Bong Ljungdahl AB Interim Report January - June 2001

8/17/2001 7:35 AM EST

BONG LJUNGDAHL AB INTERIM REPORT JANUARY-JUNE 2001

· NET TURNOVER INCREASED BY 6% TO SKR 1,251 MILLION (1,176)
· DISRUPTIONS IN CONNECTION WITH NOW COMPLETED RESTRUCTURING
PROGRAMME AND WEAKER ECONOMIC CONDITIONS HAVE HAD SERIOUS EFFECT ON
RESULTS
· OPERATING PROFIT (EXCL. ITEMS AFFECTING COMPARABILITY) DECLINED TO
SKR 44 MILLION (101)
· PROFIT AFTER NET FINANCIAL ITEMS (EXCL. ITEMS AFFECTING
COMPARABILITY) DECLINED TO SKR 10 MILLION (69)

Bong is a fast growing international envelopes company. The Group has an
annual turnover of some SKr 2.5 billion, approximately 1,900 employees
and an annual production of some 16 billion envelopes at its factories
in Sweden, Denmark, Norway, Finland, Germany, Great Britain, Ireland,
Belgium, Poland and Estonia. In recent years, Bong has played an active
part in the current process of restructuring in the European envelope
industry and sees useful opportunities for further expansion and
development. Bong is a public company and the shares are listed on
Stockholmsbörsen's "O" list.

MARKETS AND SALES
The slackening in demand that characterised the opening months of the
year accelerated and spread in geographical terms during the second
quarter of 2001 in line with the deteriorating international economy.
The envelope market in Europe is estimated to have declined by around 3-
5 per cent in volume during the first half of 2001 in relation to the
same period in 2000. The deteriorating market conditions resulted in a
relatively serious shortfall in sales in many of the Group's businesses.
Particularly marked were the sales shortfalls on the markets in Sweden
and Germany, which account for about 17 per cent and 19 per cent
respectively of the Group's business. The British envelope market
experienced a strong start to the year, but weakened during the second
quarter. Sales on the British market account for 23 per cent of the
Group's turnover.

Apart from the cyclical slowdown, the far-reaching structuring programme
carried out in connection with the integration of newly acquired units
caused a sharp reduction in capacity and lower service levels, which led
to a loss of market share. These effects are expected to be temporary.

Market conditions in the immediate future are difficult to foresee,
mainly owing to uncertainty about the coming developments in the global
economy. The coming conversion to the euro in the Emu zone is, however,
expected to generate a not insignificant increase in demand in the
autumn of 2001. In the longer range, previous estimates of sustainable
volume growth of 2-3 per cent a year on the European envelope market
remain unchanged.

TURNOVER AND RESULT
The consolidated turnover for the reporting period increased by 6 per
cent to SKr 1,251 million (1,176). Of the increase, some 5 percentage
points are attributable to acquired units, 4 percentage points to price
increases and 5 percentage points to currency fluctuations. For
comparable units, delivery volumes have thus declined by about 8 per
cent.

Operating profit (excluding items affecting comparability of SKr 5
million) decreased during the January-June 2001 period by SKr 57 to SKr
44 million (101). The operating margin was 3.5 per cent (8.6). The
decline in the result is attributable partly to considerably lower
capacity utilisation at most of the Group's units owing to general
slacker demand and partly to disturbances in connection with the
extensive restructuring programme carried out in the first half of 2001.
The integration of acquired companies has had a significant adverse
effect on the Group's productivity and efficiency, causing a marked
production shortfall. The project, which affected most of the Group's
units and mainly involved the closure of four factories and the
relocation of fifty or so envelope machines (equivalent to one third of
the Group's total number of machines) to other premises, is now largely
complete. The planned structure has now been achieved and efficiency is
successively improving. The operating profit (excluding items affecting
comparability) for the second quarter of 2001 declined to SKr 11 million
(38).

The overheating that characterised the market for fine paper during the
previous year, and which led to a series of sharp price increases, has
now reverted to a more balanced situation, and paper prices have
stabilised. As it has not yet been possible to offset the entire cost
effect by raising our own selling prices, gross margins have
deteriorated by 2-3 per cent.

As previously announced, the items affecting comparability of SKr 5
million relate to the cost of the cancelled acquisition of the
Stronghold Group and the share issue planned to finance it.

The profit after net financial items (excluding items affecting
comparability) amounted to SKr 10 million (69) for the period, and
earnings per share after tax and full dilution (excluding items
affecting comparability) were SKr 0.68 (4.93). The second quarter result
after net financial items was a loss of SKr 6 million (profit 23,
excluding items affecting comparability).

ACQUISITIONS
In January 2001, Bong completed, through its Polish subsidiary, the
agreed acquisition of the envelope business of Bording Polska. Bording
Polska distributes and prints envelopes for the Polish market and has an
annual turnover of some SKr 5 million. The acquisition is now being co-
ordinated with the Group's existing business in Poland and strengthens
the Group's position on the fast-expanding Polish envelope market.

LIQUID FUNDS AND FINANCING
The Group's closing liquid funds amounted to SKr 72 million (Dec 31st
2000: 70). The negative cash flow absorbed by operating activities for
the period was SKr 6 million (positive 82), which is mainly attributable
to the poorer result and to the effect on liquid funds of the now
completed structuring measures. The net financial debt was SKr 1,126
million at June 30th 2001 (Dec. 31, 2000: 1,017). After adjustment for
currency effects, this represents an increase of SKr 77 million in
relation to the end of last year. A dividend of SKr 26 million was paid
during the second quarter.

Closing equity amounted to SKr 675 million (Dec. 31st 2000: 675). The
closing equity ratio was 27.4 per cent (Dec. 31st 2000: 28.8) and the
net debt/equity ratio was 1.67 (Dec. 31st 2000: 1.51).

FIXED CAPITAL EXPENDITURE
Excluding company acquisitions, capital expenditure during the period
amounted to SKr 45 million (62) and represents a planned adjustment to a
markedly lower level in relation to the past few years. Investments
during the period were mainly in machinery at the envelope factories.

EMPLOYEES
The average number of employees for the period was 1,890 (1,877), of
which acquired units accounted for an increase of 125.

PARENT COMPANY
The parent company's business consists of the management of operating
subsidiary companies, and the provision of Group management functions.
The result for the period after net financial items was a loss of SKr 17
million (loss 13).

PROSPECTS
Extensive disruptions in connection with the restructuring programme,
coupled with a cyclical sales shortfall, had a serious adverse effect on
the consolidated result for the first half of 2001. We expect the weak
economic conditions to persist and have a further effect on sales
volumes during the second half of the year. The result for 2001 as a
whole is therefore expected to be considerably lower than last year's.

The Group's strong position on the European envelope market, the effects
of the now completed restructuring measures, and the potential offered
by the further consolidation of the European envelope industry, mean on
aggregate that Bong's prospects of achieving long-term growth in its
sales and earnings are bright.

Kristianstad, August 17th 2001

Lennart Pihl
Managing Director and Group CEO

This interim report is made up in accordance with the Swedish Financial
Accounting Standards Council's Recommendation RR20 Interim reports. The
same accounting principles have been applied as for the latest final
accounts.

AUDITORS' EXAMINATION
We have carried out a general examination of this interim report in
accordance with the recommendation issued by the Association of Swedish
Authorised Accountants (FAR).

A general examination is rather more limited than an audit. Nothing has
emerged to indicate that this interim report does not satisfy the
requirements of the Stock Exchange Act and the Annual Reports Act.

Kristianstad, August 17th 2001

Anders Lundin Göran Tidström
Authorised public accountant Authorised public accountant

Further information may be obtained from Bong Ljungdahl AB's MD and CEO,
Lennart Pihl on +46 44 20 70 00 (exchange), +46 44 20 70 50 (direct), or
+46 70 594 68 66, (mobile)

Next financial reports
Interim report January - September 2001 November 2nd 2001
Year-end release February, 2002