LABOUR DISPUTE IN FINLAND WEAKENED M-REAL?S PROFITABILITY IN 2005

M-real Corporation Stock Exchange Bulletin 8.2.2006 at 1 p.m.


LABOUR DISPUTE IN FINLAND WEAKENED M-REAL’S PROFITABILITY IN 2005

In 2005 M-real’s consolidated result before taxes, excluding non-
recurring items, fell to a loss of EUR 142 million from a loss of
EUR 75 million in the previous year. The operating result
excluding non-recurring items fell to EUR 4 million from EUR 61
million a year earlier. The operating result was weakened above
all by the losses caused by the labour dispute in the Finnish
paper industry. Other factors that cut into profitability were the
fall in the price of uncoated fine paper, the rise in the costs of
oil-based raw materials and higher transport and energy costs. By
contrast, profitability was improved by the effects of savings
measures and the rise in the price of coated magazine paper.

The operating result for 2005 includes EUR 32 million of net non-
recurring income (net cost of 33 million in 2004), the major items
of which were a capital gain of EUR 81 million on the sale of an 8
per cent stake in Metsä-Botnia, EUR 20 million of write-downs on
property, plant and equipment at the Pont Sainte Maxence fine
paper mill in France as well as a total of EUR 19 million of
expense provisions for the efficiency-boosting programmes in
Sweden and France.

The labour dispute cut a total of about EUR 85-90 million off of
the operating result. The operating result was a profit of EUR 36
million (28).

Key figures for 2005, excluding non-recurring items:
- Operating result: a profit of EUR 4 million (EUR 61 million)
- Result before taxes: a loss of EUR 142 million (a loss of 75
million)
- Earnings per share: EUR 0.35 negative (0.28 positive)
- Return on capital employed: 0.5 per cent (1.6)

Key figures in 2005:
- Sales: EUR 5,241 million (5,522)
- Operating result: a profit of EUR 36 million (28)
- Result before taxes: a loss of EUR 114 million (a loss of 108
million)
- Result for the report period: a loss of EUR 81 million (a profit
of 45 million).
- Earnings per share: EUR 0.25 negative (0.19 positive)
- Return on capital employed: 1.2 per cent (0.9)
- Equity ratio: 36.6 per cent (37.5)
- Gearing ratio: 95 per cent (89)
- Board of Directors’ dividend proposal: EUR 0.12 per share (0.12)

- Volume of paperboard delivered: 1,006,000 (1,374,000)
- Volume of paper delivered: 4,046,000 (3,995,000)

In 2005 the result before taxes was improved by valuation gains on
interest rate derivatives of EUR 4 million. On the other hand,
earnings were burdened by EUR 33 million of foreign exchange net
losses on trade receivables, trade payables, financial income and
expenses and the valuation of currency hedges (a gain of EUR 4
million in 2004). Net interest and other financial expenses,
excluding non-recurring items and valuation gains on interest rate
derivatives, fell to EUR 115 million from EUR 140 million in 2004
thanks to lower net interest-bearing liabilities. All in all,
financial income and expenses, excluding non-recurring items, were
EUR 144 million negative (136 negative).

The fourth-quarter result before taxes was a loss of EUR 49
million. In the third quarter the result was a net profit of EUR 1
million. The result, excluding non-recurring items, was a loss of
EUR 11 million (a profit of 1 million). The result was weakened
mainly by seasonal factors such as a low operating rate in
December and maintenance costs as well as the rise in energy costs
and the decline in fine paper deliveries. Factors that improved
the result were the rise in the average price of office and coated
magazine papers as well as the increase in Metsä-Botnia’s
operating result.

Commenting on M-real’s situation, President & CEO Hannu Anttila
said:

“The last year of the action plan launched in autumn 2004 has
started, and a large part of the measures have now been carried
out. We have streamlined our operational models, clarified profit
accountability and paid down debt substantially. More than half of
the measures that will make possible EUR 200 million of annual
cost savings have been implemented. In addition, higher production
efficiency will make an earnings improvement of at least EUR 30
million possible. The action plan will be completed this year.”

“Demand for our main products will improve during the first
quarter, and we are optimistic about price increases, particularly
for uncoated fine paper. The price of coated magazine paper is
also likely to rise somewhat. Because of the sharp rise in
production costs, there is a considerable need for price increases
in coated fine paper and paperboard products.”

“Our key objective in the current year is to achieve a clear
turnaround in our earnings and to post a profit before taxes and
non-recurring items,” observes Mr Anttila.

M-REAL CORPORATION

Corporate Communications

For further information, contact Hannu Anttila, President and CEO,
tel. +358 10 469 4343 or Juhani Pöhö, Senior Vice President and
CFO, tel. +358 10 469 5283.


M-REAL CORPORATION
FINANCIAL STATEMENT RELEASE 2005

REPORT OF THE BOARD OF DIRECTORS, 2005

MARKET SITUATION IN 2005

Economic growth in Europe declined slightly in 2005 compared with
the previous year, coming in at a reasonable level of about 1.5
per cent. In North America and Asia, economic growth likewise fell
slightly short of the four per cent rate registered in 2004. The
growth in printed advertising spending in western Europe was only
half of the previous year’s 4 per cent level. The steep rise in
the market price of crude oil lifted the transport costs as well
as the costs of oil-based raw materials used by the forest
industry. Furthermore, the price rises especially for natural gas
and electricity increased industry costs in the second half of the
year. In the foreign exchange markets, the depreciation of the
United States dollar that has persisted for three years now
bottomed out, and the average exchange rate during the year came
in at nearly the level seen in 2004. The British pound was at the
previous year’s level.

Demand for folding boxboard in M-real’s main market area in
western Europe held up at the previous year’s level. Deliveries by
West European producers to eastern Europe increased sharply.
Exports to markets outside Europe, however, fell sharply owing to
the labour dispute in Finland. No major change took in place in
the market prices of folding boxboard. Deliveries by producers of
linerboard grew slightly. Market prices of linerboard declined
somewhat.

In western Europe, the growth in paper demand slowed down and was
on a par with the growth in general economy and printed
advertising. Exports to markets outside Europe fell sharply owing
to the labour dispute in Finland. Apart from the labour dispute,
the market situation was still characterized by overcapacity in
the West European market. Paper supply and demand were
nevertheless in better balance as a consequence of the low growth
in manufacturing capacity and the dispute in the Finnish paper
industry.

Deliveries by West European producers of coated and uncoated fine
paper were at the same level as in 2004, and deliveries by
producers of coated magazine paper rose by one per cent. The price
development in western Europe was most favourable for coated
magazine paper, where average market prices rose by 2 per cent.
Market prices of coated fine paper were unchanged, and prices of
uncoated fine paper were down 3 per cent. The prolonged slide in
the price of office paper came to a halt and prices, particularly
at the lower end of the quality range, headed upwards.

RESULT FOR THE FINANCIAL YEAR

M-real’s consolidated sales in 2005 was EUR 5,241 million (5,522
million in 2004). Comparable sales fell by 2.2 per cent.

Operating profit was EUR 36 million (28). The operating result
includes EUR 32 million of net non-recurring income (charges of 33
million). Non-recurring income amounted to EUR 88 million (9) and
non-recurring expenses were EUR 56 million (42).

The most important of the non-recurring income items was the EUR
81 million capital gain on the sale of an 8 per cent interest in
Metsä-Botnia, which was booked in the first quarter.

The most important of the non-recurring expenses were the write-
downs of EUR 20 million that was booked on property, plant and
equipment at the Pont Sainte Maxence fine paper mill in France and
an EUR 4 million expense provision for the efficiency-boosting
programme at the mill as well as an EUR 15 million expense
provision, booked in the second quarter, for the efficiency-
boosting programme at the units in Sweden.

The operating result, excluding non-recurring items, was a profit
of EUR 4 million (61). Profitability was weakened above all by the
lost delivery volumes for paperboard and coated magazine paper
owing to the labour dispute in the Finnish paper industry as well
as by Metsä-Botnia’s lower operating result, which likewise
suffered from the labour dispute. The dispute cut about EUR 85-90
million off of the operating result. Other factors that cut into
profitability were the fall in the price of uncoated fine paper,
the rise in the costs of oil-based raw materials and higher
transport and energy costs. By contrast, profitability was
improved by the lower cost level resulting from the savings
measures implemented and by the rise in the price of coated
magazine paper.

Deliveries of paperboard to customers totalled 1,006,000 tonnes
(1,374,000). Savon Sellu was included in the delivery volume for
2004. Deliveries by Kemiart Liners are accounted for to the full
extent in both years. On a like-for-like basis, the delivery
volume in the comparison period was 1,151,000 tonnes. Production
was curtailed by 44,000 tonnes in line with demand (95,000). The
lost production due to the labour dispute is not included in the
amount of curtailed production.

Paper deliveries totalled 4,046,000 tonnes (3,995,000). Production
curtailments amounted to 199,000 tonnes (335,000). The lost
production due to the labour dispute is not included in the amount
of curtailed production.

The profitability of the Consumer Packaging business area weakened
by the losses resulting from the labour dispute. The Publishing
business area’s profitability was improved by the 3 per cent rise
in the average selling price. On the other hand, profitability was
weakened by the negative effect of the labour dispute, and the
rise in oil-based raw material costs and energy costs. Commercial
Printing business areas profitability was weakened by the fall in
the average selling price, mainly the price of uncoated graphical
products and speciality papers, as well as by the rise in oil-
based raw material costs and energy costs. By contrast,
profitability was lifted thanks to substantially lower fixed costs
and an increase in the delivery volume. Office Papers saw its
profitability decline, owing to the 2 per cent drop in average
selling price. By contrast, the result was improved by the growth
in delivery volumes and the fall in fixed costs. A lower gross
margin weakened the profitability of the Map paper merchanting
business. Profitability, in turn, was improved by the growth in
delivery volumes as well as by lower fixed costs thanks to the
efficiency-boosting measures that were carried out.

From the beginning of the second quarter, the operating result
includes 39 per cent of Metsä-Botnia’s operating result, as
against 47 per cent in the first quarter. The result for 2004
includes a 47 per cent share of Metsä-Botnia’s operating result.

The share of the results of associated companies amounted to a
loss of EUR 2 million (0).

In total, financial income and expenses were EUR 148 million
negative (136 negative). Foreign exchange differences on trade
receivables, trade payables, financial income and expense and the
valuation of currency hedging items were EUR 33 million negative
(4 positive). Net interest and other financial expenses amounted
to EUR 115 million (140).

Other financial expenses include a valuation gain of EUR 4 million
on interest rate hedges as well as other write-downs of EUR 4
million that were booked in the second quarter.

Currency and interest rate hedges are used to hedge future cash
flows against fluctuations in foreign exchange and interest rates.
The valuation gains and losses that were booked are attributable
primarily to changes in the exchange rate of the United States
dollar and in the general level of interest rates. Beginning in
the third quarter, M-real has applied partial hedge accounting
according to IAS 39 to hedge its dollar flow exposure, and from
the last quarter, it has also hedged the cash flow exposure of the
Swedish krona. The adoption of hedge accounting improves the
result for 2005 by EUR 3 million compared with the previous
accounting policy.

At the end of December, the exchange rate of the United States
dollar against the euro was 13.4 per cent and the rate of the
British pound against the euro 2.8 per cent higher than at the end
of 2004. On average, the dollar was at the 2004 level and the
pound weakened by 0.8 per cent.

The result before taxes was a loss of EUR 114 million (a loss of
108 million). The result before taxes net of non-recurring items
was a loss of EUR 142 million (a loss of 75 million).

M-real’s result for the report period was a net loss of EUR 81
million (a profit of 45 million). The result for 2004 included a
capital gain of EUR 176 million on the disposal of Metsä-Tissue as
well as an EUR 5 million charge to earnings in connection with the
divestment of Forestia in January 2005. Income taxes, including
the change in the deferred tax liability, added EUR 34 million to
earnings (17 million negative).

Earnings per share were EUR 0.25 negative (0.19 positive).
Excluding non-recurring items, earnings per share were 0.35
negative (0.28 positive).

The return on equity was 3.4 per cent negative (5.7 negative);
excluding non-recurring items, 4.8 per cent negative (4.6
negative). The return on capital employed was 1.2 per cent (0.9)
and net of non-recurring items, 0.5 per cent (1.6).

OCTOBER-DECEMBER EARNINGS COMPARED WITH THE PREVIOUS QUARTER

Fourth-quarter sales was EUR 1,369 million (July–Sept. 2005: 1,269
million). Comparable sales was up 7.8 per cent.

The Group reported an operating loss of EUR 27 million (a profit
of 20 million). The operating result includes EUR 38 million of
net non-recurring expenses. Non-recurring income amounted to EUR 3
million and non-recurring expenses were EUR 41 million. In the
previous quarter, the operating result did not include non-
recurring items.

The operating result, excluding non-recurring items, was a profit
of EUR 11 million (20). The operating result was weakened mainly
by seasonal factors, such as the low operating rate in December
and the costs of maintenance measures as well as the rise in
energy costs and the fall in fine paper deliveries. Factors that
improved the result were the rise in the average price of office
and coated magazine paper as well as the increase in Metsä-
Botnia’s operating result.

Deliveries of paperboard to customers totalled 268,000 tonnes
(226,000). Production was curtailed by 20,000 tonnes in line with
demand (3,000). The lost production due to the labour dispute is
not included in the amount of curtailed production in the third
quarter.

Paper deliveries from the mills totalled 1,037,000 tonnes
(991,000). Production curtailments amounted to 38,000 tonnes
(43,000). The lost production due to the labour dispute is not
included in the amount of curtailed production in the third
quarter.

The profitability of the Consumer Packaging business area improved
mainly owing to the indirect impact of the increase in Metsä-
Botnia’s operating result. The profitability of the Publishing
business area weakened owing to the effect of higher maintenance
costs, the rise in energy costs and, above all, extra personnel-
related costs. The profitability of the Commercial Printing
business area was weakened by the low operating rate in December,
higher maintenance cost, the rise in energy costs and the fall in
the delivery volume and stocks. The profitability of Office Papers
was improved by the rise in the average selling price in line with
the price increases that were put through at the lower end of the
quality range. In addition, the third-quarter result was burdened
by annual maintenance shutdowns. The result of the Map paper
merchanting business was weakened by a lower sales margin.

The share of the results of associated companies amounted to a
profit of EUR 1 million (0).

In total, financial income and expenses were EUR 23 million
negative (19 negative). Foreign exchange differences on trade
receivables, trade payables, financial income and expense and the
valuation of currency hedging items were EUR 7 million negative
(0). Net interest and other financial expenses amounted to EUR 16
million (19).

Other financial expenses include EUR 10 million of valuation gains
on interest rate derivatives. In the previous quarter, a valuation
gain of EUR 11 million was booked on the corresponding
instruments.

M-real has from the beginning of the third quarter applied partial
hedge accounting according to IAS 39 to hedge its dollar flow
exposure, and from the fourth quarter on, it has also hedged the
cash flow exposure of the Swedish krona. The changeover to hedge
accounting improved the third-quarter result compared with
previous accounting policy by EUR 1 million and the last quarter
result by EUR 2 million.

At the end of December, the exchange rate of the United States
dollar against the euro was 2.0 per cent higher and the rate of
the British pound against the euro 0.5 per cent lower than at the
end of September. On average, the dollar strengthened by 2.5 per
cent and sterling by 0.5 per cent compared with the previous
quarter.

The result before taxes was a loss of EUR 49 million (a profit of
1 million). Excluding non-recurring items, the result before taxes
was a loss of EUR 11 million (a profit of 1 million)

The result for the report period was a net loss of EUR 38 million
(a profit of 2 million). Income taxes, including the change in the
deferred tax liability, added EUR 11 million to earnings (2).

Earnings per share were EUR 0.12 negative (0.01 negative) and net
of non-recurring items, 0.01 negative (0.01).

The return on equity was 6.6 per cent negative (0.4); excluding
non-recurring items, 0.5 per cent negative (0.4). The return on
capital employed was 1.8 per cent negative (2.3); excluding non-
recurring items, 1.4 per cent (2.3).

PERSONNEL

M-real had an average payroll in 2005 of 15,578 employees (2004:
16,532), of whom 4,687 worked in Finland (5,263).  The net
decrease was 954 employees, of which the net reduction owing to
acquisitions and divestments was 344 employees.

The number of personnel at the end of the year was 15,154
employees (15,960 employees at 31 December 2004), of whom 4,488
employees worked in Finland (4,912). The net reduction was 806
employees. The effect of acquisitions and divestments was a
decrease of 374 employees.

As from 31 March 2005, the Group’s personnel includes 39 per cent
of Metsä-Botnia’s employees. Figures prior to this include 47 per
cent of Metsä-Botnia’s employees.

CAPITAL EXPENDITURES

Capital expenditures on property, plant and equipment totalled EUR
452 million in 2005 (2004: EUR 245 million), or 8.6 per cent of
revenue (4.4).

The new mill that manufactures bleached chemithermomechanical pulp
(BCTMP) came on stream at the end of August in Kaskinen and
deliveries began in September. The mill has a production capacity
of 300,000 tonnes a year, all of which will be used as raw
material at the Group’s own paper and board mills.

An investment of about EUR 60 million at the Simpele mill was
announced in March. The mill’s board machine will be modernized,
and the slitter-winder and the reel and sheet packaging equipment
will be rebuilt. The sheeting capacity will also be increased.
When the investment is completed, paperboard production capacity
will rise to 215,000 tonnes a year. The investment will be
completed stage by stage by summer 2006.

ACQUISITIONS, DIVESTMENTS AND RESTRUCTURING

The sale of forest assets to Forestia Holding Oy was seen to
completion in January. The total price of the forest assets was
EUR 172 million, of which M-real's share was EUR 163 million.

In March a decision was taken on an investment by Metsä-Botnia,
the resource company jointly owned by M-real, UPM-Kymmene and
Metsäliitto, in a new pulp mill in Uruguay. The total cost of the
investment will be about 1.1 billion dollars. The mill will
produce eucalyptus pulp and it is estimated to start up during the
third quarter of 2007. Concurrently, M-real announced it was
selling an 8 per cent stake in Metsä-Botnia to Metsäliitto
Cooperative for EUR 164 million. A capital gain of EUR 81 million
was booked on the deal. Following the transaction, the
shareholdings in Metsä-Botnia are M-real 39 per cent, Metsäliitto
14 per cent and UMP-Kymmene 47 per cent. The transaction was
completed on 31 March.

In June a cooperation agreement was signed with YIT Construction
Ltd on developing the Lielahti district of Tampere, Finland. The
aim is to develop the area into a residential suburb in
cooperation with the City of Tampere.

EUR 230 MILLION SAVINGS AND EFFICIENCY-BOOSTING PROGRAMME

The savings and efficiency-boosting programme that was launched in
spring 2004 is progressing according to plans. In 2005,
significant measures were set in motion within the framework of
the programme:

In June, the negotiations in Sweden with employees concerning the
integration of the Wifsta fine paper mill into the Husum pulp and
paper mill were seen to completion. Staff cuts by the end of 2006
will amount to about 200 employees and the objective of the
reorganization is to realize annual cost savings of at least 22
million euros. An expense provision charge of EUR 15 million to
the second quarter operating result was taken for the staff cuts.

In December, a decision was taken to reduce 60 employees at the
Pont Sainte Maxence mill (PSM) in France. An expense provision of
about EUR 4 million has been recorded for this. In addition, the
carrying amount of the mill’s property, plant and equipment was
written off entirely by making a one-off depreciation charge of
EUR 20 million.

In addition to the above-mentioned programmes, several other
savings and efficiency-boosting programmes are underway that will
concern all the business areas and support functions.

RESEARCH AND DEVELOPMENT

Research and development costs in 2005 were EUR 24 million, or 0.6
per cent of turnover, excluding the Map Merchants paper
merchanting business. During the year M-real made 13 patent
applications.

The R&D priorities were the improvement of fibre properties and
the behaviour of fibres in various production processes. M-real
has made use of its chemithermomechanical pulp processing know-how
at its new BCTMP unit in Kaskinen. Development work on new and
competitive paper and paperboard grades has progressed to the
application stage.

M-real has systematically increased its research and development
cooperation with its main customers and developed new service
products for them.

At M-real’s mills, resources were channelled especially into
boosting the efficiency of processes during 2005. This has
resulted in productivity gains at nearly every production unit.

ENVIRONMENT

In 2005 the practical implementation of emissions trading in the
EU started up, soil remediation measures were continued in old
plant areas, soil investigations at plants that are currently in
operation were seen to completion and a system for managing Chain
of Custody for wood used at the mills was certified.

In accordance with the company’s climate strategy, carbon dioxide
emissions will be reduced through increased production and use of
electricity and steam generated from biofuels and waste, by
maximizing the production of combined heat and power (CHP) and by
improving energy efficiency. In the summer the Biberist mill began
to use steam generated by the municipal waste incineration plant.
Pilot operation of the biopower plant at the Hallein mill got
started in the autumn, and it will be in full operation by March
2006 at the latest. Furthermore, a programme aiming at improving
the Group’s energy efficiency was launched. M-real’s carbon
dioxide emissions decreased by approximately 7 per cent on the
previous year, primarily owing to the change in the production
structure and the work stoppages at the mills in Finland.

Emission trading is implemented centrally and the use of emission
rights is optimized among the Group’s mills. Emission rights
sufficed in 2005, but this was due mainly to the long work
stoppage at the mills in Finland in the summer.

All the production plants have an environmental system that is
certified under the ISO 14001 standard. Furthermore, the plants
formulate objectives and programmes for improving operations.
Total emissions decreased by about 20 per cent on the previous
year. The reduction in emissions and effluents was attributable to
improved waste water treatment at Husum, the change in the
production structure as well as the work stoppages at the mills in
Finland. About EUR 24 million of the investment in the
chemithermomechanical pulp mill in Kaskinen will go towards
environmental protection purposes. No further environmental
investments were made.

Provisions made for dealing with environmental liabilities
amounted to EUR 5 million at the end of the year. Cleaning up of
the soil in the Kolho impregnation plant in Vilppula was seen to
completion. M-real’s share of the clean-up costs in 2005 was about
EUR 2 million. Mills in operation continued and finalized the soil
investigations. At four mill sites, contaminated soil has been
found. Plans for follow-up measures have been drawn up or are in
preparation. Of these, the clean-up operations in the mill area of
PSM and Tako Lielahti are included in the provisions that have
already been made.

M-real has given its commitment to use wood raw material that
comes from well-managed silvicultural forests and to promote the
certification of forests and the use of certified wood and fibre
in its products. Nearly all the mills had a certified wood chain-
of-custody management system at the end of 2005. Of the wood used
at the mills, 63 per cent was delivered from certified forests.

M-real will publish a separate Corporate Responsibility Report for
2005, which will include sections dealing with environmental
responsibility issues.

FINANCING

The equity ratio at the end of the year was 36.6 per cent (31 Dec.
2004: 37.5) and the gearing ratio was 95 per cent (89).

Interest-bearing net liabilities amounted to EUR 2,205 million at
the end of the year (2,183). At the close of the year, 6 per cent
of the Group’s long-term loans were denominated in foreign
currencies. Of these loans, 61 per cent was subject to variable
interest rates and the rest to fixed interest rates. The average
interest rate on the loans was 4.3 per cent at the end of 2005 and
the average maturity of long-term loans was 3.4 years. At the end
of the year, liabilities were tied to fixed-interest rates for a
period of 16 months. During the report period the interest rate
maturity has varied from 15 to 27 months.

Cash flow from operations before investments and financing was EUR
318 million (413). Working capital rose by EUR 82 million (a
decrease of 52 million).

At the end the report period an average of 9 months of the net
foreign currency exposure was hedged. The degree of hedging during
the report period has varied between 4 and 9 months. At the end of
the report period about 87 per cent of the equity not in euros was
hedged.

Liquidity is good. Liquidity at the end of the year was EUR 1,246
million, of which EUR 1,134 million consisted of binding long-term
credit commitments and EUR 112 million represented liquid funds
and investments. In addition, to meet its short-term financing
needs, the Group had at its disposal non-binding domestic and
foreign commercial paper programmes and credit facilities
amounting to about EUR 700 million. Liquidity weakened by EUR 258
million from the end of September, due mainly to payments for the
investments at Kaskinen and to the cash flow effect of the labour
dispute over the summer.

In March, Standard & Poors Ratings Services lowered the rating on
M-real’s long-term loans from BB+ to BB and changed the outlook
for the rating from negative to stable.

On 19 October, Moody’s Investors Services changed the outlook for
M-real’s Ba2 credit rating from stable to negative.

SHARES

The highest price of M-real’s Series B share on the Helsinki Stock
Exchange in 2005 was EUR 4.93, the low EUR 3.82 and the average
price EUR 4.36. The price of the Series B share was EUR 4.22 at
the end of the year. In 2004 the average price was EUR 5.59. The
share price at the end of 2004 was EUR 4.70.

The trade volume of the Series B share was EUR 1,161 million, or
91 per cent of the shares outstanding. The market value of the
Series A and B shares at the end of the year totalled EUR 1,396
million.

At the end of September Metsäliitto Cooperative owned 38.6 per
cent of M-real Corporation’s shares and the voting rights
conferred by these shares was 60.5 per cent. International
investors owned 32.2 per cent of the shares.

On 14 March the Annual General Meeting approved the Board of
Directors’ proposal for amending the Articles of Association. An
Article 16 concerning the conversion of shares has been added to
the Articles of Association, its principal content being that an M-
real Series A share can be converted into a Series B share upon
the written demand of a shareholder or authorized agent for
nominee-registered shares. No cash consideration is payable for
carrying out a conversion. The amendment to the Articles of
Association was entered in the Trade Register on 18 April. On 10
October, 1,000 M-real Series A shares were converted into Series B
shares, and trading in the new shares began on 11 October 2005.
The breakdown of the shares following the conversion is 36,339,550
Series A shares and 291,826,062 Series B shares.

In March, application was made to the Helsinki Stock Exchange for
permission to reduce the company’s round lot for traded shares
from 500 to 200 shares. The change entered into effect on 14
March.

The Board of Directors does not have current authorizations to
carry out share issues or issues of convertible bonds or bonds
with warrants.

BOARD OF DIRECTORS AND AUDITORS

The Annual General Meeting held on 14 March elected the following
persons to seats on M-real’s Board of Directors for a term
extending up to the next Annual General Meeting: Heikki Asunmaa,
Titular Counsellor of Forest Economy; Kim Gran, President of
Nokian Tyres plc; Kari Jordan, President & CEO of Metsäliitto
Cooperative; Asmo Kalpala, CEO of Tapiola Group; Erkki Karmila,
Executive Vice President of Nordic Investment Bank; Runar
Lillandt, Titular Farming Counsellor; Antti Tanskanen, CEO of the
OP Bank Group, and Arimo Uusitalo, Titular Farming Counsellor.

At its organization meeting, the Board of Directors elected Kari
Jordan chairman and Arimo Uusitalo vice chairman.

The Annual General Meeting elected as M-real’s auditors Göran
Lindell, Authorized Public Accountant, and the firm of independent
public accountants PriceWaterhouseCoopers Oy, with Jouko Malinen,
Authorized Public Accountant, acting as Principal Auditor and
Björn Renlund, Authorized Public Accountant, and Markku Marjomaa,
Authorized Public Accountant, acting as deputy auditors.

The term of office of the auditors and deputy auditors lasts until
the end of the next Annual General Meeting.

ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

M-real made the transition from Finnish Accounting Standards (FAS)
to International Financial Reporting Standards (IFRS) from the
beginning of 2005.

The transition date is 1 January 2004, and an opening balance
sheet in accordance with IFRS accounting principles was prepared
at that date. Certain exemptions permitted to first-time adopters
of IFRS have been applied in preparing the opening balance sheet.
More detailed information and itemizations of the effects of the
transition on the company’s balance sheet and profit and loss
account as well as the changes in accounting policies have been
given in the stock exchange release of 19 April 2005.

The first financial statements according to International
Financial Reporting Standards will be published for the financial
year 1 January – 31 December .

INVESTIGATIONS BY THE COMPETITION AUTHORITIES

On 25 May 2004 the competition authorities of the EU Commission
made a visit of inspection at M-real’s offices at the same time as
they raided the offices of other Europe’s largest paper and forest
products companies. The visit is connected with the competition
authorities’ investigations into alleged prohibited cartel
activities among paper producers. The EU Commission’s
investigations are ongoing.
                  
After the EU Commission’s surprise inspection, direct and indirect
purchasers of magazine paper have brought a number of class
actions in United States federal and state courts, in which M-real
and other manufacturers of paper and forest products are named as
the defendants. Hearings of the class actions in the United States
are still in progress.

OUTLOOK FOR THE CURRENT YEAR

In 2006 economic growth in western Europe is forecast to
strengthen slightly, but it will probably remain at under 2 per
cent. Printed advertising spending is forecast to increase
somewhat faster than overall economic growth. The high market
prices of crude oil will keep oil-based raw material prices high
and raise transport costs. In addition, the rise energy prices,
especially for natural gas and electricity, will raise production
costs significantly compared with 2005.

In the last quarter, there was good demand for M-real’s main
products, and operating rates were high, except for the usual
seasonal slowdown in demand in December. In the first quarter of
2006, demand for our main products is forecast to improve due to
seasonal factors.

Average prices of office paper and coated magazine paper are
forecast to be at a somewhat higher level in the first quarter
than in the last quarter of 2005. Measures aiming to increase the
prices of coated fine paper are continuing. Over the next few
months the price of folding boxboard is expected to remain stable.
M-real’s first-quarter result before taxes and excluding non-
recurring items is forecast to be positive.

Espoo, 8 February 2006


BOARD OF DIRECTORS


BUSINESS AREAS AND MARKET TRENDS

Consumer Packaging

                       2005  2004    IV   III    II  I 05    IV  2005/
                                     05    05    05          04   2004
                                                                 chang
                                                                     e
Sales                   864     1   231   196   199   238   256      -
                              045                                17.3%
EBITDA                  125   180    37    33     6    49    45       
  EBITDA, %            14.5  17.2  16.0  16.8   3.0  20.6  17.6       
Operating result         41    93    16    14   -16    27    30       
  Operating result, %   4.7   8.9   6.9   7.1  -8.0  11.3  11.7       
Non-recurring items       0    +3     0     0     0     0    +3       
Return on capital       4.8  10.3   7.8   6.7  -6.9  11.9  12.8       
employed, %
Return on capital       4.8  11.5   7.8   6.7  -6.9  11.9  11.5       
employed,
excl. non-recurring
items, %
Deliveries, 1,000 t       1     1   268   226   231   281   340      -
                        006   374                                26.8%
Paperboard              985     1   272   292   128   293   326      -
production, 1,000 t           330                                25.9%
EBITDA = Earnings before interest, taxation, depreciation and
amortization
The Savon Sellu mill is included in the figures for 2004.

Year 2005

The Consumer Packaging business area reported an operating profit
in 2005 of EUR 41 million (2004: 93). The operating result for
2004 included EUR 3 million of non-recurring net income.

The operating profit was weakened by the losses caused by the
labour dispute in Finland. In addition, the result was burdened by
the rise in oil-based raw material costs and higher energy and
transport costs.

Deliveries by west European folding boxboard producers were down 1
per cent compared with 2004. M-real’s deliveries fell by 11 per
cent. The average price in euros of folding boxboard was slightly
higher than in 2004.

Linerboard deliveries likewise declined due to the labour dispute.
The average price for the year was down slightly on the level in
2004. In the last quarter, however, regional price increases of
about 25 euros a tonne on uncoated white top liner were put
through in western Europe.

Fourth quarter

The business area’s fourth-quarter operating result was a profit
of EUR 16 million (July–Sept. 2005: 14 million). The result does
not include non-recurring items. The operating result was improved
mainly by the indirect impact of the increase in Metsä-Botnia’s
operating result.

Deliveries by west European folding boxboard producers were at the
previous quarter’s level. M-real’s deliveries of folding boxboard
were up 23 per cent. The average price of folding boxboard rose
slightly from the level reached in the previous quarter in step
with a more favourable sales mix and a stronger dollar.

Linerboard deliveries also increased. The selling price was nearly
unchanged.


Publishing

                       2005  2004    IV   III    II  I 05    IV  2005/
                                     05    05    05          04   2004
                                                                 chang
                                                                     e
Sales                   796   802   230   181   177   208   225  -0.7%
EBITDA                   98   101    34    35     0    29    26       
  EBITDA, %            12.3  12.6  14.8  19.3   0.0  13.9  11.6       
Operating result         14    12    13    14   -21     8     4       
  Operating result, %   1.8   1.5   5.7   7.7     -   3.8   1.8       
                                               11.9
Non-recurring items      -2     1     0     0    -2     0    +1       
Return on capital       1.3   1.2   4.8   5.6  -7.7   2.9   1.6       
employed, %
Return on capital       1.6   1.1   4.8   5.6  -7.0   2.9   1.1       
employed,
excl. non-recurring
items, %
Deliveries, 1,000 t       1     1   326   257   256   307   336  -3.9%
                        146   192
Production, 1,000 t       1     1   315   294   155   308   314  -6.6%
                        072   148
EBITDA = Earnings before interest, taxation, depreciation and
amortization

Year 2005

The Publishing business area’s operating result for 2005 was a
profit of EUR 14 million (2004: 12). The result includes about EUR
2 million for the business area's share of the EUR 15 million
expense provision for the efficiency-boosting programme at the
units in Sweden. The result for 2004 includes non-recurring income
of one million euros.

The operating result, excluding non-recurring items, was a profit
of EUR 16 million (11). The operating result was improved by a 3
per cent rise in the average selling price. On the other hand,
profitability was weakened by the losses caused by the labour
dispute and the rise in oil-based raw material costs and energy
costs.

Deliveries by West European producers of coated magazine paper
rose by one per cent, compared with 2004. The Publishing business
area’s delivery volume was down 4 per cent.

Fourth quarter

The business area’s operating result for the fourth quarter was a
profit of EUR 13 million (July–Sept. 2005: 14 million). The result
does not include non-recurring items. The operating result was
weakened by higher maintenance costs, the rise in energy costs
and, principally, by extra staff-related costs.

Deliveries by west European producers of magazine paper rose by 9
per cent. The Publishing business area’s delivery volume rose by
27 per cent because the negative effects of the labour dispute
still carried on into third-quarter delivery volume. The average
price rose slightly.
Commercial Printing

                       2005  2004    IV   III    II  I 05    IV  2005/
                                     05    05    05          04   2004
                                                                 chang
                                                                     e
Sales                     1     1   376   381   368   363   372  +0.9%
                        488   474
EBITDA                   58    56     3    25     9    22    -8       
  EBITDA, %             3.9   3.8   0.8   6.6   2.4   6.1  -2.2       
Operating result        -62   -49   -41     0   -17    -4   -35       
  Operating result, %  -4.2  -3.3     -   0.0  -4.6  -1.1  -9.4       
                                   10.9
Non-recurring items     -29   -27   -29     0    -1    +1   -27       
Return on capital      -4.9  -3.7     -   0.0  -5.5  -1.0     -       
employed, %                        13.7                    10.4
Return on capital      -2.6  -2.5  -3.9   0.0  -5.1  -1.3  -2.5       
employed,
excl. non-recurring
items, %
Deliveries, 1,000 t       1     1   469   480   464   453   469  +1.3%
                        866   842
Production, 1,000 t       1     1   476   482   452   470   472  -0.3%
                        880   885
EBITDA = Earnings before interest, taxation, depreciation and
amortization

Year 2005

The Commercial Printing business area’s operating result for 2005
was a loss of EUR 62 million (2004: a loss of 49 million). The
result includes EUR 29 million of non-recurring net expenses, the
biggest items of which are the EUR 20 million impairment losses on
property, plant and equipment at the Pont Sainte Maxence fine
paper mill (PSM) and the EUR 4 million expense provision for the
efficiency-boosting programme at the mill. The result for 2004
included EUR 27 million of non-recurring expenses.

The operating result, excluding non-recurring items, was a loss of
EUR 33 million (a loss of 22 million). Profitability was weakened
by the fall in the average selling price. The price of coated fine
paper was on a par with last year. The average price of speciality
paper fell owing to the less favourable product mix in overall
sales. Prices of uncoated products likewise fell. Profitability
was furthermore weakened by the rise in the costs of oil-based raw
materials, higher energy costs and the decrease in Metsä-Botnia’s
operating result. On the other hand, profitability was improved by
substantially lower fixed costs and an increase in the delivery
volume.

Deliveries by west European producers of coated fine paper were at
last year’s level. M-real’s coated fine paper deliveries rose by 3
per cent. The biggest increase in deliveries was in western and
eastern Europe.

Fourth quarter

The business area’s operating result for the fourth quarter was a
loss of EUR 41 million (July–Sept. 2005: 0 million). The result
includes the above-mentioned EUR 29 million of non-recurring
expenses. The previous quarter’s result did not include non-
recurring items.

The operating result, excluding non-recurring items, was a loss of
EUR 12 million (0). Profitability was weakened mainly by the
seasonally lower operating rate in December, higher maintenance
costs, the rise in energy costs and the fall in the delivery
volume and product stocks.

Deliveries by West European producers of coated fine paper rose by
4 per cent. M-real’s volume of coated fine paper deliveries
declined by 3 per cent. The average selling price was on a par
with the previous quarter.


Office Papers

                       2005  2004    IV   III    II   I 05    IV 2005/
                                     05    05    05           04  2004
                                                                 chang
                                                                     e
Sales                   704   667   167   174   187    176   162 +5.5%
EBITDA                   57    71    18    13     5     20    16      
  EBITDA, %             8.1  10.6  10.8   7.5   2.7   11.4   9.9      
Operating result         -5    10     3    -3   -10      5     0      
  Operating result, %  -0.7   1.5   1.8  -1.7  -5.3    2.8   0.0      
Non-recurring items       9     0     0     0   -12      3     0      
Return on capital      -0.5   1.3   1.6  -1.1  -5.1    2.4   0.1      
employed, %
Return on capital       0.6   0.1   1.6  -1.1   1.0    1.0   0.1      
employed,
excl. non-recurring
items, %
Deliveries, 1,000 t       1   961   242   254   279    259   233 +7.6%
                        034
Production, 1,000 t       1   975   258   260   268    248   244 +6.1%
                        034
EBITDA = Earnings before interest, taxation, depreciation and
amortization

Year 2005

The Office Papers business area’s operating result for 2005 was a
loss of EUR 5 million (2004: a profit of 10 million). The result
includes a total of EUR 9 million of non-recurring net expenses,
the biggest item of which is the business area’s share of the
expense provision, EUR 12 million, connected with the efficiency-
boosting programme in Sweden. The result for 2004 did not include
non-recurring items.

The operating result, excluding non-recurring items, was a profit
of EUR 4 million (10). The operating result was weakened for the
most part by the 2 per cent fall in the average selling price. By
contrast, the result was improved by the growth in delivery
volumes and the fall in fixed costs.

Deliveries by West European producers of uncoated fine paper were
at last year’s level. The volume of deliveries by the Office
Papers business area rose by 8 per cent. The biggest increases in
deliveries were in western and eastern Europe.

Fourth quarter

The business area’s operating result for the fourth quarter was a
profit of EUR 3 million (July–Sept. 2005: a loss of 3 million).
The result does not include non-recurring items. Profitability was
improved by the rise in the average selling price in line with the
price increases that were put through at the lower end of the
quality range. In addition, the third-quarter result was weakened
by the annual maintenance shutdowns that were carried out.

Deliveries by west European producers of uncoated fine paper rose
by 8 per cent. The delivery volume of the Office Papers business
area’s products fell by 5 per cent.

Map Merchant Group

                       2005  2004    IV   III    II  I 05    IV   2005/
                                     05    05    05          04    2004
                                                                  chang
                                                                      e
Sales                     1     1   357   341   351   341   343   +1.6%
                        390   368
EBITDA                   26    22     2     6     9     8     2        
  EBITDA, %             1.9   1.6   0.6   1.8   2.6   2.3   0.6        
Operating result         18    17     0     5     7     6     0        
  Operating result, %   1.3   1.2   0.0   1.5   2.0   1.8   0.0        
Non-recurring items      -4    -8    -4     0     0     0    -8        
Return on capital       6.0   5.6   2.1   4.5   9.3   8.3  -0.6        
employed, %
Return on capital       7.2  10.5   7.1   4.5   9.3   8.3  10.5        
employed,
excl. non-recurring
items, %
Deliveries, 1,000 t       1     1   347   337   343   332   330   +3.9%
                        359   308
EBITDA = Earnings before interest, taxation, depreciation and
amortization

Year 2005

The operating result of the Map paper merchanting business was a
profit of EUR 18 million (17). The result includes EUR 4 million
of non-recurring expenses, the major items of which are a million
euro expense provision for the cost-savings programme as well as a
write-off of one million euros on a real-estate property. The
result for 2004 included EUR 8 million of non-recurring expenses.

The operating result, excluding non-recurring expenses, was a
profit of EUR 22 million (25). Profitability was weakened by lower
sales margins. By contrast, profitability was improved by the
growth in delivery volumes as well as by lower fixed costs thanks
to the efficiency-boosting measures that were carried out.

The integration of the Modo Merchants paper merchanting chain into
James McNaughton – a process that was started towards the end of
2004 – was seen to completion in the third quarter.

Fourth quarter

The operating result for the last quarter of the year was EUR 0
million (July–Sept. 2005: a profit of 5 million). The operating
result includes the above-mentioned non-recurring expenses.

The operating result, excluding non-recurring expenses, was a
profit of EUR 4 million (5). The result was weakened by a lower
sales margins.

M-REAL GROUP (all figures unaudited)

CONDENSED CONSOLIDATED INCOME STATEMENT

EUR million               1-12/05 1-12/04   Change     10-
                                                     12/05
Sales                       5 241   5 522     -281   1 369
Other operating income        206      86      120      32
Operating expenses         -5 008  -5 188      180  -1 310
Depreciation and             -403    -392      -11    -118
impairment losses
Operating profit               36      28        8     -27
                                                          
% of sales                    0.7     0.5             -2.0
                                         
Share of results in            -2       0       -2       1
associated companies
Net exchange gains and        -33       4      -37      -7
losses
Other financial income       -115    -140       25     -16
and expenses, net                
Profit on continuing         -114    -108       -6     -49
operations before tax                    
% of sales                   -2.2    -2.0             -3.6
Income taxes                   34     -17       51      11
                                         
Profit on continuing          -80    -125       45     -38
operations
% of sales                   -1.5    -2.3             -2.8
Profit on discontinued                173     -173       0
operations
Profit for the period         -80      48     -128     -38
                                         
% of sales                   -1.5     0.9             -2.8
Minority interest              -1      -3        2       0
                                         
Profit/loss attributable      -81      45     -126     -38
to shareholders of parent                         
company
 % of sales                  -1.5     0.8             -2.8

CONDENSED CONSOLIDATED BALANCE SHEET

                    31.12.20       % 31.12.20       %
                          05              04
EUR million                                         
ASSETS                                              
Non-current assests                                 
Intangible assets        654    10.3     643     9.8
Tangible assets        3 178    50.2   3 256    50.2
Biological assets         36     0.6      30     0.5
Shares in                114     1.8     127     2.0
associated and
other companies
Interest bearing          46     0.7      43     0.7
receivables
Deferred tax              33     0.5      39     0.6
receivables
Other non-interest        23     0.4       9     0.1
bearing receivables
                       4 084    64.5   4 147    63.9
Current assets                                       
Inventories              749    11.8     726    11.2
Receivables                                          
  Interest bearing       167     2.7      38     0.6
receivables
  Non-interest         1 215    19.2    1167    18.0
bearing
Cash and cash            112     1.8     242     3.7
equivalents
                       2 243    35.5    2173    33.5
Assets classified                        166     2.6
as held for sale
Total assets           6 327   100.0   6 486   100.0
                                                    
SHAREHOLDER´S                                       
EQUITY AND
LIABILITIES
Shareholder´s                                       
equity
Equity attributable    2 271    35.9   2 393    36.9
to shareholders of
parent company
Minority interest         45     0.7      37     0.6
Total equity           2 316    36.6   2 430    37.5
Non-current                                    
liabilities
 Deferred tax            336     5.3     385     5.9
liabilities
 Post employment         211     3.3     216     3.4
benefit
obligations
 Provisions               62     1.0      36     0.5
 Other non-interest       60     0.9      15     0.2
bearing liabilities
 Interest bearing      1 877    29.7   1 640    25.3
liabilities
                       2 546    40.2   2 292    35.3
Current liabilities                            
 Non-interest            813    12.9     861    13.3
bearing liabilities
 Interest bearing        652    10.3     866    13.3
liabilities
                       1 465    23.2   1 727    26.6
Liabilities                               37     0.6
classified as held
for sale
Total liabilities      4 011    63.4   4 056    62.5
Total shareholder’s    6 327   100.0   6 486   100.0
equity and
liabilities

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

EUR million              1-12/   1-12/   9-12/
                          2005    2004    2005
Cash flow from                                
Operating Activities
Profit for the period      -80      48     -37
  Adjustments to the       480     313     130
profit, total
  Change in working        -82      52     -64
capital
Cash flow arising from     318     413      29
Operations
Finance costs, net        -136    -162     -40
Income taxes paid          -46     -34     -15
Net cash flow arising      136     217        
from Operating                             -26
Activities
Investments in            -452    -245    -144
intangible and
tangible assets
Asset sales and other      312     462      -8
investing cash flow
Net cash flow arising     -140     217    -152
from
Investing Activities
Share issue                        448       0
Minority’s share in         12              12
share issue
Changes in loans and      -100    -771     158
in
other financial items
Dividends paid             -39     -54       0
Net cash flow arising     -127    -377     170
from Financial
Activities
Changes in Cash and       -131      57      -8
Cash Equivalents
Cash and Cash              242     185     120
Equivalents at
beginning of period
Translation                  1       0       0
adjustments
Changes in Cash and       -131      57      -8
Cash Equivalents
Cash and Cash              112     242     112
Equivalents at end of
period

STATEMENT OF CHANGES IN SHAREHOLDER´S EQUITY

EUR million      Share  Share Translat   Fair  RetainedMinorit  Total
                 capit premium  ion     value  earnings   y
                   al   fund  differen   and           interes
                                ces     other             t
                                       reserve
                                          s
Shareholder’s     304    473              2     1 466    19     2 264
equity according
to FAS
Dec 31, 2003
Effects of                                       -285    10      -275
adopting IFRS
Shareholder’s     304    473              2     1 181    29     1 989
equity according
to IFRS
Translation                      6                                  6
differences
Change in                                                 5         5
minority
interest during
the period
Profit for the                                    45      3        48
period
Total recognised                 6        0       45      8        59
income for the
period
Dividends paid                                   -54              -54
Share issue       254    194                     -12              436
Shareholder’s     558    667     6        2     1 160    37     2 430
equity Dec
31,2004
Translation                                                         0
differences
Net expenses                              -2                       -2
recognised
directly in
equity
Change in                                                 7         7
minority
interest during
the period
Profit for the                                   -81      1       -80
period
Total recognised                          -2     -81      8       -75
income for the
period
Dividends paid                                   -39              -39
Shareholder’s     558    667     6        0     1 040    45     2 316
equity Dec 31,
2005

KEY RATIOS

                          1-12/    1-12/  10-12/
                             05       04      05
Sales, EUR Million        5 241    5 522   1 369
Operating profit, EUR        36       28     -27
Million
excl. non-recurring           4       61      11
items
Profit before taxes,       -114     -108     -49
EUR Million
excl. non-recurring        -142      -75     -11
items
Profit for the period,      -80       48     -38
EUR Million
Earnings per share, EUR   -0.25     0.19   -0.12
  excl. non-recurring     -0.35     0.28   -0.01
items EUR
  from continuing         -0.25    -0.53   -0.12
operations EUR
  from discontinued        0.00     0.72    0.00
operations
  EUR
Return on equity, %        -3.4     -5.7    -6.6
excl. non-recurring        -4.8     -4.6    -0.5
items, %
Return on capital           1.2      0.9    -1.8
employed, %
  excl. non-recurring       0.5      1.6     1.4
items, %
Equity ratio, %            36.6     37.5    36.6
Gearing ratio, %             95       89      95
Shareholder’s equity       6.92     7.29    6.92
per share, EUR
Interest-bearing net      2 205    2 183   2 205
liabilities, EUR
Million
Gross capital               452      245     144
expenditure,
EUR Million
Personnel at the end of  15 154   15 960  15 154
the period

Non-recurring items for the period 1-9/2005 in operating profit
were capital gain on sale of Metsä-Botnia shares (EUR 81 Million),
indemnity received by M-real Alizay (EUR 4 Million) and
restructuring in Husum mill (EUR -15 Million) and in financial
items (EUR -4 Million). Non-recurring items for the period 10-
12/2005 were EUR 37 Million of which restructuring in Pont Sainte
Maxence mill some EUR 24 Million.

SECURITIES AND GUARANTEES

                          12/05    12/04
EUR million

For own loans               108      161
For associated                1        1
companies
For affiliated                5        5
companies
For others                   11       11
Total                       125      178
                                        

OPEN DERIVATIVE
CONTRACTS

                          12/05    12/04
EUR million
Interest rate             7 416   15 265
derivatives
Currency derivatives      5 365    6 641
Other derivatives            54        9
Total                    12 835   21 915

The fair value of open derivative contracts calculated at market
value at the end of the review period was
-37.3 EUR Million (+1.6 EUR Million Dec 31, 2004).
Also includes other closed contracts to a total amount of euros
8.164,8 million.

RECONCILIATION OF INCOME STATEMENT

CONDENSED                   1-12/2004
CONSOLIDATED INCOME
STATEMENT

EUR million          Reporte  Effects    IFRS
                       d FAS       of 1-12/04
                     1-12/04 transiti
                                on to
                                 IFRS
Sales                  5 460       62   5 522
Other operating           86        0      86
income
Operating expenses    -5 152      -36  -5 188
Share of results in       -7        7       0
associated
companies
Depreciation and        -462       70    -392
impairment losses
Operating profit         -75      103      28
Share of results in        0        0       0
associated
companies
Net exchange gains        13       -9       4
and losses
Other financial         -147        7    -140
income and
expenses, net
Profit on               -209      101    -108
continuing
operations before
tax
Income taxes              22      -39     -17
                                             
Profit on               -187       62    -125
continuing
operations
Profit on                173        0     173
discontinued
operations
Profit for the           -14       62      48
period
Minority interests        -1       -2      -3
Profit/loss                        60        
attributable to                              
shareholders´ of         -15               45
parent company

RECONCILIATION OF BALANCE SHEET

CONDENSED              Reported Effects of       IFRS
CONSOLIDATED                FAS transition
BALANCE SHEET          31.12.04    to IFRS
EUR million
ASSETS                                               
Non-current assets                                   
Intangible assets           666        -23        643
Tangible assets           3 182         74      3 256
Biological assets           187       -157         30
Shares in                   119          8        127
associated and
other companies
Interest bearing             40          3         43
receivables
Deferred tax                 26         13         39
receivables
Other non-interest            9          0          9
bearing receivables
                          4 229        -82      4 147
Current assets                                       
Inventories                 727         -1        726
Receivables                                 
Interest bearing             41         -3         38
receivables
Non-interest              1 155         12      1 167
bearing receivables
Cash and cash               242          0        242
equivalents
                          2 165          8      2 173
Assets classified             0        166        166
as held for sale
Total assets              6 394         92      6 486
                                                     
SHAREHOLDER’S          Reported Effects of       IFRS
EQUITY AND                  FAS transition
LIABILITIES            31.12.04    to IFRS
Shareholder’s                               
equity
Equity                    2 627       -234      2 393
attributable to
shareholders of
parent company
  Minority interest          24         13         37
Total equity              2 651       -221      2 430
Non-current                                           
liabilities
  Deferred tax              379          6        385
liabilities
  Post employment            21        195        216
benefit obligations
  Provisions                 37         -1         36
  Other non-                 12          3         15
interest bearing
liabilities
  Interest-bearing        1 629         11      1 640
liabilities
                          2 078        214      2 292
Current liabilities                                   
  Non-interest              810         51        861
bearing liabilities
  Interest bearing          855         11        866
liabilities
                          1 665         62      1 727
Liabilities                   0         37         37
classified as held
for sale
Total liabilities         3 743        313       4056
Total shareholder’s       6 394         92      6 486
equity and
liabilities

QUARTERLY INFORMATION

SALES BY SEGMENTS   I-IV  I-IV  IV    III    II  I 05    IV   III
EUR million           05    04  05     05    05          04    04
Consumer Packaging   864  1045  231   196   199   238   256   264
Publishing           796   802  230   181   177   208   225   202
Commercial          1488  1474  376   381   368   363   372   368
Printing
Office Papers        704   667  167   174   187   176   162   168
Map Merchant Group  1390  1368  357   341   351   341   343   332
Internal sales and    -1   166    8    -4   -23    18     6    53
other operations
GROUP TOTAL         5241  5522 1369  1269  1259  1344  1364  1387

OPERATING RESULT    I-IV  I-IV  IV    III    II  I 05    IV   III
BY SEGMENTS, EUR      05    04  05     05    05          04    04
million
Consumer Packaging    41    93   16    14   -16    27    30    25
Publishing            14    12   13    14   -21     8     4     9
Commercial           -62   -49  -41     0   -17    -4   -35    -7
Printing
Office Papers         -5    10    3    -3   -10     5     0     4
Map Merchant Group    18    17    0     5     7     6     0     4
Other operations      30   -55  -18   -10   -15    73   -16   -18
Operating result      36    28  -27    20   -72   115   -17    17
 % of sales          0.7   0.5    -   1.6  -5.7   8.6  -1.3   1.2
                                2.0
Share of result in    -2     0    2     0    -4     1    -1     1
associated
companies
Net exchange gains   -33     4   -7     0   -15   -11    21     4
and losses
Other financial     -115  -140  -17   -19   -52   -28   -42   -36
income and
expences, net
Result on           -114  -108  -49     1  -143    77   -39   -14
continuing
operations before
tax
Income tax            34   -17   11     2    21     0    -8    -8
Result on            -80  -125  -38     3  -122    77   -47   -23
continuing
operations
Result on              0   173    0     0     0     0     2    -8
discontinued
operations
Result for the       -80    48  -38     3  -122    77   -45   -31
period
Minority interest     -1    -3    2    -1     1    -1    -1    -1
Profit/loss          -81    45  -36     2  -121    76   -46   -32
attributable to
shareholders of
parent company
Earnings per share     -  0.19    -  0.01     -  0.23     -     -
adjusted for share  0.26        0.1        0.37        0.23  0.15
issue, EUR                        3


                                                                  
NON-RECURRING       I-IV I-IV    IV   III   II  I 05    IV  III
ITEMS                 05   04    05    05   05          04   04
Consumer Packaging     0    3     0     0    0     0     3    0
Publishing            -2    1     0     0   -2     0     1    0
Commercial           -29  -27   -29     0   -1     1   -27    0
Printing
Office Papers         -9    0     0     0  -12     3     0    0
Map Merchant Group    -4   -8    -4     0    0     0    -8    0
Other operations      76   -2    -5     0    0    81    -2    0
Non-recurring         32  -33   -38     0  -15    85   -33    0
items in
operations, total
Non-recurring         -4    0     0     0   -4     0     0    0
financial items
Non-recurring         28  -33   -38     0  -19    85   -33    0
items, total
                                                               
Operating result       4   61    11    20  -57    30    19    8
excl. non-
recurring items
% of sales           0.1  1.1   0.8   1.6 -4.5   2.2   1.4  0.6
Result before       -142  -75   -11     1 -124    -9    -3  -24
taxes, result
excl. non-
recurring items
% of sales          -2.7 -1.4  -0.8   0.1 -9.8  -0.7  -0.2 -1.7
Earnings per           - 0.28     -  0.01    -     -     -    -
share, excl. non-   0.35       0.01       0.32  0.03  0.15 0.15
recurring items
Return on equity,   -4.9 -4.6  -0.6   0.4    -  -1.3  -3.6 -6.1
excl. non-                                17.6
recurring items
Return on capital    0.4  1.6   1.3   2.3 -0.3   3.0   1.7  1.0
employed, excl.
non-recurring
items


RETURN ON      I-IV   I-IV IV 05 III 05  II 05  I 05  IV 04 III 04
CAPITAL          05     04
EMPLOYED, %
Consumer        4.8   10.3   7.8    6.7   -6.9  11.9   12.8  10.6
Packaging
Publishing      1.3    1.2   4.8    5.6   -7.7   2.9    1.6   3.2
Commercial     -4.9   -3.7 -13.7    0.0   -5.5  -1.0  -10.4  -1.8
Printing
Office         -0.5    1.3   1.6   -1.1   -5.1   2.4    0.1   2.0
Papers
Map Merchant    6.0    5.6   2.1    4.5    9.3   8.3   -0.6   5.1
Group
GROUP TOTAL     1.2    0.9  -1.8    2.3   -5.7  10.1   -1.4   1.7

CAPITAL EMPLOYED   12/05     9/05    6/05    3/05   12/04    9/04
EUR million
Consumer             878      857     835     894     943     949
Packaging
Publishing          1094     1077    1056    1121    1132    1144
Commercial          1178     1204    1225    1249    1313    1362
Printing
Office Papers        762      764     780     805     818     826
Map Merchant         324      315     308     306     301     301
Group
Other assets         610      506     479     476     428      23
GROUP TOTAL         4846     4723    4683    4851    4935    4605

Segments’ capital employed includes segments’ assets (= goodwill,
other intangible assets, tangible assets, inventories and sales
receivables) deducted by segments’ liabilities (= accounts payable
and advances received).


PERSONNEL                   2005         
Average                              2004
Consumer Packaging         2 667    3 082
Publishing                 1 486    1 526
Commercial Printing        4 816    4 963
Office Papers              1 948    2 036
Map Merchant Group         2 515    2 528
Other operations           2 146    2 397
GROUP TOTAL               15 578   16 532



DELIVERIES                                                       
1000 tons           I-IV  I-IV  IV 05   III II 05 I 05 IV 04   III
                     05    04            05                     04
Consumer Packaging  1006  1374    268   226   231  281   340   345
Publishing          1146  1192    326   257   256  307   336   301
Commercial Printing 1866  1842    469   480   464  453   469   464
Office Papers       1034   961    242   254   279  259   233   246
Paper businesses    4046  3995   1037   991   999 1019  1038  1011
total
Map Merchant Group  1359  1308    347   337   343  332   330   321

PRODUCTION                                                       
1000 tons           I-IV  I-IV  IV 05   III II 05 I 05 IV 04   III
                     05    04            05                     04
Consumer Packaging   985  1330    272   292   128  293   326   355
Publishing          1072  1148    315   294   155  308   314   309
Commercial Printing 1880  1885    476   482   452  470   472   471
Office Papers       1034   975    258   260   268  248   244   241
Paper mills total   3985  4008   1048  1036   875 1026  1030  1021
Metsä-Botnia’s pulp  901  1151    252   234   108  307   283   290
1)
M-real’s pulp       1533  1533    421   379   350  383   399   384

1) Equals to M-real’s ownership in Metsä-Botnia (39% as from II
05, 47% until I 05).


M-REAL CORPORATION

Hannu Anttila
President and CEO


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