tax charge amounted to 85 (85) per cent of total sales. levels as those of 1995. Lower costs for SKr 940 million (charge 1,545m), of raw material have improved the result, which SKr 452 million (charge 492m) Operating profit while higher electricity costs deteriorated are deferred tax charge and tax charges in The Group’s operating profit amounted the result. Fixed costs were unchanged associate companies. to SKr 3,290 million (5,831m), of which apart from operations added in 1996. currency hedging contributed income of Operating margin was 16.3 per cent Return SKr 1,449 million (555m). The operating (24.5). Return on capital employed was 14.5 per profit includes net non-recurring income cent (25.8). The return on equity was of SKr 11 million (282m). Profit after net financial items 13.1 per cent (28.5). Holmen Paper’s operating profit In 1996 net financial items amounted to a improved but the ones of the other bu- cost of SKr 371 million compared with Earnings per share siness areas decreased. a cost of SKr 615 million in 1995. Net Earnings per share amounted to SKr The deterioration compared with 1995 interest costs decreased by SKr 255 mil- 22.30 (41.30). is mainly due to lower prices of especial- lion due to lower net financial liability ly fine paper and pulp as well as of sawn and lower market interest rates. timber. For wood-containing printing The consolidated profit after net finan- paper, however, price levels have had a cial items was SKr 2,919 million favourable effect on the result compared (5,216m). with last year.

Operating profit/loss, SKr million Change in profit after net financial items Operating margin, % 1996 cf. 1995, SKr million

The operating margin declined from 24.5 The decline in the result is mainly due to lower prices. per cent to 16.3 per cent.

9 MoDo Annual Report 1996

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 55 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

10 MoDo Annual Report 1996

In 1996 the Group’s balance sheet increa- amounting to Skr 459 million, and the pension liabilities SKr 1,514 million sed by SKr 533 million to SKr 29,276 acquisition of MoDo Paper East, of SKr (1,511m). million (28,743m). Current assets less 123 million. The Group’s fixed assets Equity increased by SKr 1,199 million liquid funds decreased by SKr 902 mil- amounted to SKr 19,338 million. and amounted at December 31, 1996, to lion, of which the main part consists of The capital employed by the Group SKr 15,670 million (14,471m). decreased accounts receivable, inven- amounted to SKr 22,707 million The debt/equity ratio was 0.26 (0.41) at tories and felling rights. Investments in (22,558m). Information concerning the the end of December 1996. fixed assets amounted to SKr 2,415 breakdown of capital employed by The equity ratio increased to 53.5 per million (2,654m). These were in the first business area is shown in the table cent from the opening level of 50.4 per place a new paper machine at Braviken below. cent. amounting to SKr 844 million and Net financial liabilities amounted to renovation of the sulphate mill at Husum SKr 4,096 million (5,884m), of which

Average capital employed, SKr million 1996 1995

MoDo Paper ...... 7,740 7,763 Holmen Paper ...... 5,688 4,874 Iggesund Paperboard ...... 3,841 3,601 MoDo Merchants ...... 549 492 Iggesund Timber ...... 394 421 MoDo Skog ...... 5,108 5,150 Divested areas ...... – 565 Capital employed, business areas ...... 23,320 22,866 Group adjustments ...... –613 –308 22,707 22,558

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

The return on capital employed declined The return on equity declined from 28.5 from 25.8 per cent to 14.5 per cent. per cent to 13.1 per cent. 22,633 22,633 30 30 Working Net financial 3,295 4,096* capital liabilities

Deferred tax 2,862 20 20 liability

Minority interests

10 10 Fixed assets 19,338 15,670 Equity

0 0

–10 –10 92 93 94 95 96 92 93 94 95 96 *of which pension liabilities SKr 1,514 million

11 MoDo Annual Report 1996

Consolidated cash flow statement

SKr million 1996 1995

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.

12 MoDo Annual Report 1996

Cash flow from operations Financing Contractual and early redemptions of The Group’s cash flow from operations The Group’s net financial liabilities de- long-term loans of SKr 2,494 million amounted to SKr 4,515 million, which is clined during the year by SKr 1,788 mil- were made. Otherwise, the liabilities a decrease of SKr 2,291 million com- lion to SKr 4,096 million. The Group’s were influenced by changes in current pared with 1995. cash flow after capital expenditure amo- liabilities and pension liabilities and by unted to SKr 2,669 million, in addition to the translation of loans denominated in Working capital which a dividend of SKr 755 million has foreign currencies. Working capital decreased by SKr 723 been paid. Net financial liabilities are The Group’s financial liabilities have had million (increase 943m) during the year. also influenced by certain effects of fluc- a short duration during the whole of 1996. The amount of working capital tuations in exchange rates which are not Liquid funds amounted to SKr 2,133 employed by the business areas decreased included in the cash flow (translation of million (1,296m), in addition to which by SKr 668 million (excluding foreign foreign subsidiaries and unrealised foreign the Group had binding credit facilities of exchange differences). The change is exchange differences on loans). These some SKr 6,500 million available at year mainly due to decreased accounts receiv- amounted to a deficit of SKr 126 million. end. Maturity of financial liabilities and able, inventories and felling rights. Financial liabilities declined by SKr credit facilities are stated in the table on Capital expenditure 951 million to SKr 6,229 million. page 24. The Group’s total capital expenditure in 1996 amounted to SKr 2,415 million Capital expenditure, SKr million 1996 1995 1994 1993 1992 (2,654m), of which acquisition of shares SKr 35 million (29m). Other capital MoDo Paper ...... 875 571 221 188 297 expenditure amounted to SKr 2,380 mil- Holmen Paper ...... 1,183 1,170 279 157 270 lion (2,625m), of which SKr 303 million Iggesund Paperboard ...... 180 807 346 153 205 (143m) were investments in the Group’s MoDo Merchants ...... 25 13 32 6 46 foreign operations. Iggesund Timber ...... 55 15 30 8 20 Non-recurring items MoDo Skog ...... 50 35 34 11 19 and capital gains/losses Divested areas ...... – – 66 33 40 Non-recurring items and capital Other ...... 12 14 72 7 40 gains/losses amounted to SKr 492 mil- 2,380 2,625 1,080 563 937 lion (1,470m), of which the divestment of the associate company MD Papier Shares and participations ...... 35 29 51 31 5 accounted for SKr 469 million. 2,415 2,654 1,131 594 942

Net financial liabilities Debt/equity ratio Equity ratio

Net financial liabilities declined from The debt/equity ratio improved from The equity ratio rose from 50.4 per cent SKr 5,884 million to SKr 4,096 million. 0.41 to 0.26. to 53.5 per cent.

SKr 1.4 % million

–2,000 1.2 50

1.0 –4,000 40 0.8 –6,000 30 0.6 –8,000 20 0.4

10 –10,000 0.2

–12,000 0.0 0 92 93 94 95 96 92 93 94 95 96 92 93 94 95 96

13 MoDo Annual Report 1996

Parent company

Profit and loss account, SKr million 1996 1995

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

Balance sheet as per December 31, SKr million 1996 1995

Assets Liquid funds (Note 7) 814 1,018 Receivables from subsidiaries 697 567 Accounts receivable 1,884 2,143 Other current receivables (Note 8) 547 623 Inventories (Note 9) 2,061 2,263 Felling rights 298 543 Shares and participations (Note 10) 18,686 15,471 Long-term receivables 25 28 Property and plant (Note 11) 4,823 4,425 Total assets 29,835 27,081 Liabilities and equity Operating liabilities (Note 12) 3,163 3,414 Liabilities to subsidiaries 6,268 3,341 Current interest-bearing liabilities (Note 13) 2,923 1,181 Long-term liabilities (Note 14) Bond loans – 1,862 Other long-term liabilities 1,618 1,841 Pension provisions FPG/PRI pensions 1,375 1,363 Other pensions 61 68 Subordinated loans 47 47 Untaxed reserves (Note 15) 2,677 2,628 Equity (Note 17) 11,703 11,336 Total liabilities and equity 29,835 27,081

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

Cash flow statement, SKr million 1996 1995

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

14 MoDo Annual Report 1996

Definitions of financial ratios

CAPITAL RATIOS FINANCIAL RATIOS MARGINS

Capital employed Debt/equity ratio Operating margin Group Net financial liabilities (interest-bearing Operating profit/loss (excluding non- Balance sheet total less liquid funds and liabilities less liquid funds) divided by recurring items, and interest in earnings current interest-free operating liabilities. the sum of equity and minority interests. of associate companies) expressed as a When capital employed is calculated in percentage of sales. accordance with the recommendation of Equity ratio the Business Stock Exchange Committee Equity plus minority interests expressed Net margin (NBK), a reduction is also made for as a percentage of the balance sheet total. Net profit/loss after tax expressed as a deferred tax liability and liquid funds are percentage of sales. added. Interest coverage Operating profit/loss divided by net Average is defined as: financial items. opening balance + closing balance OTHER RATIOS 2 Capital turnover rate Business areas PROFITABILITY RATIOS Sales divided by average capital Current assets less liquid funds and employed (expressed as times per year). current interest-free operating liabilities Return on capital employed plus fixed assets (including revaluations). Group Earnings per share Average is defined as: Operating profit/loss expressed as a Net profit/loss after tax divided by the opening balance + closing balance percentage of the average capital average number of shares and up to 1993 2 employed. also of KVBs. When the return on capital employed Equity is being calculated in accordance with Stated equity. For the period between the recommendation of the Business 1988 and 1994 convertible participating Stock Exchange Committee (NBK), loan (KVB) is included. financial income shall be added to the Average is defined as: operating profit/loss. Opening balance + closing balance 2 Business areas Operating profit/loss expressed as a percentage of average capital employed.

Return on equity Net profit/loss after tax, expressed as a percentage of the average equity.

15 MoDo Annual Report 1996

Accounting principles

Commission companies value is declining are depreciated accord- nies are adjusted each year on the basis The Group’s business is largely conduc- ing to plan in the consolidated profit and of the interest in earnings after tax for the ted through the following commission loss account. year in question, and after deduction of companies: The balance sheets of foreign sub- dividends received. Non-dividend ear- MoDo Paper AB sidiaries are translated using the current nings of associate companies are stated Holmen Paper AB method. This method involves the trans- under restricted reserves within equity. Iggesund Paperboard AB lation of all items except the net result at MoDo Merchants AB closing date rates. All items in profit and Iggesund Timber AB loss accounts are translated at average Non-recurring items MoDo Skog AB rates for the year. Differences arising in In accordance with the recommendations These companies are wholly-owned connection with currency translation are of the Swedish Accounting Standards subsidiaries of Mo och Domsjö AB. taken directly to consolidated restricted Board, MoDo applies a strict inter- The parent company is liable for all the and non-restricted reserves. pretation regarding what items may undertakings and commitments of these be stated as extraordinary income and commission companies. All income, Sales costs. costs, assets and liabilities, which arise in By sales is meant invoiced sales, exclud- Capital gains and losses on sales of the operations conducted by the commis- ing value added tax and after allowing fixed assets and lines of business, as well sion companies, are stated either in the for discounts and similar reductions in as restructuring costs, etc., are therefore accounts of Mo och Domsjö AB, or in income, but before allowing for the cost normally stated in the operating result of the accounts of subsidiaries other than of delivery. the business area in question or as group the commission companies. All sales of wood are stated as a reduc- adjustment. tion in costs and are thus not included in Principles of consolidation sales as the exchange and sale of wood The consolidated financial statements are normal aspects of the procurement of Depreciation according to plan relate to the parent company and compa- wood for the company’s own mills. Depreciation according to plan is based nies in which the parent company directly on the acquisition value of the assets, and or indirectly controls more than half the Accounting treatment is depreciated on a straight-line basis votes. of interests in earnings during the economic life of the assets. The consolidated financial statements of associate companies Depreciation is generally provided from are made up using the purchase method, Companies which are not subsidiaries of the year after that in which the assets which means that the shares of subsid- the MoDo Group, but in which the Group were acquired. iaries are replaced by assets and liabilities owns 20–50 per cent of the shares or The following economic lives are of the subsidiaries, valued at the Group’s controls 20–50 per cent of the votes, are used: acquisition cost. The Group’s equity con- stated as associate companies. Associate Power stations ...... 40 years sequently includes – apart from the companies are stated using the capital Residential property, parent company’s equity – only the interest method – except for certain pur- administrative and changes in subsidiary equity arising after chasing companies and associate compa- warehouse buildings . . . 20–33 years acquisition. The differences between the nies of negligible significance in the Land installations . . . . 20 years acquisition value of the subsidiary shares earnings and financial position of the Production buildings . . . 20 years and the corresponding book value as stat- MoDo Group. Machinery for pulp, paper ed in each subsidiary’s balance sheet are In the capital interest method the inter- and paperboard production 20 years allocated to the subsidiary’s assets insofar est in the earnings of associate compani- Machinery for sawmills . . 12 years as these are judged to be over-valued or es, after allowing for estimated full tax, is Other machinery under-valued in its balance sheet, and are included in the MoDo Group’s consolida- and equipment ...... 4–10 years otherwise stated as goodwill. Goodwill ted net result. The book values of shares Forest roads ...... 10 years and excess values in respect of whose and capital interests in associate compa- Goodwill ...... 3–20 years

16 MoDo Annual Report 1996

Taxes transactions are included in the con- Partnership financing Estimated full tax solidated operating result under the item Under the terms of partnership financing The tax charge for the year is stated as Group adjustments and other. agreements from 1983, 1988 and 1990, tax to be paid on taxable profit, changes The currency structure of long-term MoDo sold hydro-electric power stations in deferred tax and tax on the Group’s liabilities has been altered by means of to three companies (Junkaravan AB, interest in the earnings of associate forward contracts. This means that the Holmen Kraft AB and Iggesund Kraft companies. The tax charge is calculated purchased/sold currency is regarded as AB) owned by MoDo and a number of using the tax rules applicable in each a receivable/liability respectively and Swedish pension funds and foundations country. valued at closing date rates. The forward etc. MoDo’s equity and voting interests premium/discount is treated as interest do not exceed 50 per cent in any case. Deferred tax liability and is periodised and stated in the net Under separate supply agreements, The following are stated under the head- interest cost. MoDo purchases all the power generated ing deferred tax liability in the balance at a cost which corresponds to production sheet: Hedging of foreign assets costs plus the financing costs of the – Deferred tax liability included in Loans are raised and forward hedging investors. The financing costs are based untaxed reserves contracts are entered into in foreign cur- on a real return of four to five per cent – The net of deferred tax liabilities and rencies by the parent company to reduce plus actual inflation. deferred tax claims in Group currency effects when the Group’s net Under the terms of option agreements adjustments foreign assets are translated into kronor MoDo is entitled, but not bound, to buy – Deferred tax claims relating to loss (known as equity-loans, see also page back the hydro-electric power stations on allowances. 24). The size of equity-loans is adjusted specified dates at prices which will give The tax rates applicable in each country on the basis of the consolidated book the financiers the agreed real return. If in are used for calculating deferred tax. value of the net assets by currency. the event of the options being exercised, Loss allowances are taken into account To the extent the foreign currency dif- the power assets have a higher market if it is considered likely that the loss ferences on equity-loans are matched by value than the redemption price stated in allowances can be utilised. translation differences on net foreign the options, this premium will be credited assets, these foreign currency differences to MoDo. The theoretic exercise prices Receivables and liabilities are eliminated from the profit and loss are estimated at some SKr 3,200 million in foreign currencies account, after taking account of tax at December 31, 1996. Receivables and liabilities denominated effects, and taken direct to equity in the in foreign currencies are translated at balance sheet. closing date rates or, if they have been hedged, at forward rates. Any foreign Valuation of inventories exchange differences arising are included Inventories are valued at the lower of in the operating result, except for dif- acquisition value or production cost after ferences relating to liquid funds and inter- allowing for obsolescence at the standard est-bearing liabilities, which are stated rate of three per cent, or at actual value if among net financial items. Exchange rate this is lower. The actual value of finished differences on hedging contracts for products is the sales value less estimated future currency flows are taken into the selling costs. The actual value of timber result the same period as the underlying and pulp wood or other raw materials, flow. The result of internal hedging inventory materials and the like is the agreements is stated within the operating lower of replacement value or acquisition result for each business area. Deviations value after allowing for actual obsole- between internal and external hedging scence.

17 MoDo Annual Report 1996 Notes (Amounts in million Swedish kronor, except where otherwise stated)

1. Parent company sales to and purchases 5. Net financial items Group Parent company from subsidiaries 1996 1995 1996 1995 Of the parent company’s sales of SKr 14,955 million (15,952m), 16 per Dividend income cent (22) were sales to subsidiaries. The parent company’s purchases from outside companies ...... 1 – 1 3 subsidiaries are negligible. subsidiaries ...... – – 713 519 Interest income ...... 66 170 57 220 Interest costs ...... –426 –785 –370 –665 Other financial items Foreign exchange differences 2. Non-recurring items on long-term loans ...... – – 46 235 Group Parent company Other ...... –12 – –45 2 1996 1995 1996 1995 –371 –615 402 314 Capital gain/loss on sale of Associate company MD Papier GmbH 11 – 134 – 6. Taxes MoDo Packaging ...... – 69 – – Estimated full tax – Group 1996 1995 Associate company Slave Lake Pulp Tax accounted for ...... –488 –1,053 Partnership ...... – 213 – 50 Change in tax rates ...... – 35 Subsidiaries ...... – – –1,921 – Estimated full tax in respect of Write-down in value of shares Interest in earnings of in subsidiaries ...... – – –112 –111 associate companies ...... –2 –53 Shareholder’s contribution Appropriations ...... –148 –167 to subsidiaries ...... – – –1 –1 Change in capitalised Other ...... – – – –17 loss allowances ...... –302 –452 –307 –527 11 282 –1,900 –79 –940 –1,545 In order to create a more suitable legal structure for the Group, all the Paid tax in the cash flow analysis on page 12 consists of estimated full tax parent company's shares in MoDo France SA were transferred in 1996 plus the change in tax liabilities as stated below and after adjustment for to two wholly-owned subsidiaries of the parent company, namely MoDo translation differences. France Holding SAS and MoDo France Finances SAS. The parent company incurred a substantial book loss on this transfer. The breakdown of the Group's tax liabilities is as follows: 1996 1995 Current liabilities ...... 529 443 Deferred tax liabilities ...... 2,862 2,421 3. Interest in earnings of associate companies 3,391 2,864 Group In the calculation of deferred tax, the loss allowances attributable to the 1996 1995 Group’s French companies have, for reasons of prudence, not been included Interest in earnings after net financial items ...... 4 73 to the full. Change in tax rate ...... – –25 Tax disputes Estimated full tax ...... –2 –28 The examination of the tax returns submitted by the parent company and MoDo’s interest in earnings after tax ...... 2 20 certain subsidiary companies for the 1995 and 1996 tax years has resulted in the tax assessments of these companies being raised. The changes relate The associate companies concerned are Les Bois de la Baltique SA, Svensk mainly to the method used for calculating capital losses and deficits in- Etanolkemi AB and MD Papier GmbH up to and including 1995. curred by certain foreign companies. Sydved AB, Industriskog AB, Junkaravan AB, Holmen Kraft AB and MoDo has acquired interests in aircraft via foreign associate companies. Iggesund Kraft AB, function in principle as purchasing companies and the The tax authority has questioned when the right to tax relief arose for the interest in earnings is included among operating costs. claimed deductions to cover write-downs in value. The tax authority has not accepted the deduction claimed for tax losses in respect of a promissory note, nor has it accepted the method of calculation used by the company in connection with the liquidation of a foreign subsidiary company. For reasons of prudence, a provision has been made to meet additional 4. Depreciation according to plan tax charges with the tax authority’s decision taken into consideration. Group Parent company MoDo intends to appeal against all aspects of the tax authority’s decision. 1996 1995 1996 1995

Goodwill ...... 24 6 – – 7. Liquid funds Group Parent company Leases ...... 1 3 – – 1996 1995 1996 1995 Machinery and equipment . . . . 1,054 982 257 247 Buildings ...... 129 125 34 36 Cash and bank ...... 393 434 152 182 Forests and agricultural property 7 12 5 6 Short-term placements ...... 1,740 862 662 836 Other real property ...... 24 23 6 7 2,133 1,296 814 1,018 1,239 1,151 302 296 Short-term placements consist of easily realisable investments.

18 MoDo Annual Report 1996

8. Other current receivables Accumulated Acquisition depreciation Value as stated Group Parent company cost according to plan in balance sheet 1996 1995 1996 1995 1996 1995 1996 1995 1996 1995 Bills receivable ...... 171 205 5 8 Parent company Prepaid costs and accrued income . 317 348 159 193 Leases ...... 7 6 – – 7 6 Other current receivables . . . . 557 669 356 369 Advance payments and Advance payments to suppliers . . 31 59 27 53 fixed plant under 1,076 1,281 547 623 construction . . . . . 55 197 – – 55 197 Machinery and equipment 5,564 5,018 3,057 2,986 2,507 2,032 Buildings ...... 1,039 958 684 656 355 302 Forest and agricultural property . . 1,887 1,886 80 75 1,807 1,811 9. Inventories Group Parent company Other real property . . 184 163 92 86 92 77 1996 1995 1996 1995 8,736 8,228 3,913 3,803 4,823 4,425 Finished goods and work-in-progress 1,657 1,760 1,024 1,117 The non-depreciated Timber and pulp wood ...... 398 638 306 532 proportion of the Other inventories ...... 1,033 892 731 614 revaluations amounts to 1,753 1,753 3,088 3,290 2,061 2,263 Tax assessment values The tax assessment values relate to assets in Sweden. Group Parent company 10.Shares and participations 1996 1995 1996 1995 Subsidiary companies Buildings ...... 4,851 4,890 1,019 1,022 During the year, the parent company transferred all the shares in MoDo Forest and agricultural property 8,161 6,190 4,227 3,136 France SA to MoDo France Holding SAS and MoDo France Finances SAS, Other real property ...... 336 343 49 52 two during the year newly-formed, wholly-owned subsidiary companies. 13,348 11,423 5,295 4,210 The share capital in MoDo International Finance has been increased by SKr 291 million by means of rights issues. 90 per cent of the shares in MoDo Paper East AB (formerly Thomesto Paper Merchants AB) were acquired with effect from April 1. All the shares in Nordic Aircraft Management AB 12. Operating liabilities were acquired during the year. Group Parent company Associate companies 1996 1995 1996 1995 MoDo’s 25 per cent interest in MD Papier GmbH was sold during the year. Bills payable ...... 138 102 – – Other companies Liabilities to suppliers ...... 1,939 2,254 1,512 1,837 Investments during the year in part-owned foreign companies amounted to Advance payments from customers 1 – – – SKr 31 million. Emerald Aviation Ltd, which had a book value of SKr 29 Accrued costs and deferred income 1,332 1,293 927 872 million, was divested during the year. Tax liability ...... 529 443 322 360 Other current liabilities . . . . . 571 574 402 345 Holdings and changes in holdings of shares and participations are listed on 4,510 4,666 3,163 3,414 pages 22 and 23.

11. Fixed assets Accumulated Acquisition depreciation Value as stated 13. Interest-bearing current liabilities cost according to plan in balance sheet Group Parent company 1996 1995 1996 1995 1996 1995 1996 1995 1996 1995 Group Owing to banks ...... 2,244 765 2,596 783 Goodwill ...... 115 36 40 16 75 20 Current proportion of long-term Leases ...... 32 25 11 10 21 15 liabilities ...... 421 592 309 394 Advance payments and Other current liabilities . . . . . 18 4 18 4 fixed plant under 2,683 1,361 2,923 1,181 construction . . . . . 188 234 – – 188 234 Machinery and equipment incl.ships . . 23,686 21,949 11,477 10,664 12,209 11,285 Buildings ...... 3,565 3,341 1,897 1,765 1,668 1,576 14. Long-term liabilities Forest and Long-term liabilities, for which the MoDo Group has pledged security, agricultural property . . 4,707 4,706 114 108 4,593 4,598 amounted to SKr 113 million (182m) at December 31, 1996, while those Other real property ... 622 575 263 240 359 335 of the parent company amounted to SKr 11 million (35m). 32,915 30,866 13,802 12,803 19,113 18,063 Pension liabilities correspond to the present value of pension commit- The non-depreciated ments calculated on actuarial grounds. proportion of the Information on liabilities by currency and maturity is provided in the revaluations amounts to 4,384 4,384 section on Financials risks on page 24.

19 MoDo Annual Report 1996

15. Untaxed reserves parent company 18. Pledged assets Changes during the year Group Parent company Total Total 1996 1995 1996 1995 January 1, Appro- December 31, 1996 priations 1996 Property mortgages company property ...... 193 325 115 133 Reserve for unrealised Floating charges ...... 140 140 95 95 currency gains ...... 15 –15 – Fixed assets subject to lien . . . . 401 448 – – Profit equalisation reserve 797 – 797 Accounts receivable ...... 35 20 35 20 Accumulated depreciation in excess of plan . . . . . 1,816 64 1,880 769 933 245 248 2,628 49 2,677

19. Contingent liabilities Group Parent company 16. Equity Group Restricted equity Non-restricted equity 1996 1995 1996 1995 Non- Guarantees on behalf Share Restricted restricted Net capital reserves reserves profit Total of subsidiaries ...... – – 60 79 Opening balance, Other guarantees and January 1, 1996 ...... 4,443 5,408 949 3,671 14,471 contingent liabilities ...... 176 173 152 148 Transfer of net profit for 1995 – – 3,671 –3,671 – 176 173 212 227 Dividend paid ...... – – –755 – –755 The parent company has undertaken to accept liability for certain commit- Restatements between ments which may be incumbent on subsidiaries. restricted and non-restricted equity and translation differences of foreign subsidiaries and associate companies . . . . – 836 –861 – –25 Net profit for 1996 . . . . . – – – 1,979 1,979 Closing 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 company December 31, 1996 December 31, 1995 Number SKr million Number SKr million Share capital Series “A” . . . . . 22,623,234 1,131.2 11,311,617 1,131.2 Series “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 pages 30–31.

Restricted equity Non-restricted equity Revalua- Share tion Legal Retained Net capital reserve reserve earnings profit Total Opening balance January 1, 1996 . . . . . 4,443 100 1,952 2,586 2,255 11,336 Transfer of net profit for 1995 ...... – – – 2,255 –2,255 – Dividend paid ...... – – – –755 – –755 Net profit for 1996 . . . . . – – – – 1,122 1,122 Closing balance December 31, 1996 . . . 4,443 100 1,952 4,086 1,122 11,703

20 MoDo Annual Report 1996

20. Personnel, wages and salaries Information provided in compliance with the Business Stock Exchange Committee’s recommendation concerning the conditions of employment Average number of employees (annual basis) 1996 1995 of senior executives. Sweden ...... 7,109 7,074 Belgium ...... 26 24 Chairman of the Board Belorussia ...... 16 – Fee: SKr 300,000 Denmark ...... 10 9 Estonia ...... 52 29 President France ...... 919 926 Salaries and other perquisites: Skr 4,258,468 Germany ...... 73 71 Great Britain ...... 1,059 1,067 Pension Italy ...... 5 8 The pension agreement provides for retirement at the age of 65, but with Latvia ...... 43 13 either party being entitled to draw a pension from 61 years of age. Pension Lithuania ...... 28 – will be paid between 61 and 65 at 60 per cent of the salary, and corresponds Netherlands ...... 230 230 thereafter to the ITP plan, complemented with certain old-age, sickness and Norway ...... 41 38 family pension benefits for that part of the salary which exceeds 20 base Russia ...... 215 157 amounts. Spain ...... 43 42 Switzerland ...... 18 16 Period of notice and severance pay Ukraine ...... 10 – The period of notice is twelve months on the part of the company and six USA ...... 2 3 months on the part of the President. In the event of the company giving Group total ...... 9,899 9,707 notice, severance pay of two-years’ salary will be paid. 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 place Managers of business areas and corporate staffs of work. A copy of this may be obtained upon request from MoDo. Pensions Pension agreements provide for retirement at the age of 65, but with either party being entitled to claim/request retirement on pension after 60. Pension Wages, salaries, and social security charges 1996 1995 will be paid between 60 and 65 at 65 per cent of the salary providing Wages, salaries and other remunerations entitlement to pension. The normal pension follows the ITP plan or Boards of Directors, Presidents and equivalent. Over and above this, it will be complemented with certain ExecutiveVice Presidents ...... 46 50 pension benefits for the part of the annual salary which exceeds 20 base Other employees amounts. Sweden ...... 1,833 1,712 Belgium ...... 7 8 Period of notice and severance pay Belorussia ...... 1 – The period of notice is twelve months on the part of the company and six Denmark ...... 3 3 months on the part of the employee. In the event of the company giving Estonia ...... 3 1 notice, severance pay corresponding to between one year’s and 2.5 years’ France ...... 240 256 salary is paid, depending on age. Germany ...... 26 29 Great Britain ...... 237 246 Italy ...... 2 1 Latvia ...... 2 1 Lithuania ...... 1 – Netherlands ...... 58 59 Norway ...... 10 12 Russia ...... 6 2 Spain ...... 12 12 Switzerland ...... 7 7 Ukraine ...... 2 – USA ...... 1 1 2,497 2,400 Social security charges ...... 954 889 Group total ...... 3,451 3,289

Wages, salaries, excluding social security charges parent company Sweden Board of Directors, President and Executive Vice President ...... 7 8 Other ...... 1,777 1,656

21 MoDo Annual Report 1996

List of shareholdings

Parent company holdings of shares and participations in subsidiaries 1996 1995 Nominal No. of shares Percen- Book No. of shares Book value 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 45 Holmen Paper AB ...... SKr 100 100 100 100 100 100 Iggesund Paperboard AB ...... SKr 50 500 100 50 500 50 MoDo Merchants AB ...... SKr 75 750 100 120 750 120 Iggesund Timber AB ...... SKr 50 500 100 50 500 50 MoDo Skog AB ...... SKr 50 500 100 33 500 33 AB Ankarsrums Skogar ...... SKr 50 500 100 41,609 500 41,609 Domsjö Klor AB ...... SKr 1,000 1,000 100 1,079 1,000 1,079 Fiskeby AB ...... SKr 200,000 2,000,000 100 646,160 2,000,000 646,160 Haradsskogarna AB ...... SKr 10,064 100,640 100 129,450 100,640 129,450 Harrsele Linjeaktiebolag ...... SKr 4,800 48,000 100 16,985 48,000 16,985 Holmens Bruk AB ...... SKr 1,237,855 49,514,201 100 4,061,703 49,514,201 4,061,703 Husum Copy AB ...... SKr 50 50 100 50 50 50 AB Iggesunds Bruk ...... SKr 600,251 6,002,500 100 3,933,735 6,002,500 3,933,735 AB Kinda Skogsprodukter ...... SKr 50 500 100 50 500 50 Lammbi AB ...... SKr 100 1,000 100 66 1,000 66 Lägernskog AB ...... SKr 148 1,480 100 1,385 1,480 1,385 MoDo-Iggesund CTMP AB ...... SKr 40,000 400,000 100 40,000 400,000 40,000 MoDo 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 50 Skärnäs Terminal AB ...... SKr 240 4,800 100 1,913 4,800 1,913 Ströms Trävaru AB ...... SKr 1,200 400 100 166,200 400 166,200 Svenskt Papper AB ...... SKr 38,000 380,000 95 86,400 380,000 86,400 AB Överums Skogar ...... SKr 50 500 100 53,005 500 53,005 Other Swedish subsidiaries ...... SKr 6,162 5,962 MoDo Ltd, Great Britain ...... £ 1,197 1,197 100 723,579 1,197 723,579 MoDo France SA, France ...... – 27,346,512 4,520,597 MoDo 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 823,556 823,566,363 100 823,565 532,565,413 532,565 MoDo Merchants Benelux BV, the Netherlands . . . Fl 4,831 4,831 100 9,592 4,831 9,592 Other foreign subsidiaries ...... 56,927 56,043 Total Parent company holdings of shares and participations in subsidiaries 18,604,395 15,028,576

Parent company holdings of shares and participations in other companies Associate companies Iggesund Kraft AB ...... SKr 5,800 58,000 50.0 5,800 58,000 5,800 Industriskog AB ...... SKr 2,500 25,000 33.3 2,503 25,000 2,503 Junkaravan AB ...... SKr 34,300 343,000 22.3 12,200 343,000 12,200 Svensk Etanolkemi AB ...... SKr 1,000 10,000 50.0 10,000 10,000 10,000 Sydved AB ...... SKr 7,000 70,000 33.3 7,060 70,000 7,060 UniTimber AB ...... SKr 1,000 1,000 25.0 1,000 1,000 1,000 Les Bois de la Baltique, France ...... FFr 7,500 75,000 37.5 7,591 75,000 7,591 MD Papier GmbH, Germany ...... – 335,424 Miscellaneous shares ...... 8,636 5,722 Total Associate companies 54,790 387,300

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

22 MoDo Annual Report 1996

Group holdings of shares and participations in other companies 1996 1995 Nominal No. of shares Percen- Book No. of shares Book value 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 5,800 Industriskog AB ...... SKr 2,500 25,000 33.3 2,503 25,000 2,503 Junkaravan AB ...... SKr 34,300 343,000 22.3 12,200 343,000 12,200 Svensk Etanolkemi AB ...... SKr 1,000 10,000 50.0 32,948 10,000 32,908 Sydved AB ...... SKr 7,000 70,000 33.3 7,060 70,000 7,060 UniTimber AB ...... SKr 1,000 1,000 25.0 1,000 1,000 1,000 Les Bois de la Baltique, France ...... FFr 7,500 75,000 37.5 21,465 75,000 19,548 MD Papier GmbH, Germany ...... – 458,059 Miscellaneous 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-depreciated proportion of the excess value arising in connection with the acquisition. See also accounting principles on page 16.

Other companies Holmen Kraft AB ...... SKr 15,605 156,050 13.1 0 156,050 0 Svenska Dagbladet Holding AB ...... SKr 225 22,500 2.9 4,995 22,500 4,995 Troponor AB ...... SKr 2,500 25,000 10.5 2,500 25,000 2,500 Belaya Ltd, Isle of Man ...... US$ 100 100,000 99* 19,113 100,000 18,855 Eltasa Ltd, Isle of Man ...... US$ 100 100,000 98** 1,345 – – Emerald Aviation Ltd, Ireland ...... – 69,300 29,014 Guyla 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 12,349 Nordic Aviation BV, the Netherlands ...... Fl 3,843 8,128 20.3 17,948 8,128 17,948 Turya 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 7,595 Miscellaneous shares ...... 2,060 1,469 Total Other companies 97,556 94,725

Total Group holdings of shares and 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.

23 MoDo Annual Report 1996

Financial risks

MoDo’s financial activities are intended to The Group’s finance policy controls the rates prevailing at the beginning of 1997 minimise the cost of capital to the Group interest risk associated with the placement the effect of these forward contracts would by means of suitable financing and effecti- of liquid assets by the use of limits for the reduce the profit by SKr 35 millon. In ve risk management. The business is con- price risk, i.e. a maximum permitted chan- 1996 currency hedging contributed SKr ducted on the basis of the finance policy ge in the value of the investment in the 1,449 million to the consolidated result, of established by the Board and involves a event of changes in market interest rates. which SKr 966 million are stated within low level of risk in all respects. the operating results of the business areas, Currency risk and SKr 483 million under “Group adjust- Financing risk MoDo is exposed in various ways to fluc- ments and other” within the operating MoDo’s financing is mainly long term. tuations in exchange rates. The business result. (See also under Accounting prin- Agreed long-term credit facilities at fixed gives rise to commercial and financial ciples on page 17.) interest margins reduce the risk of capital flows of payments in a variety of different MoDo hedges the Group’s net foreign becoming difficult or expensive to raise in currencies. Items in the profit and loss assets, in full or in part, by incurring the future. The structure of the financial accounts for foreign Group companies, and liabilities in the corresponding currencies. debt and existing credit facilities are shown assets and liabilities in foreign currencies When translating into Swedish kronor, the in the tables below. are translated into Swedish kronor on clo- effect of exchange rate changes on the MoDo’s Swedish commercial paper sing dates. MoDo’s competitive position in Group’s equity is thus reduced. Other programme was given a K-1 short-term relation to producers whose production liabilities are raised either in kronor or in rating by the rating institute Standard & costs are incurred in other currencies is the local currency of the foreign sub- Poor’s at the beginning of 1997. also affected. Examples of such currencies sidiary, and are neutral in terms of trans- are US dollars, Canadian dollars and Fin- lation. Items in the profit and loss accounts Interest rate risk nish markka. of foreign subsidiary and associate com- Changes in market interest rates affect In order to reduce the impact on the panies are not hedged. MoDo’s net interest costs. MoDo’s closing result of fluctuations in exchange rates, the net financial liabilities amounted to SKr Group hedges its future estimated currency Counterparty risk 4,096 million (5,884m). A one percentage flows. The extent to which this is done is The Group’s liquid funds are placed with- point change in the average interest rate decided by the Board, and implementation out any currency risk with banks or on thus corresponds to some SKr 40 million is regulated in the Group’s finance policy. the Swedish money market. MoDo only in net interest cost, on an annual basis. At the beginning of 1996 the Group had invests in securities having a high liquidity How soon a lasting change in interest rates hedged the currency flows expected for and a very low credit risk. shows through in a change in net interest the coming 14 months. The level of MoDo enters into financial contracts cost depends on the period for which bor- hedging was successively reduced in pace to limit interest rate and currency risks. rowing interest rates are fixed. Normally with the strengthening of the krona. By the The risk of a counterparty not fulfilling its loans have short duration, but it can be end of 1996 the outstanding hedging obligations under the terms of the contract lengthened in order to limit the adverse contracts covered currency flows during is limited through the choice of credit- effect of a rise in interest rates. the coming 5 months. At the exchange worthy counterparties and by limiting the exposure to each one of them. Information per currency

Average rates Other on hedging Capital Equity- financial Estimated contracts employed loans liabilities annual December 31, December 31, December 31, December 31, SKr million net flow 1996 1996 1996 1996 Swedish kronor . . . 17,860 – 457 Sterling ...... 2,700 10.70 1,231 526 574 Deutschemark . . . . 2,500 4.69 –10 – 34 Maturity Financial Credit liabilities at facilities at US dollars . . . . . 1,600 6.75 –1 – 6 Due December 31, 1996 December 31, 1996 Guilders ...... 700 4.08 121 – 82 Pesetas ...... 600 0.053 28 – 35 1997 2,683 – Lira ...... 600 0.0042 3 – 1 1998 242 – Belgian francs . . . . 400 0.22 18 – 16 1999 432 – Danish kroner . . . . 400 1.18 2 – – 2000 474 1,000 Swiss francs . . . . . 300 5.66 6 – – 2001 147 1,375 Austrian schillings . . 200 0.65 – – – 2002 94 1,375 Norwegian kroner . . 200 1.07 32 – 30 >2002* 2,157 2,750 French francs . . . . 200 1.31 3,362 4,243 225 Amount in Other ...... 400 0 –19 – – SKr million 6,229 6,500 10,800 22,633 4,769 1,460 *Including all pension liabilities.

24 MoDo Annual Report 1996 Proposed treatment of unappropriated earnings

At the disposal of the Annual General Meeting are the following unappropriated earnings of the parent company: SKr Net profit for the 1996 financial year ...... 1,122,314,000 Retained earnings from previous years ...... 4,085,977,098 5,208,291,098 The Board of Directors and the President propose that a dividend of SKr 9 per share be paid ...... 799,724,502 and 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 Pettersson President

Our audit report was submitted on February 21, 1997.

KPMG Bohlins AB Thomas Thiel Authorised public accountant

Report of the Auditors Mo och Domsjö Aktiebolag Registration number 556001-3301

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

Parent company Group The annual report has been made up in accordance with the The consolidated financial statements have been made up in Swedish Companies Act. accordance with the Swedish Companies Act.

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

Örnsköldsvik, February 21, 1997 KPMG Bohlins AB Thomas Thiel Authorised public accountant

25 Quarterly comparisons

1996 1995

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.

26 Review of the Group

1996 1995 1994 1993 1992 1991 1990 1989 1988

Consolidated profit and loss accounts, SKr million Sales Customers in Sweden 3,084 3,323 2,853 2,452 2,519 2,834 3,360 3,555 4,063 outside 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 19,532 Operating costs –15,601 –15,692 –16,267 –15,053 –15,063 –15,385 –15,628 –15,215 –16,508 Non-recurring items 11 282 –51 – 85 –280 418 49 19 Interest in earnings of associate companies 4 73 –32 –82 –22 –8 34 44 127 Depreciation according to plan –1,239 –1,151 –1,222 –1,261 –1,166 –992 –887 –815 –832 Operating profit/loss after depreciation 3,290 5,831 2,684 687 –407 749 2,372 2,832 2,338 Net financial items –371 –615 –859 –1,136 –1,104 –748 –715 –957 –723 Profit/loss after net financial items 2,919 5,216 1,825 –449 –1,511 1 1,657 1,875 1,615 Estimated full tax –940 –1,545 –497 193 568 112 –366 –325 –619 Less minority interests (after tax) – – – – – 1 –4 –2 –264 Net profit/loss after tax 1,979 3,671 1,328 –256 –943 114 1,287 1,548 732 Interest on KVBs – – –37 – – –107 –199 –184 –154 Net profit/loss 1,979 3,671 1,291 –256 –943 7 1,088 1,364 578

Consolidated balance sheets, December 31, SKr million Liquid funds 2,133 1,296 1,140 3,996 4,423 2,682 3,542 3,879 3,079 Other current assets 7,805 8,707 8,207 6,774 6,696 6,817 7,742 7,211 7,240 Restricted accounts at Sveriges Riksbank – – – – 8 343 146 180 108 Shares and participations 190 641 695 809 809 1,011 973 936 1,029 Other fixed assets 19,148 18,099 17,721 18,010 18,113 18,686 14,739 14,045 14,168 Total assets 29,276 28,743 27,763 29,589 30,049 29,539 27,142 26,251 25,624 Current liabilities Operating liabilities 4,510 4,666 4,288 3,463 4,017 3,840 3,966 4,173 4,058 Financial 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 9,488 Deferred tax liability 2,862 2,421 1,938 1,394 1,724 2,514 2,540 2,360 2,252 Minority interests 5 5 5 5 5 46 53 57 53 Equity 15,670 14,471 11,285 10,281 8,786 9,878 10,159 9,101 7,919 Total 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 1.04 Equity ratio % 53.5 50.4 40.7 34.8 29.3 33.6 37.6 34.9 31.1 Interest coverage 8.9 9.5 3.1 0.6 –0.4 1.0 3.3 3.0 3.2 Return on capital employed % 14.5 25.8 12.1 3.1 –1.8 3.5 12.5 15.4 13.2 Ditto, in accordance with NBK’s recommendations % 15.5 27.8 12.3 4.2 –0.3 5.5 14.0 17.2 14.6 Return on equity % 13.1 28.5 12.3 –2.7 –10.1 1.1 13.4 18.2 8.7 Operating margin % 16.3 24.5 13.7 4.5 –3.0 6.0 10.4 14.6 11.2 Net margin % 9.8 16.4 6.6 –1.5 –6.0 0.7 7.0 8.2 3.7 Capital turnover rate 0.9 1.0 0.9 0.8 0.7 0.8 1.0 1.0 1.1

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

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

27 Group sales

External sales 1996, SKr million

Newsprint Coated wood- Percentage Fine and magazine containing of paper 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. Printing and writing paper of various types accounted for a total 85 (85) per cent of the Group’s total sales in 1996 went to of 68 per cent of the Group’s external sales, paperboard for 18 countries outside Sweden. Some 84 per cent of total sales per cent, pulp for 8 per cent and other products for 6 per cent. went to customers in the EU area.

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

Fine paper 6,937 Sweden 15

Newsprint and Great Britain 18 magazine paper 6,066 Germany 13 Paperboard 3,674 France 11

Pulp 1,534 Netherlands 1 534 8

Italy 4 Sawn timber 686 Other EU-countries 15 Coated wood-containing printing paper 656 Rest of Europe 8

Other 562 Rest of the world 8 0 2,000 4,000 6,000 8,000 0510 15 20

Consumption of raw materials and electricity

3* External fibre raw material, Electricity (GWh) Wood, m , net tonnes

Company Company Recycled Swedish units External production Total External forests Total Pulp fibre Total Swedish units Purchased electricity 3,215 – 3,215 Swedish Partnership-financed Swedish 3,906,000 1,983,000 5,889,000 units 46,000 303,000 349,000 power companies 775 – 775 Imports 1,421,000 – 1,421,000 Counter-pressure power – 630 630 1) Foreign Total 5,327,000 1,983,000 7,310,000 units 88,000 – 88,000 Total 3,990 630 4,620 Foreign units MoDo Foreign units Total 1,189,000 – 1,189,000 Purchased electricity 430 – 430 total 134,000 303,000 437,000 Counter-pressure power – 270 270 MoDo total 6,516,000 1,983,000 8,499,000 1) Of which saw timber 846,000 m3, and excluding chips from Total 430 270 700 internal sources, corresponding to 358,000 m3. MoDo total 4,420 900 5,320 *Solid volume of logs inside bark

28 Operations by country

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

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

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

Pulp production Wood-containing Fine of which to printing Sawn paper total* ext. customers paper Paperboard timber MoDo Paper Husum 525 630 120 Domsjö 205 175 Silverdalen 95 Alizay 280 300 70 Pont Sainte Maxence 120 Holmen Paper Hallsta 650 Braviken 670 Wargön 45 10 120 Iggesund Paperboard Iggesunds Bruk 325 20 300 Ströms Bruk 40 Workington 190 Iggesund Timber Iggesund Sawmill 315 Domsjö Sawmill 85 Total 1,020 1,505 395 1,440 530 400 of which to company paper mills, etc. –70 –1,110 – 40 Production capacity for external deliveries 950 395 1,440 490 400 *excluding fully integrated mechanical pulp

29 MoDo shares

MoDo’s two series of shares are listed traded on the options market (OM) in “A” share carries ten votes and each “B” on the Stockholm Stock Exchange list Stockholm. share one vote. Otherwise there are no of the most heavily traded shares. The differences between the two shares. turnover in 1996 was lower than in the Share structure previous year. The highest turnover was At the Annual General Meeting in Information per share noted by MoDo “B” shares, with an ave- May it was resolved in favour of a share Earnings per share amounted to SKr rage of 349,000 “B” shares being traded split, whereby the par value of the 22.30 (41.30). It is proposed to pay a each day, which represents a value of shares would be altered from SKr 100 dividend of SKr 9 per share (8.50), which SKr 59 million. This made MoDo the to SKr 50. This involved each share corresponds to a direct yield of 5 per cent fifteenth most heavily traded stock on the being split into two new ones. The new (6) on the basis of the closing market Stockholm Stock Exchange during the total number of shares in issue amounts price as per December 31, 1996. year, and the second most heavily traded to 88,858,278. The closing book value of equity per forest company. Standardised equity MoDo has 22.6 million “A” shares in share was SKr 176 (163). options – MoDo “B” put and call – are issue and 66.2 million “B” shares. Each

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

Earnings per share1) ...... SKr 22.30 41.30 14.90 –3.60 –13.90 1.70 19 22.80 Dividend per share ...... SKr 9 8.50 5.50 0 0 3 5.50 5 Direct yield 2) ...... % 5 6 3 – – 4 6 4 Pay-out ratio 3) ...... % 40 21 37 – – 179 30 23 P/E ratio 4) ...... 9 3 12 Neg Neg 47 5 5 Return on1) equity ...... % 13 29 12 –3 –10 1 13 18 capital employed ...... % 14 26 12 3 –2 3 10 13 Equity per share ...... SKr 1765) 163 127 118 129 146 150 134 Closing listed price, MoDo “B” . . . SKr 192 142 173 128 87 80 95 119 MoDo’s closing market capitalisation SKr billion 17.1 12.7 15.4 11.0 6.4 5.8 6.2 8.5 Highest price quoted during the year, “B” SKr 200 243 186 141 118 149 147 194 Lowest price quoted during the year, “B” SKr 140 135 122 84 36 73 64 110 Beta value (48 months), closing list price “B”6) 1.35 1.80 1.61 1.57 1.56 1.10 1.33 1.34 Volatility (250 days), closing list price “B”7) % 27 26 28 38 77 60 58 42 1) See definitions on page 15. 5) Adjusted for an indicative premium over the book value of MoDo’s forests SKr 215 (see also page 40). 2) Dividend as a percentage of the closing listed price of “B” shares. 6) Measures the sensitivity of the yield on the “B” shares in relation to the yield on the Affärsvärlden 3) Dividend divided by earnings per share. General Index over a period of 48 months. 4) Closing listed price of ”B” shares divided by earnings per share. 7) Measures changes in the price of the “B” shares, expressed in percentage terms, over 250 days.

Shareholders at December 31, 1996 Ownership structure

% of shares % of votes Percentage of LE Lundbergföretagen . . . . . 22.8 47.1 Number of Number of total no. shares shareholders of shares Kempe Foundations ...... 4.6 14.1 Handelsbanken, 1– 1,000 ...... 22,464 6 incl. pension funds . . . . . 2.8 8.4 1,001– 5,000 ...... 1,745 4 Fourth AP Fund ...... 5.0 5.0 5,001– 10,000 ...... 190 2 Nordbanken Funds ...... 4.2 1.3 10,001– 50,000 ...... 200 5 SPP, Insurance ...... 3.4 1.1 50,001–100,000 ...... 64 5 Handelsbanken Funds . . . . . 2.2 1.0 100,001– ...... 86 78 Skandia ...... 2.1 0.6 Total 24,749 100 AMF Pension ...... 1.5 0.4 Other 1) ...... 51.4 21.0 Total ...... 100.0 100.0 1) of which non-Swedish shareholders 24.7 8.2

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

MoDo’s Votes No. of shares No. of votes Par SKr weight value million 1996 1995 Change in index* Share Affärsvärlden “A” . . . . 10 22,623,234 226,232,340 50 1,131.2 General Index . . . 2,402.9 1,735.7 38 % 1.1 % “B” . . . . 1 66,235,044 66,235,044 50 3,311.7 Affärsvärlden Forest Industry Index 1,810.2 1,400.2 29 % 17.1 % Total 88,858,278 292,467,384 4,442.9 MoDo “B” ...... 192 283 35 % *Indicates the weight of MoDo ”B” shares in each index at December 30, 1996.

Changes in share capital

Increase in no. Total no. Increase in share Total share capital of shares of shares capital, SKr million SKr million 1980 ...... 3,918,039 391.8 1984 Rights issue 1:4 ...... 979,509 4,897,548 98.0 489.8 Scrip issue 1:4 ...... 979,509 5,877,057 97.9 587.7 1985 Scrip issue 1:3 ...... 1,959,019 7,836,076 195.9 783.6 1986 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 1,175.4 1988 Conversion of KVBs ...... 1,155,859 12,909,973 115.6 1,291.0 1989 Conversion of KVBs ...... 2,771,314 15,681,287 277.1 1,568.1 1990 Conversion of convertible subordinated loan 1 15,681,288 0.0 1,568.1 Conversion of KVBs ...... 61,087 15,742,375 6.1 1,574.2 1991 Conversion of KVBs ...... 551 15,742,926 0.1 1,574.3 1992 Conversion of KVBs ...... 6,331 15,749,257 0.6 1,574.9 1993 Rights issue ...... 14,469,139 30,218,396 1,446.9 3,021.8 Conversion of KVBs ...... 204,285 30,422,681 20.4 3,042.2 1994 Conversion of KVBs ...... 3,978,257 34,400,938 397.8 3,440.1 1995 Conversion of KVBs ...... 10,028,201 44,429,139 1,002.8 4,442.9 1996 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

“B”share Number of shares traded, thousands “B”share Affärsvärlden General Index Affärsvärlden General Index (incl. after market) 390 300

360

330 250 300

270

240 200

210

180 150 150 9,000 120 8,000 7,000 100 6,000 90 5,000 4,000 60 3,000 (c) SIX Findata 2,000 1,000 30 50 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1995 1996 (c) SIX Findata

31 MoDo Paper produces and markets fine paper and bleached chemical pulp. Production takes place at mills in Husum, Domsjö and Silverdalen in Sweden, and at Alizay and Pont Sainte Maxence in France. Most of the output is sold in Western Europe through sales companies and fine paper merchants. The main buyers of fine paper are paper merchants, printers, paper MoDo Paper converters 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.

SKr million 1996 1995 MoDo Paper’s sales declined by 22 per cent to SKr 6,917 million Sales ...... 6,917 8,919 (8,919m), mainly as a result of lower prices. of which to external customers ...... 5,465 7,143 The operating profit decreased to SKr 97 million, compared with Operating profit* ...... 97 2,331 Average capital employed ...... 7,740 7,763 SKr 2,331 million in the previous year. Return on capital employed, % ...... 1.3 30.0 Capital expenditure ...... 875 571 Average no. of employees ...... 3,393 3,160 Fine paper * including interest in earnings of associate companies The market situation improved during the second quarter after Operating profit/loss and sales by product area almost a year of low capacity utilisation and falling prices. The Operating profit/loss Sales favourable trend continued in the autumn. SKr million 1996 1995 1996 1995 The earlier steeply declining price trend came to a halt in the Fine paper ...... 285 1,476 5,502 6,562 summer. At the beginning of October, the prices of both coated Pulp ...... –188 855 1,415 2,357 and uncoated grades were raised by 6–8 per cent on most Euro- 97 2,331 6,917 8,919 pean markets. On average, however, prices for the whole year were between 20 and 30 per cent lower than in the previous year. Operating profit/loss and operating margin Deliveries of fine paper from European mills rose to 12.6 million SKr million % tonnes (11.7m), including exports to markets outside Western 2,500 25 Europe. Deliveries of coated paper to markets in Western Europe 2,000 20 rose by 11 per cent, while uncoated grades rose by 4 per cent. Deliveries to Eastern Europe showed a further increase. 15 1,500 Deliveries of office paper to Western Europe – fine paper in 1,000 10 A4 and A3 formats – increased by 10 per cent, and this grade 500 5 consequently accounted for almost all of the increase in the 0 0 uncoated paper segment. –500 –5 MoDo Paper’s deliveries of fine paper increased by 59,000 tonnes. –1,000 –10 –1,500 –15 1992 1993 1994 1995 1996 Operating profit/loss Operating margin Pulp Deliveries of bleached chemical pulp in Western Europe fluctuated widely during the year. In total, deliveries rose by Production Deliveries* Production and deliveries about 3 per cent. 1 ,000 tonnes 1996 1995 1996 1995 Fine paper ...... 890 878 829 770 Prices fell from some US$ 1,000 per tonne in October, 1995 to Pulp ...... 940 1,016 340 363 around US$ 500 per tonne at the beginning of April, 1996. Later * including deliveries to other business areas in the Group in the year, prices were raised, and they were US$ 560 per tonne by the end of the year. Average pulp prices for the whole year were 30 to 40 per cent lower than in the previous year. Market position Market position Fine paper Bleached chemical pulp The stocks known as Norscan stocks rose sharply during the Western Europe Western Europe first quarter, from 1.95 million to 2.5 million tonnes. They were West European producers West European producers, 1.9 million tonnes at the year-end. annual capacity 1,000 tonnes annual capacity for delivery to external customers, 1,000 tonnes Global capacity utilisation for bleached market pulp was 89 per

UPM-Kymmene Södra cent (92). Enso Stora MoDo Paper’s external deliveries of pulp fell by 23,000 tonnes. KNP-BT International Paper UPM-Kymmene

MoDo Enso Stora ENCE Production Metsä-Serla SCA La Rochette Capacity utilisation at MoDo Paper’s pulp mills remained low AWA MoDo until the summer, but it rose in the autumn. On average, it was Burgo Sappi Metsä-Serla 82 per cent (88). UK Paper Portucel Capacity utilisation at the paper mills averaged 87 per cent (86). 0 500 1,000 1,500 2,000 0 200 400 600 800 1,000 1,200 Fixed costs declined by 3 per cent. Uncoated Coated

32 President: Sales Capital employed Hans Pettersson 27% 34% share share Head office: of Group of Group Örnsköldsvik

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

Capital expenditure A 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 new digester house is planned for a later stage. Over and above this, a number of investments were made to improve efficiency, mainly at the paper mills.

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

Market position Fine paper MoDo Paper has a strong position on the European markets for the segments office paper and uncoated fine paper for conversion. Although the company produces relatively small volumes of coated fine paper in sheets, it has a strong market position in Scandinavia, Great Britain and Benelux. In France, MoDo Paper holds a strong position on the markets for paper for commercial printers and uncoated fine paper on reels 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 its output is sold in these countries. Pulp MoDo’s external deliveries of pulp have been gradually declining due to further integration. In total they amount to some 400,000 tonnes per year inlcuding the market pulp that is produced at Iggesund Paperboard and Holmen Paper. Approximately 90 per cent of MoDo’s market pulp is sold in Western Europe, where annual consumption amounts to some 14 million tonnes. DataCopy® Option is a paper developed for the rapidly growing market for digital printing.

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

SKr million 1996 1995 Holmen Paper’s sales rose by 8 per cent to SKr 7,109 million Sales ...... 7,109 6,565 (6,565m). This increase was due to higher average price levels of which to external customers ...... 6,672 6,047 and higher volumes following the commissioning of the new Operating profit* ...... 1,824 1,570* Average capital employed** ...... 5,659 4,829 paper machine at Braviken. Return on capital employed**, % ...... 32.8 32.4 The operating profit improved to SKr 1,824 million (1,570m). Capital expenditure ...... 1,183 1,170 Average no. of employees ...... 2,372 2,246 Newsprint * including interest in earnings of associate companies ** excluding MoDo’s power business Demand for newsprint in Europe slackened, after having risen for Operating profit and operating margin several years. Deliveries fell by 6 per cent. Canadian shipments SKr million % to Europe rose by 30 per cent as a consequence of weaker mar- 1,800 27 kets in the USA and Asia. Growing volumes of Russian news- 1,600 24 print were also coming onto the market, and at very low prices. 1,400 21 New newsprint machines came on stream in Asia, especially in South Korea. On average prices of newsprint increased by 10 per 1,200 18 cent in 1996. 1,000 15 An important goal for Holmen Paper in 1996 was to find markets 800 12 for the additional quantities produced by the new newsprint 600 9 machine at Braviken. This paper was mainly sold to key custo- 400 6 mers in Europe. 200 3 New markets, such as Poland, the Baltic states, Ireland and 0 0 Portugal, continued to develop well. 1992 1993 1994 1995 1996 In total, Holmen Paper’s deliveries of newsprint increased by Operating profit Operating margin 32,000 tonnes. Production and deliveries Production Deliveries* 1,000 tonnes 1996 1995 1996 1995 MF special paper Standard newsprint ...... 606 538 574 542 The market for improved newsprint of high brightness rose by MF special paper ...... 399 369 381 363 SC paper ...... 113 121 110 120 no less than 9 per cent. This is an important product area for Coated printing paper ...... 107 118 103 110 Holmen Paper. Sulphite pulp ...... 42 47 4 6 The market for medium-brightness and low-brightness papers, on * including deliveries to other business areas in the Group the other hand, showed a further decline, as many customers are MoDo’s electric power turnover in Sweden changing over to standard newsprint. Production/purchase GWh 1996 1995 Demand for telephone directory paper in Europe rose by 3 per Company-owned and associate cent. In the past, yellow directory paper grew most rapidly. hydro-electric power stations ...... 775 1,267 As more and more customers begin to print the yellow back- Mills’ counter-pressure turbines ...... 658 586 Purchased electricity ...... 3,845 3,278 ground as well as four-colour advertisements, the demand for 5,278 5,131 white telephone directory paper will rise faster. In 1996 prices of MF special paper rose by 8 per cent on average. Market position Wood-containing printing paper Holmen Paper’s deliveries of MF special paper rose by 18,000 Western Europe tonnes. West European producers annual capacity, 1,000 tonnes SC paper UPM-Kymmene Deliveries in Europe fell by 4 per cent, which was less than Stora expected. Exports to markets outside Europe fell by 14 per cent. Haindl Demand slackened, especially in the USA.

Norske Skog 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. Enso

MoDo Coated printing paper SCA Deliveries in Europe declined by 11 per cent. This was largely 0 1,000 2,000 3,000 4,000 5,000 due to destocking among buyers and to customers changing over

34 President: Sales Capital employed Göran Lundin 33% 25% share share Head office: of Group of Group Norrköping

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

Electric power The power business was adversely affected by the low flow into the reservoirs following a winter with little snow and a summer with little rain.

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

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

Improved transportation system As one stage in improving the efficiency of shipments to markets in Europe, a new vessel operated on a long-term charter was brought into operation at the end of September. The new ship delivers paper to Chatham just outside London three times a month, and on its return leg, it takes waste paper, which is an important raw material for Braviken and Hallsta.

Market position Holmen 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 the market for newsprint. Holmen Paper has built up a very strong position 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 paper and coated printing paper, and its market shares are 3 per cent and 2 per cent respectively in these segments.

Rapid printing and advanced four-colour printing are important means of competition for daily newspapers. The newsprint produced by Braviken’s new PM 53 paper machine satisfies very high quality requirements.

35 Iggesund Paperboard produces and markets high quality paperboard to be used as packaging and in the graphic industry. Production takes place at Iggesunds Bruk and Ströms Bruk in Sweden, and at Iggesund Paperboard Workington in Great Britain. Paperboard is one of the most advanced products manufactured in the forest industry. The most important uses for paperboard are as packaging for chocolates, tobacco, perfumes, cosmetics and food, and as covers for books and printed matter.

SKr million 1996 1995 Iggesund Paperboard’s sales declined by 9 per cent to SKr 3,845 Sales ...... 3,845 4,232 million (4,232m), mainly as a result of lower prices for market of which to external customers ...... 3,748 4,139 pulp and lower volumes for folding boxboard. Operating profit ...... 591 896 The operating profit deteriorated to SKr 591 million, compared Average capital employed ...... 3,841 3,601 Return on capital employed, % ...... 15.4 24.9 with SKr 896 million in 1995. Capital expenditure ...... 180 807 Average no. of employees ...... 2,094 2,156 Markets After a weak start, demand on the West European paperboard Operating profit and operating margin market rose successively during the year. Total consumption equalled that of 1995, amounting to some 4.3 million tonnes, SKr % including unbleached board and imports. million Demand for recycled fibre based paperboard, which represents 800 20 more than half of the total market, decreased slightly. Demand for fully-bleached paperboard and folding boxboard, on the

600 15 other hand, rose, by more than 2 per cent in each case. Demand for virgin fibre based paperboard developed strongly on the two largest markets in Europe, Germany and Britain, while 400 10 the consumption of recycled fibre based board declined. In France and Italy, demand for most types of paperboard was 200 5 weak. Exports by West European paperboard mills to countries outside 0 0 Europe, mainly in Asia, rose by some 10 per cent. 1992 1993 1994 1995 1996 Capacity utilisation at European paperboard mills was low during Operating profit Operating margin the first half of the year, but the level then picked up to almost full utilisation. Iggesund Paperboard’s marketing activities during the later part Production and deliveries Production Deliveries* of the year were concentrated on introducing new fully-bleached 1,000 tonnes 1996 1995 1996 1995 paperboard grades from Iggesunds Bruk and improved grades of Paperboard ...... 372 398 373 386 Sulphate pulp ...... 286 312 49 49 folding boxboard from Workington. The sales organisation in * including deliveries to other business areas in the Group Asia, based at Iggesund Paperboard’s office in Singapore, was strengthened. The average price of paperboard in Swedish kronor was 2 per cent lower than in the previous year. After reductions of some Market position Paperboard 10 per cent in the price of folding boxboard during the first Western Europe half of the year, prices remained broadly unchanged in local West Eurepean producers currencies. The prices of fully-bleached grades only changed annual capacity, 1,000 tonnes marginally in local currencies throughout the year. Mayr Melnhof Iggesund Paperboard’s deliveries of paperboard declined by Saffa 13,000 tonnes, or 3 per cent. Thanks to a relatively strong per-

Stora formance at the end of the year, the order intake increased by 2 per cent overall. Metsä-Serla

MoDo Production Enso Capacity utilisation at Iggesund Paperboard’s mills was 84 per Cascades cent (88). 0 200 400 600 800 1,000 1,200 The cost of wood and chemicals remained unchanged in relation Virgin fibre Recycled fibre to 1995. Also fixed costs were unchanged.

36 President: Sales Capital employed Erik Sjölund 19 % 17% share share Head office: of Group of Group Iggesund

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

Capital expenditure A fully-automated reel store has been commissioned in Work- ington. This will enable the mill to improve its service as well as raising capacity and improving efficiency. Within the framework of this project, a new rewinder will be installed in the spring of 1997. The total project cost is SKr 125 million. Following the signing of an energy supply agreement in 1995, the electricity supplier completed the installation of a highly efficient natural gas-based combined heat and power station within the mill site at Workington.

Market position Consumption of paperboard in Western Europe amounts to some 4.3 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 board is produced on the Continent. Paperboard made from virgin fibre accounts for some 45 per cent of the market. No new capacity, apart from the effects of trimming at existing units, was added to the European market in 1996. Nor are any significant additions to capacity foreseen for 1997. Iggesund Paperboard’s main markets are in Western Europe, but countries particularly in South-East Asia are of growing interest. In 1996, the company’s share of the folding boxboard market fell slightly, while its share of the fully-bleached paperboard market rose. The share of the total West European paperboard market is just under 9 per cent. Iggesund Paperboard holds a leading position in the highest quality segment.

In addition to various types of packaging, printed matter and books are an important segment in which high quality paperboard from Iggesund Paperboard is used.

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

SKr million 1996 1995 MoDo Merchants’ sales fell by 16 per cent to SKr 3,482 million, Sales ...... 3,482 4,135 compared with SKr 4,135 million in 1995. The operating profit of which to external customers ...... 3,466 4,134 deteriorated to SKr 76 million (175m), on account of lower Operating profit ...... 76 175 prices and margins, and a slightly lower sales volume. Average capital employed ...... 549 492 Return on capital employed, % ...... 13.9 35.6 Capital expenditure ...... 25 13 Markets Average no. of employees ...... 710 692 Demand for fine paper was weak during the first half of the year in those countries where MoDo Merchants is active. In the Deliveries autumn, demand revived, and from time to time it was difficult 1,000 tonnes 1996 1995 to obtain adequate supplies of fine paper from the producers. Svenskt Papper Group ...... 149 155 Deliveries of fine paper in 1996 were slightly lower than in the MoDo Merchants Benelux ...... 69 71 previous year. MoDo Merchants Ltd ...... 128 128 At the merchanting stage, however, sales are believed to have Comercial Papelera Aldi ...... 13 10 risen by a few per cent. Most of the growth occurred in the 359 364 coated paper and office paper segments. Stocks of paper at merchants, retailers and printers were low when the year began, but they gradually rose.

Iggesund Timber produces and markets sawn timber. Its output consists of standard products and customised special products. Some 90 per cent of its output is shipped to customers outside Sweden. Iggesund Timber has sawmills in Iggesund and Domsjö. Sales Iggesund Timber take 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. Iggesund Timber’s marketing companies also sell sawn timber from other sawmilling companies.

SKr million 1996 1995 Iggesund Timber’s sales fell by 11 per cent to SKr 764 million Sales ...... 764 856 (856m). The operating result declined into a loss of SKr 53 mil- of which to external customers ...... 764 856 lion (profit17m), mainly due to lower prices as well as lower Operating profit/loss* ...... –53 17 volumes, partly due to production disturbances in December in Average capital employed ...... 394 421 connection with the rebuilding and installation of new equipment. Return on capital employed, % ...... –13.4 4.1 Capital expenditure ...... 55 15 Average no. of employees ...... 310 319 Markets * including interest in earnings of associates The year began with very weak demand, caused largely by the severe winter that hampered building activity in Europe. Production and deliveries Production Deliveries* The level of demand passed its low point in the summer, after 1,000 m3 1996 1995 1996 1995 which market conditions improved successively. Deliveries to Company sawmills Western Europe declined by 4 per cent compared with the pre- sawn timber redwood ...... 197 216 211 205 vious year. A large part of this reduction was due to extensive des- sawn timber whitewood ...... 148 145 129 136 tocking among distributors during the first half of the year. One Purchased sawn timber ...... – – 106 74 consequence of this was that the revival in demand in the autumn 326 364 453 424 was partly due to the need to replenish the low stocks * including deliveries to other business areas in the Group in Europe. During the autumn, the prices of sawn timber were raised by 4 per cent, compared with the low point reached during the first half of the year. On average, however, prices for the whole year were 18 per cent lower than in the previous year. Towards the end of the year, the production of sawn timber in both Sweden and Finland was constrained by shortages of saw logs and a weak market for sawmill chips. This improved the balance between demand and supply, which in turn had a favour- able effect on prices.

38 President: Sales Capital employed Ulf Scharin 17% 2% share share Head office: of Group of Group Stockholm

The downturn in prices that began during the later part of 1995 Operating profit and operating margin continued during the spring. Prices were raised in the autumn. On average, however, they were 20 per cent lower than in the SKr % previous year. million The product range is changed to meet the demands made by 160 4 the growing use of digital printers in offices and digital printing presses in the graphic industry. This is a development which will continue for several years. The marketing organisation is also 120 3 successfully adapted to meet the changing conditions on the market. 80 2

Market position 40 1 MoDo Merchants lost market share slightly in the direct sales segment during the first half-year. On the other hand, it well 0 0 maintained its share of the important stock sales market. 1992 1993 1994 1995 1996 MoDo Merchants’ market share amounts to some 10 per cent in Operating profit Operating margin those countries where the company is active.

President: Sales Capital employed Per Erik Frick 4 % 2% share share Head office: of Group of Group Hudiksvall

Production Operating profit/loss and operating margin Production at Iggesund Timber’s sawmills was restricted during the first half of the year, as a means of adjusting production to the SKr % state of the order book. Capacity utilisation amounted to 82 per million cent (91). The cost of input materials fell by 12 per cent. Other 120 15 costs remained unchanged. 80 10 Capital expenditure 40 5 A land-based log sorting unit was built at the Domsjö sawmill. At the Iggesund sawmill, equipment was installed for sorting 0 0 new-sawn timber according to a principle that is entirely new in Scandinavia. The new sorting unit is efficient and flexible, and –40 –5 also has the advantage that the timber is handled very carefully. –80 –10 1992 1993 1994 1995 1996 Product development Operating profit/loss Operating margin The work of developing products to meet specific customer requirements continued. Relative sales of Industry Timber – an input material for industrial users who convert sawn timber – continued to grow, and this product now accounts for almost half of the delivered volume. Production of a new product, which is marketed under the DUOLIT brand name, began at the Iggesund sawmill. This is a further development of MONOLIT®, which is doing well on the market as a material for the manufacture of furniture, for instance.

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

1996 1995 MoDo Skog’s operating profit, which is largely generated by Harvesting in company forests, million m3* ...... 1.90 1.76 activities in company-owned forests, fell to SKr 357 million, Wood consumption at mills, million m3* ...... 7.31 7.65 compared with SKr 391 million in 1995. The decline in the result Operating profit, SKr million ...... 357 391 is due to lower wood prices. Average capital employed, SKr million ...... 5,108 5,150 Return on capital employed, % ...... 7.0 7.6 Capital expenditure, SKr million ...... 50 35 Wood consumption Average no. of employees ...... 742 765 Wood consumption at MoDo’s pulp mills amounted to 6.8 * solid volume of logs inside bark million 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. Operating profit Consumption of saw timber was also lower than in 1995.

SKr Wood procurement million Wood procurement was adjusted to the lower level of consump- 500 tion. Pulpwood prices were reduced, which led to a sharp fall in supplies from private forest-owners. Harvesting in MoDo’s own 400 forests was restricted, and the total volume harvested was 1.9 million m3, which is lower than in the long-term harvesting 300 plan. 200 Imports of pulpwood were also reduced, and amounted to 1.4 million m3, or 0.8 million m3 less than in 1995. Despite these 100 restrictions, stocks of pulpwood at MoDo’s mills were higher than normal for most of the year. 0 1992 1993 1994 1995 1996 The operations in the wood purchasing companies in Estonia and Latvia progressed well. MoDo now has a strong position as a pulpwood buyer in both these countries.

Unchanged costs The cost of harvesting, silviculture and administration remained at the same level as in the previous year. This was mainly due to low inflation and interest rates in Sweden, and to rationalisation measures taken in all areas of MoDo Skog’s business.

Sustained focus on forest environment Interest in the forest environment continued to be intense. One Forest land question that often comes up in the occasionally heated debate MoDo owns approximately 1,300,000 hectares of land in was how to protect “old growth forests”. This is a concept for Sweden, of which 1,020,000 hectares are productive forest which no unambiguous definition exists, and it is therefore open land. Almost 800,000 hectares are located in the four to many, different interpretations. Another question which causes northernmost counties, with the rest in central and southern some controversy is the extent to which it is acceptable to harvest Sweden. This enables the Group to be 25–30 per cent self- a forest containing red-listed species, that is to say, species that sufficient in wood. are on the Species Data Bank’s list of threatened species requi- These assets are stated in MoDo's balance sheet at acquisi- ring exceptional consideration in the Swedish natural environ- tion cost with an addition for revaluations made over the ment. years. The closing book value at December 31, 1996 was SKr MoDo Skog’s view is that the environmentally-focused forest 4,593 million, or around SKr 4,500 per hectare. The assessed management programme will create conditions that will enable value was SKr 8,161 million at December 31, 1996. all species to survive from a landscape perspective. A calculation based on MoDo Skog’s actual and estimated MoDo is engaged in discussions with environmental organi- result for the 1993–1997 period, and a required real return of sations, customers, private forest owners and other Swedish 4 per cent, indicates a yield value after tax at the end of 1996 forest industry companies on environmental certification of of some SKr 7,850 per hectare. forestry in Sweden according to FSC.

40 President: Capital employed Tore Erkén 22 % share Head office: of Group Örnsköldsvik

Peter Hellström, who works for MoDo Skog in Ljusdal, is one of the company’s 35 forest rangers with university-level training in ecological biology. MoDo Skog will then have qualified ecologists at each of its 30 districts in Sweden. Investments and development

MoDo is in the middle of an intensive an annual capacity of some 700,000 ton- The investment also involved markedly development phase. Two large invest- nes of newsprint and telephone directory raising the technical competence of the ment projects have just been con- paper. personnel, and extensive training courses cluded, at Braviken and Iggesund. The pace of development in the media were organised. In all, 150 persons were field is still intensive. The increasing recruited to various posts. Most of the new At Husum the second stage in the speed of printing presses makes great employees are qualified engineers. modernisation and expansion of the demands on the strength and runnability mill is now under way. of newsprint. Four-colour printing is beco- Modernisation at Husum In addition, the establishment and ming standard practice in the daily news- A comprehensive modernisation and reno- consolidation of the organisations paper industry, and this requires newsprint vation programme has been in progress at for wood procurement and marketing which can do full justice to today’s techni- Husum since the end of 1995 with the in Eastern Europe continue. cally advanced printing presses. object of strengthening the mill’s interna- Newsprint from PM 53 more than satis- tional competitive position. fies today’s high quality requirements. The The first stage was completed in the machine is equipped with the best availa- summer of 1996, when a new wood hand- New paper machine ble technology, which enables it to produ- ling department was commissioned. In at Braviken ce newsprint for both offset printing and addition to reducing costs, the project will The new PM 53 newsprint machine at the gravure. improve pulp quality through more effecti- Braviken paper mill outside Norrköping The expansion project, which cost just ve debarking. It also provides advantages was brought on stream at the end of April, over SKr 2 billion, also included a number from an environmental point of view, 1996. After only a few days, the first paper of other important parts: including a halving of water consumption was delivered to customers. PM 53 has The production of thermo-mechanical compared with the previous unit. produced paper with very good characte- pulp was raised by 75,000 tonnes. The total investment cost for this stage ristics from the very first day of produc- An additional de-inked pulp line was is estimated at around SKr 530 million. tion. installed, which raised the production The second stage, which will be ready The new paper machine strengthens capacity for de-inked pulp by 140,000 ton- by the end of 1997, involves the installa- Braviken’s position as a leading supplier nes to 260,000 tonnes. tion of a completely new evaporation unit. of newsprint. The machine has an annual In addition, numerous measures were The use of only one unit to handle the en- capacity of 270,000 tonnes. The re- taken to save energy and reduce the tire flow of liquor will improve efficiency. allocation of production within Holmen environmental impact of the mill. Even This in turn will mean lower costs, prima- Paper, and an increase in the proportion though production of paper has increased rily in the form of a reduction in energy of special grades, means that only around by some 60 per cent, the expansion means costs. This investment will also bring half of PM 53’s production represents a that most permits for emissions into water environmental benefits. For instance, net addition of newsprint on the market. and air will remain unchanged, or in some emissions of COD substances from the In total, the Braviken paper mill now has cases be reduced. evaporation 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.

42 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.

The capacity of Husum’s new evapora- and MoDo Mesz respectively. In Russia, Even higher quality tion unit will be the highest in the world. MoDo owns a 51 per cent interest in Nov- at Iggesund The total investment cost is SKr 700 million. gorod Lespromhoz, a harvesting company. Following completion of the IGGE 93 pro- As a further stage in the modernisation Moreover, MoDo has a minority holding ject at Iggesunds Bruk, Iggesund Paperbo- project, a new digester house with greater in Smiltene MRS, a Latvian harvesting ard introduced several new paperboard capacity is being planned. A decision will company. products in 1996. The project included be made in 1998. The main reason for MoDo Skog’s investments for some SKr 900 million. The “new” Husum will be one of the establishment of its own procurement and The final stage involved rebuilding one harvesting organisations in these countries largest and most efficient mills on the mar- of the mill’s two paperboard machines. ket. The mill will also be better in terms of is to secure the raw materials base for its own mills. It is mainly birchwood which An earlier stage included the construction environmental performance, as a result of is imported, but also some smaller quanti- of a new fully-automated reel stores and the many integrated environmental impro- ties of softwood. MoDo has imported a new finishing section for paperboard. vement measures. wood from Eastern Europe for more than The IGGE 93 project has strengthened The total level of capital expenditure at thirty years. By building up its own opera- Iggesunds Bruk’s position as a leading Husum within the framework of this pro- tions, it will gain tighter control over the producer of high quality paperboard. The gramme is estimated to amount to some supply of raw materials. This also opens rebuilt paperboard machine can now coat SKr 2.1 billion. doors to an exchange of experiences bet- paperboard with up to five different layers, ween forestry units in Sweden and in Eas- which provides very good gloss, smooth- tern Europe. ness and printability characteristics. It also In order to strengthen its market Establishment and consolida- provides capacity for equal-sided coating. tion in Eastern Europe position in Eastern Europe, MoDo Paper acquired 90 per cent of the shares on For instance, the cover of this annual MoDo has now established itself in the MoDo Paper East (formerly Thomesto report consists of the new grade several countries in Eastern Europe, with Paper Merchants) in April. This company Invercote® Creato, fully coated on both its own harvesting and sales organisations. is active in Russia, Estonia, Latvia, sides, which was introduced in 1996. The Over the past three years, MoDo Skog Lithuania, Belorussia and the Ukraine. rebuilt paperboard machine will enable has gradually expanded its ventures in the MoDo Paper now has a strong platform Iggesund Paperboard to consolidate its east. Today it has subsidiary companies in for further developing its sales to these quality lead on the market within its cur- Estonia and Latvia, namely MoDo Mets and neighbouring markets. rent product areas. The new products will

43 The investment projects at Iggesund Bruk strengthened Iggesund Paperbord’s position as a leading producer of high quality paperboard. also enable the company to break into new mer specifications, has been improved by quickly and reliably. In addition, a new market segments. the introduction of automated handling distribution system has also been establis- Customer service has also been impro- of the finished stock. An important ele- hed. The investments within the IGGE 93 ved. The efficiency of the finishing sec- ment in the system is the new automated project also involve an increase in produc- tion, where the paperboard is cut into reel stores. All in all, the changes mean tion capacity of 50,000 tonnes, to 300,000 sheets or reeled in accordance with custo- that customer orders can be shipped more tonnes per annum.

Personnel development

The development of personal competence is a key issue in a rapidly changing and correspondence course in economics was among individual employees and among demanding world. started, together with Umeå University, management are two important elements Management methods will also change at the end of 1996. A large part of the in MoDo's personnel policy. The com- gradually. One very important aspect of training is provided via Internet and inter- petence level of MoDo's personnel will our personnel policy, therefore, is to give nal computer networks. gradually be raised through a continuous employees the opportunity to develop their Modern IT technology will be used process of training and development pro- competence in a variety of fields to meet to provide distance training, mainly in grammes within the Group. today's requirements and those of tomor- natural science subjects, at high school New technology and rapid development row. It is therefore especially important to and sixth form college level. This pro- within the field of data processing make create competence in breadth and flexibili- gramme, which was started in 1996, has new demands on personnel. The ability ty which will enable the personnel to adapt around 200 participants from different to make full use of the potential offered to rapidly changing external conditions. parts of the Group and is run in colla- by the increasingly advanced technology boration with Statens Skola för Vuxna. MoDo University A positive effect of the IT adapted MoDo University is the overall name training forms is that knowledge of for a broad range of training activities wit- IT media and practice in using these hin the Group. They include subject areas also increases and that it provides such as management, marketing, business greater opportunities for individualised administration and economics, and tech- training. nology and provide a basic university-level education. A Group induction course for Increased ecological new employees at MoDo, mostly those competence with a university education, is also run by An important element in MoDo’s environ- MoDo University. mentally-adapted forest management pro- gramme is to raise the level of ecological Distance training competence in forestry. As part of this Göran From at MoDo Skog in Norrköping is studying business administration and economics with the aid of IT endeavour, around 30 field officers began with the aid of IT technology on a course IT technology will be used to an increas- a university-level course in nature conser- arranged by the Umeå University. ing extent in education. A university-level vation during 1996.

44 MoDo and the environment

Costs of It has not been possible this year to affect MoDo, mainly in connection with environmental measures make a similar division of the operating purification sludge, which is currently Investments in and the cost of environ- and capital costs. deposited. According to the proposal, a tax mental protection measures have been SKr million of SKr 250 per tonne of waste is to be stated in MoDo’s annual report for many Environmental investments 205 (304) levied. If the proposal is approved it will raise MoDo’s costs by around SKr 60 mil- years. Some of this information relates to of which estimated 133 investments and costs that are easy to de- lion per year. fine. They include those which are directly Operations, capital, other 566 (450) related to the environment, such as the New environmental permits cost of external purification plants. Environmental management All the environmental permits for the Other costs are harder to identify since The ISO 14001 environmental manage- Husum pulp and paper mills will be a large proportion of the environmental ment standard was introduced at Husum reviewed in 1997. The application to the protection work is integrated into the during the year. The mill was certificated National Franchise Board for Environment production processes. Measures are taken at the beginning of 1997. Protection was prepared in 1996 and will at source, instead of building external Iggesund Paperboard has decided to be submitted in 1997. purification plants. introduce ISO 14001 at Workington, Igge- As yet, no fully reliable methods are sunds Bruk and Ströms Bruk within three Transportation available for stating what proportion of an years. Workington will be certificated in A study of the environmental effects and investment cost these integrated environ- 1997. consumption of resources in MoDo’s mental measures represent. But there is no Preparations began at Braviken for cer- transportation system is being carried out doubt that also the cost structure is influ- tification in accordance with ISO 14001. in the form of a life cycle assessment. enced by measures of this type. Studies were begun to assess the feasi- The study will provide the facts needed At MoDo we have ascertained that what bility of introducing ISO 14001 within to tighten the environmental demands on is feasible is to estimate in each individual MoDo Skog. suppliers of transport services. case what proportion of the costs relate to environmental measures. We take into Environmental policy consideration both environmental and pro- MoDo’s environmental policy was up- duction factors. Such an estimate places dated and made more concrete on the More information on the environment: considerable demands on the expertise and following points, among others: MoDo Environmental Report 1996 experience of those who carry out this The demand for “continuous improve- MoDo’s Environmental Report, which is work. Today, we consider that this is best ments” that is incorporated into the EMAS distributed together with this Annual Report, done by the company's own employees and ISO 14001 environmental manage- provides more detailed information on MoDo’s who are familiar with the issues. ment systems was added. The environ- environmental activities. It is available in This year, MoDo reports its environmen- mental demands on suppliers were given Swedish, English, German and French and tal investments in a different way than be- greater precision. may be ordered from fore. As a part of the total cost of environ- MoDo, Group Public Relations, S-891 80 Örnsköldsvik. mental investments we give the level of Waste Tel: +46 (660) 751 31. Fax: +46 (660) 759 70. environmental investments that are inte- A proposal for a tax on waste was presen- http://www.modo.se grated into processes as an estimated amount. ted in Sweden in 1996. This proposal will

Total emissions from MoDo’s Swedish mills Sulphur AOX COD Emissions of sulphur have been reduced to Emissions of chlorinated organic substances, Emissions of dissolved organic substances – COD less than 10 per cent of their level in 1970. measured in AOX, have declined by some – have been reduced dramatically, partly due to 95 per cent since 1970. improved processes and external purification. tonnes/day tonnes/day tonnes/day 60 20 1 000

50 800 15 40 600

30 10

400 20

5 172 10 200 6.5 0.75 0 0 0 1970 1980 1990 1996 1970 1980 1990 1996 1970 1980 1990 1996 At their current low levels, variations in emissions are mainly due to changes in output.

45 Board of Directors

Fredrik Lundberg, Djursholm. Born 1951. Member since 1988. Chairman of the Board. President and CEO of LE Lundbergföretagen AB. Other significant appoint- ments: Chairman of the Board: SIAB and Östgöta Enskilda Bank, Member of the Board: 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 the Board: 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, branch Fredrik Lundberg Carl Kempe Dick Gidlöf 143, Husum. Member of the Swedish Paper Workers’ Union’s Industrial Committee. Member of the Board: Handelsbanken, Husum. Deputy member of the Swedish Paper Workers’ Union’s central board. Shareholding in MoDo: 0.

Johnny Karlson, Hallstavik. Born 1937. Member since 1988. Representative of the employees, 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 Nordstjernan AB. Other significant appointments: Chairman of the Board: BTL AB and Linjebuss. Member of the Board: Catena, Handelsbanken and NCC. Shareholding in MoDo: 0. Johnny Karlson Hans Larsson Arne Mårtensson Arne Mårtensson, Djursholm. Born 1951. Member since 1991. CEO, Handelsbanken. Other significant appointments: Chairman of Swedish Bankers’Association. Deputy chairman: 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 Forest Industries and ARBIO. Member of the Board: Federation of Swedish Industries, Swedish Employers’ Federation and Swedish Forest Industries Association. Thomas Nilsson Bengt Pettersson Per Welin 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 the Board: IDI, Ellos and Ekman & Co. Other significant appointments: Member of the Board: Bylock & Nordsjöfrakt, Linjebuss, LE Lundbergföretagen AB and SIAB. Member of IVA. Shareholding in MoDo: 0.

Christer Zetterberg

Deputy members

Ivar Frohm, Iggesund. Born 1932. Deputy member since 1988. Representative of the employees, 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. Representative of the employees, PTK. Chairman of SALF branch, Hallstavik, and chairman of SALF’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.

Ivar Frohm Torgny Hammar Cennert Nilsson Auditors

KPMG Bohlins AB Principal auditor: Thomas Thiel, Authorised public accountant.

46 Central Group functions

Bengt Pettersson President and Chief Executive Officer Born 1938. Joined MoDo: 1994. Shareholding in MoDo: 2,000 shares. Anders Nordstrand Executive Vice President Technology Born 1935. Joined MoDo: 1970. Shareholding in MoDo: 1,602 shares. Johan Flodström Legal Affairs Bengt Pettersson Anders Nordstrand Johan Flodström Company secretary. Born 1945. Joined MoDo: 1976. Shareholding in MoDo: 500 shares. Ingalill Landfors Personnel Born 1939. Joined MoDo: 1964. Shareholding in MoDo: 0. Christer Lewell Public Relations Born 1948. Joined MoDo: 1987. Shareholding in MoDo: 0. Lennart Svensson Ingalill Landfors Christer Lewell Lennart Svensson Finance Born 1945. Joined MoDo: 1977. Shareholding in MoDo: 0.

Business area presidents

MoDo Paper: Hans Pettersson Born 1951. Joined MoDo: 1991. Shareholding in MoDo: 0.

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

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

MoDo Merchants: Ulf Scharin Hans Pettersson Göran Lundin Erik Sjölund Born 1944. Joined MoDo: 1991. Shareholding in MoDo: 500 shares.

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

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

Ulf Scharin Per Erik Frick Tore Erkén

47 Addresses

Head office MoDo Paper Alizay Iggesund Paperboard Iggesund Timber Mo och Domsjö AB Alicel Iggesund Paperboard AB Iggesund Timber AB (Strandvägen 1) Z.I. du Clos Pré S-825 80 IGGESUND P.O. Box 1203 P.O. Box 5407 F-27460 ALIZAY Sweden S-824 15 HUDIKSVALL S-114 84 STOCKHOLM France Tel +46 650 280 00 Sweden Sweden Tel +33 235027272 Fax +46 650 288 00 Tel +46 650 280 00 Tel +46 8 666 21 00 Fax +33 235021460 Fax +46 650 280 57 Fax +46 8 666 21 35 Iggesund Paperboard AB http://www.modo.se MoDo Paper Iggesunds Bruk Iggesund Timber AB PSM S-825 80 IGGESUND Iggesund Sawmill MoDo Paper (1227, rue Pasteur) Sweden P.O. Box 1203 Boite Postale 319 MoDo Paper AB Tel +46 650 280 00 S-824 15 HUDIKSVALL F-60723 PONT SAINTE (Hörneborgsvägen 6) Fax +46 650 285 32 Sweden MAXENCE S-891 80 ÖRNSKÖLDSVIK Tel +46 650 280 00 France Sweden Iggesund Paperboard AB Fax +46 650 178 65 Tel +46 660 750 00 Tel +33 344704200 Ströms Bruk Telex 6054 Telex 140433 P.O. Box 67 Iggesund Timber AB Fax +46 660 754 09 Fax +33 344725198 S-820 72 STRÖMSBRUK Domsjö Sawmill Sweden (Domsjövägen 82) Holmen Paper MoDo Paper AB Tel +46 650 289 00 P.O. Box 44 Husum Mill Holmen Paper AB Fax +46 650 404 80 S-892 21 DOMSJÖ S-890 35 HUSUM (Vattengränden 2) Sweden Sweden S-601 88 NORRKÖPING Iggesund Paperboard Tel +46 660 750 00 Tel +46 663 180 00 Sweden (Workington) Ltd Telex 6040 Telex 6070 Tel +46 11 23 50 00 WORKINGTON Cumbria Fax +46 660 759 88 Fine paper Telex 50170 CA14 1JX Fax +46 663 184 80 Fax +46 11 23 63 04 Great Britain MoDo Skog Pulp Tel +44 1900 601000 MoDo Skog AB Fax +46 663 184 84 Holmen Paper AB Fax +44 1900 605000 (Hörneborgsvägen 6) Braviken Paper Mill S-891 80 ÖRNSKÖLDSVIK MoDo Paper AB S-601 88 NORRKÖPING MoDo Merchants Sweden Domsjö Mills Sweden MoDo Merhants AB Tel +46 660 750 00 S-891 80 ÖRNSKÖLDSVIK Tel +46 11 23 50 00 (Strandvägen 1) Telex 6054 Sweden Fax +46 11 23 66 30 P.O. Box 5407 Fax +46 660 759 85 Tel +46 660 750 00 S-114 84 STOCKHOLM Telex 6054 Holmen Paper AB Sweden Other addresses Fax +46 660 121 41 Hallsta Paper Mill Tel +46 8 666 21 00 Mo och Domsjö AB S-763 81 HALLSTAVIK Fax +46 8 666 21 07 MoDo Paper AB Sweden (Hörneborgsvägen 6) Silverdalen Paper Mill Tel +46 175 260 00 S-891 80 ÖRNSKÖLDSVIK S-577 02 SILVERDALEN Fax +46 175 264 01 Sweden Sweden Tel +46 660 750 00 Tel +46 495 151 00 Holmen Paper AB Telex 6054 Fax +46 495 401 89 Wargön Paper Mill Fax +46 660 759 70 S-468 81 VARGÖN MoDo Paper Alizay Sweden Alipap Tel +46 521 27 75 00 Z.I. du Clos Pré Fax +46 521 22 38 45 The complete list of addresses F-27460 ALIZAY may be obtained from France MoDo, Tel +33 235027272 Group Public Relations, Fax +33 235020061 S-891 80 Örnsköldsvik, Sweden.

48 Annual General Meeting The Annual General Meeting of Mo och Domsjö AB will be held at Grand Hotel (Vinterträdgården), Stockholm, at 4.00 p.m. on Wednesday, April 9, 1997. Participation in Annual General Meeting Shareholders who wish to take part in the Annual General Meeting shall be entered in the register of shareholders maintained by Värdepapperscentralen VPC AB by no later than Thursday, March 27, 1997 and shall notify the company by no later than 5 p.m. on Friday, April 4, 1997 at: Mo och Domsjö AB Group Legal Affairs S-891 80 Örnsköldsvik, Sweden Notification may also be made by telephone: +46 660 751 41 or by fax +46 660 759 78. Shareholders whose shares are registered in a nominee name should temporarily re-register their shares in their own name with VPC by no later than Thursday, March 27, 1997 to be entitled to vote at the Annual General Meeting. Dividend The 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 shareholders and the special list of pledgees etc. maintained by VPC. Provided the Annual General Meeting resolves in accordance with this proposal, the dividend is expected to be distributed by VPC on Monday, April 21, 1997 to persons listed in the register of shareholders or the special list on the record date.

Shareholders are requested to inform their account operator of any changes of name or address. Financial information MoDo publishes the following financial reports in 1997: February 19: Year-end communiqué – annual results 1996 March: Annual Report 1996 April 29: Interim report for January–March August 14: Interim report for January–June November 5: Interim report for January–September The year-end communiqué and the interim reports are included in MoDo Business Report which is published four times a year. The annual report is sent by Värdepapperscentralen VPC AB to shareholders who have indicated their wish to receive it. MoDo Business Report is sent to all shareholders who are registered with VPC. MoDo’s financial information in Swedish and English may be obtained from: Mo och Domsjö AB Group Public Relations S-891 80 Örnsköldsvik, Sweden Telephone: +46 660 751 31 Fax: +46 660 759 70

MoDo Annual Report 1996 is printed on paper and paperboard produced 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.