M-real's operating result excluding non-recurring items for 2010 EUR 173 million

M-real Corporation Financial Statement Release 10 February 2011 at 12.00 EET

Full year result for 2010

• Sales were EUR 2,605 million (Q1–Q4/2009: 2,432).
• Operating result excluding non-recurring items EUR 173 million (-150). Operating result including non-recurring items EUR 146 million (-267).
• Result before taxes excluding non-recurring items EUR 92 million (-230). Result before taxes including non-recurring items EUR 48 million (-358).
• Earnings per share from continuing operations excluding non-recurring items EUR 0.23 (-0.66), and including non-recurring items EUR 0.09 (-1.02)

Result for October-December

• Sales EUR 665 million (Q3/2010: 662).
• Operating result excluding non-recurring items EUR 37 million (54). Operating result including non-recurring items EUR -4 million (66).
• Result before taxes excluding non-recurring items EUR 20 million (33). Result before taxes including non-recurring items EUR -22 million (45).
• Earnings per share from continuing operations excluding non-recurring items EUR 0.07 (0.08), and including non-recurring items EUR -0.06 (0.12).

Events during the fourth quarter of 2010

• Decisions to invest in increasing the capacity of the Simpele paperboard mill and modernisation of the coating section of the Kemiart Liners mill.
• Production of speciality paper was discontinued in Simpele. The production of corresponding speciality papers will continue at the Gohrsmühle mill.
• M-real divested partially the Reflex mill to Metsä Tissue Corporation.

Events after the period

• M-real started a new EUR 70 million profit improvement programme.
• M-real announced plans to invest in increasing the folding boxboard capacity of the Äänekoski and Kyröskoski mills.

”The demand for cartonboard continues very strong, and M-real is expanding its capacity to increase the production of cartonboards for food packaging in particular. The new EUR 70 million profit improvement programme, started to offset the impact of accelerating cost inflation, will particularly focus on the paper units and the variable costs of all operations. Increased paperboard prices will improve profitability during the first quarter of 2011."

CEO Mikko Helander

Result for October-December compared with the previous quarter

M-real’s sales totalled EUR 665 million (Q3/2010: 662). Comparable sales were up 0.5 per cent. The operating result was EUR -4 million (66), and the operating result excluding non-recurring items was EUR 37 million (54).

A net total of EUR -41 million was recognised as non-recurring items in the operating result for October-December, the most significant of them being:

• EUR 28 million impairment of fixed assets in the Speciality Papers business area
• EUR 15 million impairment of fixed assets in the Market Pulp and Energy business area
• EUR 15 million impairment of fixed assets and cost provisions in the Consumer Packaging business area related to the closure of the Simpele paper machine
• EUR 9 million reversal of impairment of fixed assets in the Office Papers business area
• EUR 7 million gain in Speciality Papers related to the partial divestment of the Reflex mill

The non-recurring items for the previous quarter totalled EUR +12 million net.

The operating result excluding non-recurring items compared with the corresponding period last year was weakened by the lower rate of the US dollar and British pound and the strengthening of the Swedish crown against the euro, as well as a seasonal increase in costs. The operating result of the review period includes a capital gain of EUR 2 million from sold Sappi shares booked in other operating income. The operating result of the comparison period included a capital gain of EUR 4 million from the sale of Sappi shares. All of the Sappi shares received in connection with the sale of M-real's Graphic Papers business area at the end of 2008 have been sold.

The total delivery volume of the paper businesses in October-December was 297,000 tonnes (269,000). Deliveries by Consumer Packaging totalled 344,000 tonnes (353,000).

Financial income and expenses in the period totalled EUR -15 million (-20). Foreign exchange gains and losses from accounts receivable, accounts payable, financial income and expenses and the valuation of currency hedging were EUR -2 million (-1). Net interest and other financial income and expenses amounted to EUR -13 million (-19). Other financial income and expenses include EUR 1 million of valuation gains on interest rate derivatives (a valuation gain of zero).

In the review period, the result from continuing operations before taxes was EUR -22 million (+45). The result from continuing operations before taxes, excluding non-recurring items, was EUR 20 million (33). Income taxes, including the change in deferred tax liabilities, were EUR 0 million (-7).

Earnings per share were EUR -0.06 (0.12). Earnings per share from continuing operations excluding non-recurring items were EUR 0.07 (0.08). The return on equity was -8.7 per cent (15.5), and 8.7 per cent (10.7) excluding non-recurring items. The return on capital employed was -0.7 per cent (11.6); 6.3 per cent (9.6) excluding non-recurring items.

Result for 2010 compared to 2009

M-real’s sales totalled EUR 2,605 million (2,432). Comparable sales were up 19.2 per cent. The operating result was EUR 146 million (-267), and the operating result excluding non-recurring items was EUR 173 million (-150).

The non-recurring items recognised in the operating result amounted to EUR -27 million net, the most significant being:

• EUR 28 million impairment of fixed assets in the Speciality Papers business area
• EUR 15 million impairment of fixed assets in the Market Pulp and Energy business area
• EUR 15 million impairment of fixed assets and cost provisions in the Consumer Packaging business area related to the closure of the Simpele paper machine
• EUR 9 million reversal of impairment of fixed assets in the Office Papers business area
• EUR 10 million gain and reversal of impairment loss in the Speciality Papers business area connected with the partial divestment of the Reflex mill to Metsä Tissue
• EUR 8 million net cost provision in the Speciality Papers business area connected with the restructuring of M-real Zanders and partial divestment of the Reflex mill to Metsä Tissue
• EUR 10 million gain was recognised in the operating profit under Other Operations in connection with IT arrangements. In addition, EUR 2 million was allocated to the result for discontinued operations due to the arrangement.
• EUR 8 million reversal of impairment loss under Other Operations associated with the sale of paper machine 2 in Kangas
• EUR 6 million gain from patents sold to Sappi under Other Operations
• EUR 4 million additional cost provision in the Market Pulp and Energy business area relating to the closure of the Alizay pulp mill

The non-recurring items recognised in the operating result for 2009 amounted to EUR -117 million net, the most significant being:

• EUR 134 million profit related to the Metsä-Botnia arrangement, of which EUR 18 million is allocated to Market Pulp and Energy and EUR 116 million to Other Operations.
• An impairment loss of EUR 113 million according to IAS 36, of which EUR 66 million is allocated to Speciality Papers and EUR 47 million to Office Papers. Of these, EUR 33 million was recognised in goodwill.
• EUR 48 million in write-downs and cost provisions in the Market Pulp and Energy business area connected to the plan to permanently close down the Alizay pulp mill.
• EUR 28 million in cost provisions and write-downs in the Speciality Papers business area connected to the closure of the Hallein paper mill.
• EUR 22 million cost provisions and write-downs associated with the closure of the Metsä-Botnia Kaskinen mill. This total consists of EUR 16 million related to the Consumer Packaging business area and EUR 6 million to the Market Pulp and Energy business area.
• EUR 12 million cost provision in Other Operations associated with the terminated IT contract.
• EUR 11 million cost provision related to profit improvement measures at the Husum mill, of which EUR 9 million in the Office Papers business area and EUR 2 million in the Market Pulp and Energy business area.
• EUR 5 million cost provision associated with the profit improvement programme of the Speciality Papers business area.
• EUR 12 million net in other non-recurring items, of which EUR 2 million was in Consumer Packaging, EUR 1 million in Speciality Papers and EUR 9 million in Other Operations.

The operating result excluding non-recurring items compared with the previous year was improved by the implemented price increases in board and paper, increased delivery volumes, cost savings and higher pulp price. The result was weakened by the strengthening of the Swedish crown against the euro, the investment shutdown at the Husum mill and the Finnish stevedore strike. The operating result of the review period includes a capital gain of EUR 8 million from sold Sappi shares booked in other operating income.

The total delivery volume of paper businesses in 2010 was 1,155,000 tonnes (1,132,000). Deliveries by Consumer Packaging totalled 1,390,000 tonnes (1,212,000).

Financial income and expenses totalled EUR -74 million (-75). Foreign exchange gains and losses from accounts receivable, accounts payable, financial income and expenses and the valuation of currency hedging were EUR -9 million (5). Net interest and other financial income and expenses amounted to EUR -65 million (-80). Other financial income and expenses included EUR 10 million of valuation gains on interest rate derivatives (valuation gain of zero). The financial income of 2009 also included a gain of approximately EUR 31 million related to repurchases of M-real’s own bonds and financial expenses included a loss of EUR 30 million related to early repayment of the vendor note by Sappi.

In the year under review, the result from continuing operations before taxes was EUR 48 million (-358). In addition to the non-recurring items booked in the operating result, the result includes an impairment loss of EUR -16 million, related to M-real’s holding in Myllykoski Paper Oy, reported as a non-recurring item in Share of results in associated companies after the operating result. The result for year 2009 included a non-recurring item of EUR -11 million in the line Share of results in associated companies from the Sunila pulp mill divested by Myllykoski Paper during the second quarter. The result from continuing operations before taxes, excluding non-recurring items, was EUR 92 million (-230). Income taxes, including the change in deferred tax liabilities, were EUR -21 million (positive 27).

Earnings per share were EUR 0.09 (-1.09). Earnings per share from continuing operations excluding non-recurring items were EUR 0.23 (-0.66). The return on equity was 2.8 per cent (-28.6), and 7.6 per cent (-18.3) excluding non-recurring items. The return on capital employed was 5.7 per cent (-8.9); 7.6 per cent (-4.5) excluding non-recurring items.

Personnel

The number of personnel was 4,538 on 31 December (31 December 2009: 4,903), of which 1,783 (1,824) worked in Finland. In 2010, M-real employed an average of 4,772 people (2009: 5,913). The number of personnel in January-November 2009 included 30 per cent of Metsä-Botnia personnel.

Investments

Gross investments in January-December totalled EUR 66 million (2009: 73). The investments in January-September 2009 included a EUR 14 million share of Metsä-Botnia's investments based on M-real's 30 per cent share of ownership and the consolidation method of Metsä-Botnia until 8 December 2009.

M-real has announced that it will invest EUR 26 million in the Simpele mill to increase its folding boxboard capacity by approximately 80,000 tonnes. The sheeting capacity will also be expanded at the same time. The investments will be carried out in summer 2011.

M-real has also announced that it will invest in the modernisation of the coating section at the Kemiart Liners mill. The total value of the investment is approximately EUR 16 million. This investment will also be carried out in 2011.

Structural change

M-real's structural change from a paper company to become more clearly a packaging material producer has proceeded according to the strategy. The focus has increasingly shifted from restructuring to development, as is demonstrated by the Simpele and Kemiart Liners investments scheduled for 2011. Efforts to solve the problems of loss-making paper units will continue, and success in this area would further clearly improve M-real's profitability. The strategic review of the paper business continues.

M-real's EUR 80 million profit improvement programme for 2010 announced in December 2010 was realised according to plans. The most significant measures were:

• Permanent closure of the Alizay pulp mill in France
• Closure of the speciality paper capacity of the Reflex mill in Germany
• Streamlining of the organisation and management model in Zanders
• A new EUR 20 million internal profit improvement programme covering all business areas

In addition, the profit improvement programme includes a EUR 22 million investment at the Husum mill to improve its energy efficiency. The investment is proceeding according to plan.

The combined profit impact of these measures and the previous years’ profit improvement programmes is expected to have been an improvement of approximately EUR 100 million in 2010, divided as follows:

• The profit improvement programme of 2010: EUR 40 million
• Earlier implemented profit improvement programmes: EUR 60 million

The Reflex mill in Germany is developed according to the Paper Park concept, the target being to find industrial partners for the mill site. In October 2010, M-real announced the first phase of the development: partial divestment of the Reflex mill to Metsä Tissue for approximately EUR 10 million. The agreement with Metsä Tissue covered paper machine 5 and related real estate, as well as certain infrastructure assets. The negotiations to reduce the headcount at the M-real Zanders mills concluded in June.

In July, M-real exercised its option to purchase former Kangas paper mill real estate and land area from Sappi for a price of EUR 13 million. The deal was part of an agreement in which M-real and Sappi settled the issues still open related to the divestment of M-real's Graphic Papers business area in 2008. In September, the city of Jyväskylä decided to use its right of pre-emption based on law to purchase the Kangas mill real estate from M-real for an equivalent price of EUR 13 million.

M-real discontinued Simpele's speciality paper production at the end of the year. The production of corresponding products will continue at the Gohrsmühle mill in Germany. The transfer of production is expected to improve M-real's annual operating result by approximately EUR 4 million.

Financing

At the end of 2010, M-real's equity ratio was 32.1 per cent (31 December 2009: 29.6) and the gearing ratio was 135 per cent (153). The net gearing ratio was 83 per cent (84). Some of M-real’s loan agreements set a 120 per cent limit on the company’s net gearing ratio and a 30 per cent limit on the equity ratio. Calculated as defined in the loan agreements, the gearing ratio at the end of the year was approximately 64 per cent (63) and the equity ratio some 38 per cent (35).

The change in the fair value of investments available for sale was approximately EUR +28 million, based mainly on the increase in the value of the Pohjolan Voima shares.

At the end of the year, net interest-bearing liabilities totalled EUR 827 million (777). Foreign-currency-denominated loans accounted for 9 per cent; 83 per cent were floating-rate and the rest were fixed-rate. At the end of 2009, the average interest rate on loans was 5.1 per cent and the average maturity of long-term loans 2.7 years. The interest rate maturity of loans was 9.4 months at the end of the year. During the period, the interest rate maturity has varied between six and 10 months.

Cash flow from operations amounted to EUR -49 million (Q1-Q4/2009: 110). Working capital was up by EUR 86 million (down 140), mainly as a result of the increase in delivery volumes and prices. Turnover of operating net working capital remained on 2009 level.           

At the end of September, an average of 4.8 months of the net foreign currency exposure was hedged. The degree of hedging varied between four and six months during the period. Approximately 70 per cent of the non-euro-denominated equity was hedged at the end of September.

Liquidity continues at a good level. At the end of September, liquidity was EUR 415 million, of which EUR 7 million consisted of undrawn pension premium (TyEL) loans and EUR 408 million of liquid assets and investments. EUR 218 million of the liquid assets and investments are assets deposited by other Metsäliitto Group businesses in M-real’s subsidiary Metsä Finance. To meet its short-term financing needs, the Group also had at its disposal uncommitted domestic and foreign commercial paper programmes and credit facilities amounting to about EUR 520 million.

In January, M-real redeemed early a EUR 250 million item of its own bond at a 100 per cent redemption price, according to the terms of the bond, and the remaining EUR 90.05 million of the same bond in July. In June 2010, M-real raised pension loans (TyEL) worth a total of EUR 135 million with a maturity of ten years. In December, the company raised pension loans (TyEL) worth a total of EUR 31 million. With these measures, M-real has extended the maturity profile of its loans and strengthened its liquidity.

In August, Standard & Poor's upgraded M-real's CCC+ credit rating to B-. The rating outlook remains stable. The upgrade has a positive impact of approximately EUR 1 million on M-real’s annual financing costs.

In September, Moody's Investors Service upgraded M-real's Caa1 rating to B3. The rating outlook was changed to positive. The upgrade has a positive impact of approximately EUR 1 million on M-real’s annual financing costs.

Shares

In 2010, the highest price for M-real’s A shares on the NASDAQ OMX Helsinki was EUR 3.64, the lowest EUR 1.93, and the average price EUR 2.85. At the end of the year, the price of the A shares was EUR 2.85. At the end of 2009, the price of the A shares was EUR 1.94, while the average price in 2009 was EUR 1.52.

The highest price for M-real’s B shares in 2010 was EUR 3.26, the lowest EUR 1.46, and the average price EUR 2.44. At the end of the year, the price of the B shares was EUR 2.54. At the end of 2009, the price of the B shares was EUR 1.53, while the average price in 2009 was EUR 0.66.

The trading volume of A shares was EUR 6 million, 5 per cent of the share capital. The trading volume of B shares was EUR 894 million, 125 per cent of the share capital. The market value of A and B shares totalled EUR 845 million at the end of the year.

At the end of the year, Metsäliitto Cooperative owned 38.8 per cent of the shares, and the voting rights conferred by these shares amounted to 60.5 per cent. International investors held 14 per cent of the shares.

On 8 April 2010, the holdings of Norway’s Central Bank (Norges Bank) in M-real dropped to 4.4 per cent of the share capital and 1.4 per cent of the voting rights.

The company does not hold any of its own shares.

Management remuneration
In December, M-real's Board of Directors resolved on a new share-based incentive plan for the management. The aim of the plan is to combine the objectives of the shareholders and the executives in order to increase the value of M-real, to commit the executives to execute the mutual strategy, and to offer them a competitive reward plan based on share ownership.

The plan includes three three-year earning periods for calendar years 2011–2013, 2012–2014 and 2013–2015. The Board of Directors will decide on the earnings criteria and on targets to be established for them at the beginning of each earning period. The potential reward from the plan for the earning period 2011–2013 will be based on M-real Corporation's equity ratio and the development of return on capital employed (ROCE) and earnings before interest and taxes (EBIT). Each earnings period will be followed by a subsequent two-year restriction period during which the participant is not entitled to transfer or dispose of the shares.

The potential reward from the earning period 2011–2013 will be paid partly in the company's series B shares and partly in cash in 2014. The proportion paid in cash will cover taxes and tax-related costs arising from the reward. Initially, during the first earning period the system covers nine persons, including the members of M-real's Corporate Management Team. The rewards to be paid on the basis of the plan for the first earning period correspond to a total of approximately 1,000,000 M-real Corporation series B shares.

Additionally, CEO Helander is taking part in the management ownership system of Metsäliitto Group’s executive management, through which he indirectly owns M-real’s shares.

Events after the period

M-real started a new EUR 70 million profit improvement programme. The programme focuses on improving profitability of the paper business, as well as decreasing the variable costs of all businesses. The earlier-announced profit improvement impact of the Simpele and Kemi board investments and the closure of speciality paper production at Simpele are included in the new profit improvement programme. The full effect of the programme on operating profit, EUR 70 million, is estimated to be reached from 2012 onwards. The positive result impact in 2011 is expected to be approximately EUR 30 million. Cost inflation is expected to accelerate in 2011. The combined result impact of M-real’s new profit improvement programme and the previous years’ programmes is in 2011 estimated to be EUR 90 million positive, which is expected to mostly offset the cost inflation.

The annual folding boxboard capacity of the Äänekoski and Kyröskoski mills is planned to be increased by a total of approximately 70,000 tonnes. The total value of the planned investments is some EUR 30 million. The Kyroskoski investment is planned to be completed in late 2011 and the Äänekoski investment in spring 2012. Related to the planned investment M-real will start statutory negotiations at the Äänekoski board mill on 18 February 2011 covering the mill workers in total of about 130 people. The maximum personnel reduction need is estimated to be 10 people. Kyröskoski investment is expected to have no personnel impact. Following the planned investments, the annual production capacity is to increase to 190,000 tonnes at Kyröskoski and to 240,000 tonnes at Äänekoski. Production is planned to be directed to food packaging. Even after these planned investments, M-real has good potential to further increase the production capacity of the Kyröskoski and Äänekoski mills should the market situation so require.

Sari Pajari was appointed as SVP, Business Development and a member of the Corporate Management Team. Her education is Master of Science, Engineering. Her main responsibilities are business development and Total Quality Management. Pajari starts in the new position on 1 April 2011 and reports to CEO Mikko Helander. Pajari is moving to M-real from the position of SVP, CIO of Metsäliitto Group which she held since 2009. Prior to joining Metsäliitto Group in 2007 Pajari has worked as a managing strategy consultant in Pöyry, PwC Consulting and IBM.

Near-term outlook

The demand for board is expected to remain good during the next few months. M-real’s folding boxboard and liner prices are in excess of 10 per cent higher than at the beginning of the previous year as a result of increases implemented in Europe.

The demand for uncoated fine paper seems to continue stable. M-real has announced a price increase of 6–8 per cent, effective in March. The demand for speciality papers is also expected to remain stable and the price level unchanged.

The average price of pulp is expected to be slightly lower in the first quarter compared with the fourth quarter of the previous year. A significant decrease in the price of pulp is not foreseen, however.

Cost inflation is expected to accelerate in 2011. M-real started a new EUR 70 million profit improvement programme in January 2011. The combined result impact of the new programme and the previous years’ profit improvement programmes is in 2011 estimated to be EUR 90 million positive, which is expected to mostly offset the accelerated cost inflation.

In the first quarter of 2011 M-real’s operating result, excluding non-recurring items, is expected to improve from the fourth quarter of 2010.

Near-term business risks

There is still a risk of the economic recovery of the eurozone slowing down or coming to a standstill and of the demand for board and paper products, which has mainly already recovered, experiencing another downturn.

Should the demand for M-real's main products considerably decrease, there would be a risk of prices declining.

M-real has a good opportunity to mostly cover the increased cost inflation with its own profit improvement measures. However, there is a risk that the cost levels of production factors will increase more than the current estimates, which would have a negative impact on profitability.

The company's short-term and medium-term financial position is secure. Due to possibly increasing regulations, the operation of the credit and bond markets may be limited. This may hamper the company’s ability to acquire long-term debt financing at a competitive price.

Because the forward-looking estimates and statements of these financial statements are based on current plans and estimates, they contain risks and other uncertain factors that may cause the results to differ from the statements concerning them. In the short term, M-real’s results will be particularly affected by the price of (and demand for) finished products, raw material costs, the price of energy, and the exchange rate development of the euro. More information about longer-term risk factors can be found on pages 37-38 of M-real’s 2009 annual report.

M-REAL CORPORATION

Further information:

Matti Mörsky, CFO, tel. +358 10 465 4913
Juha Laine, Vice President, Investor Relations and Communications, tel. +358 10 465 4335

More information is available starting from 1 pm on 27 October 2010. A telephone conference for investors and analysts in English starts at 3 p.m. (EET). Conference call participants are requested to call in and register a few minutes prior to the start of the conference call on the following numbers:

Europe: +44 (0)20 7162 0025
US: +1 334 323 6201

The conference ID is 885744.

Consumer Packaging

Result for October-December compared with the previous quarter

The operating result excluding non-recurring items for the Consumer Packaging business area improved from the previous quarter and was EUR 38 million (Q3/2010: 34). The result was improved by the implemented price increases. The result was weakened by the weakening of the US dollar against the euro.

EUR -14 million in total were recognised in the operating result as non-recurring items, the most significant items being EUR -15 million of impairment of fixed assets and cost provisions related to the closing down of the Simpele paper machine. The result for the previous quarter did not include non-recurring items.

The deliveries of European folding boxboard producers were 1 per cent lower compared with the previous quarter. Consumer Packaging’s deliveries of folding boxboard were down by 3 per cent.

Year 2010 compared with year 2009

The operating result excluding non-recurring items for the Consumer Packaging business area improved from the previous year and totalled EUR 149 million (69). The most significant factors contributing to the result were the implemented price increases and the higher delivery volume resulting from the recovery in demand. Production and delivery volume records were broken in 2010 for folding boxboard as well as liners.

EUR -14 million in total were recognised in the operating result as non-recurring items, the most significant items being EUR -15 million of impairment of fixed assets and cost provisions related to the closing down of the Simpele paper machine .The result for the previous year included non-recurring items of EUR -18 million related to the closure of Metsä-Botnia's Kaskinen mill and personnel cuts.

The deliveries of European folding boxboard producers increased by 9 per cent compared with the previous year. Consumer Packaging’s deliveries of folding boxboard were up by 12 per cent.

Office Papers

Result for October-December compared with the previous quarter

The operating result excluding non-recurring items for the Office Papers business area weakened compared to the previous quarter and was EUR 0 million (Q3/2010: 9). The result was weakened by a decrease in the average euro-denominated selling price due to the more unfavourable sales distribution and the weakening of the US dollar, British pound. Also strengthening of the Swedish crown against the euro, as well as higher wood raw material costs weakened the result. The result was improved by a decrease in pulp prices.

The result includes a non-recurring item of a EUR 9 million reversal of impairment of fixed assets. The result for the previous quarter did not include non-recurring items.

Total deliveries by European uncoated fine paper producers were down by 6 per cent compared to the previous quarter. The delivery volume of Office Papers increased by 17 per cent.

Year 2010 compared with year 2009

The operating result for Office Papers, excluding non-recurring items, improved from the previous year and totalled EUR 5 million (-48). The result improved thanks to a higher average price as a result of implemented price increases and higher delivery volumes resulting from the recovery in demand. Increased fibre costs and strengthening of the Swedish crown against the euro, in turn, weakened the result.

The result includes a non-recurring item of a EUR 9 million reversal of impairment of fixed assets. The result for the previous year included non-recurring items of EUR -56 million, of which EUR 47 million was an impairment charge according to IAS 36, and the rest was a EUR 9 million cost provision related to the profit improvement measures at the Husum plant.

Total deliveries by European uncoated fine paper producers increased by 7 per cent compared to the previous year. The delivery volume of Office Papers increased by 15 per cent.

Speciality Papers

Result for October-December compared with the previous quarter

The operating result excluding non-recurring items for the Speciality Papers business area decreased compared to the previous quarter and was EUR -8 million (Q3/2010: -7). The result was weakened by the seasonal decrease in delivery volumes and increased costs. The result was improved by higher selling prices and decreased fibre costs.

The result includes EUR -23 million of non-recurring items as follows.

• EUR 28 million impairment of fixed assets relating to the Gohrsmuhle mill
• EUR 7 million gain on the partial sale of the Reflex mill to Metsä Tissue
• EUR 2 million of other non-recurring expenses

The result for the previous quarter included non-recurring income items of EUR 11 million, of which amount EUR 8 million concerned the release of a cost provision and EUR 3 million the reversal of impairment loss as a result of the partial divestment of the Reflex mill to Metsä Tissue and lower reorganisation expenses at Zanders.

The delivery volume of Speciality Papers fell by 14 per cent; this figure includes the discontinuation of standard coated fine paper production.

Year 2010 compared with year 2009

The operating result for Speciality Papers, excluding non-recurring items, improved from the previous year and totalled EUR -26 million (-51). The result was improved by the implemented price increases and cost savings. The result was weakened by considerably increased pulp prices.

A total of EUR -28 million was recognised as non-recurring items in the operating result as follows:

• EUR 28 million impairment of fixed assets
• EUR 10 million gain and reversal of impairment related to the partial divestment of the Reflex mill
• EUR 8 million net cost provision in the Speciality Papers business area connected with the restructuring of M-real Zanders and partial divestment of the Reflex mill to Metsä Tissue
• EUR 2 million of other non-recurring expenses

The result for the previous year included non-recurring items of EUR -100 million related to impairment loss according to IAS 36, the closing down of the Hallein paper mill and the business area's profit improvement programme.

The delivery volume of Speciality Papers fell by 28 per cent; this figure includes the discontinuation of standard coated fine paper production.

Market Pulp and Energy

Result for October-December compared with the previous quarter

The operating result excluding non-recurring items for the Market Pulp and Energy business area decreased compared with the previous quarter and was EUR 12 million (Q3/2010: 16). The result was weakened by the lower price of pulp and the weakening of the US dollar against the euro.

A total of EUR -13 million net was recognised in the result as non-recurring items as follows:

• EUR 15 million of impairment losses related to the Hallein mill
• EUR 2 million of other non-recurring income items

An additional cost provision of EUR -4 million was recognised in the previous quarter's result relating to the closure of the Alizay pulp mill.

Year 2010 compared with year 2009

The operating result of Market Pulp and Energy, excluding non-recurring items, improved from the previous year and totalled EUR 53 million (-54). The result improved thanks to higher pulp prices. Moreover, the comparable delivery volume increased considerably. Last year's deliveries included Metsä-Botnia's external deliveries.

The result included non-recurring items of EUR -17 million in total as follows:

• EUR -15 million of impairment losses relating to the Hallein mill
• EUR -4 million of additional cost provisions relating to the closure of the Alizay pulp mill were,
• EUR 2 million of other non-recurring income items.

The result for the previous year included a total of EUR -37 million net in non-recurring items as follows:

• EUR 48 million in write-downs and provisions associated with the plan to close down the Alizay pulp mill permanently
• EUR 18 million gain relating to the sale of Metsä-Botnia's shares in Pohjolan Voima
• EUR 6 million in cost provisions and write-downs associated with the closure of the Metsä-Botnia Kaskinen mill
• EUR 1 million in cost provisions related to the profit improvement measures at the Husum mill.