Annual Report 2002 H Olmen

Annual Report 2002 H olmen

Annual Report Annual 2002

Holmen AB (publ) P.O. Box 5407 SE-114 84 STOCKHOLM SWEDEN Tel +46 8 666 21 00 Fax +46 8 666 21 30 E-mail: [email protected] www.holmen.com Contents Addresses

The year in brief ______1 ANNUAL REPORT HOLMEN AB

The year in pictures ______2 Profit and loss account______38 Head office (Strandvägen 1) Tel +46 8 666 21 00 Comments by the President and CEO ______4 Balance sheet ______40 P.O. Box 5407 Fax +46 8 666 21 30 Strategy ______6 Cash flow analysis ______42 SE-114 84 STOCKHOLM E-mail: [email protected] Financial targets ______7 Report of the directors______44 SWEDEN www.holmen.com The share______8 Financial risk management ______46

Ten year-review ______11 Quarterly figures ______48 HOLMEN PAPER IGGESUND PAPERBOARD IGGESUND TIMBER HOLMEN SKOG History ______12 Parent company ______49 Holmen Paper AB Iggesund Paperboard AB Iggesund Timber AB Holmen Skog AB Holmen at home and abroad______13 Accounting principles ______50 (Vattengränden 2) SE-825 80 IGGESUND P.O. Box 45 (Hörneborgsvägen 6)

Products and production______14 Definitions of financial ratios______52 SE-601 88 NORRKÖPING SWEDEN SE-825 21 IGGESUND SE-891 80 ÖRNSKÖLDSVIK SWEDEN Tel +46 650 280 00 SWEDEN SWEDEN Human resources ______16 Notes ______53 Tel +46 11 23 50 00 Fax +46 650 288 00 Tel +46 650 280 00 Tel +46 660 754 00 Shareholdings ______60 Fax +46 11 23 63 04 E-mail: Fax +46 650 280 57 Fax +46 660 759 85 Holmen Paper ______18 Proposed treatment of unappropriated earnings ______62 E-mail: [email protected] [email protected] E-mail: [email protected] E-mail: [email protected] Iggesund Paperboard______22 Audit report ______63 www.holmenpaper.com www.iggesundpaperboard.com www.iggesundtimber.com www.holmenskog.com

Iggesund Timber ______26 Hallsta Paper Mill Iggesunds Bruk Iggesund Sawmill HOLMEN KRAFT Holmen Skog ______28 Board of directors ______64 SE-763 81 HALLSTAVIK SE-825 80 IGGESUND P.O. Box 45 Holmen Kraft AB Holmen Kraft ______32 Senior management______66 SWEDEN SWEDEN SE-825 21 IGGESUND (Hörneborgsvägen 14) Annual General Meeting______68 Tel +46 175 260 00 Tel +46 650 280 00 SWEDEN SE-891 80 ÖRNSKÖLDSVIK Holmen and society ______34 Addresses Fax +46 175 264 01 Fax +46 650 285 32 Tel +46 650 280 00 SWEDEN

Holmen and the environment ______36 E-mail: [email protected] E-mail: Fax +46 650 284 48 Tel +46 660 754 00 [email protected] E-mail: [email protected] Fax +46 660 755 10 Braviken Paper Mill E-mail: [email protected] SE-601 88 NORRKÖPING Ströms Bruk SWEDEN P.O. Box 67 Tel +46 11 23 50 00 SE-820 72 STRÖMSBRUK Fax +46 11 23 66 30 SWEDEN E-mail: Tel +46 650 289 00 [email protected] Fax +46 650 289 30 E-mail: Wargön Mill [email protected] Financial information 2003 SE-468 81 VARGÖN Holmen publishes the following financial reports in 2003: The financial information is available in English and Swedish at SWEDEN Workington Mill Holmen’s website, www.holmen.com and may be ordered from: Tel +46 521 27 75 00 WORKINGTON Cumbria 5 February Year end report for 2002 Fax +46 521 27 75 80 CA14 1JX Beginning of March Annual Report 2002 Holmen AB E-mail: GREAT BRITAIN [email protected] Tel +44 1900 601000 The complete list of addresses 7 May Interim report for January-March Group Public Relations P.O. Box 5407 Fax +44 1900 605000 may be obtained from Holmen’s 20 August Interim report for January-June SE-114 84 STOCKHOLM Papelera Peninsular E-mail: website, www.holmen.com under 30 October Interim report for January–September. Parque Industrial LA CANTUEÑA [email protected] Publications. SWEDEN C/del Papel 1 Tel +46 8 666 21 00 The annual report is sent by VPC AB to shareholders who have ES-28947 FUENLABRADA Fax +46 8 666 21 30 indicated their wish to receive it. (Madrid) E-mail: [email protected] The year end and interim reports are included in Holmen SPAIN Tel +34 91 642 0603 Business Report magazine which is published in English and Fax +34 91 642 2470 Swedish four times a year. Holmen Business Report is sent to all E-mail: shareholders who are registered with VPC. [email protected]

This annual report is produced by Holmen in co-operation with LINK Investor Relations, Stockholm, Sweden.

Graphic production: Okidok, Stockholm. Printing: db grafiska, Örebro. Photo: Anders Engman, Rolf Adlercreutz and others. Illustration page 15: Thomas Öhrling/Info AB. Paper: The cover is printed on paperboard, Invercote® Albato 250 gsm, made by Iggesund Paperboard. Inside pages: M-real’s Galerie art silk 150 gsm. Translation: Beck Translations, Stockholm. HOLMEN ANNUAL REPORT 2002 1

The year in brief

 Profit after financial items was MSEK 2,564

 Profit for the year after tax amounted to MSEK 1,959, which corresponds to earnings per share of SEK 24.50

 The return on equity was 13.7 per cent

 The Board proposes payment of a dividend of SEK 11 per share

 A new machine for production of paper for specialist magazines, supplements and direct mail advertising was brought into production at the Hallsta Paper Mill

 Hydroelectric power assets of 541 GWh were bought back.

HIGHLIGHTS, GROUP 2002 2001 CASH FLOW MSEK Net turnover, MSEK 16,081 16,655 4,000 Operating profit, MSEK 2,713 2,446 3,000 Profit after financial items, MSEK 2,564 2,294

Profit for the year, MSEK 1,959 2,186 2,000 Return on capital employed, % 15.5 17.7 Return on equity, % 13.7 16.0 1,000 Earnings per share, SEK 24.50 27.33 0 Dividend, SEK 11.00 * 10.00 98 99 00 01 02 Cash flow before capital Debt/equity ratio 0.25 0.22 expenditure Capital expenditure Capital expenditure, MSEK 3,191 1,715 Excl. divested activities Average number of employees 5,075 5,238

* Proposal of the Board

EARNINGS AND NET TURNOVER OPERATING PROFIT PROFIT FOR THE YEAR DIVIDEND PER SHARE MSEK % MSEK % MSEK % SEK 20,000 25 4,000 24 4,000 24 60

50 16,000 20 3,000 18 3,000 18 40 12,000 15 2,000 12 2,000 12 30 8,000 10 20 1,000 6 1,000 6 4,000 5 10

0 0 0 0 0 0 0 98 99 00 01 02 98 99 00 01 02 98 99 00 01 02 98 99 00 01 02 Net turnover Operating profit Profit for the year Earnings per share Operating margin Return on capital employed Return on equity Ordinary dividend Extra dividend Excl. items affecting comparability Excl. items affecting comparability and divested activities and divested activities Proposed dividend 2 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 3

The year in pictures

olmen announces in June that hydroelectric power assets he new paper machine at the Hallsta Paper Mill starts to pro- Hwith an annual output of 541 GWh of electricity are to be Tduce paper in the first week of April after an installation period bought back for MSEK 1,700. The buy-back relates to power of only 70 days. Here, machine operators Dan Jansson (left) and assets on the river Umeälven and is carried through as Joakim Jönsson check the quality of the paper. of 31 December 2002. Here at the Harrsele power station are Susanne Blomberg (Holmen Kraft) and Göran Sandström new, patented product concept with the working name Secu- (Elektro Sandberg). A rity Board is launched by Iggesund Paperboard at the beginning of the year and arouses great interest. This paperboard can be an effective weapon in the battle against counterfeit packaging for such products as pharmaceuticals, CDs and perfume. 2 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 3

n September, His Majesty the King Carl XVI Gustaf inaugurates olmen is the leading company in Sweden in the field of I the new paper machine in Hallstavik. The King, at the touch of a Hremote forest analysis. Satellite imaging will prove a valuable button, causes a shower of confetti. The ceremony is attended by tool for determining when forests should be cleared or thinned, more than 450 guests from 25 countries. for example. Damaged forests can be quickly identified, and by 2002 it was already possible to obtain an accurate picture taken by satellite of the condition of the forest on the ground.

olmen’s Board decides in March to complete the Iggesund H Sawmill by investing in a new quality grading unit. The new installation is ready for commissioning at the end of 2002. 4 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 5

Comments by the President and CEO

The market for Holmen’s the year in terms of production. Despite a main products was relatively difficult start, production on Hallsta Paper weak in Western Europe in Mill’s new paper machine turned out well, and 2002. The consumption of the quality of its improved newsprint matches newsprint and magazine the high expectations. The new products, on paper declined, while paper- which we are focusing sharply, have been well board consumption received by the customers. remained largely unchanged. Despite this market situa- Higher paperboard volumes tion, Holmen reports a good There is still some excess capacity on the Euro- result, a profit of MSEK pean paperboard market. With this in mind, it 2,564 after financial items is encouraging that our efforts to sell more and earnings per share of paperboard on new markets in 2002, particu- SEK 24.50. larly in Asia and the USA, proved successful. The operating results of We have strengthened the sales organisations our two main business areas and are advancing our position on these mar- showed diverging patterns: kets with the aid of our high quality products. Iggesund Paperboard’s Capacity utilisation rose considerably at both improved to a healthy level Iggesunds Bruk and the Workington Mill. At the that was higher than in latter, production moved in the right direction 2001, while Holmen Paper’s not only in volume terms but also in quality. result declined, although The important market for packaging for under the circumstances it medical products showed further growth. The was still good. demand for paperboard for tobacco products remained stable and Iggesunds Bruk’s new Postponed resource-lean and further improved grades of newsprint expansion paperboard in this segment have been well Göran Lundin. A lower order intake resulted received by the customers. in Holmen having to reduce its production of newsprint and magazine paper. Demand was Ownership of weak, due mainly to a lower advertising intake, forests and power important especially in the case of job ads and brand It is important to have an in-depth understand- advertising. ing of and be well informed about the markets Because of the prevailing demand and uncer- for forest raw materials and power. This is one tainty regarding market developments, the deci- of the reasons why Holmen regards its owner- sion to build a new paper machine at our Span- ship of forest and power assets as strategic. Just ish mill Papelera Peninsular has been postponed how important it is for the Group to have its until further notice. This is not a departure own electric power resources, and so to know from the Group’s strategy of expansion in news- how the power market functions, is something print and magazine paper. We are completing the we were reminded of at the end of 2002. Thanks pre-project and are in the process of acquiring to our own hydroelectric power and hedged the land needed for the machine and the accom- prices, Holmen was not significantly affected by panying infrastructure. the radical increase in electricity prices that The Braviken Paper Mill did very well during resulted from the low water levels in the reser- 4 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 5

voirs at power stations and the cold weather. It The currency is important became apparent to electricity-intensive manu- Exchange rates are one factor among many that facturers in Sweden that the country’s energy determine the international competitiveness of system in its present form is grossly inadequate. Swedish industry. Sweden, after the referendum Holmen, along with Sweden’s other electrici- in September, might be about to replace its ty-intensive industries, has explained the risk of national currency with the euro. Should this electricity shortages, pointing out the necessity happen, it is essential that the exchange rate rep- for reform of the country’s energy policy. resents acceptable terms for Sweden’s exporters.

Efficient sawn timber business Human resources initiatives During the first half of 2003, the Iggesund Saw- If Holmen is to continue to develop successfully, mill will become an efficient unit for the pro- it is important that we have high calibre duction of sawn timber, when the extensive employees. In our efforts to stimulate excellence programme of measures to improve efficiency our managers have a key role to play. For this at the sawmill will be completed. A radical reason, we have initiated a number of activities, reduction in manning levels and steadily including an internal, globally orientated lead- improving production efficiency will bring the ership programme together with IFL − Swedish cost base down to a healthy level for the future. Institute of Management. On the human resources side, we are also Focus on profitability turning our attention to long-term sick leave, The profitability of Holmen’s main businesses which has been on the increase in recent years. has historically been good. The model we use for assessing the Group’s profitability is simple 2003 and is used in practice as an effective control The state of the economy in general has a great instrument. For the business to generate a prof- impact on the demand for Holmen’s main it, the return must be high enough to cover tax products. No real upswing can yet be seen on and capital costs. our principal markets, where the demand for In 2002 Holmen was adversely affected by newsprint and magazine paper is still weak, the slack demand and lower prices, particularly while a slight recovery is becoming apparent on for newsprint and magazine paper that were the paperboard market. caused by the generally weak economic condi- In this situation, Holmen’s profitability, its tions. Swedish exports, however, were boosted strong balance sheet, and its efficient mills pro- by the weakness of the currency. vide a sound platform for our continued efforts, Since we are not expecting any external stim- pending the recovery that will sooner or later uli in the form of a stronger economy and materialise. favourable currency movements in the near future, we have stepped up our efforts to Stockholm 14 February 2003 improve productivity and raise our profitability. Measures have been taken to lower production costs, including efficiency improvements and some reduction in manning levels. Parallel to this, we are working on the possibility of boost- Göran Lundin, President and CEO ing our sales on new markets and via the introduction of new products. 6 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 7

Strategy

Business areas Business Concept Guidelines Holmen’s main product areas are  Holmen’s profitability shall be good, with a Holmen Paper – newsprint and magazine paper for newspa- sustainable, long-term return in excess of the produces and sells newsprint and magazine paper. pers, magazines, directories and advertising market cost of capital print  The financial position shall be strong with a – paperboard for consumer packaging and debt/equity ratio of 0.5–0.7. The ordinary graphical applications. dividend shall correspond to 5–7 per cent of Iggesund Paperboard produces and sells solid In both these areas Holmen has a strong posi- equity. Extra dividend will be paid and bleached board and folding boxboard. tion on the market, which it intends to develop. shares bought back when the capital struc-  Holmen shall grow at a faster rate than the ture and the financing requirements of the market. Attractive products and product business permit  Iggesund Timber development provide the prerequisites for By training and attracting quality employees manufactures and sells growth, both organic and via selective acqui- Holmen guarantees its competence long- sawn timber. sitions term  Holmen focuses on high quality and low  Research and development are focused on Holmen Skog production costs within each product area. developing better products and more effi- has responsibility for procuring wood for the Cost efficiency is achieved by applying large- cient processes based on the customer-needs Group’s Swedish units and for scale production and the high competence of  The operations shall be characterised by a the management of the Group’s forests. the personnel holistic approach, which involves protecting  By owning forests, power and recovered the environment, lean use of raw materials Holmen Kraft has responsibility for the paper collection companies Holmen shall and energy, and the promotion of sustainable procurement of electricity for have knowledge and control of important development. Holmen’s Swedish mills and for the Group’s hydroelectric raw materials regarding purchasing, price, power stations. availability and quality. The business areas are described in detail on pages 18–33.

Holmen Paper is supplier to Spain’s El Pais newspaper. Some of the postcards and greetings cards in the background could very well be printed on graphic paperboard from Iggesund Paperboard. 6 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 7

Financial targets

Profitability targets my and external financing possibilities. The tar- Holmen uses profitability targets to control its get for the debt/equity ratio is 0.5−0.7, and is business. The Group’s business concept and its part of Holmen’s strategic planning. However, core business have historically been profitable. there is no regular fine-tuning to reach the tar- Unprofitable lines of business have been divest- get, and the debt/equity ratio has not exceeded ed or made the subject of restructuring and 0.5 over the past eight years other than in con- rationalisation to return them to profitability. nection with the payment of extra dividends in The potential to improve profitability lies 1999 and 2001. mainly in growth, wherever possible, or through other measures that will strengthen the Dividend target Group’s competitiveness and reduce costs. Holmen intends to pay a stable and relatively The Group uses a simple model for measuring high ordinary dividend. The target is expressed profitability. For the business to be regarded as as 5−7 per cent of the equity. During the past Capital employed at the mills requires a higher risk premium than capital profitable its profit must cover tax and capital eight years the dividend has corresponded on invested in forests and hydroelectric costs. The cost of capital is calculated as the cost average to slightly more than 5 per cent of the power assets. The photo depicts a of debt and equity weighted based on Holmen’s equity. This means that some 40 per cent of reeling machine at the Braviken Paper Mill, as seen from the control debt/equity target. The cost of equity is calculat- Holmen’s earnings per share were paid out in the room. ed based on the long-term interest rate plus a form of ordinary dividends during this period. risk premium adapted to the risk associated Over and above the ordinary dividend, with the business, where the capital employed at Holmen has paid extra dividends on two the mills is given a higher risk premium (5 per occasions, pursuant to decisions by the Annual cent) than that invested in forests and hydroelec- General Meetings in 1999 and 2001. These tric power assets (2 per cent). decisions reflected the wish to pay out to share- Holmen’s business is capital intensive and holders liquid funds that were not deemed to much of the development is made through be necessary for the company’s development. investments in enlarged and improved produc- On both these occasions the debt/equity ratio tion capacity. Cost rationalisation is also often increased to 0.5. the result of investments. To evaluate the profit- The Annual General Meeting has mandated ability of such investments, Holmen uses a Holmen’s Board to buy back the company’s model for calculating the discounted cash flow, own shares. This mandate was not exercised in by which is meant that the estimated future 2002. Holmen bought back shares in 2000, cor- cash flow is discounted with the weighted capi- responding to 10 per cent of the shares in issue tal cost. at the time. These shares were then cancelled in The Group’s weighted capital cost is at present 2001. There is no specific target for share buy- approximately 10 per cent for the mills and backs, but the practice instead has been used as approximately 7 per cent for forests and power a complement to the dividend as a means of assets, calculated before tax. adjusting the capital structure when circumstances were judged to be favourable. Targets for capital structure Holmen shall have a strong financial position with relatively low debt. This ensures a low level of financial risk and enables the company to make sound, long-term commercial decisions relatively independently of the state of the econo- 8 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 9

The share

Share structure Earnings per share Holmen has 80 million shares, divided upon Earnings per share amounted to SEK 24.50 22.6 million Series “A” shares and 57.4 million (2001: 27.33), which corresponds to SEK 23.58 Series “B” shares. Each Series “A” share carries (26.41) after full dilution. Holmen’s stated ten votes and each Series “B” share one vote. earnings per share have averaged SEK 29.30 Otherwise, the shares carry the same rights. over the past five years.

Trading at the stock exchange Dividend The company’s two series of shares are listed on The Board proposes that a dividend of SEK 11 Stockholmsbörsen’s list of most heavily traded per share (10) be paid. Holmen’s target is for stocks. The average number of Holmen’s Series the ordinary dividend to correspond to 5–7 per “B” shares traded each day was 164,000, which cent of the equity. The proposed dividend corre- corresponds to a value of MSEK 37. The aver- sponds to 5.8 per cent of the equity. age number of Series “A” shares traded was 500 per day. Share buy-back Convertibles and warrants issued by Holmen The 2002 Annual General Meeting mandated are quoted on Stockholmsbörsen, where stand- the Board to buy back maximum 10 per cent of ardised put and call options on Holmen’s Series all the shares in the company before the 2003 “B” shares are also traded. During the year, the Annual General Meeting. This mandate has not price of Holmen’s Series “B” shares declined by been exercised in 2002. SEK 27.00 (11 per cent) to SEK 211.50. The Affärsvärlden General Index fell by 37 per cent Other share information in 2002. The stated equity per share was SEK 188 (176) at At the year end, Holmen’s shares had weight- the end of the year. The return on equity was 14 ings of 0.9 per cent and 11.3 per cent in the per cent (16). The stated return on equity has aver- Affärsvärlden General Index and the Commod- aged 16 per cent over the past five-year period. ities Index respectively. Warrant programmes In 1998, a convertible loan and warrants were issued to Holmen’s personnel at market prices.

TOTAL RETURN INCLUDING REINVESTED DIVIDENDS FOR HOLMEN B The conversion and subscription price is SEK AND GENERAL INDEX, NO TAX DEDUCTED 112.70 after adjustments. The conversion and 300 275 subscription rights may be exercised between 250 1 February and 31 March 2004. In the event of 225 full conversion and subscription, 4.2 million 200 new shares will be issued, which corresponds to 175 dilution of 5.0 per cent of the equity and of 1.5 150 per cent of the votes. 125 In September 2002, L E Lundbergföretagen issued 256,000 call options on Holmen’s Series 100 “B” shares to 40 senior company officers. The options were assigned for cash at market price. 75 97 98 99 00 01 02 A similar programme was issued in 1998 with Holmen B General Index (SIXRX) (c) SIX expiry in 2003. 8 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 9

SHARE PRICE DEVELOPMENT AND NUMBER OF SHARES TRADED 350 Holmen A

Holmen B 300 Affärsvärlden Ordinary and extra dividends of SEK 69.00 General Index per share in total are distributed. 250 Number of ”B” shares traded, thousands

200 6,000

4,500

3,000 150

1,500

120 01 02 (c) SIX

2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 Earnings per share 1), SEK Before dilution 24.50 27.33 45.90 20.40 28.20 16.10 22.30 41.30 14.90 –3.60 After dilution 23.58 26.41 44.70 19.90 27.40 16.10 22.30 41.30 14.90 –3.60 Dividend per share, SEK Ordinary dividend 116) 10 9 11 10 9 9 8.50 5.50 0 Extra dividend – – 60 – 35 – – – – – Ordinary dividend as % of Equity 6 6 4 6 5 5 5 5 4 – Closing listed price 5 4 3 4 6 4 5 6 3 – Earnings per share 45 37 20 54 35 56 40 21 37 – P/E ratio 2) 9 9 6 15 6 13 9 3 12 Neg EV/EBITDA 3) 5 5 7 8 5 6 5 3 6 11 Return on 1), % Equity 14 16 24 11 14 9 13 29 12 –3 Capital employed 7) 16 18 15 17 18 16 26 20 13 3 Equity per share, SEK 188 176 213 179 207 184 176 163 127 118 Closing listed price, ”B”, SEK 211.50 238.50 280 307 176.50 205 192 142 173 128 Closing market value, SEK billion 16.9 19.0 22.7 27.3 15.7 18.1 17.1 12.7 15.4 11.0 Highest price quoted during the year, ”B”, SEK 269 298 328 309 275 304 200 243 186 141 Lowest price quoted during the year, ”B”, SEK 185 169 189 165 134 188 140 135 122 84 Beta value (48 months), at year end, ”B” 4) 0.6 0.7 0.8 1.1 1.5 1.5 1.4 1.8 1.6 1.6 Volatility (250 days), at year end, ”B” 5), % 27 41 42 38 44 37 27 26 28 38

1) See definitions on page 52. 2) Closing share price divided by earnings per share. 3) Market value plus net financial debt (EV) at the end of the year divided by profit before depreciation (EBITDA). 4) Measures the sensitivity of the yield on the “B” share in relation to the yield on the Affärsvärlden General Index over a period of 48 months. 5) Measures changes in the price of the “B” share, expressed in percentage terms, over 250 days. 6) Proposal of the Board. 7) Excl. items affecting comparability and divested activities. 10 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 11

The share

SHARE STRUCTURE Votes No. of shares No. of votes Nom MSEK Share ‘‘A” 10 22,623,234 226,232,340 50 1,131.2 ‘‘B” 1 57,349,217 57,349,217 50 2,867.4 Shares in total 79,972,451 283,581,557 3,998.6 Convertibles, ‘‘B’’* 1 3,201,419 3,201,419 50 160.1 Warrants, ‘‘B’’* 1 1,014,000 1,014,000 50 50.7 Total number of shares 84,187,870 287,796,976 4,209.4 *After full conversion and subscription

Changes in Total No. Change in share Total share CHANGES IN SHARE CAPITAL No. of shares of shares capital, MSEK capital, MSEK 1990 Conversion of convertible participations 1 15,681,288 0.0 1,568.1 Conversion KVBs 61,087 15,742,375 6.1 1,574.2 1991 Conversion KVBs 551 15,742,926 0.1 1,574.3 1992 Conversion 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 KVBs 204,285 30,422,681 20.4 3,042.2 1994 Conversion KVBs 3,978,257 34,400,938 397.8 3,440.1 1995 Conversion 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 1997 88,858,278 4,442.9 1998 88,858,278 4,442.9 1999 88,858,278 4,442.9 2000 88,858,278 4,442.9 2001 Withdrawal of shares bought back –8,885,827 79,972,451 –444.3 3,998.6 2002 79,972,451 3,998.6

SHAREHOLDERS AT DECEMBER 31, 2002 % of shares % of votes L E Lundbergföretagen 27.5 52.1 Kempe Foundations 6.4 16.6 AMF pension fund 5.3 1.5 Funds of Robur 4.6 1.3 Handelsbanken incl. pension funds 3.1 8.7 SHB/SPP funds 2.5 0.7 Alecta pension insurance 2.1 0.7 Skandia 1.4 0.4 AFA Insurance 1.3 0.4 Other* 45,8 17.6 Total 100.0 100.0 *of which non-Swedish shareholders 19.3 5.6

OWNERSHIP STRUCTURE Percentage of total No. of shares No. of shareholders no. of shares 1 – 1,000 26,540 6 1,001 – 5,000 1,518 4 5,001 – 10,000 173 2 10,001 – 50,000 216 6 50,001 – 100,000 34 3 100,001 – 63 79 Total 28,544 100 10 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 11

Ten-year review

GROUP 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 Profit and loss accounts, MSEK Net turnover 16,081 16,655 15,155 20,508 22,676 21,878 21,495 24,024 21,320 18,020 Operating costs –12,205 –12,460 –11,843 –16,669 –18,700 –18,244 –16,981 –17,397 –17,331 –15,990 Depreciation according to plan –1,153 –1,126 –1,045 –1,387 –1,507 –1,409 –1,239 –1,151 –1,222 –1,261 Items affecting comparability – –620 2,023 – – – 11 282 –51 – Interest in earnings of associate companies –10 –3 552 163 6 5 4 73 –32 –82 Operating profit after depreciation 2,713 2,446 4,842 2,615 2,475 2,230 3,290 5,831 2,684 687 Net financial items –149 –152 –101 –206 –137 –204 –371 –615 –859 –1,136 Profit/loss after financial items 2,564 2,294 4,741 2,409 2,338 2,026 2,919 5,216 1,825 –449 Tax –605 –108 –769 –595 166 –592 –940 –1,545 –497 193 Profit/loss for the year 1,959 2,186 3,972 1,814 2,504 1,434 1,979 3,671 1,328 1) –256

2) Balance sheets, MSEK Fixed assets 19,636 18,864 18,725 14,861 20,783 19,669 19,148 18,099 17,721 18,010 Shares and participations 1,721 286 230 4,392 148 177 190 641 695 809 Current assets 4,922 5,366 5,330 5,068 8,262 8,220 7,805 8,707 8,207 6,774 Financial receivables 54 33 15 3,395 – – – – – – Liquid funds 634 399 2,000 1,456 1,241 1,636 2,133 1,296 1,140 3,996 Total assets 26,967 24,948 26,300 29,172 30,434 29,702 29,276 28,743 27,763 29,589

Equity 15,073 14,072 17,014 15,883 18,377 16,375 15,670 14,471 11,285 10,281 Minority interests 112 – – – 5 5 5 5 5 5 Deferred tax liability 4,370 4,014 4,264 2,408 2,920 3,419 2,862 2,421 1,938 1,394 Financial liabilities and interest bearing provisions 4,496 3,593 1,721 6,905 4,384 5,505 6,229 7,180 10,247 14,446 Operating liabilities 2,916 3,269 3,301 3,976 4,748 4,398 4,510 4,666 4,288 3,463 Total equity and liabilities 26,967 24,948 26,300 29,172 30,434 29,702 29,276 28,743 27,763 29,589

Ratios (see page 52 for definitions) Debt/equity ratio 0.25 0.22 –0.02 0.13 0.17 0.24 0.26 0.41 0.81 1.02 Equity ratio % 56.3 56.4 64.7 54.4 60.4 55.2 53.5 50.4 40.7 34.8 Interest coverage 18.2 16.1 47.9 12.7 18.1 10.9 8.9 9.5 3.1 0.6 Return on capital employed % 15.5 17.7 15.1 16.7 17.9 15.8 26.0 20.5 13.1 3.4 Return on equity % 13.7 16.0 24.1 10.6 14.4 9.0 13.1 28.5 12.3 –2.7 Operating margin % 16.9 18.4 15.0 12.0 10.9 10.2 15.2 22.8 13.0 4.3 Capital turnover rate 0.8 0.8 0.8 0.9 0.9 0.9 0.9 1.0 0.9 0.8

Capital expenditure, MSEK Shares and participations – 63 7 – – – 35 29 51 31 Other fixed assets excl. company acquisitions 1,486 1,652 1,108 1,988 1,642 1,856 2,257 2,625 1,080 563 Company acquisitions, etc. 1,705 – 2,053 – 915 – 123 – – –

Employees Average number of employees 5,075 5,238 5,275 8,433 9,586 9,849 9,899 9,707 11,122 11,414 Wages, and salaries MSEK 1,705 1,713 1,602 2,410 2,659 2,573 2,497 2,400 2,648 2,628 Social security charges MSEK 641 638 605 934 933 985 954 889 942 908

1) Interest cost of MSEK 37 on KVB is not included.

2) Figures for the period 1993–1999 are not re-calculated in accordance with RR 9 Income taxes. 12 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 13

History

Holmen’s history extends across five centuries. Almost 400 years ago, in 1609 to be precise, Duke Johan of Östergötland laid down the foundations for what was to become Holmens Bruk in Norrköping when he built an arms factory on Kvarnholmen, an island in the Motala ström river. Few Swedish companies can boast that they have been in existence as long as or longer than Holmen.

Like many of Sweden’s other companies that 1915 Holmens Bruk’s new newsprint mill in can trace their origins back for centuries, Hallstavik commences production Holmen has its roots in industrial activities 1917 Iggesunds Bruk commissions Sweden’s first based initially on water and metal ores, and combined sulphite and sulphate pulp mill then on forests and wood. 1936 MoDo’s shares are floated on Stockholms- The history of Holmen thus begins with an börsen Drawings of Holmens Bruk’s first paper arms factory. Iggesund can trace its roots back Iggesund’s shares are listed on Stockholms- machine in plan and elevation. The 1949 machine was commissioned in 1837. to the same century, more precisely to 1665 börsen when Östanå Paper Mill became the first indus- 1951 Mo och Domsjö’s first fine paper mill is trial establishment in the area. In the middle of commissioned in Hörnefors the 18th century the business that was to evolve 1963 Iggesunds Bruk’s first paperboard into MoDo first saw the light of day, with the machine is brought into production commissioning of the Mo water-powered saw- 1972 Mo och Domsjö brings its first fine paper mill in Söderåfors in 1759. machine in Husum into production Mo och Domsjö AB, Holmens Bruk AB and 1977 Braviken Paper Mill starts producing Mo och Domsjö’s first sulphite pulp mill was commissioned in Domsjö in AB Iggesunds Bruk merged in 1988 to form a newsprint 1903. group under the name of MoDo. This name 1986 Holmens Bruk’s paper mill in the centre of was changed to Holmen in 2000. Norrköping is closed down, bringing to an end an industrial epoch on the islands in the Motala Important dates and events ström river after 377 years of uninterrupted 1633 Holmens Bruk’s first mill for handmade industrial activity paper is established on the island of Laxholmen 1988 The Holmen and Iggesund shares are in the river Motala ström delisted from Stockholmsbörsen as a conse- Iggesunds Bruk’s sawmilling epoch 1771 Iggesunds Bruk acquires Östanå Paper quence of the merger of MoDo, Holmen and began in 1870, when a large water- powered sawmill was built in Igge- Mill Iggesund sund. This photo is from 1890. 1837 Holmens Bruk brings its first paper 1993 L E Lundbergföretagen becomes machine into production on Kvarnholmen MoDo’s new main shareholder 1870 Iggesunds Bruk’s sawmilling epoch opens 1999 MoDo and SCA merge their fine paper and with a large water-powered sawmill in Iggesund paper merchanting operations to form the fine 1873 The Mo Bruksägare partnership is paper group, Modo Paper reconstituted into Mo och Domsjö AB 2000 Modo Paper is sold, and the name of 1903 Mo och Domsjö’s first pulp mill opens in the parent company is changed to Holmen AB Domsjö from Mo och Domsjö AB. Holmen acquires 1907 Holmen’s shares are floated on Stock- Papelera Peninsular. holmsbörsen 12 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 13

Holmen at home and abroad

EXTERNAL NET TURNOVER BY MARKET, % Head office Rest of the world Production sites Rest of Europe 10 Sweden 7 24 Sales, distribution etc. Other EU countries 8

Holmen Paper Italy 4 5 Iggesund Paperboard Holland 17 5 the UK Iggesund Timber StrStrömsbrukömsbruk France Iggesund 8 12 Holmen Skog Spain Hallstavik Germany Holmen Kraft Stockholm EU countries 83 Vargargönön NorrkNorrköpingöping

Workington EXTERNAL NET TURNOVER BY BUSINESS AREA, %

Holmen Kraft Holmen Skog 2 13 Iggesund Timber 4

x 51 Holmen Paper

Madrid Iggesund 30 Paperboard xx

In addition to their European offices, Holmen Paper has sales offices in Australia, Japan and the USA, and Iggesund Paperboard has offices in Hong Kong, Singapore and the USA.

OPERATIONS IN DIFFERENT COUNTRIES Net turnover* Capital expenditure Average No. of MSEK MSEK employees 2002 2001 2002 2001 2002 2001 Sweden 13,448 14,119 3,059 1,484 3,997 4,108 Australia – – – – 3 3 Belgium 2 1 – – 4 4 Denmark 4 2 – – 3 3 Estonia – – 6 1 16 25 France 30 20 1 – 26 22 Germany 48 38 – 1 20 20 Holland 235 241 7 6 136 139 Hong Kong – – – 2 5 5 Ireland 2 3 – – 1 1 Italy 10 8 – – 4 3 Poland 6 5 – – 4 – Portugal 1 1 – – 1 1 Singapore – – – – 6 7 Spain 772 889 71 148 251 236 Switzerland 8 5 – 1 7 8 the UK 1,737 1,586 46 71 580 646 USA 5 3 1 1 11 7 Non-allocated 27 20 – – – – Intra-Group sales –254 –286 – – – – Total 16,081 16,655 3,191 1,715 5,075 5,238

*Relates to turnover in countries where Holmen has activities. 14 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 15

Products and production

Product benefit Production, raw materials and energy Newsprint, magazine paper and paperboard are Holmen’s raw materials consist, for instance, of used in the production of printed matter. They wood (pulpwood and saw timber), purchased render the printed word and pictures in both pulp and recovered paper. The Group obtains colour and black and white, and in this way energy from its wholly and part-owned hydro- convey information, initiate communication electric power stations, or by buying electricity, and sell goods and services. Paperboard pack- as thermal energy and in the form of counter- aging not only protects products but also sells pressure power from the mills. Energy is also and describes the contents. Sawn timber is produced by the combustion of fossil fuels, such converted into beautiful components designed as oil and natural gas, and biofuels in the form specifically for the home environment. of recovered liquor, bark and wood. The figures The products are based on renewable raw relate to Holmen as a whole and are based on materials from the forest. They can be recov- the production of newsprint and magazine ered as material for new products or used as paper, paperboard and sawn timber together biofuel for energy production. with the raw materials and energy used in the production processes. Brand names HOLMEN TOTAL Holmen’s products are marketed and sold mainly on the basis of their functional qualities. News- Production, 1,000 tonnes 2002 2001 Newsprint, standard 766 746 print and magazine paper, and also graphic MF Special 540 589 paperboard, are characterised by such features as SC paper 130 132 good runnability and printability in printing Coated printing paper 105 119 Solid bleached board 267 230 machines. Converters of paperboard into packag- Folding boxboard 191 173 ing appreciate qualities that make, for instance, Sulphate pulp attractive embossing possible. In comparisons (to external customers) 44 33 Sawn timber, 1,000 m3 199 299 with the products of other manufacturers the customer also factors in price, ability to deliver the Raw materials consumption 3 right goods at the right time, and service in the Wood, million m 4.42 4.65 Purchased broad sense. pulp/paperboard, 1,000 tonnes 146 153 Holmen’s products are also marketed with Recovered paper, 1,000 tonnes 622 608 the aid of several brand names, the most com- Plastic granules, 1,000 tonnes 2.4 2.7 Process water, million m3 66 64 mon of which are illustrated on the next page. Chemicals, 1,000 tonnes 175 169 Filler, pigment, 1,000 tonnes 213 197

Energy consumption Fossil fuels (oil and natural gas), TJ* 6,100 5,000 Biofuels, (recovered liquor, bark and wood), TJ 10,800 10,560 Recovered thermal energy, TJ 2,770 3,220 Purchased thermal energy, TJ 2,060 2,100 Purchased electricity, GWh** 2,930 2,800 Wholly and part-owned hydroelectric power, GWh 1,048 1,362 Counter pressure power, GWh 446 301

* TJ – terajoule, 1,000 GJ (gigajoule). 1 TJ has a thermal value to The ability to deliver the right products at the right time and provide high quality service in general is around 26 m3 heating oil. a characteristics that is much appreciated by customers. ** GWh – gigawatt hour. 1 GWh is 1 million kilowatt hours. 14 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 15

Holmen’s products have their Wood is procured by harvesting in Purchase and production of electricity at origins in the forest and wood company forests, by purchasing from 23 wholly and part-owned hydroelectric fibres in the form of wood and/or its 30,000 or so suppliers and as power stations and in the mills’ counter- recovered paper. This bird’s eye imports. pressure plants. view of Holmen illustrates how the products come about and gives a few examples of how end- consumers come into contact with them.

Procurement of electricity for Holmen’s Swedish mills. Sale of wood to Procurement of wood for external customers. Holmen’s Swedish mills. Many of Holmen’s products are shipped abroad by sea. Recovered paper is imported regularly.

Production of sawn timber at one sawmill with a total capacity Production of 3 Production of 200,000 m newsprint and of SBB and a year. magazine paper FBB on four on nine paper board machines with a machines total capacity of with a total 1,810,000 tonnes Sawn timber is capacity of a year. used in the 525,000 manufacture of tonnes a furniture, stairs, year. doors, floors, windows etc.

Paperboard is used The paper is turned in consumer into newspapers, packaging and for When you sit at your wooden magazines, graphic purposes. table at home or in the office, directories, direct it’s possible that it and the mail advertising chairs around it are made of and books. sawn timber from Iggesund Timber.

When you read a Paperboard newspaper or a for chocolate magazine, the boxes is one of paper might be Iggesund made by Holmen Paperboard’s Paper. products.

The most common brand names used by Holmen are:

Monolit HOLMEN NEWS Invercote Newsprint Quatrolit Sawn timber HOLMEN COLOURED NEWS} Invercote Albato Solid bleached board (SBB) Relax } HOLMEN PLUS Invercote Creato } Improved newsprint HOLMEN XLNT } Incada Silk Folding boxboard (FBB) HOLMEN GUIDE Telephone directory paper Incada Exel } SCANMAG Uncoated printing paper SCANGLOSS SCANMATT Coated printing paper SCANPLUS } 16 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 17

Human resources

Holmen’s aim is to be an attractive employer. gramme for graduate recruits is to inform those This is also part of the Group’s strategy, the involved about the Group’s goals, values and focus of which includes: business. The programme is also designed to  achieving cost efficiency by maximising the help them build professional and social net- competence of the employees works and to develop their sense of affinity with  ensuring that the Group maintains this level the Group. Some 50 employees from the Swed- of competence in the long term by developing ish units took part in the programme, which is and attracting skilled personnel. arranged every year. In 2002, the human resources activities were To make it easier for employees to build both focused on the following areas: a career and a family, the Group tops up their – Profiling towards students and the induction parental allowance over the statutory 7.5 x base- of graduate recruits amount, to up to 80 per cent of their salary. – Internal labour market – Management and leadership development Internal labour market – Good health – everyone’s responsibility Holmen has established an internal labour mar- – Competence development and learning. ket policy to stimulate internal mobility. The object is for the Group to make it easier for Profiling towards students employees who wish to move to a new job and the induction of graduate recruits within the Group and to support them in their The activities in relation to universities are seen as ambitions. Holmen has also updated its foreign a long-term profiling campaign directed towards service policy to facilitate the mobility across students. The extent and focus of these efforts are land-frontiers. governed by long-term and strategic competence requirements. Holmen had a strong visible pres- Management ence at such institutions during the year. and leadership development As in previous years, a campaign focusing on Each unit has listed managers with promotion “technology for school girls” was carried out in potential and prospective managers and these selected towns with the object of stimulating lists have been co-ordinated. This process will girls’ interest in technical courses when choos- be repeated each year. ing their upper secondary education. The number of female managers has doubled The object of the Group’s new induction pro- in two years to around 30, giving the company a sound base from which to recruit more women to senior managerial positions. An international Group development programme for middle and senior managers is being arranged for the first time in 2002 and 2003. The object of the programme is to develop managerial and leadership skills and to agree on a common approach to strategic issues. Leadership development programmes were held at a number of mills for first-line managers and shift managers. The programmes focused on roles, responsibilities and the necessary key Iggesund Timber’s “Learning to Learn” training programme. From left: Stefan Persson and his brother Peter, Mikael Wallin, and the course leader Margaretha Wiberg, from Lernia. competence. 16 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 17

AVERAGE NUMBER OF EMPLOYEES

6,000

5,000

4,000

3,000

2,000

1,000

0 98 99 00 01 02 Excl. divested activities

The Labour Market Day at Norrköping’s university campus. Niclas Schiller from the Braviken Paper Mill (right) describes Holmen to a couple of students.

Good health – everyone’s responsibility doing mitigate the consequences of redun- AGE STRUCTURE A serious problem in society and at Holmen is dancy OF ALL EMPLOYEES

the dramatic rise in long-term sick leave.  Training drives for operators and mainte- 800 “Improved health – everyone’s responsibility” nance personnel is the title of the bipartite working group set up  The training of “front-office” personnel in 600 to try to identify reasons for this rise. The work- communication technology to enable them to 400 ing group hopes to reverse this trend by passing better understand customer needs

on experience and information about work-  Programmes for guaranteeing the compe- 200 places applying the best practice both within tence of production personnel. and outside the Group. A pilot project has been launched to stimulate 0 55-59 65-69 20-24 25-29 30-34 40-44 45-49 50-54 60-64 Employees are encouraged and supported in interest in various kinds of competence devel- 35-39 2001-12 various ways to increase their personal respon- opment. Its aim is to have 5 per cent of avail- 2002-12 sibility for staying healthy and fit. The company able time dedicated to competence development. health service will also be given a clearer man- The project includes study trips, seminars, date and will be integrated more effectively project activities and participation in testruns. than before into the business. Total sick leave in the Group reached 6.7 per Union co-operation cent during 2002. The target for 2004 is to get Union co-operation is conducted at Group level PERSONNEL TURNOVER RATE, PERMANENT this figure back to the level of 1998, which was as well as in consultation groups at each unit. EMPLOYEES % 4.8 per cent. The working practices were developed during 8 the year. Bipartite groups have been formed to Competence development and learning handle employee survey, good health, equality 6 Local development activities were arranged of opportunity and the work environment. 4 during the year at all Group units. These includ-

ed: Employee survey 2  Mentor programmes for managers and spe- A survey of all employees in Sweden is carried cialists, and for women in traditionally male- out at the beginning of 2003 with the object of 0 otal dominated occupations gauging the result of the various measures taken T Pension otal excl. T Imperative nal mobility nal mobility  Courses in “learning to learn” to stimulate and identifying areas in need of improvement. Own choice Inter 2001-12 inter an interest in continued studies, and in so 2002-12 18 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 19

Holmen Paper

Holmen Paper produces and sells newsprint and magazine paper with virgin fibre and/or recycled fibre as the raw materials. Holmen Paper is one of the main suppliers to numerous daily newspaper and magazine publishers in Sweden, Spain, Germany, the UK and other countries. The company has a strong market position, particularly in the improved newsprint, telephone directory paper and coloured newsprint product areas.

Hallsta Paper Mill Operations in 2002 Capital expenditure amounted to MSEK 1,121 Net turnover amounted to MSEK 8,164, which (1,418). This related mainly to the new paper may be compared with MSEK 8,757 in 2001. machine in Hallstavik. The investment cost of The operating profit amounted to MSEK 1,664 this new machine, the first in the world desig- Raw material: Sprucewood, (2,410). The decline in the result is mainly ned from the start to produce improved recovered paper explained by lower prices, and the general newsprint, was MSEK 1,850. Minor investment Products: Newsprint, MF Magazine, SC paper and book paper weakness of the economy, which tended to projects were carried out as planned at the Bra- Capacity: 785,000 tonnes/year reduce advertising orders and compel custom- viken, Wargön and Peninsular mills. Average No. of employees: 1,036. ers to take cost-reduction measures. The market for newsprint and magazine paper Market conditions Braviken Paper Mill remained weak throughout the year. Total delive- Deliveries of newsprint and magazine paper to ries of newsprint to Western Europe were 6 per Western Europe expanded very strongly during cent lower than in the previous year. Demand for the 1990s. This trend culminated in 2000, a SC paper and coated printing paper was more year when paper was generally in short supply Raw material: Sprucewood, stable, but additions to capacity – above all in the and prices rose sharply. The first signs of a more recovered paper Products: Newsprint, coloured news- coated segment – reduced capacity utilisation. subdued market were emerging in the USA print and telephone directory paper The prices of newsprint and magazine paper in already towards the end of 2000, while the eco- Capacity: 725,000 tonnes/year Average No. of employees: 734. Europe declined with few exceptions at the nomic slowdown in Europe did not become evi- beginning of 2002, but then remained largely dent until after the first quarter of 2001. Both Wargön Mill stable for the rest of the year. In the early sum- 2001 and 2002 were weaker years than 2000, mer there was a sharp increase in recovered although it should be kept in mind that 2000 paper prices in Europe. The price fell back, but was an exceptionally strong year. not to the same level as before the increase. Capacity utilisation at Holmen Paper was limited Market position Raw material: Sprucewood Products: Coated printing paper, due to the order situation and the installation Extensive structural changes occurred through- MWC, on reels and in sheets and running-in of a new paper machine at the out the 1990’s. Holmen Paper now ranks fifth Capacity: 130,000 tonnes/year Average No. of employees: 375. Hallsta Paper Mill. as a supplier in Europe, having been one of the

Papelera Peninsular SUMMARY 2002 2001 PRODUCTION AND DELIVERIES Net turnover, MSEK 8,164 8,757 Production Deliveries Operating profit, MSEK 1,664 2,410 1,000 tonnes 2002 2001 2002 2001 Operating capital (average), MSEK 9,850 9,138 Newsprint, standard 766 746 763 721 Raw material: Recovered paper Return on operating capital, % 16.9 26.4 MF Special 540 589 532 565 Products: Newsprint, MF Magazine Cash flow before cap. exp., MSEK 2,440 2,936 SC paper 130 132 129 130 and lightly coated magazine paper Capacity: 170,000 tonnes/year Capital expenditure, MSEK 1,121 1,418 Coated printing paper 105 119 104 109 Average No. of employees: 223. Average number of employees 2,528 2,494 Total 1,541 1,586 1,528 1,525 18 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 19

NET TURNOVER MSEK % 10,000 50

8,000 40

6,000 30

4,000 20

2,000 10

0 0 98 99 00 01 02 Net turnover Operating margin

OPERATING RESULT MSEK % 3,000 50

2,400 40

1,800 30

1,200 20

600 10

0 0 98 99 00 01 02 Operating profit Return on operating capital

CASH FLOW MSEK 3,000

2,400

1,800 The football World Cup, which was played in Japan and South Korea, was won by Brazil. England’s The Times newspaper printed its thick and lavishly illustrated World Cup supplement on paper from Holmen Paper. 1,200

600 very largest companies at the beginning of that Market structure 0 98 99 00 01 02 decade. The share of the newsprint capacity is Holmen Paper’s product range has traditionally Cash flow before capital expenditure just under 9 per cent. Holmen Paper is well to been focused on daily newspaper publishers. Capital expenditure excl. acquisitions the fore in the MF Special segment – coloured The healthy potential for development within Capital expenditure incl. newsprint, telephone directory paper and MF Magazine and the commissioning of the acquisitions MF Magazine with special grades for coldset, new paper machine at the Hallsta Paper Mill, CAPITAL EXPENDITURE MSEK % heatset and gravure printing – where its market coupled with the investment in lightly coated 2,800 20 share is much higher. In the case of SC paper magazine paper at Papelera Peninsular, the 15 and coated printing paper, the market share is Group’s Spanish unit, will make magazine 2,100

low, but the products nonetheless play a valu- publishers and commercial printers an increas- 1,400 10 able complementary role in Holmen Paper’s ingly important customer segment. However, product portfolio. the sales to daily newspaper publishers are and 700 5 Holmen Paper’s competitors are UPM-Kym- will remain the core of the business. 0 0 mene, Stora Enso, Norske Skog, SCA and Myl- In coming years, daily newspapers are ex- 98 99 00 01 02 Capital expenditure excl. acquisitions lykoski. pected to generate growth in paper consump- Capital expenditure incl. acquisitions Depreciation according to plan tion of just under 2 per cent a year, which is in Cap. exp. (excl. acq.) as % of turnover 20 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 21

Holmen Paper

MARKET POSITION line with the historical average. In the case of most part, this was due to the absence of alter- MF Special West European producers daily newspapers, the volume growth in absolu- native products for the market. As new pro- Capacity/year,

1,000 t te terms will largely be in standard newsprint, ducts have been developed, these segments have 1,000 although in relative terms the growth rate will become increasingly interesting, and in recent 800 be higher in MF Magazine and particularly in years Holmen Paper has gradually established a

600 coated printing paper. Holmen Paper has a position. Latterly, the segments have noted healthy potential to develop together with its rapid and positive volume growth, a pattern 400 daily newspaper customers. The planned, but that is expected to be repeated in the coming 200 not yet approved, expansion in Spain would decade, particularly in the fastest growing seg-

0 boost Holmen Paper’s newsprint volumes and ment, namely commercial print.

Palm thus strengthen its market position. Holmen Paper is very well placed to increase

Holmen

Myllykoski

Stora Enso The market for directory paper is well conso- the volumes, not least now that it can offer new

Norske Skog

UPM-Kymmene lidated with only a few actors. Holmen Paper products such as XLNT, MF gravure and lightly has been expanding strongly ever since the early coated magazine paper, complemented with SC MARKET POSITION 1990s. Telephone directory paper has shown a and coated printing papers. Newsprint and magazine paper West European producers more stable consumption pattern than other Capacity/year, 1,000 t grades as it is less sensitive to cyclical fluctua- Research and development 8,000

7,000 tions. The growth rate is expected to match that The Holmen Paper Development Centre (HPD)

6,000 for daily newspapers, i.e. around 2 per cent per is part of the Holmen Paper business area. HPD 5,000 year. The Yellow Pages have retained their co-ordinates development resources for product 4,000 strength as an advertising medium in relation to development at all four mills (Hallsta, Braviken 3,000 other media. Parallel to this, the white pages, Wargön and Peninsular). In addition, there is a 2,000

1,000 which are not financed by advertising, and focus on the development of mechanical pulp

0 which only include names and private telepho- and de-inked pulp with the object of creating

Palm

Bu ne numbers, will in the longer term come up more effective process solutions and supporting

Holmen

Myllykoski Stora Enso against fierce competition from new technology. the product development activities.

Norske Skog UPM-Kymmene One area in which Holmen Paper’s position In 2002, the total cost of Holmen Paper’s has been relatively weak is the magazine publis- research and development activities, including hing and commercial print segments. For the external projects and the costs incurred on joint

What better way for commuters to pass the time than by having read a newspaper? 20 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 21

research with institutions, universities and suppliers, amounted to MSEK 50.

Long-term investments The decision to build a new newsprint machine at Papelera Peninsular, the Group’s Spanish mill, has been postponed until further notice. The main reason for this is that the recovery of the newsprint market appears to be taking longer than expected. The pre-project, which includes a recovered paper-based newsprint machine with an annual capacity of 400,000 tonnes, will be completed and it is intended to go ahead with the necessary land purchase. Holmen Paper’s business plan for the next few years includes several other important projects. Their purpose is to further develop and/or

maintain existing production and quality levels The market for MF Magazine for direct advertising products directed towards consumers is growing at the Swedish mills. An investment of MSEK at a very healthy rate. 80 in developing the quality of the coated printing paper produced by the Wargön Mill has already been approved.

Hallsta Paper Mill’s PM 11 It took only 70 days during the first quarter of 2002 to dismantle and remove a 35-year old paper machine at the Hallsta Paper Mill and install an entirely new one in its place. The new paper machine was brought into production as planned at the beginning of April and after a running-in period during the spring and summer, the machine was inaugurated in September

by H.M. King Carl XVI Gustaf. Hallsta Paper Mill’s new PM 11 paper machine, which has been specifically designed to produce PM 11 has been specifically designed for the MF Magazine, was brought into production at the beginning of April 2002. Hallsta Paper Mill, and incorporates the latest technology. The machine is built according to a new concept that will enable it to reach very high production rates. With its rated capacity of 330,000 tonnes per year, PM 11 is the largest MF Magazine machine in the world. The paper is intended for newspaper supplements, specialist magazines, and direct advertising products, segments where steady long-term growth is likely. 22 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 23

Iggesund Paperboard

Iggesund Paperboard produces and sells solid bleached board (SBB) and folding boxboard (FBB), using only virgin fibre as a raw material. Iggesund Paperboard is market leader in the very highest quality segments. The paperboard is used as packaging for food, cosmetics, pharmaceuticals, tobacco and confectionery, and for graphical applications.

Iggesunds Bruk Operations in 2002 growth has been running at around two per Net turnover increased to MSEK 4,850, which cent a year. may be compared with MSEK 4,467 in 2001. In some segments of the market, such as The operating profit increased to MSEK 818 packaging board for cosmetics and confectione- Raw material: Softwood and hard- (455) as a result of higher volumes and lower ry and graphic paperboard, the annual growth wood variable and fixed costs. rate has been higher, 3−5 per cent. The largest Products: Solid bleached board for packaging and graphic purposes The market for virgin fibre-based paperboard in markets in Europe for SBB and FBB are Germa- Capacity: Paperboard 300,000 Western Europe grew by one per cent. Strong ny (23 per cent of consumption), the UK (22), tonnes/year. Market pulp: 50,000 tonnes/year. exports to non-European markets resulted in a and France (11). The fastest growing markets Average No. of employees: 818. high capacity utilisation. Iggesund Paperboard’s are Asia as well as Central and Eastern Europe, deliveries rose by 10 per cent. with Asia being the most important in volume Workington Prices were increased towards the end of 2002. terms, with an annual growth rate of around 6 Capacity utilisation rose during the year to 91 per cent. Iggesund Paperboard’s market shares per cent (80). in Asia and the US are low and the growth Capital expenditure amounted to MSEK 227 potential is believed to be favourable. Raw material: Sprucewood and (249). The year was characterised by a number Demand moves in line with private consump- purchased sulphate pulp Products: Paperboard for of minor investment projects. Installation of a tion with the competition for customers driving packaging and graphic purposes new caustisizing plant began at Iggesunds Bruk. the need to develop packaging with improved Capacity: 225,000 tonnes/year Average No. of employees: 521. marketing functions. Other key driving forces Market conditions include increasing urbanisation and changes in Ströms Bruk The global consumption of paperboard household size. Growing world trade is also amounts to around 28 million tonnes a year. generating a need for more distribution and The market for the grades of virgin fibre paper- packaging units. board produced by Iggesund Paperboard - solid The process of consolidation amongst custom-

Raw material: Paperboard from Igge- bleached board and folding boxboard – ers and competitors is continuing, and the abili- sunds Bruk and Workington, purcha- amounts to some 8 million tonnes. The annual ty to satisfy increasingly differentiated product sed plastic granules, foil etc. Products: Plastic-coated and lamina- consumption in Western Europe of these two and service requirements at low cost will have a ted paperboard grades is some 2 million tonnes and the market decisive impact on competitiveness. During the Capacity: 40,000 tonnes/year Average No. of employees: 130.

SUMMARY 2002 2001 Net turnover, MSEK 4,850 4,467 Operating profit, MSEK 818 455 Operating capital (average), MSEK 4,162 4,956 PRODUCTION AND DELIVERIES Return on operating capital, % 19.6 9.2 Production Deliveries Cash flow before cap. exp., MSEK 1,328 877 1,000 tonnes 2002 2001 2002 2001 Capital expenditure, MSEK 227 249 Paperboard 458 403 453 410 Average number of employees 1,850 1,930 Sulphate pulp – – 44 33 22 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 23

NET TURNOVER MSEK % 5,000 20

4,000 16

3,000 12

2,000 8

1,000 4

0 0 98 99 00 01 02 Net turnover Operating margin

OPERATING RESULT MSEK % 800 20

600 15

400 10

200 5

0 0 98 99 00 01 02 Operating profit Return on operating capital

CASH FLOW MSEK 1,400

1,200

1,000 One of Wrigley’s latest chewing gum products, X-cite, was launched in a new packet with a lid that requires highly formable paperboard. Their choice fell on Invercote from Iggesund Paperboard. 800

600

400 coming years additions to capacity are expected showing results, and deliveries to Asia and the 200 to match long-term market growth. USA now account for 10 per cent of Iggesund 0 98 99 00 01 02 Paperboard’s total deliveries. The plan is to Cash flow before capital Market position advance the company’s position on these mar- expenditure Capital expenditure Iggesund Paperboard’s market position in Wes- kets.

tern Europe remained largely unchanged. The Stora Enso and M-real are Iggesund CAPITAL EXPENDITURE MSEK % new Incada range of folding boxboard products Paperboard’s main competitors in Europe. On 800 20 from the mill in Workington was particularly other markets, the main competitors are two successful on the market. In the UK, which is North American paperboard producers, Inter- 600 15 Europe’s largest folding boxboard market, national Paper and Westvaco. 400 10 Incada raised its market share and so strengthe-

ned Iggesund Paperboard within the more Market structure 200 5 demanding segments of the folding boxboard The market for graphic paperboard weakened. 0 0 market. The slackening in demand was due for the most 98 99 00 01 02 Capital expenditure Market investments and the strengthening of part to a weak advertising market and a lower Depreciation according to plan Capital expenditure as % of the sales organisations in Asia and the USA are level of marketing activity in industry. Iggesund turnover 24 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 25

Iggesund Paperboard

MARKET POSITION Paperboard’s deliveries to this market outper- New logistical solutions Virgin fibre-based paperboard (SBB and FBB) formed the market as a whole, much due to suc- Iggesund Paperboard is devoting great energy West European producers Capacity/year, cess of the new products from Workington. to offering customers advanced logistical solu- 1,000 t 1,000 Sales within the graphic segment are largely tions that will satisfy the demand for shorter channelled through independent merchants on lead times, guaranteed delivery times and less 800 account of the extremely large number of end administration. Several pilot projects intended 600 customers. Iggesund Paperboard supplies an to develop service were set in motion.

400 extensive network of merchants that cover most markets. The merchants’ interest in Iggesund Research and development 200 Paperboard’s products is motivated by their Iggesund Paperboard’s research and develop- 0 high and consistent quality as well as the range ment has very high priority and is essential for

eal

M-r

Holmen of the product portfolio. the continued development and consolidation

-Melnhof

Cascades

Stora Enso

Mayr Pharmaceutical packaging. Within the packag- of the company’s position as market leader ing segment, sales to the pharmaceutical indus- within the very highest quality segments of the try continued to increase. The most significant paperboard market. factors behind this are the expanding range of Within Holmen the research and develop- non-prescription products available and the ment organisation is decentralised to business fact that the population is ageing. area level. In addition to development depart- The market for pharmaceutical packaging ments at Iggesund Paperboard’s mills, there is has been growing by just over 4 per cent a year also a group-wide development centre – Paper- in recent years, with the fastest growth in the board Development Centre (PDC) with a focus UK and Germany. Invercote, which is Iggesund on surface treatment of paperboard. Paperboard’s umbrella brand name for SBB, is For the past two years the development work used when the customer is looking for a combi- has been based on a new model, which ensures nation of elegance and performance for exclusi- that the development work has the strong sup- ve packages. Design features, such as formabili- port of, and influence from the marketing orga- ty and printability, determine how competitive nisation. a package is. These characteristics are in grea- In 2002, the total cost of Iggesund test demand within the cosmetics sector, where Paperboard’s R&D, including the cost of joint the packaging needs to reflect the elegance and projects with universities, research institutions exclusivity the product is intended to represent. and suppliers, amounted to MSEK 41. Stable tobacco segment. Demand within the Security board against counterfeiting. During tobacco segment was stable. The market is cha- the year, PDC carried out extensive develop- racterised by a small number of large, interna- ment work on its pilot coating unit. This has tional customers with extremely high quality resulted in a number of customer-specific pro- and service demands. The trend towards greater duct applications and a patented method for the use of hard packets (made of paperboard) in- production of security board. This concept, stead of soft packets (made of paper) and the which involves the unique marking of paper- increasingly rigorous demands when it comes to board, is valuable for customers in combating packaging design – in part as a means of com- counterfeiting and brand name infringement. bating counterfeiting – are driving the demand Workington. Measures were focused on the opti- for high quality paperboard. misation of product characteristics and quality 24 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 25

consistency for the new family of Incada products. The favourable reception of the new products on the market was further confirmed and strengthened during the year. Iggesunds Bruk. The steps being taken to launch the new grades of Invercote board for tobacco products were accelerated. These grades, which have now gained acceptance among customers, combine an improved grammage/stiffness ratio with improved conversion and printing qualities. Within the packaging board and graphic board segments, efforts were focused on product maintenance, that is to say improvements to the features of existing products. Ströms Bruk continued its development work on new plastic-coated products based on paperboard from Workington and Iggesunds Bruk. The development projects were carried out in close collaboration with the marketing organisation and key customers. The main areas for development are technical sales support, product maintenance, and identification of new end-use areas, as well as new product development.

Long-term capital expenditure At Workington, measures were directed mainly Rigorous demands for odour and taste neutrality are made on the paperboard used for packaging foods. In addition to attractive pictures and texts, the package also often has to carry instructions on towards optimising the characteristics of the how to prepare the contents. new Incada family and improving production efficiency. Rationalisations have been made, which has At Iggesunds Bruk work began on the con- resulted in a smaller and more streamlined struction of a new caustisizing plant. The pro- administration. At the same time the focus of ject is intended to reduce energy consumption the organisation has been that the shift teams and to improve efficiency and will be concluded will have the operative responsibility and the in 2004. other departments will function as support staff.

Favourable progress at Workington Productivity was improved at the Workington mill in 2002. A series of monthly production records was noted during the autumn. As a result of the higher productivity, together with improvements in product consistency, Incada raised its share of the market in the UK. 26 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 27

Iggesund Timber

Iggesund Timber produces and sells sawn redwood timber to industrial customers that manufacture consumer products. The joinery and furniture industries, manufacturers of solid-wood flooring, planing mills, and builders merchants rank among Iggesund Timber’s main customers.

Iggesund Sawmill Operations in 2002. The growth in total construction was lower in Net turnover amounted to MSEK 572, which 2002 than in 2001. There is currently good rea- may be compared with MSEK 712 in 2001. son to expect the sawn timber market to be The operating result was a loss of MSEK 6 (loss strong.

Raw material: Pinewood 79). The improvement is mainly attributable to Nordic sawn timber is used mainly by the Product: Sawn timber lower costs. European construction and joinery industries. Capacity: 200,000 m3/year Average No. of employees: 119. The market for sawn timber in Europe grew by Japan and the USA are standing out as increa- 1-2 per cent in relation to the previous year. singly important complementary markets, During the second half of the year, the market taking some 10 per cent of Sweden’s total pro- was characterised by low stocks at the produc- duction of sawn and planed timber. tion and import stages. Iggesund Timber’s customers are mainly in The total volume of redwood products from the joinery and furniture industries, manufactu- Iggesund Timber declined by 8 per cent, while rers of solid wood flooring, planing mills, and prices rose by 3 per cent. Iggesund Timber alte- builders merchants. The main markets, which red its product mix during the year, raising the take some 75 per cent of delivery volumes, are proportion of standard timber. the UK and Scandinavia, with Italy, Spain, Prices were raised successively on all markets North Africa and the Middle East providing and the effects of this showed through in the complementary markets. fourth quarter of 2002. Capital expenditure amounted to MSEK 65 (13), Research and development and related mainly to the completion of the Iggesund Timber’s focus on woodworking indu- Iggesund Sawmill with the installation of a new stries places very high demands on the compli- quality grading unit, which will be fully opera- cated drying process, where all free water and tional in 2003. some of the water bound in the wood cells is released. The company’s research and develop- Market conditions ment resources are therefore largely directed The most powerful driving force on the sawn towards developing drying techniques in close timber market is the construction of new dwel- co-operation with universities and institutes of lings, along with maintenance and renovation. technology. New process technology is regular-

SUMMARY 2002 2001 PRODUCTION AND DELIVERIES Net turnover, MSEK 572 712 Production Deliveries 3 Operating loss, MSEK –6 –79 1,000 m 2002 2001 2002 2001 Operating capital (average), MSEK 249 395 Sawn timber 199 299 220 322 Return on operating capital, % –2.5 –20.1 Purchased sawn timber – – 102 97 Cash flow before cap. exp., MSEK 33 –6 Total 199 299 322 419 Capital expenditure, MSEK 65 13 Only redwood sawn timber was produced and delivered Average number of employees 138 229 in 2002. In 2001 whitewood was included. 26 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 27

NET TURNOVER MSEK % 800

600

400

200 10

0 0

–10 98 99 00 01 02 Net turnover Operating margin

OPERATING RESULT MSEK 0

-30

-60

-90

-120 98 99 00 01 02 Operating loss

CASH FLOW MSEK 80

60 Solid pine floors are manufactured using sawn timber from Iggesund Timber. Pine floors, perhaps more than any other type of floor, look their best in homes that want to create a homely, welcoming environment. 40 20

-20

-40

ly introduced into the company’s modern kiln with the decision to close down the Domsjö -60 98 99 00 01 02 dryers in Iggesund. Sawmill and concentrate production at the saw- Cash flow before capital expenditure mill in Iggesund. Iggesund Timber has reduced Capital expenditure Long-term capital expenditure its annual capacity by around 30 per cent and CAPITAL EXPENDITURE The completion of the new grading unit in Igge- the work force has been trimmed by more than MSEK % 80 20 sund is the final stage in the extensive rationali- 60 per cent. The sawmill will become an efficient

sation project that began in December 2000 unit during the first half of 2003. 60 15

40 10

20 5

0 0 98 99 00 01 02 Capital expenditure Depreciation according to plan Capital expenditure as % of turnover 28 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 29

Holmen Skog

Holmen Skog has responsibility for the procurement of wood for the Group’s Swedish mills and for managing the Group’s forest holdings, which cover one million hectares of productive forestland. The business involves harvesting in company forests and wood trading. Almost 60 per cent of sales go to external customers.

Holmen Skog Operations in 2002 the previous year’s storm damage and gremme- Net turnover decreased to MSEK 3,538, which niella attacks, as well as to limited demand may be compared with MSEK 3,982 in 2001. from mills. In southern Sweden, on the other The operating profit declined to MSEK 450 hand, there were occasional shortages of soft-

Holmen Skog is organised in four (455). The reduction is mainly due to lower wood. The demand for birchwood pulpwood regions, that manage Holmen’s own wood prices and higher harvesting costs as a remained high well into the autumn. forests and procure wood. A central wood department has responsibilities result of damage done to the forests by storms Imports. Holmen Skog’s imports of wood including imports. and gremmeniella fungus attacks. amounted to 0.6 million cubic metres and thus Regions Prices and supply in Sweden. During the first remained at the same level as in the previous half of the year, the prices of softwood and year. Lycksele Forest holdings: sprucewood pulpwood were reduced by SEK The cost of imported wood (free mill) remai- some 330,000 hectares. 20 and 10 per cubic metre respectively in cen- ned broadly unchanged in 2002. During the Annual wood procurement: some 1,400,000 cubic metres (of which in tral Sweden. Otherwise, the prices of pulpwood year, Holmen invested MSEK 6 in a new wood company forest some 725,000 cubic remained unchanged in the country’s northern terminal in Estonia. metres). and central regions. In southern Sweden, prices Management of company forests. The volume Örnsköldsvik were raised after the summer by an average of harvested in Holmen’s forests increased to 2.5 Forest holdings: some 355,000 hectares. 7 per cent. million cubic metres (2.4). Annual wood procurement: some The demand among sawmills for saw timber According to a 2001 forest census, the volu- 1,200,000 cubic metres (725,000). was generally high, in certain areas very high. me of wood in Holmen’s forests is increasing by Iggesund In southern and central Sweden, the demand approximately one per cent a year. It is estima- Forest holdings: some 275,000 hectares. for sprucewood exceeded the supply, which ted that this will continue at the same rate until Annual wood procurement: some 4,000,000 cubic metres (750,000). resulted in higher imports. The prices of saw the middle of this century. According to the timber in Sweden remained unchanged, though long-term harvesting plan, it has been possible Norrköping Forest holdings: with temporary, local surcharges during the to raise the harvested volume by some 250,000 some 70,000 hectares. autumn. cubic metres a year in relation to harvested volu- Annual wood procurement: some 2,600,000 cubic metres (300,000). The wood market in the country’s northern me of a few years ago. Under prevailing market and central regions was characterised by excess conditions, this would improve Holmen Skog’s Wood department supply. This was due to the lingering effects of operating result by some MSEK 35 per year. Örnsköldsvik Annual wood procurement: some 800,000 cubic metres. SUMMARY 2002 2001 WOOD PROCUREMENT, million m3 2002 2001 Net turnover, MSEK 3,538 3,982 Total, gross 9.7 10.6 of which external customers, MSEK 2,085 2,306 of which from Operating profit, MSEK 450 455 – Group forests 2.5 2.4 Operating capital (average), MSEK 6,478 6,520 – other Swedish procurement 6.6 7.6 Return on operating capital, % 6.9 7.0 – imports 0.6 0.6 Cash flow before cap. exp., MSEK 577 500 Wood deliveries Capital expenditure, MSEK 39 25 Internal 4.1 4.4 Average number of employees 426 448 External 5.6 6.2 28 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 29

NET TURNOVER MSEK 5,000

4,000

3,000

2,000

1,000

0 98 99 00 01 02 External Internal

OPERATING RESULT MSEK % 600 12

500 10

400 8

300 6

200 4

100 2

0 0 98 99 00 01 02 Oerating profit Return on operating capital

CASH FLOW MSEK 800

Holmen Skog is engaged together with the Swedish Defence Research Agency in the development of Carabas airborne 600 land radar system for forestry purposes. Using Carabas, it is possible to determine the volume of wood in a forest to a high degree of precision. 400

200 Later surveys showed that some 5,000 hecta- one. It was also due to the conversion of pro-

res of Holmen’s forests had been damaged by the duction at the Iggesund Sawmill exclusively to 0 98 99 00 01 02 gremmeniella fungus. This is slightly more than the sawing of pinewood, and the closure of the Cash flow before capital expenditure previously estimated. However, the dry summer Domsjö Sawmill. Capital expenditure and the cold winter are expected to check the Wood trade. Holmen Skog sells more wood to further spread of the fungus, but it will not be outside customers than it delivers to Group CAPITAL EXPENDITURE MSEK until the summer of 2003 that it is possible to mills. The customers comprise sawmills and oth- 100 ascertain whether the attack is over. er pulp and paper companies’ mills. Holmen 80 Wood procurement for Group mills. Wood con- Skog procured a total of 9.7 million cubic metres sumption at Holmen’s Swedish mills declined to of wood (10.6), of which 5.6 million cubic met- 60 4.1 million cubic metres (4.4). The reduction res (6.2) were delivered to external customers. 40 was due to the reduction in wood consumption 20 at the Hallsta Paper Mill during the first quarter Market conditions 0 in connection with the dismantling of an old Sweden. The wood market has changed in 98 99 00 01 02 Capital expenditure paper machine and the installation of a new recent years. In the past, ownership ties Depreciation according to plan 30 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 31

Holmen Skog

The new Harwarder is the outcome of close development co-operation between Holmen Skog and forest machine manufacturers. The Harwarder not only fells the trees but also removes the wood from the forest. The new machine will help to lower harvesting costs.

between mills and forests were closer. There are come mainly from Estonia, where the company now several pulp and paper companies that has a strong position through its wholly owned own no forests at all. This means that the num- purchasing company. Some of the imported ber of wood buyers has increased, particularly wood is sold on to other companies. Holmen’s in northern Sweden. imports of wood have declined during the past The trend in the Swedish sawn timber industry two years owing to higher levels of purchasing is quite the opposite, and the number of buyers within the country and the lower external sales has declined. The industry’s profitability has long of imported wood. been weak, with an attendant need for structural change. Several sawmills in southern Sweden Research and development merged during the year, and in some areas, saw- Holmen Skog plays a very active role in the mills have set up joint purchasing companies development work being carried out by the with considerable influence on saw timber prices. Swedish forestry. For example, the new Har- Imports. In the 1990s, the countries around the warder forest machine is the outcome of suc- Baltic Sea evolved into a single market for cessful joint research by Holmen Skog and The Starpot cultivation system, which was developed by Holmen Skog, is wood. Exports of pulpwood and saw timber forest machine manufacturers. The company is proving very successful in Sweden and from the Baltic states are now substantial and at the forefront in the use of remote, satellite- abroad. Starpot promotes root deve- relatively little untapped potential remains in based analysis and the mechanisation of see- lopment of the plants and reduces problems associated with root spiralling. these countries. Holmen Skog’s wood imports ding and cultivation operations. 30 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 31

Holmen Skog has made a valuable contribution to the development of the new EcoPlanter planting machine. Automated silviculture is on the verge of a definite breakthrough in Sweden.

Holmen Skog is also involved in a number of FACTS ABOUT HOLMEN'S FORESTS Head office Total land holdings 1,300,000 hectares research projects that are being run under the aegis Regional office of which productive forestland 1,036,000 hectares Nurseries of the Swedish University of Agricultural Sciences 3 Annual growth 3.7 m sk per hectare Group forests with the object of improving the knowledge of the Timber volume 108 m3sk per hectare effects of today’s nature-adapted forestry practi- Timber volume, total 111,415,000 m3sk

ces. A further aim is to improve the quality and Lycksele effectiveness of nature conservation measures. TYPES OF TREE,%

Pine 50 Gideå The environment Spruce 37 Örnsköldsvik Holmen Skog is certificated in accordance with Hardwood 11 Friggesund Contorta pine 2 Iggesund the FSC International Forestry Standard and applies the ISO 14001 environmental management system. AGE CLASS DISTRIBUTION,% Holmen Skog refrains for environmental rea- 0–30 years 36 Norrköping 31–60 years 23 sons from harvesting some 10 per cent of the 61–90 years 16 possible timber volume. The value of the wood 91– 25 that is not harvested for this reason is approxi- m3sk = total volume over bark from stump to tip. mately MSEK 50 per year. 32 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 33

Holmen Kraft

Holmen Kraft has responsibility for the provision of electricity for Holmen’s Swe- dish mills and for the Group’s hydroelectric power stations. Holmen’s electricity requirements are met by production in wholly and part-owned hydroelectric power stations and the mills’ counter-pressure turbines as well as buying electricity.

Holmen Kraft Operations in 2002 The remainder was generated by the Group’s Net turnover was MSEK 1,120, which may be hydroelectric power stations (27 per cent) and compared with MSEK 1,108 in 2001. by counter pressure production (7 per cent) at The operating loss was MSEK 26 (profit 49), the mills. The level of self-sufficiency was thus Number of wholly and part-owned mainly due to lower production of internally 34 per cent. hydroelectric power stations: 23 generated hydroelectric power. The price of electricity, including grid charges, Production capacity: 1,090 GWh/normal year Production of hydroelectricity at Holmen for Holmen’s Swedish mills increased by some Average number of employees: 9. Kraft’s wholly and part-owned power stations 7 per cent in relation to 2001. As Holmen was was 4 per cent lower than a normal year’s out- well hedged for the entire year, the high spot put and amounted to 1,048 GWh (1,362). In prices had only a marginal effect on the mills’ the first half of 2002, water flow volumes in electricity costs. Sweden were very much above average and pro- Without this hedging, the mills’ electricity duction was much higher than normal. How- costs would have been MSEK 305 higher and ever, inflow volumes dropped markedly at the Holmen Kraft’s earnings on company-genera- start of the second half of the year, which adver- ted hydroelectric power would have been sely affected the hydrological balance, causing MSEK 80 higher. At Group level, therefore, the an increase in electricity prices. Spot prices net positive effect of the price hedging was began to climb during the summer, reaching MSEK 225. very high levels at the year end. Forward prices, For 2003 and 2004 almost all of the Group’s particularly for 2003, were also affected. The net consumption has been hedged at levels that rise in prices confirms that the Nordic power will involve slightly higher electricity costs than balance is vulnerable and that an impaired in 2002. For 2005, half has been hedged, while hydrological balance has an immediate infla- for the 2006-2011 period the level is around tionary effect on electricity prices. one-third. Holmen’s consumption in Sweden of electricity declined to 3,903 GWh (3,998), of which 2,583 Market conditions GWh (2,420) were purchased externally cor- The Nordic electricity market is generally satis- responding to 66 per cent of the requirement. factory. Its weakness lies in matters relating to prices and power. Some enlargement of the grid and counterpurchases of electric power by the SUMMARY 2002 2001 system manager can improve the situation. The Net turnover, MSEK 1,120 1,108 of which external customers 430 439 power problems are due by the way in which Operating profit, MSEK –26 49 the electricity market does not price power Average number of employees 9 13 value, which naturally causes power shortages. Electric power consumption at Group’s Swedish units, GWh 3,903 3,998 Svenska Kraftnät has proposed a model that, in Hydroelectric power production, GWh 1,048 1,362 all essentials, will involve a market-based solu- Counter pressure production, GWh 272 216 tion as of 2008, with collective procurement of 32 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 33

NET TURNOVER MSEK 1,200

1,000

800

600

400

200

0 98 99 00 01 02 External Internal

OPERATING RESULT MSEK 100

-20

98 99 00 01 02 Operating profit/loss

PRODUCTION GWh 1,400

1,200 The Harrsele power station. The photo shows a section of the switching station. 1,000

800

600

400

broadly the same volume as today up to the end Both are well maintained and are considered to 200

of 2007. Those industries that do not give rise be in excellent condition following major rein- 0 98 99 00 01 02 to power problems much prefer a market solu- vestments in the 1990s. Hydroelectric power Counter pressure power tion, in which the industries that do cause Holmen’s wholly and part-owned hydroelec- power surges would also cover the cost. All col- tric power stations are located in the rivers lective financing merely postpones the solution Umeälven, Faxälven, Motala ström and Gideäl- DELIVERIES GWh and exacerbates power problems. ven, and the partner-financed on the Ljusnan 5,000 and Iggesundsån (Iggesund Kraft) rivers and are 4,000 Buy-back of hydroelectric power stations consolidated at 31 December 2002. The partner-financing in Junkaravan was 3,000 bought back on 31 December 2002. Holmen’s 2,000 share of the annual production capacity at 1,000 Harrsele and Tuggen power stations amounts 0 to 470 GWh and 71 GWh respectively. Harrsele 98 99 00 01 02 Internal was commissioned in 1958 and Tuggen in 1962. External 34 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 35

Holmen and society

What does Holmen mean for Hudiksvall and Hallstavik? The answer is provided by an analysis that Holmen had made at the end of 2002. At both places, Holmen is the dominant industrial company, by virtue of which it is an important member of society. This is reflected especially in its effects on employment.

Holmen and Hudiksvall Holmen is also an important member of society by Holmen is estimated at almost 400. In addi-  With 1,275 (2001:1,350) full- at other places where the Group has its activiti- tion, felling rights, purchased via Holmen Skog, time employees at Iggesund Paperboard, Iggesund Timber es. The reason for choosing Hudiksvall and generate more than MSEK 50 a year in income and Holmen Skog, Holmen is the Hallstavik is that Holmen is probably of greater for the region’s private forest owners, a figure largest private employer in the importance here than elsewhere. that corresponds to another 100 or so jobs. region. An additional 500 or so people are indirectly employed In the Hudiksvall area, over 20 per cent of Holmen and its direct employees and those as a result of Holmen’s business total employment derives directly and indirectly indirectly employed are also consumers and are activities from Holmen; similarly, more than half of all therefore of great importance for other busines-  Holmen’s business activities and jobs in the Hallstavik region are attributable to ses in Hudiksvall. This consumption is estima- the Group´s direct employees and indirect employed create Holmen. ted, on the basis of a proportional distribution, an additional 1,500 jobs in, for to create over 600 jobs in the region’s private example, forestry, transport, Holmen´s importance to Hudiksvall enterprises and firms. construction and the public sector thanks to the consumption of The number of employees at Holmen in the Total private sector employment created goods and services in the region Hudiksvall region amounted to 1,275 in 2002. direct or indirect by Holmen is estimated at  Those employed direct or in- In 2001, the figure was 1,350. Holmen pays almost 2,500 man-years. Applying a proportio- direct by Holmen have higher them around MSEK 380 a year in salaries and nal distribution, it is estimated that more than taxable incomes and capital than the average for the region. This wages (excluding payroll charges). 850 of the 5,700 jobs in the public sector are has not, however, been taken Holmen is largely dependent on externally created through Holmen’s three companies in into account in the appraisal of (within the municipality) purchased goods and the region. effects on employment services, which generates numerous jobs in Over 3,300 jobs, or more than 20 per cent of  Population of 15,500 (approx.) in the main town of Hudiksvall companies dealing with maintenance, building total employment in the region, are therefore (37,300 in the municipality as a and transport, machine-owning forestry cont- attributable to Holmen. These jobs generate whole). Demographic trends are negative, with the number of ractors and many others. Materials and services income for the municipal and county councils inhabitants having fallen by ap- are purchased from these local companies for in the region of MSEK 200-210 a year for fun- proximately 1,500 since 1995. approximately MSEK 250 in a normal year. ding of the infrastructure, schools, hospitals etc. The number of local jobs indirectly created

JOBS CREATED BY HOLMEN IN THE HUDIKSVALL AREA, 2001 Direct Indirect 1 Indirect 2 Total Holmen 1,350 389 100 1,839 Percentage of service companies – – 635 635 Total, private sector 1,350 389 735 2,474 Hudiksvall Percentage of public sector – – 869 869 Total employment 1,350 389 1,604 3,343

Holmen = Iggesund Paperboard, Iggesund Timber and Holmen Skog. Indirect 1 = Jobs created for subcontractors, hauliers, etc. operating on contract for Holmen. Indirect 2 = Effect of harvesting rights converted to “annual income” and the effect of employees’ (direct and indirect) consumption of goods and services within the municipality. 34 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 35

Holmen´s importance to Hallstavik Holmen’s paper mill in Hallstavik employs a total of approximately 1,050 people and, indirectly, another 60 or so people who are employed by subcontractors but who are located at the mill. Holmen Skog has few employees of its own in Norrtälje, but through contract suppliers, hauliers and the income earned by local forest owners it is estimated to create employment corresponding to around 40 full-time jobs

in the region. A two-week technical training programme for twenty-five Class 8 schoolgirls was arranged jointly by The Hallsta Paper Mill’s dependence on the Hudiksvall municipality and a number of local companies in the summer of 2002. Here, Anna Lundh (left) and Angeli Löfqvist-Snell (right) are explaining the art of coating paperboard. external services is relatively slight, since in all essentials it handles all maintenance and building itself. Total material procurement and the ment in the private sector in the Hallstavik regi- Holmen and Hallstavik purchase of external services costs some MSEK on are thus estimated to be equivalent to some  With 1,050 full-time employees at the Hallsta Paper Mill, Holmen 260 in a normal year, of which about MSEK 75 1,600 jobs. The public sector’s share of total is the largest private sector is paid locally (in the Hallstavik region). employment in the area amounts to over 18 per employer in both Hallstavik and Holmen’s annual wage and salary costs, exclu- cent. The number of people employed direct or the municipality of Norrtälje, in which it lies ding payroll charges, for its employees in the indirect in the private sector in consequence of  Holmen’s business activities and Hallstavik region amount to over MSEK 330. Holmen’s business can be estimated to account the direct and indirect employed Holmen’s importance as an employer and for almost 300 of these public sector jobs. create an additional 845 jobs in, member of the community in the Norrtälje regi- Altogether, then, almost 1,900 full-time jobs, for example, forestry, enginee- ring, energy, transport and the on is considerable. As this applies to Hallstavik or more than 56 per cent of the total, in the public sector thanks to the con- in particular, employment effects occur primari- Hallstavik area are attributable to Holmen. sumption of goods and services ly in this area. in the region The total number of jobs in the Hallstavik  The average pay of a Holmen employee is considerably area (for 2000) is stated to be 3,350. Here, higher than the average for the Holmen has long-standing relations with 50 or township or the municipality. This generates relatively high so companies in a variety of sectors, including purchasing power, which bene- power production, building, trade, business ser- fits other industries and helps vices, and other service industries. The impor- to boost employment. This has not, however, been taken into tance of Holmen and its employees for employ- consideration ment in these areas is considerable, and is esti- A more detailed description of Holmen's  Population of 4,600 (approx.) in mated to be equivalent to 450 jobs. importance for Hudiksvall and Hallstavik may Hallstavik (municipality of Norr- The direct and indirect effects on employ- be found at Holmen's website, www.holmen.com tälje approx. 54,000). Demo- graphic trends in the municipality are positive.

JOBS CREATED BY HOLMEN IN THE HALLSTAVIK AREA, 2001–2002 Direct Indirect 1 Indirect 2 Total Holmen 1,052 80 20 1,152 Percentage of service companies – – 456 456 Total, private sector 1,052 80 476 1,608 Hallstavik Percentage of public sector – – 294 294 Total employment 1,052 80 770 1,902

Holmen = Holmen Paper (Hallsta Paper Mill) and Holmen Skog. Indirect 1 = Jobs created for subcontractors, hauliers, etc. operating on contract for Holmen. Indirect 2 = The effect of locally purchased wood converted into “annual income” and the effect of the consumption of goods and services within the region by direct and indirect employees. 36 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 37

Holmen and the environment

Holmen has been taking active steps to reduce Important environmental cases in 2002 the environmental impact of its activities for Hallsta Paper Mill. Following the appeal lodged more than 30 years. Conditions in the aqueous by the authorities against a number of points in environment in the vicinity of the mills are now the Environmental Court’s decision in 2000 to generally healthy. The forests are cultivated permit an increase in production, the Supreme taking due account of the natural diversity of Environmental Court handed down a ruling in plant and animal life. June 2002 that the mill’s permit to send ash for Holmen attaches particular importance to landfill at the existing site should remain valid environmental measures as a means of main- until the end of 2008. The possibility of using taining the long-term confidence of the commu- biofuel ash for a variety of purposes shall be nity and customers alike. investigated, as well as the scope for restricting

Holmen Environmental Report 2002 The EU’s Integrated Pollution Prevention and oil consumption. is published in Swedish and English. Control Directive is the cornerstone of the Braviken Paper Mill. The Environmental Court

Internet version: European Union’s environmental legislation. In handed down its decision in December. Amongst Holmen’s complete environmental Sweden, its formal requirements are satisfied by other things, Braviken was granted a permit to reporting. www.holmen.com/miljo the Environmental Code of Statutes (1999). increase production, to build a new paper and The directive was incorporated into English law machine and to install a new solid fuel boiler. www.holmen.com/environment in 2000 and into Spanish law in 2002. A decision was made to invest in a demo-scale Printed version: Over and above the IPPC directive, the EU installation. Fully developed and installed the May be ordered at Holmen’s website has tightened its demands for the efficient use of process technology for more efficient produc- www.holmen.com under Publications or from: materials and energy and that products should tion of thermomechanical pulp will reduce elec- be manufactured from renewable raw materi- tricity consumption by 20-35 per cent. The Holmen AB Group Public Relations als, and be capable of being recycled. There are National Energy Administration granted finan- P.O. Box 5407 new laws focusing on waste, which regulate cial support to this project. SE-114 84 Stockholm Tel +46 8 666 21 00 handling, incineration and sending for landfill. Wargön Mill. The Environmental Court handed Fax +46 8 666 21 30 Numerous initiatives are currently being down its decision in September. Wargön was

Contact: Lars Strömberg, taken within the EU and at national level to granted a permit to increase its production of Environmental Director overcome the changes in the earth’s climate that groundwood pulp and paper and to close the [email protected] will very likely be caused by greenhouse gases. sulphite pulp mill. The Board of Holmen then Among these initiatives are trade in emission decided to discontinue the production of rights, green power certificates, and long-term sulphite pulp in the autumn of 2003, which will agreements between industry and the govern- halve emissions into water and reduce emis- ment on measures to improve energy efficiency. sions of sulphur dioxyde into air by 75 per cent. However, further analysis will be needed of how Papelera Peninsular. The Environmental authori- these measures interact, and of what consequen- ty granted a permit to build a second recycled ces they will have for Holmen. It may at the fibre-based paper machine. The mill’s present same time be observed that Holmen’s business, and planned activities will be examined in accor- with ecocyclical products, modern production dance with the EU’s IPPC directive in 2003. and cleaning equipment, and certificated envi- Iggesunds Bruk. The investigations required by ronmental management systems, is regarded the ongoing permit cases were completed during as being well placed to satisfy environmental the year, and negotiations were held in the Envi- legislation and climate and energy initiatives. ronmental Court. The company is proposing a A Joint Action Group was set up in 2002 to number of measures to reduce emissions into air underpin Holmen’s activities in the energy field. and water. The decision of the Environmental 36 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 37

Court in March 2003 will determine which of instance, involved in the Värmeforsk research the proposed projects is carried out. organisation’s research programme into the Workington Mill. The mill obtained a new envi- environmentally sound use of incinerator ash, ronmental permit at the start of the year in which began during the year. accordance with the EU’s IPPC directive. Transport. A Transport Environment Group was Ströms Bruk. A notification procedure under the set up in 2002 in order to analyse Holmen’s trans- terms of the Environmental Code was begun portation from an environmental perspective. after application to the municipality. This will identify the need and capacity to reduce Iggesund Timber. The business is conducted on the environmental impact of transportation. the basis of the environmental permit received Discontinued units. Soil tests were carried out at in 1994. The trimming unit at Håstaholmen is the discontinued sawmills in Håstaholmen and being closed down and trimming operations Stocka, where the soil is contaminated with concentrated at the Iggesund sawmill at the wood-impregnation agents. These tests, which Hallsta Paper Mill is located on the beginning of 2003. The concentration of opera- have been planned and performed in consulta- Edebo estuary. Emissions into water in 2002 remained at the previous tions in one place means less internal and exter- tion with the environmental authorities, will year’s low levels. nal transport and a corresponding reduction in continue in 2003. environmental impact. The Svartsjöarna lakes, upon which Pauli- Holmen Skog. The drawing up of local, multip- ströms Bruk is located, have been polluted with Environmental protection costs le-use forest plans for all of Holmen’s land was mercury and will need cleaning up. Pauliström Holmen states environmental protection costs in accordance with Statis- completed. These contain plans indicating how belonged to the Holmen Group between 1965 tics Sweden (SCB) guidelines1). the right environment can be created to allow and 1989. The contamination was most likely animal and plant life to survive in their natural not caused during this time. Work has now com- ENVIRONMENTAL INVESTMENTS habitat. 52,000 hectares, i.e. 5 per cent, of menced on deciding who is to fund the project. MSEK 2002 2001 Holmen’s productive forest land is now protec- Exceeded limits and complaints. Only a few Direct (treatment) 21 54 ted on environmental grounds. cases of exceeded limits, incidents and com- Integrated (prevention) 19 31 Total 40 85 Holmen Kraft. The permit under the terms of the plaints relating to Holmen’s business were Water Act for Holmen’s hydroelectric power reported during the year. These were handled in stations and their water regulation systems accordance with environmental management ENVIRONMENTAL COSTS includes environmental conditions. Oil pollu- system procedures. MSEK 2002 2001 Internal and external 156 158 tion has been analysed at the stockyard at the Capital (depreciations) 82 77 Junsterforsen power station on the river Fax- Holmen facts Environmental älven, and some cleaning up might be required. about the Environment 2002 taxes and charges 59 48 Total 297 283 Environmental management and certification. The supply situation on the electricity market in Papelera Peninsular obtained certification in Sweden and production disturbances at some 1) Source: SCB, Environmental protection expenditure in industry (2001). accordance with ISO 14001 in September 2002. mills resulted in increased use of fossil fuels. Workington obtained equivalent certification in Some type of emission into air and/or water January 2003. Consequently, all of Holmen’s increased, while others declined. The quantity mills have now obtained certification in accor- of waste sent for landfill declined. For further dance with ISO 14001. Holmen’s forestry is information, refer to Holmen’s Environmental also certificated in accordance with FSC. Report for 2002. Waste treatment. Waste management is a priority environmental issue at Holmen. The company is engaged in a number of projects to identify alternative ways to use waste. Holmen is, for 38 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 39

The Board of directors and the President of Holmen Aktiebolag (publ), Co. Reg. No. 556001-3301, herewith submit their report on the activities of the parent company and the Group for financial year 2002, including the report of the auditors, on pages 38–63. Information concerning the result of the year’s activities and the financial position of the parent company and the Group is provided in the following profit and loss accounts and balance sheets, together with the accompanying notes and supplementary information and the Report of the directors. Profit and loss account

GROUP, MSEK 2002 2001 Net turnover (Note 1) 16,081 16,655 Other operating income (Note 2) 497 407 16,578 17,062 Raw materials, goods for resale and consumables (Note 3) –7,112 –7,223 Change in inventory of finished products –56 138 Personnel costs (Note 22) –2,346 –2,351 Other external costs –3,188 –12,702 –3,431 –12,867 Depreciation according to plan (Note 4) –1,153 –1,126 Items affecting comparability (Note 5) – –620 Interest in earnings of associate companies (Note 6) –10 –3 Operating profit 2,713 2,446 Net financial items (Note 7) –149 –152 Profit after financial items 2,564 2,294 Tax (Note 8) –605 –108 Profit for the year 1,959 2,186

Earnings per share, SEK (Note 9) Before dilution 24.50 27.33 After dilution 23.58 26.41

Net turnover Operating profit/loss BY BUSINESS AREA, MSEK 2002 2001 2002 2001 Holmen Paper 8,164 8,757 1,664 2,410 Iggesund Paperboard 4,850 4,467 818 455 Iggesund Timber 572 712 –6 –79 Holmen Skog 3,538 3,982 450 455 Holmen Kraft 1,120 1,108 –26 49 Group adjustments and other – – –187 –224 18,244 19,026 2,713 3,066 Items affecting comparability – – – –620 Intra-Group sales –2,163 –2,371 – – Group 16,081 16,655 2,713 2,446

OPERATING PROFIT/LOSS, MSEK 2002 2001 2000 1999 1998 Holmen Paper 1,664 2,410 1,389 1,418 1,455 Iggesund Paperboard 818 455 569 318 590 Iggesund Timber –6 –79 –116 –66 –59 Holmen Skog 450 455 466 521 548 Holmen Kraft –26 49 99 76 56 Group adjustments and other –187 –224 –112 –20 –346 2,713 3,066 2,295 2,247 2,244 Items affecting comparability – –620 2,023 – – Divested activities – – 524 368 231 2,713 2,446 4,842 2,615 2,475 38 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 39

Markets Iggesund Paperboard’s profit amounted to NET TURNOVER MSEK % The market situation for newsprint and maga- MSEK 818 (455). The improvement is due to 20,000 25

zine paper was weak in 2002. Deliveries of higher deliveries, lower costs and positive cur- 16,000 20 Profit and loss account newsprint to Western Europe were 6 per cent rency effects. 12,000 15 lower than in 2001. Deliveries from West Euro- Iggesund Timber’s result was a loss of MSEK pean producers declined by 2 per cent, due to 6 (loss 79). The improvement was mainly due 8,000 10

higher exports to markets outside Western to lower costs. 4,000 5 Europe. Demand for SC paper and coated prin- Holmen Skog’s result was a profit of MSEK 0 0 ting paper has been more stable, but capacity 450 (455). Harvesting in company forests 98 99 00 01 02 Net turnover utilisation fell owing to additions to capacity. increased, while lower prices and higher har- Operating margin Excl. items affecting comparability Holmen Paper’s capacity utilisation was restric- vesting costs had a negative effect on the result. and divested activities ted during the year. Prices were reduced at the Holmen Kraft’s result was a loss of MSEK 26

end of 2001 and then remained stable during (profit 49). The deterioration in the result is OPERATING PROFIT MSEK % the year. mainly due to lower production of hydroelec- 4,000 24 The market situation for virgin fibre-based tric power as a result of reduced inflow of paperboard improved in 2002. Deliveries to water. 3,000 18 Western Europe increased by one per cent. 2,000 12 However, deliveries from West European pro- Profit after financial items

ducers rose by 4 per cent due to higher exports Net financial costs amounted to MSEK 149, 1,000 6 outside Western Europe. Iggesund Paperboard which may be compared with a net cost of 0 0 implemented a price increase in Europe during MSEK 152 in 2001. The average rate of interest 98 99 00 01 02 Operating profit the second half of 2002. paid by the Group on its debt in 2002 was 5.0 Return on capital employed per cent (5.2). Excl. items affecting comparability and divested activities Net turnover The profit after financial items amounted to Net turnover amounted to MSEK 16,081 MSEK 2,564 (2,294). (16,655). Holmen Paper’s sales declined by 7 per cent to MSEK 8,164, mainly owing to Net profit after tax lower selling prices. Iggesund Paperboard’s The Group’s tax charge amounted to MSEK sales rose by 9 per cent mainly as a result of 605 (108). A tax case was decided in Holmen’s higher deliveries. favour during the year, which had positive The value of sales to customers outside Swe- effects of MSEK 130 on the total tax charge. den represented 76 per cent of total turnover. The tax charge in 2001 was positively affected by MSEK 525 by tax cases settled in Holmen’s Operating result favour. The operating profit amounted to MSEK 2,713 The profit for the year after tax was MSEK (2,446). 1,959 (2,186). Holmen Paper’s profit was MSEK 1,664 (2,410). The downturn is largely attributable to Key ratios lower prices, although these were partly offset The operating margin was 16.9 per cent (18.4). by positive currency effects. A net profit of The return on capital employed was 15.5 per some MSEK 60 is due to the income from the cent (17.7). sale of the old paper machine at Hallsta Paper The return on equity was 13.7 per cent Mill and higher costs associated with the start- (16.0). Earnings per share was SEK 24.50 up of the new newsprint machine. (27.33). 40 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 41

Balance sheet

GROUP, at December 31, MSEK 2002 2001 ASSETS Fixed assets Intangible fixed assets Goodwill, leases and similar rights (Note 10) 576 634

Tangible fixed assets Forest land (Note 11) 6,302 6,297 Buildings, other land and land installations (Note 11) 2,552 2,001 Machinery and equipment (Note 11) 9,834 8,828 Fixed plants under construction and advance payments 124 846 18,812 17,972 Financial fixed assets Shares and participations Associate companies (Note 12) 1,634 198 Other shares and participations (Note 12) 87 88 Financial receivables 54 33 Other long-term receivables (Note 12) 248 258 2,023 577 21,411 19,183 Current assets Inventories etc (Note 13) 2,244 2,380 Current receivables Operating receivables (Note 14) 2,678 2,986 Short-term placements 306 91 Cash and bank 328 308 5,556 5,765 26,967 24,948 EQUITY AND LIABILITIES Equity (Note 15) Restricted equity Share capital 3,999 3,999 Restricted reserves 3,890 3,531 Non-restricted equity Non-restricted reserves 5,225 4,356 Profit for the year 1,959 2,186 15,073 14,072

Minority interest 112 –

Provisions Interest-bearing Pension provisions (Note 17) 25 36 Non-interest-bearing Tax provisions (Note 8) 4,398 4,035 Other provisions (Note 17) 233 290 4,656 4,361 Liabilities Financial liabilities (Note 18) 4,471 3,557 Operating liabilities (Note 19) 2,655 2,958 7,126 6,515 26,967 24,948

Pledged assets (Note 20) 1,617 52 Contingent liabilities (Note 21) 1,320 467 40 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 41

Fixed assets Net financial debt RETURN ON CAPITAL EMPLOYED The Group’s total fixed assets increased by The Group’s net financial debt increased by % 30 MSEK 2,228 to MSEK 21,411 in 2002. MSEK 647 to MSEK 3,808. In addition to the Tangible fixed assets increased by MSEK 840 negative cash flow of MSEK 299, net debt was to MSEK 18,812, mainly as a result of capital affected by the consolidation of Iggesund Kraft 20 expenditure of MSEK 1,486, depreciation accor- (MSEK −338) and a deficit of MSEK 10 due to

ding to plan of MSEK 1,153, as well as MSEK currency effects. 10 502 arising from the consolidation of Iggesund Closing short-term placements and cash and

Kraft AB. bank amounted to MSEK 634, and financial 0 98 99 00 01 02 Financial fixed assets increased by MSEK receivables to MSEK 54. Financial liabilities and Excl. items affecting comparability 1,446 to MSEK 2,023, mainly due to the acqui- interest-bearing provisions amounted to MSEK and divested activities sition of Junkaravan AB, whose main assets are 4,496, of which MSEK 2,444 were long-term. its equity interest in hydroelectric power assets. The Group had available committed long-term RETURN ON EQUITY The other principal assets are equity stakes in credit facilities of MEUR 500 (MSEK 4,575). % 25 recovered paper companies in Spain, and a The maturity structure of the financial liabilities deferred tax receivable. and credit facilities is shown on page 47. 20

Intangible fixed assets declined by MSEK 58 15 to MSEK 576, mainly a consequence of depre- Minority interest 10 ciation according to plan of goodwill and trans- Minority interest amounted to MSEK 112, and lation differences. The assets consist mainly of related to the minority interest in Iggesund 5

goodwill arising on the acquisition of Papelera Kraft, which was consolidated as of 31 Decem- 0 98 99 00 01 02 Peninsular, the Spanish newsprint mill, in 2000. ber 2002.

Working capital Equity OPERATING CAPITAL AND ITS FINANCING AT Closing working capital amounted to Equity increased by MSEK 1,001 and amoun- 31 DEC. 2002, MSEK

MSEK 2,006, and consists mainly of inven- ted to MSEK 15,073 (14,072) at 31 December Working Net financial capital debt tories of MSEK 2,244, accounts receivable of 2002. The change is mainly due to the payment 2,006 3,808

Deferred tax MSEK 2,274, and liabilities to suppliers of of dividend of MSEK 800 and the net profit for liability, net Fixed 4,176 MSEK 1,467. the year of MSEK 1,959. assets 21,163 Equity incl. minority interest Provisions Key ratios 15,185 The Group’s provisions increased by MSEK The closing debt/equity ratio was 0.25 (0.22). 295 to MSEK 4,656, mainly a result of an The equity ratio remained broadly unchan- increase in deferred tax liability. ged at 56.3 per cent (56.4).

OPERATING CAPITAL, MSEK 2002 2001 2000 1999 1998 Holmen Paper 9,884 9,584 8,564 6,459 6,412 Iggesund Paperboard 3,963 4,330 4,877 4,442 4,036 Iggesund Timber 258 232 411 415 442 Holmen Skog 6,429 6,517 6,527 6,650 6,675 Holmen Kraft 2,877 805 826 837 838 Group adjustments –242 –424 –412 –1,000 –511 23,169 21,044 20,793 17,803 17,892 Divested activities – – – 4,257 8,268 Operating capital 23,169 21,044 20,793 22,060 26,160 Deferred tax liability, net –4,176 –3,811 –4,073 –4,123 –4,635 Capital employed 18,993 17,233 16,720 17,937 21,525 42 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 43

Cash flow analysis

GROUP, MSEK 2002 2001 Operating profit 2,713 2,446 Adjustments for items not included in cash flow* 1,244 1,725 Change in working capital 356 61 Net financial items (Note 7) –149 –152 Paid tax –472 –248 Cash flow before capital expenditure 3,692 3,832 Capital expenditure –1,486 –1,715 Repurchase of hydroelectric power assets** –1,705 – Cash flow before dividend 501 2,117 Dividend paid to shareholders Ordinary –800 –720 Extra – –4,798 Cash flow net financial debt –299 –3,401 Consolidation Iggesund Kraft –338 – Currency effects –10 –54 Change in net financial debt –647 –3,455

Financing Financial receivables 54 33 Liquid funds 634 399 Pension provisions –25 –36 Financial liabilities (Note 18) –4,471 –3,557 Net financial debt –3,808 –3,161

Cash flow net financial debt –299 –3,401 Cash flow financial receivables, liabilities and provisions 541 1,790 Cash flow liquid funds 242 –1,611

Opening liquid funds 399 2,000 Cash flow liquid funds 242 –1,611 Currency effects –7 10 Closing liquid funds 634 399

* The adjustments consist primarily of depreciation according to plan, interest in earnings of associate companies and for 2001 certain items affecting comparability. ** Repurchased hydroelectric power assets relate to acquired fixed assets MSEK 1,513, working capital MSEK 63, and net deferred tax receivable MSEK 129. The amount paid was MSEK 518, and assumed financial liabilities amounted to MSEK 1,187. 42 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 43

Cash flow analysis

Cash flow Financing NET FINANCIAL DEBT MSEK The Group’s cash flow before capital expendit- The Group’s day-to-day financing during the 1,000 ure amounted to MSEK 3,692 (3,832). The year was arranged mainly via the issue of com- 0 cash flow includes paid tax of MSEK 472 (paid mercial paper with tenors less than one year, 248), and a decrease in working capital (excl. and short-term bank borrowing. Liquid funds -1,000

tax liabilities) of MSEK 356 (61). have been placed with banks or on the Swedish -2,000 Capital expenditure amounted to MSEK money market. -3,000 1,486 (1,715), of which MSEK 774 related to The Group’s long-term financial liabilities -4,000 paper machine at Hallsta Paper Mill. Repur- have increased by MSEK 1,348, mainly as a 98 99 00 01 02 chase of hydroelectric power assets amounted consequence of the repurchase and consolida- to MSEK 1,705. tion of the power companies Junkaravan AB DEBT/EQUITY RATIO Cash flow before dividend amounted to and Iggesund Kraft AB. 0.4

MSEK 501 (2,117). Dividend paid to sharehol- 0.3 ders amounted to MSEK 800 (5,518). 0.2 The cash absorbed by the Group amounted to MSEK 299 (absorbed 3,401). 0.1

0.0

-0.1 98 99 00 01 02

CASH FLOW BEFORE CAPITAL EXPENDITURE, MSEK 2002 2001 2000 1999 1998 EQUITY RATIO % Holmen Paper 2,440 2,936 1,914 1,969 1,852 100 Iggesund Paperboard 1,328 877 578 690 982 Iggesund Timber 32 –6 –57 –3 –30 80 Holmen Skog 577 500 617 567 564 60 Holmen Kraft 93 72 115 90 68

Other –157 –147 –159 292 –566 40 4,313 4,232 3,008 3,605 2,870 Net financial items –149 –152 –101 –206 –137 20 Paid tax –472 –248 –942 –122 253 0 3,692 3,832 1,965 3,277 2,986 98 99 00 01 02 Cash flow divested activities – – – 558 1,162 3,692 3,832 1,965 3,835 4,148

CAPITAL EXPENDITURE, MSEK 2002 2001 2000 1999 1998 Holmen Paper 1,121 1,418 2,544 * 599 680 Iggesund Paperboard 227 249 405 752 302 Iggesund Timber 65 13 69 39 54 Holmen Skog 39 25 37 38 82 Holmen Kraft 1,671 *** 3 – 7 917 ** Other 68 *** 7 113 * 7 10 3,191 1,715 3,168 1,442 2,045 Divested activities – – – 546 512 3,191 1,715 3,168 1,988 2,557

* Including acquisition of Papelera Peninsular MSEK 1,943 and MSEK 110 respectively ** Including repurchase of power assets MSEK 915 *** Including repurchase of power assets MSEK 1,647 and MSEK 58 respectively. 44 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 45

Report of the directors

Group relationship new permit under the same legislation with a decision in L E Lundbergföretagen AB’s holding of shares in Holmen March 2003. The Iggesund Sawmill has had a permit pursu- corresponds to 52.1 per cent of the total votes in the compa- ant to the Act since 1994. ny. This means that a group relationship exists between L E The Holmen Kraft business area generates electricity at Lundbergföretagen and Holmen. L E Lundbergföretagen hydroelectric power companies that are wholly and part- owns 27.5 per cent of Holmen’s capital. owned by Holmen. The permits pursuant to the Water Act, which all the power stations have, include environmental Dividend and share buy-back conditions. The Board proposes that the Annual General Meeting to be The Group’s Swedish forestry and the operations at its held on March 26 resolves in favour of paying a dividend of pulp and paper mills are certificated in accordance with ISO SEK 11 per share. The dividend last year was SEK 10 per 14001. Its forestry is also certificated in accordance with share. The proposed dividend amounts in total to MSEK FSC. The introduction of environmental management sys- 880. See also “Proposed treatment of unappropriated tems means that Holmen’s environmental activities are now earnings” on page 62. structured and based on clearly defined objectives. By the The 2002 Annual General Meeting mandated the Board to end of 2002, business units accounting for 64 per cent of the buy back up to 10 per cent of all the shares in the company Group’s net turnover had been certificated in accordance before the 2003 Annual General Meeting. This mandate was with FSC and ISO 14001. not exercised in 2002. During the year, there was a small number of cases of exceeded limits, incidents and complaints relating to forestry Environment activities and the mills. The deviations, which had no effect The environmental aspects of Holmen’s business are regula- on the result, were dealt with by taking corrective action with- ted by laws and permits in each country. Holmen’s environ- in the environmental management systems. mental policy serves a basis for allocating environmental Operations outside Sweden. Of the Group’s units outside responsibility and for the organisation and implementation Sweden, it is the mills in Workington, the UK, and Fuenla- of its environmental activities. At Holmen’s mills the various brada (Papelera Peninsular), Spain, that can be associated rules and regulations are integrated as an important part into with some form of environmental impact. These units’ sales the planning of production and investments. account for 14 per cent of the Group’s net turnover. Holmen’s mills are of a high environmental standard, In 2002 Workington received the environmental permit in which is the result of investments in process and treatment accordance with the EU’s IPPC directive and Papelera Penin- equipment as well as of regular measures being taken within sular received a decision on its permit from the local environ- the framework of each unit’s environmental management mental authorities in Spain. The IPPC directive was incorpora- system and the statutory environmental supervision. ted into Spanish legislation in 2002. Papelera Peninsular has Operations in Sweden. During 2002 Holmen carried on activiti- applied for a permit under the terms of this directive, and a es requiring a permit at seven facilities. Three of them have decision is expected in 2003. received environmental permits on the basis of the Environmen- The activities at Papelera Peninsular obtained certification tal Protection Act and another three have received permits pur- in accordance with ISO 14001 in 2002. Workington obtained suant to the Environmental Code. At the seventh facility certification according to the same standard early in 2003. (Ströms Bruk), a notification procedure pursuant to the Envi- Environmental report. Holmen’s environmental activities in ronmental Code began after the application to the municipality. 2002 are described in summary on pages 36-37 of this report Their sales represented 64 per cent of the Group’s net turnover. and in detail in Holmen’s Environmental Report for 2002, The Group’s environmental impact largely takes the form which is available in hard copy that is complemented with an of emissions into air and water, and of noise and waste. environmental report on Holmen’s website – In 2002 Braviken and Wargön were granted new condi- www.holmen.com. tions pursuant to the Environmental Code. The Skärnäs ter- The Environmental Report is published at about the same minal has had such a permit since 1999. Hallsta has had a time as this annual report. Neither pages 36-37 of this permit since 2000 pursuant to the Environment Protection report, nor the separate environmental report, have been Act. Iggesunds Bruk’s permit is undergoing a procedure for a examined by external auditor. 44 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 45

Report of the directors

EU investigation Pensions Holmen has explained in earlier annual reports that the EU Pension funds set up by the Group’s English companies show- Commission commenced an investigation in the spring of ed a deficit of MSEK 391 as of 31 December 2002. The 1995 into the European market for newsprint and magazine Group has stated this as a contingent liability in the consoli- paper to determine whether there had been any restrictive dated financial statements. practices in contravention of Article 81 of the Treaty of Rome. The investigation related to Holmen Paper and most Board and Board procedures other newsprint and magazine paper manufacturers in Wes- Board. Holmen’s Board has 8 members who are elected by tern Europe.The Commission announced in August 2002 that the Annual General Meeting and 3 representatives of the the investigation had been dropped. employees, together with the same number of deputies. The members elected by the AGM include individuals associated Decision on new paper machine postponed with Holmen’s main shareholders (L E Lundbergföretagen, The Holmen Board decided at the meeting of 5 February the Kempe Foundations, and Handelsbanken), as well as 2003 to postpone until further notice the decision to build a other individuals who are independent of these shareholders. new newsprint machine at Papelera Peninsular, the Group’s The President is a member of the Board. Spanish mill. The main reason for this is that the recovery of Employees of the company participate in meetings of the the newsprint market appears to be taking longer than expec- Board either to present business or as secretary. The secretary ted. The pre-project will be completed and it is intended to go of the Board is the company’s Senior Vice President of Legal ahead with the necessary land purchase. Affairs. The Board met on 9 occasions in the 2002 financial year, Tax case when it devoted a considerable amount of its time to strate- Holmen has appealed against a decision handed down by the gic, financial and accounting matters. tax authority in December 2002 concerning the tax surcharge The work of the Board follows a plan that is designed to imposed on one of Holmen’s subsidiaries. The aggregate ensure that its members receive all necessary information. amount of taxes and charges is MSEK 538. The company The company’s auditors report in person to the Board with does not share the tax authority’s view on the case, but consi- observations from their audit of the accounts and give their ders that it has already been subject to legal process and sett- assessment of the company’s internal control systems. led. The tax authority investigated the matter back in 1998, The Board has adopted a written set of procedures and at which time it did not allow the deduction. The company issued written instructions for the division of labour between appealed against the decision. The county administrative the Board and the President, as well as for information the court ruled in the company’s favour, and approved the deduc- Board is to receive regularly. tion in its decision of 22 May 2001. The decision was not The members of the Board are presented on pages 64 and 65. appealed against by the tax authorities, and has thus come Group management. Holmen’s Group management consists into legal effect. The company sees no reason for a surcharge, of 12 individuals: the President and CEO, the presidents of the nor does it agree with the opinion of the tax authority in oth- 5 business areas, and the senior vice presidents of the 6 Group er respects. In light of this, Holmen has not made any provisi- staffs. on for tax in respect of this tax surcharge decision. The Group management met on 12 occasions in 2002. Its meetings serve primarily as a forum for the provision of infor- Buy-back of hydroelectric power assets mation on the results at Group and business area level, and Holmen has bought back the partner financed company Jun- for reporting before and after Board meetings. Budgets and karavan AB on 31 December 2002, which means that Hol- capital expenditure are also frequently on the agenda, as are men has acquired hydroelectric power assets corresponding presentations of market, economic and currency develop- to 541 GWh for MSEK 1,705. Holmen retains the partner ments. The meetings also discuss business area and staff pro- financing of Iggesund Kraft AB, which owns hydroelectric jects, which are regularly followed up stage by stage and eva- power assets corresponding to 170 GWh. Holmen owns 50 luated upon completion. The members of the Group manage- per cent of Iggesund Kraft and consolidates the company as ment are presented on pages 66 and 67. of 31 December 2002. 46 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 47

Financial risk management

The Group’s financial activities and management of finan- contracts mature. The effect of the currency hedging on the cial transactions are centralised to Group Finance. The aim result for 2002 was MSEK 314. The value of hedgings not is to minimise the Group’s capital costs by using means of yet recognised in the income statement amounted to MSEK suitable financing and to effectively control and manage 294 at 31 December 2002. the Group’s financial risks. The activities are carried out on Translation exposure. Holmen’s foreign companies are pri- the basis of the financial policy established by the Board marily financed by means of intra-group loans and equity. and are characterised by a low level of risk. Currency hedging of the equity of foreign subsidiaries is assessed from case to case. Currency differences arising Currency risk from the translation of net foreign assets amounted to a Transaction exposure. The Group’s commercial payment cost of MSEK 175 in 2002, while the result of the equity- flows give rise to the exchange of foreign currencies into Swe- hedging was MSEK 24, both of which are taken direct to dish kronor that are estimated to some SEK 7.5 billion net the Group’s equity.

for 2003, of which euro accounts for 64 per cent (see table 31 December 2002, MSEK Net assets Equity-hedge below). In order to reduce the effect of currency fluctua- EUR 1,357 –1,098 tions on the result, Holmen hedges its currency flows for a GBP 1,549 0 Other 41 0 certain period into the future by means of forwards and options. Normally, the net currency flow is hedged for the Loans raised in foreign currencies as part of the Group’s coming four months. The Board can choose to increase the financing are hedged with currency forwards. The transla- hedging ratio if this is considered necessary in the light of tion of loans and forwards during the year had no effect on product profitability, competitive position and currency the consolidated result. forecasts. Income statement items in the accounts of foreign subsi- At the beginning of 2002, the Group had hedged some diary and associate companies are not hedged. 80 per cent of the estimated flow of commercial payments Economic exposure. Holmen’s competitive position and for 2002 and 40 per cent for 2003. During the year, the result are influenced by currency fluctuations in relation to hedging ratio was gradually raised and by 31 December producers whose production costs are incurred in other 2002, the Group had outstanding currency hedgings in currencies. Such currencies include EUR, USD and CAD. respect of some 85 per cent of the estimated commercial Holmen does not normally hedge such risks. flow of payments in 2003, 55 per cent in 2004 and 20 per cent in 2005, or a total of some SEK 11.3 billion. The Financing breakdown of the currency hedging as of 31 December Holmen’s financial net debt at 31 December 2002 amoun- 2002 is shown in the table below. Further hedging in euro ted to MSEK 3,808, divided into loans MSEK 4,496, liquid has been made for 2005 since the end of the year. funds MSEK 634 and financial receivables MSEK 54. The result from currency hedging is included in the ope- The Group normally has no surplus cash reserves, but rating profit of each business area by stating sales that has uses committed credit facilities to reduce the risk that raising been hedged at the hedging rate. Currency fluctuations the- capital and refinancing loans in the future will be difficult or refore have an effect on the operating result when hedging costly. During the year, an existing committed credit facility

TRANSACTION EXPOSURE, 31 DECEMBER 2002, MSEK 12 months estimated Hedged Average 2003 2004 2005 net flows total rate % Average rate % Average rate % Average rate EUR 4,800 8,700 9.37 85 9.33 70 9.41 30 9.37 GBP 1,100 1,600 14.86 95 14.90 50 14.83 USD 1,100 900 10.35 80 10.42 5 9.53 Other 500 100 30 Total 7,500 11,300 85 55 20 46 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 47

Financial risk management

was replaced by a new MEUR 500 facility maturing in Other financial risk management 2007, that was arranged with a group of 23 banks. Holmen’s net consumption of electricity in Sweden amounts to some 3,000 GWh in a normal year. In order to Maturities Financial liabilities Committed and interest-bearing credit reduce its exposure to changes in the price of electricity, the 31 December 2002, MSEK provisions facilities Group makes use of financial hedging and physical supply 2003 2,052 2004 889 agreements at fixed prices. Almost all of the estimated net 2005 1,171 consumption in Sweden for 2003 and 2004 has been fully 2006 4 2007– 380 4,575 hedged at price levels that are significantly below the mar- Total 4,496 4,575 ket prices that applied at the end of 2002. Half of the consumption in 2005 has been hedged, and one-third for the The day-to-day financing was arranged during the year 2006-2011 period mainly via Holmen’s commercial paper programme with a The result of the hedgings are taken into the accounts limit of MSEK 4,000 and short-term bank loans. On aver- when the contracts mature. The effect on the result of phy- age MSEK 1,900 were outstanding during the year and sical and financial contracts amounted net to MSEK 225 in MSEK 1,797 at the year end. For the long-term financing 2002, of which a loss of MSEK 80 is stated in Holmen Holmen has a Swedish Medium Term Note programme Kraft’s accounts and a profit of MSEK 305 in the accounts with a limit of MSEK 4,000. The programme has not yet of the electricity-using mills. been utilised. In the case of certain paper products, there are OTC Holmen has a BBB+ long-term corporate credit rating markets for financial contracts. Holmen has so far made and a short-term A-2/K-1 rating from the Standard & Poor little use of these markets to hedge its selling prices. rating institution. The net debt in foreign currency (loans and forwards) Credit risks in relation to financial counter-parties amounted to MSEK 1,620 at the end of the year, and has The risk of a counterparty not fulfilling its commitments is been stated as financing or hedging of the foreign assets. limited by selecting creditworthy counterparties, limiting exposure to individual counterparties and by making use 31 December 2002, MSEK Capital employed Net financial debt of ISDA and FEMA agreements. SEK 15,346 2,188 EUR 2,331 1,988 The Group had outstanding derivative contracts, mainly GBP 1,307 –321 Other 9 –47 hedging agreements, with a nominal amount of SEK 18.3 Total 18,993 3,808 billion and a market value of MSEK 573 as of 31 Decem- ber 2002. Calculated in accordance with the regulations of Interest rate risk the Swedish Financial Supervisory Authority for financial The duration of the Group’s financial liabilities is normally institutions, Holmen’s total counter-party risks on its deri- short, but it can be lengthened in order to limit the adverse vative instruments amount to MSEK 1,090 at 31 Decem- effect of an increase in interest rates. Changes in duration ber 2002. are decided by the Board. The average duration has varied between 13 and 21 months during the year, and was 13 Insurance months at the end of 2002. Holmen insures its mills against property damage and sequential loss. The level of risk varies from one mill to another, but is maximised to some MSEK 40 for an individual damage. The Group’s forests are not insured as they are widely dispersed throughout the country and the risk is small of simultaneous damage. 48 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 49

Quarterly figures

MSEK 2002 2001 Full year IV III II I Full year IV III II I PROFIT AND LOSS ACCOUNT Net turnover 16,081 4,120 3,996 4,027 3,938 16,655 4,343 4,099 4,097 4,116 Operating costs –12,205 –3,179 –2,983 –3,127 –2,916 –12,460 –3,263 –2,908 –3,156 –3,133 Depreciation according to plan –1,153 –290 –297 –287 –279 –1,126 –284 –280 –281 –281 Items affecting comparability – – – – – –620 –620 – – – Interest in earnings of associate companies –10 –13 – 3 – –3 –5 –2 3 1 Operating profit 2,713 638 716 616 743 2,446 171 909 663 703 Net financial items –149 –27 –40 –44 –38 –152 –43 –52 –53 –4 Profit after financial items 2,564 611 676 572 705 2,294 128 857 610 699 Tax –605 –175 –166 –58 –206 –108 100 184 –183 –209 Profit for the period 1,959 436 510 514 499 2,186 228 1,041 427 490

KEY RATIOS Operating margin, % 16.9 15.8 17.9 15.2 18.9 18.4 18.3 22.2 16.1 17.1 Return on capital employed, % 15.5 14.1 16.5 14.3 17.3 17.7 17.6 20.7 15.7 16.8 Return on equity, % 13.7 11.7 14.2 14.8 14.4 16.0 6.5 31.1 13.7 13.4 Earnings per share (before dilution), SEK 24.50 5.46 6.37 6.43 6.24 27.33 2.84 13.02 5.34 6.13

NET TURNOVER Holmen Paper 8,164 2,119 2,122 2,029 1,894 8,757 2,283 2,260 2,173 2,041 Iggesund Paperboard 4,850 1,166 1,270 1,209 1,205 4,467 1,181 1,131 1,053 1,102 Iggesund Timber 572 133 134 148 157 712 161 175 196 180 Holmen Skog 3,538 922 739 929 948 3,982 997 808 1,005 1,172 Holmen Kraft 1,120 331 247 247 295 1,108 286 263 251 308 18,244 4,671 4,512 4,562 4,499 19,026 4,908 4,637 4,678 4,803 Intra-Group sales –2,163 –551 –516 –535 –561 –2,371 –565 –538 –581 –687 16,081 4,120 3,996 4,027 3,938 16,655 4,343 4,099 4,097 4,116

PROFIT/LOSS Holmen Paper 1,664 337 493 364 470 2,410 568 750 597 495 Iggesund Paperboard 818 210 232 190 186 455 110 150 53 142 Iggesund Timber –6 3 –1 –2 –6 –79 –24 –19 –20 –16 Holmen Skog 450 155 62 105 128 455 193 83 79 100 Holmen Kraft –26 –17 –25 –2 18 49 –7 15 5 36 Group adjustments and other –187 –50 –45 –39 –53 –224 –49 –70 –51 –54 2,713 638 716 616 743 3,066 791 909 663 703 Items affecting comparability – – – – – –620 –620 – – – Operating profit 2,713 638 716 616 743 2,446 171 909 663 703

OPERATING MARGIN, % Holmen Paper 21 17 23 18 25 28 25 33 27 24 Iggesund Paperboard 17 18 18 16 15 10 9 13 5 13 Iggesund Timber –1 2 –1 –2 –4 –11 –16 –11 –11 –9 Group 16 17 18 15 19 18 18 22 16 17

DELIVERIES Newsprint and magazine paper, 1,000 tonnes 1,528 404 396 383 345 1,525 394 388 374 369 Paperboard, 1,000 tonnes 453 112 121 110 110 410 106 103 97 104 Sawn timber, 1,000 m3 220 52 51 54 63 322 71 74 92 85 48 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 49

Quarterly figures Parent company

PROFIT AND LOSS ACCOUNT, MSEK 2002 2001 BALANCE SHEET AT 31 DECEMBER, MSEK 2002 2001 Net turnover (Note 1) 13,015 13,673 ASSETS Other operating income (Note 2) 330 384 Fixed assets 13,345 14,057 Intangible fixed assets (Note 10) Raw materials Leases and similar rights 11 9 and consumables (Note 3) –5,495 –5,788 Change in inventory Tangible fixed assets (Note 11) of finished products –14 116 Forest land 2,471 2,468 Personnel costs (Note 22) –1,842 –1,810 Buildings, other land Other external costs –3,854 –11,205 –4,042 –11,524 and land installations 25 28 Items affecting comparability (Note 5) –53 2,319 Machinery and equipment 53 50 Depreciation according to plan (Note 4) –27 –30 2,549 2,546 Operating profit 2,060 4,822 Financial fixed assets Net financial items (Note 7) –65 –791 Shares and participations Profit after financial items 1,995 4,031 Group companies (Note 12) 12,449 12,224 Associate companies (Note 12) 12 33 Appropriations Other shares and participations (Note 12) – – Group contributions received 60 120 Financial receivables 16 19 Group contributions made –176 –327 Other long-term receivables (Note 12) 1,747 1,552 Other appropriations (Note 16) –470 99 14,224 13,828 Profit before tax 1,409 3,923 Total fixed assets 16,784 16,383 Tax (Note 8) –249 –588 Profit for the year 1,160 3,335 Current assets Inventories etc. (Note 13) 1,785 1,887 Current receivables Operating receivables (Note 14) 3,156 3,675 Short-term placements 295 – Cash and bank 239 142 Total current assets 5,475 5,704 CASH FLOW ANALYSIS, MSEK 2002 2001 Operating profit 2,060 4,822 Total assets 22,259 22,087 Adjustments for items not included in cash flow* 84 3,147 Change in working capital etc. 478 –4,173 EQUITY AND LIABILITIES Net financial items –65 –791 Equity (Note 15) Paid tax –431 –394 Restricted equity Cash flow before capital expenditure 2,126 2,611 Share capital 3,999 3,999 Revaluation reserve 100 100 Capital expenditure –293 –792 Statutory reserve 1,296 1,296 Cash flow before dividend 1,833 1,819 Share premium reserve 46 46 Dividend paid to shareholders –800 –5,518 Non-restricted equity Cash flow net financial assets/debt 1,033 –3,699 Profit brought forward 5,307 2,772 Profit for the year 1,160 3,335 Financial receivables 16 19 Total equity 11,908 11,548 Liquid funds 534 142 Untaxed reserves (Note 16) 1,774 1,304 Pensions provisions –20 –27 Provisions Financial liabilities –2,897 –3,534 Interest-bearing Net financial debt –2,367 –3,400 Pension provisions (Note 17) 20 27

Non-interest-bearing Cash flow net financial assets/debt 1,033 –3,699 Tax provisions (Note 8) 641 633 Cash flow financial receivables, Other provisions (Note 17) 238 268 liabilities and provisions –641 2,036 Total provisions 899 928 Cash flow liquid funds 392 –1,663 Liabilities Opening liquid funds 142 1,805 Financial liabilities (Note 18) 5,501 5,792 Cash flow 392 –1,663 Operating liabilities (Note 19) 2,177 2,515 Closing liquid funds 534 142 Total liabilities 7,678 8,307 Total equity and liabilities 22,259 22,087 * The adjustments consist mainly of depreciation according to plan and retirement of residual values according to plan in respect of fixed assets and for 2001 certain items Pledged assets (Note 20) 10 10 affecting comparability. Contingent liabilities (Note 21) 1,494 374 50 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 51

Accounting principles

General accounting principles. The annual report is made up positive or negative goodwill. Goodwill and excess values in accordance with the Annual Accounts Act and the in respect of assets subject to decrease in value are depreci- recommendations issued by the Swedish Financial Accoun- ated according to plan in the consolidated profit and loss ting Standards Council. account. The consolidated equity includes – apart from the The following recommendations issued by the Swedish parent company’s equity – only changes in the equity of Financial Accounting Standards Council have been applied Group companies that have arisen after acquisitions. with effect from 1 January 2002: RR1:00 Consolidated Holmen’s Group companies are defined as independent financial statements, RR15 Intangible assets, RR16 Provi- companies and their accounts are therefore translated sions, contingent assets and liabilities, RR19 Discontinu- using the current rate method, whereby all assets, provi- ing operations, RR21 Borrowing costs, and RR23 Related sions, and other liabilities are translated at closing date party disclosures. The application of these recommenda- rates and exchange rate differences arising are taken direct tions has not had any material effect on the consolidated to consolidated restricted and non-restricted reserves result or made any adjustments to prior year figures neces- respectively. All items in the profit and loss account are sary. RR17 Impairment of assets has been applied with translated at average rates for the year. effect from the final accounts for 2001. Associate companies. Shareholdings in associate companies, Principles of valuation, etc. Assets and liabilities are valued in which the Group controls a minimum of 20 per cent and at acquisition value except where otherwise stated below. a maximum of 50 per cent of the votes, or otherwise exerci- Commission companies. The Group’s business is mainly ses a significant influence over their operational and financi- conducted through the following commission companies: al control, are stated in accordance with the capital interest Holmen Paper AB method, except for associate companies having a negligible Iggesund Paperboard AB effect on the Group’s results and financial position. Iggesund Timber AB The capital interest method means that the value of the Holmen Skog AB shares in the associate company stated in the consolidated Holmen Kraft AB accounts corresponds to the Group’s interest in the associ- These companies are wholly-owned subsidiary companies ate company’s equity and any residual value of excess valu- of Holmen AB. The parent company is liable for all the es and discounts arising upon consolidation. The Group’s undertakings and commitments of these commission com- share of the associate companies’ profit/loss after financial panies. All income, costs, assets and liabilities, which arise income and costs adjusted for any write-downs or reversals in the operations conducted by the commission companies, of acquired goodwill and negative goodwill respectively is are stated either in Holmen AB’s accounts or in the stated in the consolidated profit and loss account as “Inte- accounts of Group companies other than the commission rest in earnings of associate companies”. The Group’s inte- companies. rest in the booked taxes of associate companies is in the Consolidated financial statements. The consolidated financi- Group’s tax costs. Interests in profits earned after the acqu- al statements relate to the parent company and those com- isition of associate companies which have not been realised panies in which the parent company directly or indirectly in the form of a dividend, are transferred to capital interest controls more than half the votes, or exercises control in reserve, which is included in the Group’s restricted equity. some other way. If the associate company is stated at a lower value than the The consolidated financial statements are made up value according to the acquisition-value method, the diffe- using the purchase method, where shares in Group compa- rence is taken against consolidated non-restricted equity. nies are replaced in the consolidated financial statements Net turnover. By net turnover is meant invoiced sales, exclu- by the assets and liabilities of the Group companies, valued ding value added tax and after allowing for discounts, and at the Group’s acquisition cost. Differences between the similar reductions in income, but before allowing for the acquisition cost and the assets and liabilities of the acqui- cost of delivery. red company valued on a commercial basis are treated as 50 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 51

Accounting principles

Other operating income. Revenue from secondary activities red tax is calculated using the balance sheet method on the not forming part of the main business is stated as other basis of temporary differences between stated values and operating income. values for tax purposes of assets and liabilities, applying Items affecting comparability. The effect on the result of spe- the tax rates and rules that have been approved or announ- cific events and transactions of significance is stated within ced as of the closing date. Temporary differences are not the respective profit concept. Capital gains and losses on the taken into account in goodwill arising upon consolidation, divestment of fixed assets and lines of business, restructuring nor in differences attributable to interests in subsidiary and costs etc. are normally stated within the operating result of associate companies that are not expected to become liable the business area in question or as Group adjustment. to taxation in the foreseeable future. In the accounts of Depreciations according to plan and write-downs. Deprecia- juridical persons, untaxed reserves are stated inclusive of tion according to plan is based on the original acquisition deferred tax liability. Deferred tax receivables in tax- value of the assets, taking into account any write-downs deductible temporary differences and loss allowances are made. Depreciation is provided during the economic life of stated only to the extent that they are likely to be used and the asset. entail lower tax payments in the future. The following economic lives are used: Receivables. Receivables are stated after individual valuation at the amounts that the company expects to receive. Administrative and warehouse buildings, dwellings ______20–33 years Production buildings, land installations, and machinery Receivables and liabilities denominated in foreign curren- for pulp, paper and paperboard production ______20 years cies are translated at closing date rates or, if they have been Machinery for sawmill ______12 years

Other machinery ______10 years hedged, at hedging rates. Exchange rate differences are Forest roads ______10 years included in the operating result, except for differences rela- Equipment ______4 years ting to short-term placements, cash and bank, financial lia- Goodwill______20 years bilities and interest-bearing provisions, which are stated Should there be any indication that the book value of the within net financial items. For the hedging of future cur- Group’s tangible, intangible and financial assets is too rency flows, exchange rate differences are taken into the high, an analysis is made in which the recovery value of result during the same period as the underlying currency single or inherently related types of assets is determined at flow. The currency mix of financial liabilities has been alte- either the net sales value or the utility value, whichever is red by means of forward hedging contracts. These forward the highest. The utility value is measured as the discounted contracts are valued at closing date rates and the unreali- cash flow expected in the future. A write-down is made of sed profit or loss is stated net as a liability. Any premiums/ the difference between the book value and the recovery discounts are regarded as interest, periodised and stated value. within net interest cost. Loans and forward contracts in Borrowing costs are charged against the result for the peri- foreign currencies can be used to reduce the currency effect od to which they relate, regardless of how the borrowed of the translation of foreign net assets into SEK. Currency funds are applied. differences on these are eliminated to the extent that they Group contributions and shareholder contributions. Group correspond to currency differences on foreign net assets, contributions are stated in the parent company’s profit and after tax effects are taken into account, from the profit and loss account under Appropriations. Shareholder contribu- loss account, and taken direct to equity in the balance tions are taken direct to equity in the recipient’s accounts, sheet. These hedging measures are based on the value at and capitalised under shares and participations if no write- Group level of the net assets per currency. downs have been necessary in the accounts of the giver. Valuation of inventories. Inventories are valued at the lower Taxes. Total tax as stated in the profit and loss account of acquisition value or production cost after allowing for comprises tax paid and deferred tax. Tax paid is the tax to obsolescence at the standard rate of three per cent, or at be paid or received for the year in question. This also inclu- actual value. The acquisition cost of manufactured finished des any adjustment to tax paid for previous periods. Defer- products comprises direct production costs and a reasona- 52 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 53

Definitions of financial ratios ble proportion of indirect costs. The actual value of finis- Operating capital. Balance sheet total less financial receiva- hed products is their sales value less estimated selling costs. bles, short-term placements, cash and bank, operating lia- The actual value of saw timber and pulpwood and other bilities and interest-free provisions (excl. deferred tax raw materials, inventory materials and the like is the lower receivable and tax liability). Average values are calculated of replacement value or acquisition value after allowing for on the basis of quarterly data. actual obsolescence. Capital employed. Operating capital reduced by deferred Convertible loan and warrants. The amount of the conver- tax receivable and liability. Average values are calculated tible loan has been calculated on the basis of the market on the basis of quarterly data. yield. The difference between the loan amount arrived at in Equity. For the period 1993–1994 convertible participating this way and proceeds is transferred to premium reserve as loan (KVB) is included. Average values are calculated on a premium on the price of the shares that will eventually be the basis of quarterly data. issued. The size of the stated loan liability is successively Debt/equity ratio. Net financial debt (financial liabilities and increased during the term of the loan by accruing interest interest-bearing provisions less financial receivables, short- so that upon maturity the stated amount of the loan will term placements and cash and bank) divided by the sum of coincide with the nominal amount of the loan. The pro- equity and minority interests. ceeds of the issue of warrants are taken direct to premium Equity ratio. Equity plus minority interests expressed as a reserve. percentage of the balance sheet total. Leasing. The financial agreements that exist within the Interest coverage. Operating profit/loss divided by net finan- Group are stated for reasons of relative significance as ope- cial items. rational. There are few operational agreements within the Return on operating capital. Operating profit/loss (excl. items Group and so, for the same reason, no supplementary affecting comparability and divested activities) expressed information on them is provided. as a percentage of the average operating capital. Provisions. A provision is stated in the balance sheet in Return on capital employed. The operating result (excl. accordance with RR16 Provisions, contingent assets and items affecting comparability and divested activities) as a liabilities when the company has a formal or informal percentage of the average capital employed. commitment as a consequence of an event that has occur- Return on equity. Profit/loss for the year, expressed as a per- red, and it is likely that the disbursement of resources will centage of the average equity. be required to regulate the commitment, and a reliable esti- Operating margin. Operating profit/loss (excluding items mate of the amount can be made. affecting comparability, and interest in earnings of associa- Contingent liabilities. A contingent liability is stated within te companies) expressed as a percentage of net turnover. the line when there is: Capital turnover rate. Net turnover divided by average opera- – the possibility of a commitment that originates in events ting capital (expressed as times per year). that have occurred and the existence of which will only be Earnings per share. Profit/loss for the year divided by the verified by the future occurrence or non-occurrence of one weighted average number of shares in issue (and up to or more uncertain events that are not entirely within the 1994 also of KVBs), adjusted for buy-back of shares during company’s control, or the year. – a commitment that originates in events that have occur- Earnings per share after dilution. The profit for the year, adjus- red but that has not been stated as a liability or provision ted for interest costs after tax attributable to outstanding as it is not likely that any disbursement of resources will be convertibles, divided by the weighted average number of required to regulate the commitment, of that the monetary shares in issue during the year, (adjusted for buy-back of value of the commitment cannot be calculated with a suffi- shares), after adjustment for the number of shares issued in cient degree of certainty. the event of conversion and premiums, if any, over the book value of outstanding warrants. Calculated according to the Council’s recommendation RR 18 Earnings per share. 52 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 53

Notes Amounts in MSEK, except where otherwise stated.

1 NET TURNOVER 5 ITEMS AFFECTING COMPARABILITY Group Group Parent company External ner turnover by market 2002 2001 2002 2001 2002 2001 Sweden 3,801 4,114 Capital gains/losses on divestments Great Britain 2,699 2,635 Group companies – – – 3,324 Germany 1,894 2,104 Other – – – 1 Spain 1,219 1,480 Write-down of shares France 873 953 Group companies – – –53 –1,002 Holland 825 847 Associate companies – – – –4 Italy 610 571 Write-down of fixed assets – –620 – – Other EU countries 1,304 1,543 – –620 –53 2,319 Rest of Europe 1,158 1,078 Rest of the world 1,698 1,330 The parent company’s result in 2001 of MSEK 3,324 is attributable to re- 16,081 16,655 payment of capital from the parent company’s Group company in France. The item write-down of shares in Group companies in 2001 includes a Of the parent company’s net turnover of MSEK 13,015 (13,673), 0 (1) per write-down of MSEK 1,000 in the value of the shareholding in Holmen UK Ltd. cent were sales to Group companies. The parent company’s purchases from Group companies are negligible. 6 INTEREST IN EARNINGS OF ASSOCIATE COMPANIES Group 2 OTHER OPERATING INCOME 2002 2001 Other operating income mainly comprises rental income and property Interest in earnings after financial items –10 –3 leasing income, freight forwarding income, sales of by-products and capital Tax 5 –2 gains on sales of tangible fixed assets. Holmen’s interest in earnings after tax –5 –5

3 RAW MATERIALS, The interest in earnings relate to Carpa with subsidiary, Peninsular Cogene- GOODS FOR RESALE AND CONSUMABLES racion SA and Les Bois de la Baltique SA. As goods for resale account for a small proportion of the Group’s turnover, this item is grouped together with raw materials and consumables. 7 NET FINANCIAL ITEMS Group Parent company 4 DEPRECIATION ACCORDING TO PLAN 2002 2001 2002 2001 Group Parent company Dividend income 2002 2001 2002 2001 Group companies – – 2 11 Goodwill and leases 33 36 – – Associate companies – – – 3 Building, other land Interest income from and land installations 124 123 2 4 current assets Machinery and equipment 996 967 25 26 External 17 45 10 31 1,153 1,126 27 30 Group companies – – 48 60 Interest costs External –169 –199 –170 –197 Group companies – – –15 –332 Other financial items Exchange differences other long-term liabilities – – 24 –59 Other 3 2 36 –308 –149 –152 –65 –791 54 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 55

8 TAX Group Parent company Tax charge stated in profit Group Parent company Taxes as stated in balance sheet 2002 2001 2002 2001 and loss account 2002 2001 2002 2001 Financial fixed assets Tax paid –285 –159 –248 –588 Deferred tax receivable 194 203 – – Deferred tax Operating receivables Changes in losses allowance Current tax receivable 23 21 – – carried forward –13 –39 – – 217 224 0 0 Changes in temporary Provisions for taxes differences –312 –325 92 53 –1 – Deferred tax liability 4,370 4,014 613 612 Interest in earnings of Other provisions 28 21 28 21 associate companies 5 – –2 – – Total provisions for taxes 4,398 4,035 641 633 –605 –108 –249 –588 Operating liabilities Current tax liability 277 468 236 426 The tax charge is Group Parent company 4,675 4,503 877 1 059 distributed as follows 2002 2001 2002 2001 Tax paid The deferred tax receivables Sweden –267 –168 –248 –588 and liabilities are Group Parent company Outside Sweden –18 9 – – distributed as follows 2002 2001 2002 2001 Subtotal –285 –159 –248 –588 Deferred tax receivables Loss allowance carried forward 317 355 – – Deferred tax Deferred tax liabilities stated net among deferred Sweden –328 –12 –1 – tax receivables –123 –152 – – Outside Sweden 3 65 – – 194 203 0 0 Subtotal –325 53 –1 – Deferred tax liabilities Fixed assets Associate companies 5 –2 – – Forest land 1,715 1,715 679 679 Total tax –605 –108 –249 –588 Machinery and equipment 1,671 1,516 – – Buildings and other The difference between the nominal real property 62 62 – – Swedish tax rate and the Tax allocation reserve 550 418 – – effective tax rate has arisen Group Parent company in the following way, % 2002 2001 2002 2001 Other 372 303 –66 –67 Swedish income tax rate 28 28 28 28 4,370 4,014 613 612 Difference in relation to tax Tax litigation rate on foreign activities 1 –1 – – Holmen has appealed against a decision handed down by the tax aut- Untaxable income –1 –1 – –21 hority in December 2002 concerning the tax surcharge imposed on one Non-deductible costs 1 1 1 8 of Holmen’s subsidiaries. The aggregate amount of taxes and charges is Effects of tax litigation –5 –22 –11 – MSEK 538. The company does not share the tax authority’s view on the Tax rate excl. associate companies 24 5 18 15 case, but considers that it has already been subject to legal process and Associate companies – – – – settled. The tax authority investigated the matter back in 1998, at which Tax rate 24 5 18 15 time it did not allow the deduction. The company appealed against the decision. The county administrative court ruled in the company’s favour, and approved the deduction in its decision of 22 May 2001. The decision was not appealed against by the tax authorities, and has thus come into legal effect. The company sees no reason for a surcharge, nor does it agree with the opinion of the tax authority in other respects. In light of this, Holmen has not made any provision for tax in respect of this tax surcharge decision. 54 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 55

9 EARNINGS PER SHARE 11 TANGIBLE FIXED ASSETS 2002 2001 Buildings, Earnings per share, SEK other land and land Machinery Before dilution 24.50 27.33 Group Forest land installations and equipment After dilution 23.58 26.41 Accumulated acquisition values Profit for the period, MSEK 1,959 2,186 Opening balance 3,872 3,870 19,281 Interest convertible loan, MSEK 14 13 Capital expenditure 5 87 2,127 Adjusted profit, MSEK 1,973 2,199 Repurchase hydroelectric power assets – 105 6 Average number of shares (million) Consolidation Iggesund Kraft – 502 8 Before dilution 80.0 80.0 Divestments and retirements – –47 –521 Convertible loan 3.2 3.0 Translation differences Warrants 0.5 0.3 arising for the year – –42 –267 After dilution 83.7 83.3 3,877 4,475 20,634

See page 52 Definitions of financial ratios for calculation method. Accumulated depreciation according to plan Opening balance – 1,869 10,453 INTANGIBLE FIXED ASSETS 10 Depriciation for the year – 124 996 Parent Group company Divestments and retirements – –45 –474 Goodwill, leases and similar rights Translation differences arising for the year – –24 –175 Accumulated acquisition values – 1,924 10,800 Opening value 687 9 Capital expenditure 6 6 Accumulated revaluations Divestments and retirements –16 –4 Opening balance 2,425 1 – Translation differences arising for the year –16 – 2,425 1 – 661 11 Closing residual value according to plan 6,302 2,552 9,834 Accumulated depreciation according to plan Opening balance 53 – Buildings, Depreciation for the year 33 – other land and land Machinery Translation differences arising for the year –1 – Parent company Forest land installations and equipment 85 – Accumulated Closing residual value acquisition values according to plan 576 11 Opening balance 43 146 216 Residual value according to plan includes goodwill of MSEK 564 (624). The Capital expenditure 3 – 29 depreciation period for goodwill arising in connection with the acquisition Divestments and retirements – –4 –31 of Papelera Peninsular is 20 years. The depreciation period is established 46 142 214 on the basis of the long-term and strategic significance of the acquisition. Papelera Peninsular has a strong market position and its market and tech- Accumulated nical conditions are stable. depreciation according to plan Opening balance – 119 166 Depreciation for the year – 2 25 Divestments and retirements – –3 –30 – 118 161

Accumulated revaluations Opening balance 2,425 1 – 2,425 1 – Closing residual value according to plan 2,471 25 53

Assessed tax values Group Parent company 2002 2001 2002 2001 Assessed tax values relate to assets in Sweden. Forest and agricultural property 7,493 7,672 3,788 3,999 Buildings, other land and land installations 3,196 3,124 28 25 10,689 10,796 3,816 4,024 56 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 57

12 FINANCIAL FIXED ASSETS 13 INVENTORIES ETC. Shares and participations Associate Other shares and Group Parent company Group companies participations 2002 2001 2002 2001 Accumulated acquisition values Raw materials and consumables 730 744 531 557 Opening balance 309 97 Saw logs and pulpwood 139 153 119 125 Repurchase hydroelectric power assets 1,466 – Finished products, goods for Re-classifications –68 – resale and work in progress 1,135 1,191 898 912 Translation differences arising for the year –4 –1 Felling rights 237 290 235 290 1,703 96 Advance payments to suppliers 3 2 2 3 2,244 2,380 1,785 1,887 Accumulated interest in earnings Opening balance 14 – 14 OPERATING RECEIVABLES Interest in earnings –5 – Group Parent company 9 – 2002 2001 2002 2001 Accounts receivable 2,274 2,537 1,757 2,022 Accumulated write-downs Receivables from Group companies – – 1,193 1,309 Opening balance 125 9 Receivables from associate Write-down for the year 3 – companies – 133 – 125 Re-classifications –50 – Prepaid costs and accrued income 100 89 74 68 78 9 Tax receivable 23 21 – – Closing book value 1,634 87 Other receivables 281 206 132 151 2,678 2,986 3,156 3,675 Other Group Associate shares and Parent company companies companies participations Accumulated acquisition values Opening balance 12,526 117 – Capital expenditure 255 – – Shareholders’ contribution 4 – – Re-classifications and other changes 68 –71 – 12,853 46 –

Accumulated revaluations Opening balance 2,299 – – 2,299 – –

Accumulated write-downs Opening balance 2,601 84 – Write-down for the year 52 – – Re-classifications 50 –50 – 2,703 34 – Closing book value 12,449 12 –

List of shareholdings, see pages 60–61.

Other long-term receivables Group Parent company 2002 2001 2002 2001 Receivables from Group companies – – 1,695 1,500 Deferred tax receivable 194 203 – – Other long-term receivables 54 55 52 52 248 258 1,747 1,552 56 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 57

15 EQUITY Non- 16 UNTAXED RESERVES PARENT COMPANY Restricted equity restricted equity Total Change Total Non- Profit Jan 1, 2002 of the year Dec 31, 2002 Share Restricted restricted for the Accumulated depreciation Group capital reserves reserves year Total in excess of plan 13 –1 12 Opening balance, Tax allocation reserve 1,291 471 1,762 January 1, 2002 3,999 3,531 4,356 2,186 14,072 1,304 470 1,774 Transfer of profit for the year 2001 – – 2,186 –2,186 – Untaxed reserves including deferred tax liability of MSEK 497 are stated in Dividend paid – – –800 – –800 the parent company´s balance sheet. Currency differences of foreign Group and associate companies – –158 – – –158 17 PROVISIONS Restatements between Pension commitments that are not secured by means of a foundation are restricted and stated as pension provisions at the present value of the commitment calcu- non-restricted equity – 517 –517 – – lated on actuarial grounds. Deficit on the foundation as at the closing data Profit for the year – – – 1,959 1,959 has been stated as a contingent liability. Closing balance, Other provisions mainly consist of reserves to cover future forestry levies December 31, 2002 3,999 3,890 5,225 1,959 15,073 and reserves for personnel reductions.

Accumulated currency differences in the accounts of foreign businesses 18 FINANCIAL LIABILITIES have been specified with effect from the start of 1999. Group Parent company 2002 2001 2002 2001 Specification of accumulated currency difference in equity Long-term Opening accumulated currency difference 349 Subordinated loans 394 387 394 387 Currency difference for the year Liabilities to Group companies – – 2,133 1,927 in foreign subsidiary companies –175 Other long-term loans 2,025 673 501 633 Effect for the year of currency hedging of net Total long-term liabilities 2,419 1,060 3,028 2,947 investment in foreign subsidiary companies (incl. tax effect) 17 –158 Closing accumulated currency difference 191 Current Liabilities to credit institutions 31 16 19 55 Non- Commercial papers 1,797 2,224 1,797 2,224 Restricted equity restricted equity Current portion of long-term loans 140 153 108 131 Non- Profit Share Restricted restricted for the Liabilities to Group companies – – 471 331 Parent company capital reserves* reserves year Total Other current liabilities 84 104 78 104 Opening balance Total current liabilities 2,052 2,497 2,473 2,845 January 1, 2002 3,999 1,442 2,772 3,335 11,548 Total financial liabilities 4,471 3,557 5,501 5,792 Transfer of profit for the year 2001 – – 3,335 –3,335 – Dividend paid – – –800 – –800 Financial liabilities are in all essentials interest-bearing. The parent Profit for the year – – – 1,160 1,160 company’s liabilities to Group companies include a significant volume of Closing balance non-interest-bearing liabilities between wholly-owned Swedish Group December 31, 2002 3,999 1,442 5,307 1,160 11,908 companies. In 1998 an MSEK 361 convertible subordinated loan was issued to * Restricted reserves comprise legal reserve of MSEK 1,296, share employees, of which MSEK 351 (345) are stated under subordinated loans. premium reserve of MSEK 46, and revaluation reserve of MSEK 100. The loan may be converted into Holmen Series “B” shares between Fe- bruary 1, 2004 and March 31, 2004 at a conversion price of SEK 112.70. December 31, 2002 December 31, 2001 Under certain circumstances, such as the payment of large dividends, the Parent company Number MSEK Number MSEK conversion price may be adjusted. Equity Series “A” 22,623,234 1,131.2 22,623,234 1,131.2 Long-term financial liabilities maturing later than five years from the closing Series “B” 57,349,217 2,867.4 57,349,217 2,867.4 date are specified below. 79,972,451 3,998.6 79,972,451 3,998.6 Group Parent company 2002 2001 2002 2001 In the event of full conversion and subscription of running convertible par- Other long-term loans 353 16 – – ticipating loan and warrants, 4.2 million Series ”B” shares will be issued. Conversion and subscription rights may be exercised between 1 February Information concerning the breakdown of liabilities by currency and maturity and 31 March 2004 at SEK 112.70. is provided in the section entitled Financial risk management, pages 46–47.

For further information, see “The share”, pages 8–10. 58 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 59

19 OPERATING LIABILITIES 21 CONTINGENT LIABILITIES Group Parent company Group Parent company 2002 2001 2002 2001 2002 2001 2002 2001 Advance payments from customers 4 – 3 – Guarantees on behalf Liabilities to suppliers 1,467 1,443 962 1,067 of Group companies – – 1,225 46 Bills payable 2 4 – – Pension commitments 391 – – – Liabilities to Group companies – – 298 321 Other guarantees and Liabilities to associate companies 27 230 – 16 contingent liabilities 929 467 269 328 Accrued costs and 1,320 467 1,494 374 deferred income 649 520 519 458 Tax liability 277 468 236 426 The parent company has provided guarantees for certain undertakings Other current liabilities 229 293 159 227 which may become incumbent on Group companies. 2,655 2,958 2,177 2,515 The Group’s contingent liabilities have risen, partly due to the tax authority’s decision to impose a tax surcharge of MSEK 538 on one of Operating liabilities relate entirely to items falling due for payment no later Holmen’s subsidiaries, and partly as a consequence of the under-capitali- than one year after the closing date. sation by MSEK 391 of the Group’s pension funds in the UK. Accrued costs and deferred income consist largely of personnel costs, The Swedish environmental authorities, basing their case on the provi- discounts and complaints. sions of the Environmental Code, have raised the question of soil analysis and decontamination at discontinued sites. Responsibility for deconta- PLEDGED ASSETS 20 mination will be decided from case to case, often on grounds of what is Total Total Pledged liability item pledged pledged known as a reasonability assessment. Holmen might possibly incur com- Property Other pledged assets assets mitments, as yet unquantifiable, over and above provisions already made. mortgages assets 2002 2001 See page 37, Discontinued units. Group Own liabilities 22 PERSONNEL, WAGES AND SALARIES Financial liabilities 10 1,566 1,576 10 2002 2001 Other commitments – 41 41 42 Average number of Of whom Of whom 10 1,607 1,617 52 employees No. men No. men Parent company Parent company Sweden 3,938 3,272 4,030 3,369 Own liabilities Financial liabilities 10 – 10 10 Group companies Other commitments – – – – Sweden 59 51 78 66 10 – 10 10 Australia 3 1 3 1 Belgium 4 2 4 2 The Group’s pledged assets increased in 2002, mainly because Junkara- Denmark 3 1 3 1 van AB, which was acquired as of 31 December 2002, has financial liabili- Estonia 16 11 25 20 ties that are secured by a lien on its fixed assets. France 26 18 22 15 Great Britain 580 522 646 574 Germany 20 13 20 14 Holland 136 86 139 85 Hong Kong 5 4 5 4 Ireland 1 1 1 1 Italy 4 – 3 – Poland 4 1 – – Portugal 1 1 1 1 Singapore 6 3 7 4 Spain 251 211 236 203 Switzerland 7 5 8 6 USA 11 8 7 4 Total Group companies 1,137 939 1,208 1,001 Total Group 5,075 4,211 5,238 4,370 58 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 59

Information provided in compliance with the Business Stock Exchange Board has decided that the Chairman shall prepare and then submit the Committee’s recommendation concerning the conditions of employment matter to the Board for decision. of senior executives. Other senior executives Chairman of the Board The Group management consists, in addition to the President, of the 11 Fee in 2002, SEK 400,000. individuals who report direct to the President, namely the 5 business area presidents and the 6 Group staff senior vice presidents. Principles for compensation of senior executives Salaries and other remuneration of these senior company officers (excl. All senior company officers have contracts stipulating a fixed annual salary. the President) amounted to SEK 16,628,478 in 2002. There are no variable salary components or compensation in the form of Pension. Pension agreements provide for retirement at the age of 65, options or the like. but with either party being entitled to request retirement on pension after 60. Pension will be paid between 60 and 65 at 65 per cent of the salary President providing entitlement to pension up to 30 base amounts and at 32.5 per Salaries and other perquisites in 2002, SEK 5,696,153. cent between 30 and 50 base amounts. The ordinary pension follows the ITP plan or equivalent. Over and above this, it will be complemented with Pension. The pension agreement provides for retirement at the age of pension benefits for the part of the annual salary between 20 and 50 base 65, with either party being entitled to request retirement from 64 years of amounts. age. Pension will be paid up to 65 at 60 per cent of the salary, and cor- Period of notice and severance pay. The period of notice is twelve months responds thereafter to the ITP plan, complemented with certain old-age on the part of the company and six months on the part of the employee. In and family pension benefits for that part of the salary between 20 and 50 the event of the company giving notice, severance pay corresponding to base amounts. between one year’s and 2.5 years’ salary can be paid, depending on age. Period of notice and severance pay. The period of notice is twelve months on the part of the company and six months on the part of the President. Auditors’ fees Decision-making. In the past, the Board delegated to the Chairman the The audit fee is MSEK 5.7 for the Group and MSEK 3.4 for the parent com- right to enter into agreements with the President on his salary and other pany. Consulting and other such fees amount to MSEK 5.8 for the Group conditions. The outcome was then reported to the Board. As of 2003 the and MSEK 2.6 for the parent company.

Wages, salaries, other remunerations and social security charges 2002 2001 Of which Wages, Of which Social Of which Wages, President, Social Of which salaries and President security pension salaries and Executive VP security pension remunerations and Board charges costs remunerations and Board charges costs Parent company Sweden 1,291 14 1) 551 144 2) 1,265 25 1) 545 158 2)

Group companies Sweden 19 1 7 1 22 1 9 1 Other Nordic countries 2 1 0 0 2 1 0 0 France 10 1 5 0 10 1 4 0 Holland 52 5 9 3 56 9 9 4 Spain 76 2 22 2 69 2 18 0 UK 212 5 38 20 246 6 44 24 Germany 11 1 2 1 13 2 3 0 Eastern Europe 3 1 1 0 3 0 1 0 Rest of Europe 13 4 4 2 14 3 4 2 Other countries 16 3 2 0 13 3 1 0 Total Group companies 414 24 4) 90 29 448 28 4) 93 31 Total Group 1,705 38 641 173 3) 1,713 53 638 189 3)

1) Of this amount, MSEK 7.2 (19.5) relate to the category President, Executive VP and Board of parent company, and MSEK 7.3 (5.8) relate to the category presidents of commission companies. 2) Of the pension costs, MSEK 4.4 (4.2) relate to the category President, Executive VP and Board of parent company, and MSEK 1.6 (1.3) to the category presidents of commission companies. Outstanding pension commitments, stated under Pension provisions, amount in total to MSEK 0 (0) for these categories. 3) Of the Group’s pension costs, MSEK 11.3 (10.3) relate to the category Board and presidents of parent company and Group companies. The Group’s outstanding pension commitments, stated under Pension provisions, amount to MSEK 0.2 (1.6) for these categories. 4) Bonuses totalling MSEK 0.3 (1.1) were paid to presidents of Group companies. 60 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 61

Shareholdings

Parent company and Group holdings of shares and participations in Group companies 2002 2001 No. of Participation1) Book value Participation1) Book value Reg. no. Registered office participations % SEK 1,000 % SEK 1,000 Holmen Paper AB 556005-6383 Norrköping 100 100 100 100 100 Iggesund Paperboard AB 556088-5294 Hudiksvall 1,000 100 100 100 100 Iggesund Timber AB 556099-0672 Hudiksvall 1,000 100 100 100 100 Holmen Skog AB 556220-0658 Örnsköldsvik 1,000 100 83 100 83 Holmen Kraft AB 556524-8456 Örnsköldsvik 1,000 100 100 100 100 AB Ankarsrums Skogar 556002-5495 Örnsköldsvik 1,000 100 41,609 100 41,609 Domsjö Klor AB 556227-5361 Örnsköldsvik 1,000 100 1,079 100 1,079 Fiskeby AB 556000-9218 Norrköping 2,000,000 100 646,160 100 646,160 Haradsskogarna AB 556000-6909 Örnsköldsvik 100,640 100 129,450 100 129,450 Harrsele Linjeaktiebolag 556003-6344 Örnsköldsvik 48,000 100 16,985 100 16,985 Holmens Bruk AB 556002-0264 Norrköping 49,514,201 100 4,061,703 100 4,061,703 Husum Copy AB 556114-7058 Örnsköldsvik 100 100 100 100 100 AB Iggesunds Bruk 556000-8053 Hudiksvall 6,002,500 100 3,932,476 100 3,932,476 Iggesund Kraft AB2) 556422-0902 Örnsköldsvik 58,000 50 5,800 – – Junkaravan AB 566227-3630 Örnsköldsvik 1,537,398 100 229,703 – – Lägernskog AB 556003-2806 Örnsköldsvik 1,480 100 1,385 100 1,385 MoDo Holding AB 556537-6281 Örnsköldsvik 100 100 393,655 100 393,655 MoDo-Iggesund CTMP AB 556245-2556 Örnsköldsvik 400,000 100 40,000 100 40,000 MoDo Forest Management AB 556031-9047 Stockholm 100 100 16,200 100 16,200 Skärnäs Terminal AB 556008-3171 Hudiksvall 4,800 100 1,913 100 1,913 Ströms Trävaru AB 556000-7857 Örnsköldsvik 400 100 166,200 100 166,200 AB Överums Skogar 556156-0557 Norrköping 1,000 100 53,005 100 53,005 Other Swedish Group companies 191,187 191,187 9,929,093 9,693,590

Holmen UK Ltd, Great Britain Kent 1,197,100 100 1,518,959 100 1,518,959 Iggesund Paperboard (Workington) Ltd Workington – 100 – 100 – Holmen France Holding SAS, France Paris 40,000 100 5,192 100 5,192 Iggesund Paperboard Asia Pte Ltd, Singapore Singapore 800,000 100 4,273 100 4,273 Holmen Suecia Holding Sl, Spain Madrid 9,448,557 100 938,862 100 950,924 Holmen Paper Papelera Peninsular Sl Madrid – 100 – 100 – Other foreign Group companies 52,424 51,497 2,519,710 2,530,845 12,448,803 12,224,435

1) Percentage of shares and percentage of votes are the same except where otherwise stated. 2) Holmen has altered its assessment of the degree of control over Iggesund Kraft AB and therefore consolidates the company with effect from 31 December 2002 rather than stating it using the equity interest method, the previous method. As this change has no significant effect on the Group’s result or equity neither the figures for 2002 nor those for the year of comparison have been adjusted. Holmen has through option agreements the right but not the obli- gation to buy back the hydroelectric power assets in 2010 at a price that gives the company’s financiers an agreed return. This redemption price was estimated to be some MSEK 500 at the end of 2002. 60 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 61

Shareholdings

Parent company and Group holdings of shares and participations in associate companies 2002 2001 Value of Value of Book value participation Book value participation No. of Partici- at parent in consoli- Partici- at parent in consoli- partici- pation1) company dated accounts pation1) company dated accounts Reg. no. Registered office pations % SEK 1,000 SEK 1,000 % SEK 1,000 SEK 1,000 Harrsele AB 556036-9398 Sundsvall 9,886 49.43 – 1,465,530 – – – Iggesund Kraft AB2) 556422-0902 Örnsköldsvik – – – – 50.0 5,800 5,800 Industriskog AB 556193-9470 Falun 25,000 33.3 128 128 33.3 2,503 2,503 Junkaravan AB 556227-3630 Örnsköldsvik – – – – 22.3 12,200 12,200 Les Bois de la Baltique SA, France Rouen 75,000 33.3 7,591 19,910 33.3 7,591 18,023 Cartón y Papel Reciclado SA (Carpa), Spain Madrid 1,100,098 50.0 – 101,392 50.0 – 114,809 Peninsular Cogeneracion SA, Spain Madrid 4,500 50.0 – 42,273 50.0 – 40,459 Miscellaneous shares Parent company 4,702 4,702 4,702 4,702 12,421 1,633,935 32,796 198,496

Parent company and Group holdings of shares and paticipations in other companies 2002 2001 No. of Partici- Partici- partici- pation1) Book value pation1) Book value Reg. no. Registered office pations % SEK 1,000 % SEK 1,000 Parent company Miscellaneous shares 312 271 Subtotal parent company 312 271

Group Brännälvens Kraft AB 556017- 6678 Arbrå 5,556 13.9 36,400 13.9 36,400 MoBaSa-MoDo Battistella Reflorestamento SA, Brazil Curitiba 234,951 1.9 – 1.9 – Papeles Allende SA, Spain Barcelona 265,453 15.0 49,494 15.0 50,670 Miscellaneous shares 554 597 Subtotal Group 86,448 87,667 Total 86,760 87,938

1) Percentage of shares and percentage of votes are the same except where otherwise stated. 62 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 63

Proposed treatment of unappropriated earnings

The following unappropriated earnings of the parent company are at the disposal of the Annual General Meeting: SEK

Net profit for the 2002 financial year 1,160,059,000 Retained earnings brought forward 5,306,934,909 6,466,993,909

The Board of directors and President propose that dividend of SEK 11 per share (79,972,451 shares) be paid to shareholders 879,696,961 and that the remaining amount be carried forward 5,587,296,948 6,466,993,909

It is proposed that no transfer be made from the consolidated non-restricted equity of MSEK 7,184 to consolidated restricted equity.

Stockholm 5 February 2003

Fredrik Lundberg

Steewe Björklundh Matts Jutterström Carl Kempe

Hans Larsson Arne Mårtensson Bengt Pettersson

Per Welin Christer Zetterberg Göran Lundin President

Our audit report was submitted on 14 February 2003 KPMG Bohlins AB

Thomas Thiel Authorised public accountant 62 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 63

Audit report

To the general meeting of the shareholders of Holmen Aktiebolag (publ) Co. Reg. No. 556001-3301

We have audited the annual accounts and the sions, actions taken and circumstances of the consolidated accounts on pages 38–62 and the company in order to be able to determine the accounting records and the administration of liability, if any, to the company of any Board the Board of directors and the President of member or the President. We also examined Holmen Aktiebolag for 2002. These accounts whether any Board member or the President and the administration of the company are the has, in any other way, acted in contravention of responsibility of the Board of directors and the the Companies Act, the Annual Accounts Act President. Our responsibility is to express an or the Articles of Association. We believe that opinion on the annual accounts, the consolida- our audit provides a reasonable basis for our ted accounts and the administration based on opinion set out below. our audit. The annual accounts and the consolidated We conducted our audit in accordance with accounts have been prepared in accordance generally accepted auditing standards in Swe- with the Annual Accounts Act and, thereby, den. Those standards require that we plan and give a true and fair view of the company’s and perform the audit to obtain reasonable assu- the Group’s financial position and results of rance that the annual accounts and the consoli- operations in accordance with generally accep- dated accounts are free of material misstate- ted accounting principles in Sweden. ment. An audit includes examining, on a test We recommend to the Annual General Meet- basis, evidence supporting the amounts and ing of shareholders that the income statements disclosures in the accounts. An audit also inclu- and balance sheets of the parent company and des assessing the accounting principles used the Group be adopted, that the profit for the and their application by the Board of directors parent company be dealt with in accordance and the President, as well as evaluating the with the proposal in the Report of the directors overall presentation of information in the and that the members of the Board of directors annual accounts and the consolidated accounts. and the President be discharged from liability As a basis for our opinion concerning discharge for the financial year. from liability, we examined significant deci-

Stockholm 14 February 2003

KPMG Bohlins AB

Thomas Thiel Authorised public accountant 64 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 65

Board of directors

Fredrik Lundberg Steewe Björklundh Hans Larsson Chairman of the Board. Djursholm. Born 1951. Hudiksvall. Born 1958. Member since 1998. Stockholm. Born 1942. Member since 1990. Member since 1988. President and CEO of Representative of the employees, LO. Chairman Other significant appointments: Chairman of the L E Lundbergföretagen AB. Other significant of the Forest and Wood Union at the Iggesund Board: Nobia AB, Sydsvenska Kemi AB, Carema appointments: Chairman of the Board in Cardo Sawmill and trustee of Hudiksvalls Sparbank. AB and Biolight International AB, member of the AB and Hufvudstaden AB, member of the Shareholding in Holmen: 800 convertibles. Board of Handelsbanken, Bilia AB and Pergo AB. Board: L E Lundbergföretagen AB, NCC AB, Shareholding in Holmen: 1,000 shares. Handelsbanken and Stadium AB. Matts Jutterström Shareholding in Holmen: 684,724 shares. Forsa. Born 1961. Member since 1999. Repre- Göran Lundin sentative of the employees, LO. Chariman of Stockholm. Born 1940. President and CEO. Carl Kempe Paper-branch 15, Iggesund. Member of the Member since 2001. Other significant appoint- Deputy Chairman. Örnsköldsvik. Born 1939. group and branch committee of the Paper Union ments: Chairman of the Board: Swedish Forest Member since 1983. Other significant appoint- and trustee of Hudiksvalls Sparbank. Industries Federation and Norrköpings Tidningar, ments: Chairman of the Board in Kempe Foun- Shareholding in Holmen: 900 convertibles. member of the Board: Confederation of Swedish dations and MoRe Research AB, member of the Enterprise. Board of UmanGenomics AB and SweTreeTech- Shareholding in Holmen: 20,000 call options. nologies AB. Shareholding in Holmen: 300,000 shares.

Fredrik Lundberg Göran Lundin

Carl Kempe Matts Jutterström

Steewe Björklundh

Hans Larsson 64 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 65

Arne Mårtensson Per Welin DEPUTY MEMBERS Djursholm. Born 1951. Member since 1991. Stockholm. Born 1936. Member since 1991. Torgny Hammar Chairman of the Board of Handelsbanken. Other Chairman of the Board: L E Lundbergföretagen Hallstavik. Born 1943. Deputy member since significant appointments: Member of the Board: AB. Other significant appointments: Member of 1993. Representative of the employees, PTK. AB Industrivärden, Sandvik AB, Skanska AB, the Board: Allgon and Autoliv. Chairman of Leaders in Hallstavik. V & S Vin & Sprit AB, The Swedish Association Shareholding in Holmen: 3,200 shares. Shareholding in Holmen: 900 convertibles. for Share Promotion, Svenska ICC, International Business Council of the World Economic Forum Christer Zetterberg Anders Lidén and Chairman of the Advisory Board of Stock- Trosa. Born 1941. Member since 1994. Chair- Herräng. Born 1969. Deputy member since holm School of Economics. man of the Board: D Carnegie & Co. Deputy 1999. Representative of the employees, LO, Shareholding in Holmen: 0. Chariman: Micronic Laser Systems. Other signifi- Hallstavik. cant appointments: Member of the Board: Camfil Shareholding in Holmen: 300 warrants. Thomas Nilsson AB, Ekman & Co and L E Lundbergföretagen AB. Åby. Born 1945. Member since 1992. Represen- Shareholding in Holmen: 1,000 shares. Karin Norin tative of the employees, PTK. Chairman of SIF Forsa. Born 1950. Deputy member since 1999. branch Holmen, Norrköping, and SIF's industrial Representative of the employees, PTK. Chair- delegation for the forest industry. man of SIF's club Holmen-Iggesund. Member of Shareholding in Holmen: 1,000 convertibles. Call options are issued by L E Lundbergföretagen AB. SIF's industrial delegation for the forest industry. (Retired 31 December 2002). See page 8. Shareholding in Holmen: 0.

Bengt Pettersson AUDITORS Stockholm. Born 1938. Member since 1994. KPMG Bohlins AB. Principal auditor: Other significant appointments: Member of the Thomas Thiel, authorised public accountant. Board of Cardo AB and L E Lundbergföretagen AB. Shareholding in Holmen: 3,000 shares and 1,000 warrants.

Christer Zetterberg Anders Lidén

Arne Bengt Mårtensson Pettersson

Torgny Hammar Karin Norin

Thomas Nilsson Per Welin 66 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 67

Senior management

PRESIDENT AND CEO GROUP STAFFS Göran Lundin Anders Almgren Thommy Haglund Born 1940. Joined Holmen 1964. Senior Vice President, Group Finance. CFO. Senior Vice President, Group Human Resources. Shareholding in Holmen: 20,000 call options. Born 1965. Joined Holmen 1990. Born 1950. Joined Holmen 2001. Shareholding in Holmen: 11,000 call options, Shareholding in Holmen: 7,000 call options. 900 warrants. Christer Lewell Anders Edstedt Senior Vice President, Group Public Relations. Senior Vice President, Group IT/Continuous Born 1948. Joined Holmen 1987. Improvement. Shareholding in Holmen: 10,000 call options. Born 1955. Joined Holmen 1990. Shareholding in Holmen: 10,000 call options. Sven Wird Senior Vice President, Group Technology. Johan Flodström Born 1951. Joined Holmen 1995. Senior Vice President, Group Legal Affairs. Shareholding in Holmen: 50 shares, Company Secretary. 10,000 call options. Born 1945. Joined Holmen 1976. Shareholding in Holmen: 500 shares, 10,000 call options, 900 warrants.

Göran Lundin

Anders Almgren Johan Flodström Christer Lewell

Anders Edstedt Thommy Haglund Sven Wird 66 HOLMEN ANNUAL REPORT 2002 HOLMEN ANNUAL REPORT 2002 67

BUSINESS AREAS Björn Andrén Magnus Hall Björn Kvick President, Holmen Skog. President, Holmen Paper. President, Iggesund Paperboard. Born 1946. Joined Holmen 1971. Born 1959. Joined Holmen 1985. Born 1950. Joined Holmen 1983. Shareholding in Holmen: 20,000 call options, Shareholding in Holmen: 1,000 shares, Shareholding in Holmen: 12,500 call options. 1,000 convertibles. 15,000 call options, 1,000 warrants.

Åke Eklöf Johan Hedin President, Holmen Kraft. President, Iggesund Timber. Call options are issued by Born 1945. Joined Holmen 1974. Born 1963. Joined Holmen 1991. L E Lundbergföretagen AB. Shareholding in Holmen: 1,200 shares, Shareholding in Holmen: 10,000 call options. See page 8. 13,000 call options.

Björn Andrén Magnus Hall

Johan Hedin

Åke Eklöf Björn Kvick 68 HOLMEN ANNUAL REPORT 2002

Annual General Meeting

Annual General Meeting Shareholders whose shares are registered in a The Annual General Meeting 2003 of Holmen nominee name should temporarily re-register AB will be held at “Vinterträdgården’’, Grand their shares in their own name with VPC by no Hôtel (entrance from Stallgatan), Stockholm, at later than Friday 14 March 2003 to be entitled 4 p.m. on Wednesday 26 March. to participate in the Annual General Meeting.

Participation in Annual General Meeting Dividend Shareholders who wish to participate in the The Board has proposed that a dividend of Annual General Meeting shall be entered in the SEK 11 per share be paid to the shareholders. register of shareholders maintained by VPC AB The Board has proposed Monday 31 March by no later than Friday 14 March 2003 and 2003 as the date of record for entitlement to shall notify the company by no later than 5 the dividend. p.m. on Wednesday 19 March 2003 at: Provided the Annual General Meeting resol- Holmen AB ves in favour of the proposal, the dividend is Group Legal Affairs expected to be distributed by VPC on Thursday P. O. Box 5407 3 April 2003. SE-114 84 Stockholm Shareholders are requested to inform their Notification may also be made by telephone: account operator of any change of name and/or +46 8 666 21 11, by fax +46 660 759 78 or via address. the company’s website www.holmen.com

The 2003 Annual General Meeting will be held on 26 March in the “Vinterträdgården” at Grand Hôtel in Stockholm. This photo was taken at the 2002 AGM. Contents Addresses

The year in brief ______1 ANNUAL REPORT HOLMEN AB

This annual report is produced by Holmen in co-operation with LINK Investor Relations, Stockholm, Sweden.

Annual Report Annual 2002

Holmen AB (publ) P.O. Box 5407 SE-114 84 STOCKHOLM SWEDEN Tel +46 8 666 21 00 Fax +46 8 666 21 30 E-mail: [email protected] www.holmen.com