LABOUR DISPUTE IN FINLAND WEAKENS M-REAL?S SECOND QUARTER OPERATING
M-real Corporation Stock Exchange Bulletin 29.7.2005 at 1.00 p.m.
LABOUR DISPUTE IN FINLAND WEAKENS M-REALS SECOND QUARTER OPERATING
RESULT
In the second quarter M-real Groups operating result, excluding non-
recurring items, fell to a loss of EUR 57 million from a profit of
EUR 30 million in the previous quarter. Compared with the previous
quarter, the operating result was weakened mainly by the fall in
paperboard and coated magazine paper deliveries due to the labour
dispute that disrupted the Finnish paper industry. Additionally, the
operating result was weakened by destocking as well as by the
weakening in the operating result of the associated company Metsä-
Botnia, both also in the wake of the dispute.
The operating result included a non-recurring expense provision of
EUR 15 million relating to the profitability improvement programme in
Sweden. The labour dispute in Finland weakened the operating result
by about EUR 70 million. The operating result was a loss of EUR 72
million (profit of 115 million). The operating result in the previous
quarter included total non-recurring income of EUR 85 million. The
result before taxes was weakened by a valuation loss on interest rate
derivatives of EUR 17 million due to the sharp fall in the level of
interest rates.
Key figures for the second quarter of 2005:
- Turnover: EUR 1,259 million (Q1: 1,344 million)
- Operating result: a loss of EUR 72 million (profit of 115 million)
- Result before taxes: a loss of EUR 143 million (profit of 77
million)
- Result for the report period: a loss of EUR 121 million (profit of
76).
- Earnings per share: EUR 0.37 negative (0.23 positive)
- Return on capital employed: 5.7 per cent negative (9.9 positive)
- Equity ratio: 38.4 per cent (38.6%)
- Gearing ratio: 85 per cent (81%)
- Comparable volume of paperboard delivered: 231,000 (281,000);
volume of paper delivered: 999,000 (1,019,000)
Key figures for the second quarter of 2005, excluding non-recurring
items:
- Operating result: a loss of EUR 57 million (profit of 30 million)
- Result before taxes: a loss of EUR 124 million (a loss of 8
million)
- Earnings per share: EUR 0.32 negative (0.03 negative)
- Return on capital employed: 0.3 per cent negative (3.0 positive)
Demand for paper fell in the second quarter, especially for coated
fine paper. Demand was nonetheless at the level of the same period a
year earlier. M-reals paper deliveries decreased by 2 per cent and
paperboard deliveries by 18 per cent.
The average selling price of coated magazine paper rose compared with
the previous quarter, mainly due to the price increases agreed in the
beginning of the year. The price of coated fine paper was unchanged.
The price of office paper declined slightly, though the price in
Europe has stabilized due to lower imports.
Profitability also weakened for the first half of the year. The
operating result was weakened not only by the labour dispute but also
by a stronger euro, the fall in the price of uncoated fine paper, the
rise in the prices of oil-based raw materials and higher energy
costs, measured against the same period of last year.
Commenting on the progress of M-reals cost-savings programme and the
market situation for its main products, President & CEO Hannu Anttila
said: M-reals EUR 230 million savings and efficiency-boosting
programme is on track to reach its targets, the latest indication of
this being the efficiency-boosting programme at the units in Sweden,
where were aiming to achieve annual savings of at least EUR 22
million.
Now that the labour dispute in the Finnish paper industry has come
to an end, there is a more favourable market balance for most paper
grades, and I believe that this will support price increases in the
latter part of the year, especially in magazine paper. In coated fine
paper measures aimed at increasing prices will continue. The outlook
for uncoated fine paper is also slightly more positive than before.
M-reals operating rates in the latter part of the year will be high,
particularly at the paperboard and magazine paper mills. The third-
quarter result will be improved by the growth in volumes, but it will
also be negatively affected by the production losses in the early
days of July due to the labour dispute at the mills in Finland. The
third-quarter result, excluding non-recurring items, will improve
substantially on the second quarter, but the full-year result will be
in the red.
M-REAL CORPORATION
Corporate Communications
For further information, contact Hannu Anttila, President and CEO,
tel. +358 10 469 4343 or Juhani Pöhö, Executive Vice President and
CFO, tel. +358 10 469 5283
M-REAL CORPORATION
INTERIM REPORT 1 JANUARY - 30 JUNE 2005
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 specifications of the effects of the
transition on the companys balance sheet and income statement as
well as the changes in accounting principles 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 period 1 January 31
December 2005. The present Interim Report has been prepared according
to the accounting and valuation principles of IFRS.
APRIL-JUNE EARNINGS COMPARED WITH THE PREVIOUS QUARTER
In the second quarter M-reals consolidated turnover was EUR 1,259
million (Jan.-Mar. 2005: EUR 1,344 million). Comparable turnover was
down 5.2 per cent.
The Group reported an operating loss of EUR 72 million (profit of EUR
115 million). The operating result includes a non-recurring expense
provision of EUR 15 million for the profitability improvement
programme at the units in Sweden. The previous quarters result
included non-recurring income consisting of a capital gain of EUR 81
million on the sale of an 8 per cent holding in Metsä-Botnia as well
as an EUR 4 million insurance compensation payment for the Alizay
pulp mill.
The operating result, excluding non-recurring items, was a loss of
EUR 57 million (profit of 30 million). The operating result was
weakened by the negative effects of the labour dispute that disrupted
the Finnish paper industry. These were the fall in paperboard and
coated magazine paper deliveries, destocking as well as the weakening
in Metsä-Botnias operating result. The combined effect of these
factors was about EUR 70 million.
The second-quarter operating result includes a 39 per cent share of
Metsä-Botnias operating result compared with a 47 per cent share in
the first quarter.
The profitability of the Map Merchants paper merchanting business
area improved, Office Papers profitability was unchanged and the
profitability of the other business areas weakened.
Deliveries of paperboard to customers totalled 231,000 tonnes
(281,000 tonnes). Production was curtailed by 4,000 tonnes in line
with demand (17,000), which does not include the production that was
lost due to the labour dispute.
Paper deliveries from the mills totalled 999,000 tonnes (1,019,000).
Production curtailments amounted to 54,000 tonnes (64,000), not
including the production lost due to the labour dispute.
In total, financial income and expenses were EUR 71 million negative
(38 million negative). The share of the results of associated
companies was EUR 4 million negative (1 million positive). Foreign
exchange differences on accounts receivable, accounts payable,
valuation of foreign exchange hedges and financial items were EUR 15
million negative (11 million negative). Net interest and other
financial expenses were EUR 52 million negative (28 million
negative). Other financial expenses include EUR 17 million of
valuation losses on interest rate hedging. Other financial expenses
include the recording of a non-recurring item of EUR 4 million for on
the write down of the investments made in the west European paper
industries joint e-commerce project.
Currency and interest rate hedges are used to protect future cash
flows from fluctuations in foreign exchange and interest rates. The
valuation losses that were booked are attributable primarily to the
appreciation of the United States dollar and the lowering in the
general level of interest rates, and they do not have an impact on
cash flows. M-real does not apply hedge accounting in accordance with
IAS 39.
At the end of June, the exchange rate of the United States dollar
against the euro was 6.7 per cent higher and the rate of the British
pound against the euro 2.1 per cent higher than at the end of March.
On average, the dollar strengthened by 3.9 per cent and sterling by
2.1 per cent compared with the previous quarter.
The Groups result before taxes was a loss of EUR 143 million (profit
of 77 million). The result, excluding non-recurring items, was a loss
of EUR 124 million (a loss of 8 million).
M-reals result for the report period was a net loss of EUR 121
million (profit of 76 million). Income taxes, including the change in
the deferred tax liability, added EUR 21 million to earnings (0).
Earnings per share were EUR 0.37 negative (0.23 positive). Excluding
non-recurring items, earnings per share were 0.32 negative (0.03
negative).
The return on equity was 20.2 per cent negative (12.5 positive);
excluding non-recurring items, 17.6 per cent negative (1.3 negative).
The return on capital employed was 5.7 per cent negative (9.9
positive) and net of non-recurring items, 0.3 per cent negative (3.0
positive).
EARNINGS IN JANUARY-JUNE COMPARED WITH THE SAME PERIOD OF 2004
M-reals consolidated turnover was EUR 2,603 million (Jan.-June 2004:
EUR 2,775 million). Comparable turnover was down 4.6 per cent.
The operating result was EUR 43 million (33). The result includes net
non-recurring income of EUR 70 million, of which the major items are
the expense provision of EUR 15 million for the efficiency boosting
programme of the units in Sweden, booked in the second quarter, and
the EUR 81 million capital gain on the disposal of an 8 per cent
stake in Metsä-Botnia, booked in the first quarter. The result in
JanuaryJune of last year did not include non-recurring items.
The operating result, excluding non-recurring items, was a loss of
EUR 27 million (profit of 33 million). Profitability was weakened
above all by the negative effects of the labour dispute in Finland.
These were the fall in deliveries of paperboard and coated magazine
paper, destocking as well as the lower operating result reported by
Metsä-Botnia. The combined effect of these factors was about EUR 70
million. In addition, the appreciation of the euro, the fall in the
price of uncoated fine paper, the rise in the costs of oil-based raw
materials as well as higher energy costs cut into profitability.
Map Merchants achieved a slight improvement in its operating result.
Stripping out non-recurring items, the operating result of the other
business areas declined.
Deliveries of paperboard to customers totalled 512,000 tonnes
(690,000). The Savon Sellu pulp mill is included in the comparison
periods delivery volume. The delivery volume of Kemiart Liners is
accounted for to the full extent in both periods. On a like-for-like
basis, the delivery volume in the comparison period was 586,000
tonnes. Production was curtailed by 21,000 tonnes in line with demand
(62,000), which does not include lost production due to the labour
dispute.
The total volume of paper deliveries was 2,018,000 tonnes
(1,947,000). Production curtailments amounted to 118,000 tonnes
(209,000), not including the production lost due to the labour
dispute.
Net financial income and expenses was EUR 109 million negative (82
million negative). The share of the results of associated companies
was EUR 3 million negative (0). Foreign exchange differences on
accounts receivable, accounts payable, financial items and valuation
of currency hedges were EUR 26 million negative (21 million
negative). Net interest and other financial expenses were EUR 80
million negative (61 million negative). Other financial expenses
include EUR 17 million of valuation losses on interest rate hedges.
Other financial expenses also includes a recording of a non-recurring
item of EUR 4 million for the write down of investments made in the
west European paper industries joint e-commerce project.
Currency and interest rate hedges are used to protect future cash
flows from fluctuations in foreign exchange and interest rates. The
valuation losses that were booked are attributable primarily to the
appreciation of the United States dollar and the lowering in the
general level of interest rates, and they do not have an impact on
cash flows. M-real does not apply hedge accounting in accordance with
IAS 39.
At the end of June, the exchange rate of the United States dollar
against the euro was 0.5 per cent higher and the rate of the British
pound against the euro 0.5 per cent lower than at the end of June
2004. On average, the dollar weakened by 4.7 per cent and sterling by
1.9 per cent compared with the same period of last year.
The result before taxes was a loss of EUR 66 million (a loss of 49
million). The result, excluding the above-mentioned non-recurring
items, was a loss of EUR 132 million (a loss of 49 million).
The result for the report period was a net loss of EUR 45 million
(net profit of 123 million). The result for the comparison period
includes a capital gain of EUR 176 million on the divestment of Metsä
Tissue. Income taxes, including the change in the deferred tax
liability, were tax income of EUR 21 million (tax expense of 3
million).
Earnings per share were EUR 0.14 negative (0.58 positive). Excluding
non-recurring items, earnings per share were 0.35 negative (0.58
positive).
The return on equity was 3.7 per cent negative (5.2 negative);
excluding non-recurring items, 9.6 per cent negative (5.2 negative).
The return on capital employed was 2.2 per cent (1.8) and net of non-
recurring items, 0.7 per cent negative (1.8 positive).
PERSONNEL
The number of personnel at the end of June was 15,964 employees
(15,960 employees at 31 December 2004), of whom 5,006 employees
worked in Finland (4,912). The payroll showed a net increase of 4
employees. The growth in the number of employees was due to the
hiring of some 500 temporary summer staff. Acquisitions and
divestments reduced the payroll by 374 employees.
The Groups personnel includes 39 per cent of Metsä-Botnias
employees. At the end of 2004 the Groups payroll included 47 per
cent of Metsä-Botnias staff.
CAPITAL EXPENDITURES
Capital expenditures on fixed assets totalled EUR 203 million in
January-June (Jan.-June. 2004: 84).
The capital expenditure project for building a new BCTMP mill in
Kaskinen is proceeding according to plans. The main equipment
installations have been carried out and the mill will start up in
August.
An investment of about EUR 60 million at the Simpele mill was
announced in March. The mills board machine will be modernised, 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 per year. The investment will be completed gradually
by spring 2006.
ACQUISITIONS, DIVESTMENTS AND RESTRUCTURING
The sale of forestland 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. The transaction does not
have a material impact on earnings.
In March, Metsä-Botnia, the resource company that is jointly owned by
M-real, UPM-Kymmene and Metsäliitto, announced its decision to invest
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% stake in Metsä-
Botnia to Metsäliitto Osuuskunta 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%, Metsäliitto 14% and
UMP-Kymmene 47%. 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 pleasant residential suburb in cooperation
with the City of Tampere.
The negotiations with employees in Sweden concerning the integration
of the Wifsta fine paper mill into the Husum pulp and paper mill were
seen to completion in June. 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. A non-
recurring expense provision charge of EUR 15 million has been booked
to the second quarter operating result for the staff cuts.
It has been decided to end talks on the divestment of the folding
carton plants. The competitiveness of the carton plants will
henceforth be improved actively in all areas.
FINANCING
Interest-bearing net liabilities amounted to EUR 1,993 million at the
end of June (Dec. 2004: 2,183).
The equity ratio at the end of the period was 38.4 per cent (Dec.
2004: 37.5) and the gearing ratio was 85 per cent (Dec. 2004: 89).
Liquidity is good. Liquidity at the end of June was EUR 1,722
million, of which EUR 1,593 million consisted of binding long-term
credit commitments and EUR 129 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 600
million.
At the end the report period an average of 5 months of net foreign
currency exposure was hedged. The degree of hedging during the report
period has varied between 4 and 5 months. At the end of the report
period, about 96 per cent of the shareholders equity not in euros
was hedged. At the end of June the Groups liabilities were tied to
fixed-interest rates for a period of 21 months. During the report
period the interest rate maturity has varied from 21 to 27 months.
In March, Standard & Poors Rating Services lowered the rating on M-
reals long-term loans from BB+ to BB and changed the outlook for the
rating from negative to stable. Moodys Investors Services credit
rating for M-real is Ba2, with a stable outlook.
SHARES
The highest price of M-reals Series B share on the Helsinki Stock
Exchange during the January-June period was EUR 4.93, the low EUR
4.10 and the average price EUR 4.46. In 2004 the average price was
EUR 5.59. The price of the Series B share was EUR 4.48 at the end of
the report period on 30 June 2005. The share price at the end of 2004
was EUR 4.70.
The trade volume of the Series B share was EUR 649 million, or 50 per
cent of the shares outstanding. The market value of the Series A and
B shares at 30 June 2005 totalled EUR 1,473 million.
At 30 June 2005 Metsäliitto Osuuskunta owned 38.6 per cent of M-real
Corporations shares and the voting rights conferred by these shares
was 60.5 per cent. International investors owned 35.0 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.
In March, an application was made to the Helsinki Stock Exchange for
permission to reduce the companys 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.
NEAR-TERM OUTLOOK
Economic growth in western Europe is expected to remain slow. Despite
this, spending on printed advertising is estimated to continue
growing in western Europe at the rate seen in 2004. Buoyant economic
growth in eastern Europe will also increase the consumption of paper
and paperboard. If the strenghtening of the United States dollar
continues, this will improve the competitiveness of the west European
forest products industry. Because of the high market price of crude
oil, prices of the oil-based raw materials as well as transport costs
will remain high.
In addition to the price increases for magazine papers that were
agreed in the first part of the year, the company will seek to raise
prices during the autumn. Price increases for coated fine paper did
not proceed in the second quarter as planned, but measures aimed at
increasing prices continue. Within office papers, the market
situation has been better than expected and there has been no
customary slowdown in demand for the summer period. Prices of office
papers in Europe have stabilized due to lower imports. Providing
demand holds up well, M-real will seek to increase prices in office
papers as well.
Primarily because of the production losses due to the labour dispute
in Finland, M-reals capacity utilization rates in the latter part of
the year will be high, especially at the paperboard and magazine
paper mills. The third-quarter result will be improved by the growth
in volumes, but it will also be negatively affected by the production
losses in the early days of July due to the labour dispute at the
mills in Finland. The third-quarter result, excluding non-recurring
items, will improve substantially on the second quarter, but the full-
year result will be in the red.
Espoo, 29 July 2005
BOARD OF DIRECTORS
BUSINESS AREAS AND MARKET TRENDS
Consumer Packaging
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Turnover 199 238 256 264 267 437 525 -
16.4%
EBITDA 6 49 45 49 42 55 86 -
87.8%
EBITDA, % 3.0 20.6 17.6 18.6 15.7 12.6 16.4
Operating result -16 27 30 25 18 11 39
Operating result, % -8.0 11.3 11.7 9.4 6.7 2.5 7.4
Non-recurring items 0 0 +3 0 0 0 0
Return on capital -6.5 11.1 11.9 9.7 7.2 2.7 7.7
employed, %
Return on capital -6.5 11.1 10.7 9.7 7.2 2.7 7.7
employed,
excl. non-recurring
items, %
Deliveries, 1,000 t 231 281 340 345 349 512 690 -
17.8%
Paperboard 128 293 326 355 319 421 650 -
production, 1,000 t 56.3%
EBITDA = Earnings before interest, taxation, depreciation and
amortization
The Savon Sellu pulp mill is included in the figures for 2004.
Second quarter
The Consumer Packaging business areas operating result in the second
quarter was a loss of EUR 16 million (Jan.-Mar. 2005: profit of 27
million). The operating result does not include non-recurring items.
Profitability was weakened by the fall in delivery volumes,
destocking and the decrease in Metsä-Botnia´s operating result, all
due to the labour dispute in the paper industry in Finland.
Deliveries by west European folding boxboard producers declined by 4
per cent compared with the previous quarter. M-reals deliveries of
folding boxboard fell by 20 per cent. The average price for folding
boxboard was at the previous quarters level.
Linerboard deliveries declined significantly as a consequence of the
industrial dispute in Finland. The selling price was unchanged.
January-June
Compared with the same period of last year, the business areas
operating result in JanuaryJune decreased by EUR 28 million. The
operating result was weakened not only by the effects of the labour
dispute in Finland, but also by a stronger euro, the rise in the
costs of oil-based raw materials and higher energy costs.
Deliveries by west European folding boxboard producers fell by 2 per
cent in January-June compared with the same period of last year. M-
reals deliveries fell by 7 per cent, with western Europe showing the
biggest decrease.
The average price of folding boxboard was on a par with the same
period of last year.
Publishing
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Turnover 177 208 225 202 188 385 374 -
14.9%
EBITDA 0 29 26 31 17 29 43
EBITDA, % 0.0 13.9 11.6 15.3 9.0 7.5 11.5
Operating result -21 8 4 9 -5 -13 -1
Operating result, % - 3.8 1.8 4.5 -2.7 -3.4 -0.3
11.9
Non-recurring items -2 0 +1 0 0 -2 0
Return on capital -7.4 2.7 1.5 3.0 -1.5 -2.2 0.0
employed, %
Return on capital -6.7 2.7 1.2 3.0 -1.5 -1.9 0.0
employed,
excl. non-recurring
items, %
Deliveries, 1,000 t 256 307 336 301 283 563 556 -
16.6%
Production, 1,000 t 155 308 314 309 257 463 525 -
49.7%
EBITDA = Earnings before interest, taxation, depreciation and
amortization
Second quarter
The Publishing business areas operating result in the second quarter
was a loss of EUR 21 million (Jan.-Mar. 2005: profit of 8 million).
The result includes a non-recurring charge of about EUR 2 million for
Publishings share of the EUR 15 million expense provision for the
efficiency-boosting programme at the units in Sweden. The previous
quarters result did not include non-recurring items.
The operating result, excluding non-recurring items, was a loss of
EUR 19 million (profit of 8 million). Profitability was weakened
mainly by the fall in delivery volumes, destocking and the decrease
in Metsä-Botnia´s operating result, all due to labour industrial
dispute in Finland.
Earnings were positively impacted by the rise in the average selling
price due to price increases agreed in the beginning of the year. In
addition, the strengthening of the dollar raised the euro-denominated
price obtained for deliveries outside Europe.
Deliveries by west European producers of coated magazine paper fell
by one per cent. The Publishing business areas delivery volume fell
by 17 per cent.
January-June
The business areas operating result in January-June was a loss of
EUR 13 million (Jan.-June 2004: a loss of 1 million). The result
includes the above-mentioned non-recurring expense provision of EUR 2
million.
The operating result, excluding non-recurring items, was a loss of
EUR 11 million (a loss of 1 million). Profitability was weakened
mainly by the impacts of the industrial dispute in Finland, the
appreciation of the euro, the rise in the costs of oil-based raw
materials and higher energy costs.
Deliveries of coated magazine paper by west European producers in the
first half of the year were up 6 per cent on the corresponding period
a year ago. The Publishing business areas delivery volume rose by
one per cent thanks to an increase in exports outside Europe.
The average selling price rose by one per cent despite the
strengthening of the euro.
Commercial Printing
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Turnover 368 363 372 368 362 731 734 +1.4%
EBITDA 9 22 -8 20 23 31 45 -
59.1%
EBITDA, % 2.4 6.1 -2.2 5.4 6.4 4.2 6.1
Operating result -17 -4 -35 -7 -4 -21 -8
Operating result, % -4.6 -1.1 -9.4 -1.9 -1.1 -2.9 -1.1
Non-recurring items -1 +1 -27 0 0 0 0
Return on capital -4.9 -1.0 - -1.8 -0.8 -3.0 -1.0
employed, % 10.1
Return on capital -4.6 -1.3 -2.1 -1.8 -0.8 -2.9 -1.0
employed,
excl. non-recurring
items, %
Deliveries, 1,000 t 464 453 469 464 450 917 909 +2.4%
Production, 1,000 t 452 470 472 471 469 922 941 -3.8%
EBITDA = Earnings before interest, taxation, depreciation and
amortization
Second quarter
The Commercial Printing business areas operating result in the
second quarter was a loss of EUR 17 million (Jan.-Mar. 2005: a loss
of 4 million). The result includes a non-recurring charge of about a
million euros for Commercial Printings share of the EUR 15 million
non-recurring expense provision for the efficiency-boosting programme
at the units in Sweden. The previous quarters result included non-
recurring income from Commercial Printings share of the EUR 4
million insurance compensation for the Alizay pulp mill, amounting to
about a million euros.
The operating result, excluding non-recurring items, was a loss of
EUR 16 million (a loss of 5 million). Profitability was weakened
mainly by the lower average selling price for the business area. The
selling price of coated fine paper and speciality paper was at the
level of the previous quarter. The selling price of uncoated products
fell somewhat. The strengthening of the dollar raised the average
euro-denominated selling price of exported products. In addition,
profitability was weakened by the rise in pulp costs and the costs of
oil-based raw materials, the fall in product stocks and the decrease
in Metsä-Botnias operating result.
Earnings were positively impacted by the fall in fixed costs
resulting from the savings measures that have been carried out.
Deliveries by west European producers of coated fine paper fell by 5
per cent. M-reals coated fine paper deliveries rose by 4 per cent.
January-June
The business areas operating result in January-June was a loss of
EUR 21 million (Jan.-June 2004: a loss of 8 million). The result does
not include net non-recurring items. The result for the same period a
year ago does not include non-recurring items.
Profitability was weakened mainly by the fall in the average selling
price. The price of coated fine paper fell by one per cent. There was
also a fall in the price of speciality paper and uncoated products.
The strengthening of the euro depressed the average euro-denominated
selling price of exported products. Profitability was furthermore
weakened by the rise in the costs of oil-based raw materials, higher
energy costs and the decrease in Metsä-Botnias operating result.
Earnings were lifted by the fall in fixed costs resulting from the
savings measures that have been carried out.
Deliveries of coated fine paper by west European producers fell by
one per cent compared with the same period of last year. M-reals
volume of coated fine paper deliveries rose by one per cent. The
biggest increase in deliveries was in eastern and western Europe.
Office Papers
II I 05 IV III II I-II I-II II/I
05 04 04 04 05 04 05
chang
e
Turnover 187 176 162 168 159 363 338 +6.3%
EBITDA 5 20 16 20 15 25 36 -
75.0%
EBITDA, % 2.7 11.4 9.9 11.9 9.4 6.9 10.7
Operating result -10 5 0 4 0 -5 6
Operating result, % -5.3 2.8 0.0 2.4 0.0 -1.4 1.8
Non-recurring items -12 3 0 0 0 -9 0
Return on capital -5.0 2.4 0.1 1.9 -0.2 -1.3 1.4
employed, %
Return on capital 0.9 0.9 0.1 1.9 -0.2 0.9 1.4
employed,
excl. non-recurring
items, %
Deliveries, 1,000 t 279 259 233 246 228 538 482 +7.7%
Production, 1,000 t 268 248 244 241 243 516 490 +8.1%
EBITDA = Earnings before interest, taxation, depreciation and
amortization
Second quarter
The Office Papers business areas operating result in the second
quarter was a loss of EUR 10 million (Jan.-Mar. 2005: profit of 5
million). The result includes a non-recurring charge of about EUR 12
million for Office Papers share of the EUR 15 million expense
provision for the efficiency-boosting programme at the units in
Sweden. The previous quarters result included non-recurring income
from Office Papers share of the insurance compensation for the
Alizay pulp mill, amounting to about 3 million euros.
The operating result, excluding non-recurring items, was a profit of
EUR 2 million (2). Profitability was improved by the growth in
delivery volumes and weakened by the rise in pulp manufacturing
costs.
Deliveries by west European producers of uncoated fine paper fell by
2 per cent. The delivery volume of the Office Papers business areas
products rose by 8 per cent.
January-June
The business areas operating result in January-June was a loss of
EUR 5 million (Jan.-June 2004: profit of 6 million). The result
includes the above-mentioned EUR 9 million of net non-recurring
expenses. The result for the same period a year ago does not include
non-recurring items.
The operating result, excluding non-recurring items, was a profit of
EUR 4 million (6). Profitability was weakened by the 3 per cent drop
in the average selling price and by higher pulp manufacturing costs.
By contrast, profitability was improved by the growth in delivery
volumes and the fall in fixed costs.
Deliveries of uncoated fine paper by west European producers rose by
one per cent compared with the corresponding period a year ago. The
volume of deliveries by the Office Papers business area rose by 12
per cent. Deliveries were up in all market areas.
Map Merchant Group
II I 05 IV III II I-II I-II II/I
05 04 04 04 05 04 05
chang
e
Turnover 351 341 343 332 339 692 693 +2.9%
EBITDA 9 8 2 6 8 17 17
EBITDA, % 2.6 2.3 0.6 1.8 2.4 2.5 2.5
Operating result 7 6 0 4 7 13 13
Operating result, % 2.0 1.8 0 1.2 2.1 1.9 1.9
Non-recurring items 0 0 -8 0 0 0 0
Return on capital 8.6 7.7 -0.5 4.7 8.0 8.2 6.5
employed, %
Return on capital 8.6 7.7 9.3 4.7 8.0 8.2 6.5
employed,
excl. non-recurring
items, %
Deliveries, 1,000 t 343 332 330 321 319 675 657 +3.3%
EBITDA = Earnings before interest, taxation, depreciation and
amortization
Second quarter
The operating result of the Map paper merchanting business in the
second quarter was a profit of EUR 7 million (Jan.-Mar. 2005: 6). The
operating result does not include non-recurring items. The operating
result was lifted by the increase in delivery volumes together with
lower costs.
January-June
The operating result in January-June was on a par with the same
period a year ago.
M-REAL GROUP (all figures unaudited)
CONDENSED CONSOLIDATED INCOME STATEMENT
EUR million 1-6/05 1-6/04 Change 1-12/04 4-6/05
Sales 2 603 2 775 -172 5 529 1 259
Other operating income 139 41 98 89 25
Operating expenses -2 508 -2 582 74 -5 199 -1 263
Depreciation and -191 -201 10 -392 -93
impairment losses
Operating result 43 33 10 27 -72
% of sales 1.7 1.2 0.5 -5.7
Share of result in -3 0 -3 0 -4
associated companies
Net exchange gains and -26 -21 -5 4 -15
losses
Other financial income -80 -61 -19 -140 -52
and
expenses, net
Result on continuing -66 -49 -17 -109 -143
operations before tax
% of sales -2.5 -1.8 -2.0 -11.4
Income tax 21 -3 24 -18 21
Result on continuing -45 -52 7 -127 -122
operations
% of sales -1.7 -1.9 -2.3 -9.7
Result on discontinued 0 176 -176 175 0
operations
Result of the period -45 124 -169 48 -122
% of sales -1.7 4.5 0.9 -9.7
Minority interest 0 -1 1 -3 1
Profit/loss attributable -45 123 -168 45 -121
to
shareholders of parent
company
% of sales -1.7 4.4 0.8 -9.6
CONDENSED CONSOLIDATED BALANCE SHEET
EUR million 30.6.05 % 30.6.04 % 31.12.0 %
4
ASSETS
Non-current assets
Intangible assets 647 10.6 644 9.8 644 9.8
Tangible assets 3 137 51.5 3 311 50.6 3 262 50.3
Biological assets 31 0.5 194 3.0 189 2.9
Shares in associated 113 1.9 138 2.1 126 2.0
and other companies
Interest bearing 42 0.7 43 0.7 43 0.7
receivables
Deferred tax 41 0.7 30 0.5 39 0.6
receivables
Other non-interest 24 0.4 10 0.1 10 0.2
bearing receivables
4 035 66.3 4 370 66.8 4 313 66.5
Current assets
Inventories 632 10.4 744 11.4 726 11.2
Receivables
Interest bearing 180 3.0 73 1.1 38 0.6
receivables
Non-interest 1 112 18.2 1 226 18.8 1 167 18.0
bearing
receivables
Cash and cash 129 2.1 127 1.9 242 3.7
equivalents
2 053 33.7 2 170 33.2 2 173 33.5
Total assets 6 088 100.0 6 540 100.0 6 486 100.0
SHAREHOLDERS EQUITY 30.6.05 % 30.6.04 % 31.12.0 %
AND LIABILITIES 4
Shareholder´s
equity
Equity 2 308 37.9 2 033 31.1 2 393 36.9
attributable to
shareholders of
parent
company
Minority interest 30 0.5 30 0.4 37 0.6
Total equity 2 338 38.4 2 063 31.5 2 430 37.5
Non-current
liabilities
Deferred tax 368 6.0 423 6.5 421 6.5
receivables
Post employment 215 3.5 240 3.7 216 3.4
benefit
obligations
Provisions 52 0.9 25 0.3 36 0.5
Other non- 95 1.6 11 0.2 15 0.2
interest bearing
liabilities
Interest bearing 1 614 26.5 1 847 28.2 1 640 25.3
liabilities
2 344 38.5 2 546 38.9 2 328 35.9
Current liabilities
Non-interest 676 11.1 866 13.3 862 13.3
bearing
liabilities
Interest bearing 730 12.0 1 065 16.3 866 13.3
liabilities
1 406 23.1 1 931 29.6 1 728 26.6
Total liabilities 3 750 61.6 4 477 68.5 4 056 62.5
Total shareholder´s 6 088 100.0 6 540 100.0 6 486 100.0
equity and
liabilities
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
EUR million 1-6/ 1-6/ 1-12/ 4-6/
05 04 04 2005
Cash flow from
Operating
Activities
Profit for the period -45 120 45 -121
Adjustments to the 267 120 316 188
profit, total
Change in working -9 -72 52 102
capital
Cash flow arising from 213 168 413 169
Operations
Finance costs, net -78 -85 -162 -57
Income taxes paid -23 -14 -34 -13
Net cash arising from 112 69 217 99
Operating Activities
Investments in -203 -84 -245 -110
intangible and
tangible assets
Asset sales and other 314 426 462 3
investing
cash flow
Net cash flow arising 111 342 217 -107
from
Investing Activities
Share issue 448
Changes in loans and in -298 -416 -771 -6
other financial items
Dividends paid -39 -54 -54 0
Net cash flow arising -337 -470 -377 -6
from
Financial Activities
Changes in Cash and -114 -59 57 -14
Cash
Equivalents
Cash and Cash 242 185 185 142
Equivalents
at beginning of period
Translation adjustments 1 1 0 1
Changes in Cash and -114 -59 57 -14
Cash
Equivalents
Cash and Cash 129 127 242 129
Equivalents
at end of period
STATEMENT OF CHANGES Share Share Other Retaine Minorit Total
IN SHAREHOLDER´S capital premium funds d y
EQUITY fund earning interes
EUR million s t
Shareholder´s equity 304 473 106 1 362 19 2264
according to FAS, Dec
31, 2003
Effects of adopting -285 10 -275
IFRS
Shareholder´s equity 304 473 106 1 077 29 1 989
according to IFRS,
Jan 1, 2005
Dividend paid -54 -54
Share issue 254 194 -12 436
Translation 6 6
differences
Change in minority 8 8
interest
during the period
Result for the period 45 45
Shareholder´s equity, 558 667 106 1 062 37 2 430
Dec 31, 2004
Dividend paid -39 -39
Translation -1 -1
differences
Change in minority -7 -7
interest
during the period
Result for the period -45 -45
Shareholder´s equity, 558 667 106 977 30 2 338
Jun 30, 2005
KEY FIGURES 1-6/ 1-6/ 1-12/ 4-6/
05 04 04 05
Sales, MEUR 2 603 2 775 5 529 1 259
Operating result, MEUR 43 33 27 -72
Excl. non-recurring items -27 33 60 -57
Result before taxes, MEUR -66 -49 -109 -143
Excl. non-recurring items -132 -49 -76 -124
Result for the period, -45 123 45 -121
MEUR
Earnings per share, EUR -0.14 0.58 0.20 -0.37
Excl. non-recurring -0.35 0.58 0.28 -0.32
items
From continuing -0.14 -0.25 -0.52 -0.37
operations, EUR
From discontinued 0 0.83 0.72 0
operations, EUR
Return on equity, % -3.7 -5.2 -5.8 -20.2
Excl. non-recurring items -9.6 -5.2 -4.6 -17.6
, %
Return on capital 2.2 1.8 0.9 -5.7
employed, %
Excl. non-recurring -0.7 1.8 1.5 -0.3
items, %
Equity ratio, % 38.4 31.5 37.5 38.4
Gearing ratio, % 85 129 89 85
Shareholder´s equity per 7.03 9.56 7.29 7.03
share, EUR
Interest-bearing net 1 993 2 669 2 183 1 993
liabilities, MEUR
Gross capital expenditure, 203 84 245 110
MEUR
Personnel at the end of 15 964 17 073 15 960 15 964
the period
Non-recurring items for the period 1-6/2005 in operating result are
capital gain on sale of Metsä Botnia shares (81), indemnity received
by M-real Alizay (4) and restructuring in Swedish operations
(-15) and in financial items (-4)
SECURITIES AND 6/05 6/04 12/04
GUARANTEES
EUR million
For own loans 139 189 161
For associated 1 1 1
companies
For affiliated 5 7 5
companies
For others 11 11 11
Total 156 208 178
OPEN DERIVATIVE 6/05 6/04 12/04
CONTRACTS
EUR million
Interest rate 10 971 14 206 15 265
derivatives
Currency derivatives 4 097 4 624 6 641
Other derivatives 23 0 9
Total 15 091 18 830 21 915
The fair value of open derivative contracts calculated at market
value at the end of the review period was -41.8 EUR million (+1.6 EUR
million Dec 31, 2004 and -4.8 EUR million Jun 30, 2004).
RECONCILIATION OF INCOME STATEMENT
Condensed Consolidated Income Statement
EUR million 1-6/2004
Reported Effects IFRS
FAS of 1-6/04
1-6/04 transitio
n to IFRS
Sales 2 715 60 2 775
Other operating 40 1 41
income
Operating expenses -2 556 -26 -2 582
Share of results in -4 4 0
associated
companies
Depreciation and -214 13 -201
impairment losses
Operating result -19 52 33
Share of results in 0 0 0
associated
companies
Net exchange gains 4 -25 -21
and losses
Other financial -63 2 -61
income and
expenses, net
Result on -78 29 -49
continuing
operations before
tax
Income taxes 17 -20 -3
Result on -61 9 -52
continuing
operations
Profit on 173 3 176
discontinued
operations
Result for the 112 12 124
period
Minority interests -1 0 -1
Profit/loss 111 12 123
attributable to
shareholders of
parent company
RECONCILIATION OF BALANCE SHEET
Condensed Consolidated Balance Sheet
EUR million Reported Effects IFRS
FAS of
30.6.04 transitio 30.6.04
n to IFRS
ASSETS
Non-current assets
Intangible assets 686 -42 644
Tangible assets 3 243 68 3 311
Biological assets 189 5 194
Shares in 134 4 138
associated and
other companies
Interest bearing 42 1 43
receivables
Deferred tax 16 14 30
receivables
Other non-interest 10 0 10
bearing receivables
4 320 50 4 370
Current assets
Inventories 734 10 744
Receivables
Interest bearing 76 -3 73
receivables
Non-interest 1 223 3 1 226
bearing
receivables
Cash and cash 136 -9 127
equivalents
2 169 1 2 170
Total assets 6 489 51 6 540
SHAREHOLDERS´ Reported Effects IFRS
EQUITY AND FAS of 30.6.04
LIABILITIES 30.6.04 transitio
n to IFRS
Shareholders´
equity
Equity 2 303 -270 2 033
attributable to
shareholders of
parent
company
Minority interest 19 11 30
Total equity 2 322 -259 2 063
Non-current
liabilities
Deferred tax 391 32 423
liabilities
Post employment 25 215 240
benefit
obligations
Provisions 39 -14 25
Other non- 14 -3 11
interest bearing
liabilities
Interest bearing 1 833 14 1 847
liabilities
2 302 244 2 546
Current liabilities
Non-interest 830 36 866
bearing
liabilities
Interest bearing 1 035 30 1 065
liabilities
1 865 66 1 931
Total liabilities 4 167 310 4 477
Total shareholder´s 6 489 51 6 540
equity and
liabilities
Quarterly information
SALES BY SEGMENTS I-II I-II II I 05 IV III II 2004
EUR million 05 04 05 04 04 04
Consumer Packaging 437 525 199 238 256 264 267 1045
Publishing 385 374 177 208 225 202 188 802
Commercial Printing 731 734 368 363 372 368 362 1474
Office Papers 363 338 187 176 162 168 159 667
Map Merchant Group 692 693 351 341 343 332 339 1368
Internal sales and -5 111 -23 18 7 55 48 173
other
operations
GROUP TOTAl 2603 2775 1259 1344 1365 1389 1363 5529
OPERATING RESULT I-II I-II II I 05 IV III II 2004
BY SEGMENTS 05 04 05 04 04 04
EUR million
Consumer Packaging 11 39 -16 27 30 25 18 93
Publishing -13 -1 -21 8 4 9 -5 12
Commercial Printing -21 -8 -17 -4 -35 -7 -4 -49
Office Papers -5 6 -10 5 0 4 0 10
Map Merchant Group 13 13 7 6 0 4 7 17
Other operations 58 -16 -15 73 -13 -27 -6 -55
Operating result 43 33 -72 115 -14 8 10 27
% of sales 1.7 1.2 -5.7 8.6 -1.1 0.6 0.7 0.5
Share of result in -3 0 -4 1 -1 1 0 0
associated
companies
Net exchange gains -26 -21 -15 -11 21 4 -3 4
and losses
Other financial -80 -61 -52 -28 -42 -36 -14 -140
income and expenses,
net
Result on continuing -66 -49 -143 77 -36 -24 -7 -109
operations before
tax
Income tax 21 -3 21 0 -8 -7 -10 -18
Result on continuing -45 -52 -122 77 -44 -31 -17 -127
operations
Result on 0 176 0 0 -1 0 0 175
discontinued
operations
Result of the period -45 124 -122 77 -45 -31 -17 48
Minority interest 0 -1 1 -1 -1 -1 -1 -3
Profit/loss -45 123 -121 76 -46 -32 -18 45
attributable to
shareholders of
parent company
Earnings per share - 0.58 - 0.23 - - - 0.20
adjusted 0.14 0.37 0.23 0.15 0.08
for share issue, EUR
NON-RECURRING ITEMS I-II I-II II I 05 IV III II 2004
05 04 05 04 04 04
Consumer Packaging 0 0 0 0 3 0 0 3
Publishing -2 0 -2 0 1 0 0 1
Commercial Printing 0 0 -1 1 -27 0 0 -27
Office Papers -9 0 -12 3 0 0 0 0
Map Merchant Group 0 0 0 0 -8 0 0 -8
Other operations 81 0 0 81 -2 0 0 -2
Non-recurring items 70 0 -15 85 -33 0 0 -33
in operations,
total
Non-recurring -4 0 -4 0 0 0 0 0
financial
items
Non-recurring 66 0 -19 85 -33 0 0 -33
items, total
Operating result -27 33 -57 30 19 8 10 60
excl. non-recurring
items
% of sales -1.0 1.2 -4.5 2.2 1.4 0.6 0.7 1.1
Result before -132 -49 -124 -9 -3 -24 -7 -76
taxes,
excl. non-recurring
items
% of sales -5.1 -1.8 -9.8 -0.7 -0.2 -1.7 -0.5 -1.4
Earnings per share, - 0.58 - - - - - 0.28
excl. non-recurring 0.35 0.32 0.03 0.15 0.15 0.08
items
Return on equity, -9.6 -5.2 - -1.3 -3.6 -6.1 -3.2 -4.6
excl. non-recurring 17.6
items
Return on capital -0.7 1.8 -0.3 3.0 1.7 1.0 1.7 1.5
employed,
excl. non-recurring
items, %
RETURN ON I-II I-II II 05 I 05 IV 04 III 04 II 04 2004
CAPITAL 05 04
EMPLOYED, %
Consumer 2.7 7.7 -6.5 11.1 11.9 9.7 7.2 9.5
Packaging
Publishing -2.2 0.0 -7.4 2.7 1.5 3.0 -1.5 1.1
Commercial -3.0 -1.0 -4.9 -1.0 -10.1 -1.8 -0.8 -3.5
Printing
Office Papers -1.3 1.4 -5.0 2.4 0.1 1.9 -0.2 1.2
Map Merchant 8.2 6.5 8.6 7.7 -0.5 4.7 8.0 5.1
Group
GROUP TOTAL 2.2 1.8 -5.7 9.9 -1.1 0.9 1.7 0.9
CAPITAL EMPLOYED 6/05 3/05 12/04 9/04 6/04
EUR million
Consumer 876 957 1002 1025 1074
Packaging
Publishing 1063 1186 1208 1211 1199
Commercial 1362 1356 1320 1367 1370
Printing
Office Papers 789 823 829 863 840
Map Merchant 327 333 329 326 333
Group
Other assets 266 195 247 -187 158
GROUP TOTAL 4683 4851 4935 4605 4975
PERSONNEL II 05
Average 2004
Consumer Packaging 2 677 3 082
Publishing 1 483 1 526
Commercial Printing 4 860 4 963
Office Papers 1 969 2 036
Map Merchant Group 2 521 2 528
Other operations 2 150 2 397
GROUP TOTAL 15 660 16 532
DELIVERIES
1000 tons I-II I-II II 05 I 05 IV 04 III II 04 2004
05 04 04
Consumer Packaging 512 690 231 281 340 345 349 1374
Publishing 563 556 256 307 336 301 283 1192
Commercial Printing 917 909 464 453 469 464 450 1842
Office Papers 538 482 279 259 233 246 228 961
Paper businesses 2018 1947 999 1019 1038 1011 961 3995
total
Map Merchant Group 675 657 343 332 330 321 319 1308
PRODUCTION
1000 tons I-II I-II II 05 I 05 IV 04 III II 04 2004
05 04 04
Consumer Packaging 421 650 128 293 326 355 319 1330
Publishing 463 525 155 308 314 309 257 1148
Commercial Printing 922 941 452 470 472 471 469 1885
Office Papers 516 490 268 248 244 241 243 975
Paper businesses 1901 1956 875 1026 1030 1021 969 4008
total
Metsä-Botnia´s 415 579 108 307 283 290 279 1151
pulp1)
M-real´s pulp 733 750 350 383 399 384 369 1533
1) Equals to M-real´s ownership (39% as from II 05, 47% until I 05 in
Metsä-Botnia).
M-REAL CORPORATION
Hannu Anttila
President and CEO
