Holmen's Q3 after-tax profit down 17% year-over-year to 207M Swedish kronor as printing paper demand continues to decline, sawn timber market still weak, but market balance good for newsprint; Q3 net sales jumps to 3.94B kronor from 230M kronor a year ago

STOCKHOLM , October 24, 2013 (press release) – Demand for printing paper continued to decline but the market balance for newsprint is good as a result of shutdowns. The market for sawn timber remained weak. Holmen Paper Demand for printing paper in Europe fell by 6 per cent in the first nine months of the year, compared with the same period last year.

The market balance for newsprint is good as a result of shutdowns but there is overcapacity in magazine paper. Some price increases for newsprint were implemented at mid-year. Deliveries from Holmen Paper were 2 per cent lower than last year. For the speciality products MF Magazine and book paper, deliveries rose by 10 per cent, while sales of newsprint were down.

Holmen Paper's operating loss for January-September was SEK -239 million (+157), excluding items affecting comparability. The fall in profit was due to lower selling prices, a stronger Swedish krona and lower volumes as a result of decreased demand and rebuilding work at the Swedish mills prior to the closure of two paper machines. Costs have decreased as a result of rationalisations and lower wood prices.

Compared with the second quarter, the operating loss was reduced by SEK 29 million to SEK -48 million. Staff costs fell seasonally and there was a slight increase in selling prices. Production was lower as a result of a rebuilding stoppage and a paper machine at the Braviken Paper Mill being closed down in September. A paper machine at Hallsta Paper Mill was closed down in October. These two machines have a total capacity of 340 000 tonnes. Following these shutdowns Holmen Paper has a production capacity of 1 450 000 tonnes, half of which consists of speciality products.

    Quarter   January-September Full year
SEKm 3-13 2-13 3-12 2013 2012 2012
Net turnover 3 939 4 197 4 230 12 293 13 577 17 852
Operating profit excl.
items affecting comp.*
326 307 394 871 1 442 1 713
Operating profit 326 307 394 731 1 442 1 520
Profit after tax 207 232 249 481 950 1 853
Earnings per share, SEK 2.5 2.8 3.0 5.7 11.3 22.1
Return on equity, % 4.1 4.5 5.0 3.1 6.4 9.3

Iggesund Paperboard The market for SBB and FBB was good in the third quarter. Deliveries to Europe from European producers increased by 6 per cent during January-September compared with last year. Price increases were announced in October.

Iggesund Paperboard's deliveries amounted to 357 000 tonnes in the first nine months of the year, 11 000 tonnes lower than in the same period last year. The decrease was primarily due to the production loss from the maintenance shutdown in the second quarter.

Iggesund Paperboard's operating profit for January-September totalled SEK 297 million (525). The decline was due to a stronger krona, a major maintenance shutdown and production disruptions in the first six months of the year. Start-up of the biofuel boiler in Workington at the end of the first quarter has made a positive contribution to earnings.

Compared with the second quarter, earnings increased by SEK 147 million to SEK 192 million. Production was good following previous production disruptions and staff costs were seasonally low. Second quarter earnings were negatively affected by costs and production losses arising from a major maintenance shutdown.

Holmen Timber The market for sawn timber remained weak in the third quarter, although some price increases were able to be implemented. The difference between selling prices and raw material costs is still at a historically low level, especially in Southern Sweden.

Holmen Timber delivered 500 000 cubic metres between January and September, which was in line with the same period last year. Deliveries fell seasonally in the third quarter.

Holmen Timber's operating loss for January-September totalled SEK -70 million (-80). Production increased and raw material costs fell, but these factors were largely offset by the impact of a stronger krona.

with the second quarter, the operating loss increased by SEK 5 million to SEK -20 million as a result of an operational shutdown during the holiday period. The effect of the implemented price increases was offset by higher wood prices.

Holmen Skog Availability of pulpwood in Sweden was good in the third quarter and prices have fallen slightly. The supply of timber was low, especially in Southern Sweden where prices increased and are significantly higher than in the rest of the country.

Holmen Skog's operating profit for January-September was SEK 482 million (363). Harvesting was high and costs fell, which was partly offset by selling prices being just under 10 per cent lower. Operating profit, which includes a change in value of SEK 193 million, totalled SEK 675 million (682). The change in value was just over SEK 100 million lower than last year as a result of a higher volume of harvesting.

Compared with the second quarter, operating profit fell by SEK 70 million to SEK 108 million as a result of seasonally higher costs and a lower proportion of timber in harvesting.

Holmen Energi Holmen Energi's operating profit for January-September totalled SEK 305 million (252). This figure includes SEK +102 million associated with the establishment of a jointly-owned wind power company in the second quarter. Hydropower production was 5 per cent lower than normal and 25 per cent lower than the very high level last year. This was partly offset by higher selling prices for electricity. Higher property tax affected the result by SEK -23 million.

Profit in the third quarter totalled SEK 34 million (145). Excluding the income arising from the establishment of a jointly owned wind power company in the second quarter, profit fell by SEK 9 million. Hydropower production was lower than normal as a result of low precipitation.

The levels in Holmen's water storage reservoirs were below normal at the end of the period.

Net financial items and financing

Net financial items for January-September totalled SEK -155 million (-173).Borrowing costs fell to an average of 3.2 per cent (4.2). During the period, interest costs of SEK 8 million (43) were capitalised in connection with major investment projects and consequently reduced the recognised interest expense by a corresponding amount.

Cash flow from operating activities totalled SEK 1 567 million. Cash flow from investing activities was SEK -673 million. SEK 756 million in dividends was paid in the second quarter.

During January-September, the Group's net financial debt fell by SEK 188 million to SEK 6 402 million. The debt/equity ratio was 0.31 and the equity/assets ratio 56 per cent. Financial liabilities including pension provisions totalled SEK 6 730 million, SEK 3 749 million of which was represented by current liabilities. Cash, cash equivalents and financial receivables totalled SEK 327 million. In the third quarter the Group raised a new long-term loan of SEK 700 million which matures in 2017. Including this, the Group has long-term financial liabilities of SEK 2 980 million. In addition, the Group has unused long-term contractually agreed credit facilities of SEK 5 338 million, maturing in 2016-2017.

Equity

In January-September, the Group's equity decreased by SEK 258 million to SEK 20 555 million. Profit for the period totalled SEK 481 million. A dividend of SEK 756 million was paid. In addition, other comprehensive income totalled SEK 17 million.

Tax

Recognised tax for January-September amounted to SEK -95 million (-319). Recognised tax, as a proportion of profit before tax, was 16 per cent (25). The low tax rate is due to the fact that the income from the establishment of a jointly- owned wind power company is not taxable.

Hedging exchange rates and electricity prices

The Group hedges parts of future estimated net flows in foreign currencies. Operating profit for January-September includes currency hedges of SEK 41 million (239). At end of the quarter, the Group had hedged its anticipated currency flows for the next four months. Longer-term hedges have been obtained for certain transactions. The fair market value of currency hedges not yet recognised as income amounted to SEK 7 million at the end of the quarter.

Prices for the Group's estimated net consumption of electricity in Sweden over the remainder of 2013 and 2014-2015 are fully hedged. For 2016-2018, 60 per cent has been hedged while for 2019-2021 the figure is 40 per cent.

Investments

Cash flow from investing activities for January-September was SEK -673 million (-1 583). Scheduled depreciation and amortisation totalled SEK 1 022 million (974). Half of the investments were in the new recovery boiler and turbine at Iggesund Mill and the new biofuel boiler in Workington.

Personnel

The average number of employees (full-time equivalents) in the Group was 3 800 (3 979). The reduction is mainly attributable to cutbacks in Holmen Paper.

Share buy-backs

At the 2013 AGM, the Board's authorisation to purchase up to 10 per cent of the company's shares was renewed. No buy-backs took place during the period. The company owns 0.9 per cent of all shares outstanding.

Material risks and uncertainties

The Group's and the parent company's material risks and uncertainties relate primarily to changes in demand and the prices of its products, the cost of key input goods, and changes in exchange rates. For a more detailed description of material risks and uncertainties see Holmen's annual report for 2012.

Transactions with related parties

There were no transactions between Holmen and related parties that had a significant effect on the Company's financial position and performance.

Accounting policies

The report for the Group has been prepared in accordance with IAS 34 Interim Financial Reporting, the Swedish Annual Accounts Act and the Swedish Securities Market Act. For the parent company the report has been prepared in accordance with the Swedish Annual Accounts Act and the Swedish Securities Market Act, which complies with Recommendation RFR 2 Accounting for Legal Entities, issued by the Swedish Financial Reporting Board. The accounting policies of the Parent Company and the Group remain unchanged compared to the most recently published annual report, with the exception of the following amended standards, which are applicable as of 1 January 2013. The amended standards are applied retroactively unless otherwise stated below. The structure of the statement of comprehensive income has been altered so that it follows the changes in IAS 1 Presentation of Financial Statements. Further information is submitted in accordance with the expanded disclosure requirements in IFRS 7. The new/amended IFRS 13, IAS 19 and UFR 9 standards apply but have not resulted in any effect on amounts or information in this interim report. IFRS 13 is being applied prospectively. The amended RFR 2 and its alternative rule apply to the Parent Company, which means that Group contributions are recognised as balance sheet appropriations.The figures in tables are rounded off.

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