M-REAL?S SECOND QUARTER RESULT BEFORE TAXES NEGATIVE
M-real Corporation Stock Exchange Bulletin on 27 July 2006 at 1.00
p.m.
M-REALS SECOND QUARTER RESULT BEFORE TAXES NEGATIVE
M-reals result before taxes and non-recurring items weakened to a
loss of EUR 57 million from the profit of EUR 16 million for the
previous quarter. Operating result excluding non-recurring items for
the second quarter totalled EUR -21 million (35). Profitability was
primarily weakened by the seasonally reduced delivery volumes, costs
arising from maintenance and investment shutdowns, the two-day strike
of paper workers at the Finnish mills, the weakened US dollar and the
increased fibre and energy costs.
As non-recurring items, profitability was weakened by the cost
reserves for the personnel reduction programmes at the Stockstadt,
Hallein and Alizay mills totalling EUR 19 million and the loss of EUR
35 million arising from the sale of the Pont Sainte Maxence mill.
KEY FIGURES 46/06 13/06 16/06 16/05 112/05
Sales, EUR million1 1 378 1 441 2 819 2 603 5 241
Operating result, EUR million -75 35 -40 43 36
excluding non-recurring -21 35 14 -27 4
items, EUR million
Result before taxes, EUR -111 16 -95 -66 -114
million
excluding non-recurring -57 16 -41 -132 -142
items, EUR million
Result for the period, EUR -103 3 -100 -45 -80
million
Earnings per share, EUR -0.31 0.01 -0.30 -0.14 -0.25
Return on equity, % -18.3 0.5 -8.9 -3.7 -3.4
excluding non-recurring -9.1 0.5 -4.3 -9.6 -4.8
items, %
Return on capital employed, % -5.6 3.4 -1.1 2.2 1.2
excluding non-recurring -1.2 3.4 1.1 -0.7 0.5
items, %
Equity ratio at end of period, 35.0 36.2 35.0 38.4 36.6
%
Gearing ratio at end of period, 108 100 108 85 95
%
Interest-bearing net 2 296 2 381 1 993 2 205
liabilities at the end of the 2 381
period, EUR million
Gross investments, EUR million 101 103 204 203 452
Paperboard deliveries, 1 000 284 304 588 512 1 006
tons2
Paper deliveries, 1 000 tons 1 040 1 080 2 120 2 018 4 046
Personnel at the end of the 15 277 15 046 15 277 15 964 15 154
period
Hannu Anttila, President and CEO, comments on M-reals recent
development and outlook:
Our result for the second quarter was a clear disappointment. The
costs of the investment and maintenance shutdowns at the Alizay and
Simpele mills burdened our profitability by about EUR 20 million. In
addition, the two-day strike at the Finnish mills caused an
unexpected loss of approximately EUR 4 million.
We also booked a loss of EUR 35 million when we sold our French Pont
Sainte Maxence mill producing speciality fine papers. The mill showed
heavy losses and its sale will release resources into other
development measures.
All in all, the production input costs have remained high or even
continued to rise, which we have hardly been able to compensate by
product price increases. The need for price increases in paper and
paperboard products is very high. In the summer we have announced
price increases of about five per cent for all our main paper grades
effective at the beginning of September.
The measures required by the EUR 200 million cost savings programme
published in 2004 have been defined and are being implemented. As the
final measures under the programme we initiated personnel reductions
at the Stockstadt, Hallein and Alizay mills. Our organisation has
done good work and the efficiency improvement is progressing slightly
ahead of the original schedule. However, as a result of the rise in
production input and transport costs, the effect of these efficiency
measures on our profitability has remained regrettably slight. The
search for cost savings and further efficiency improvements will
continue under a new programme, which is currently under preparation.
During the second quarter our gearing ratio exceeded our defined
maximum level of one hundred per cent, mainly due to the weak
performance development and strategic investments. We are controlling
the debt trend through improving financial performance, reducing
working capital and restricting investments.
The result for the third quarter before taxes and non-recurring
items is expected to be clearly better than for the second quarter.
In spite of the result improving measures in progress, the result for
the whole year before taxes will remain negative," says Anttila.
M-REAL CORPORATION
Corporate Communications
For additional information, please contact Hannu Anttila, President
and CEO, tel. +358 10 469 4343.
M-REAL CORPORATION
INTERIM REPORT 1 JANUARY TO 30 JUNE 2006
MARKET SITUATION
This years economic growth and industrial production are expected to
strengthen somewhat from last year in M-reals main markets. In
Western Europe the amount of money spent on advertising is generally
expected to increase slightly more than the general economic growth
this year.
The deliveries to Western Europe by Western European coated fine
paper producers have increased during the first half of the year
compared with the corresponding period last year. The consumption of
uncoated fine paper has also been growing. The delivery volumes of
coated magazine paper were slightly higher than during the first half
of 2005. The deliveries of all the above-mentioned paper grades to
Eastern Europe have grown significantly compared with the
corresponding period last year. The price of office paper was the
only one to rise in the paper market prices during the first half of
the year. No significant change has taken place in the prices of
other paper grades in Europe.
The deliveries to Europe by Western European folding boxboard
producers increased slightly compared to last year. Comparability is
affected by the labour dispute in the Finnish paper industry in the
summer of 2005.
APRIL-JUNE COMPARED WITH THE PREVIOUS QUARTER
The sales of M-real Group for the second quarter amounted to EUR 1
378 million (JanMar/06: 1 441). Sales decreased by 4.4 per cent.
The operating result excluding non-recurring items totalled EUR -21
million (35). Operating profit including non-recurring items totalled
EUR -75 million (35). The operating result for April-June included
non-recurring net costs of EUR 54 million consisting of the sales
loss for the Pont Sainte Maxence paper mill (35) and the efficiency
improvement programmes at the Alizay (13), Stockstadt (4) and Hallein
(2) mills.
The operating result was weakened by the costs of about EUR 20
million arising from maintenance and investment shutdowns.
In addition, the operating result was primarily weakened by the
seasonally reduced delivery volumes, the two-day strike of paper
workers at the Finnish mills, the weakened US dollar and the
increased fibre and energy costs.
In the first quarter, the effect of increased energy costs on the
Groups result was alleviated by the valuation gain on electricity
price derivatives of EUR 8 million. A corresponding valuation gain
has not arisen in the second quarter as the price of electricity
ultimately settled close to the same level as that at the end of the
first quarter. In terms of electricity derivatives M-real has adopted
hedge accounting according to IFRS as of the beginning of the second
quarter of 2006. The adoption of hedge accounting did not have an
effect on the result compared with the earlier accounting practice.
The deliveries of paperboard to customers totalled 284 000 tons (304
000). Production was curtailed to correspond to demand by 19 000 tons
(12 000).
The total deliveries of paper products were 1 039 000 tons (1 080
000). Production curtailments were 63 000 tons (36 000).
Except for the Map Merchant Group, the profitability of all business
areas weakened.
The share of results from associated companies was EUR 0 million
(1).
Financial income and expenses totalled EUR -36 million (-18).
Translation differences from accounts receivable, accounts payable,
financial items and the valuation of currency hedging were EUR -3
million (8). Net interest and other financial expenses were EUR -33
million (-26).
Other financial expenses include a valuation gain on interest rate
derivatives of EUR 3 million (4).
Currency and interest rate hedges are used to hedge the future cash
flow against the fluctuation in currencies and interest rates. The
valuation gains and losses booked are mainly associated with the
changes in the exchange rate of the US dollar and the general
interest level. As of the third quarter of 2005 M-real has applied
partial hedge accounting according to IAS 39 to hedge its dollar cash
flow exposure and as of the last quarter of 2005 also to the hedging
of the Swedish crown flow position. A valuation gain totalling EUR 19
million has been booked in shareholders equity for the hedge
accounting at the end of June.
At the end of June the exchange rate of the US dollar in euro was 5.0
per cent lower and the rate of the British pound in euro was 0.6 per
cent higher than at the end of March. On average the dollar weakened
by 4.5 per cent and the pound by 0.3 per cent compared with the
previous quarter.
Result before taxes excluding non-recurring items amounted to EUR -57
million (16) and including non-recurring items at -111 million (16).
The result for the second quarter was EUR -103 million (3). Income
taxes, including the change in deferred tax liabilities, were EUR 8
million (-13).
Earnings per share were EUR -0.31 (0.01), excluding non-recurring
items EUR -0.16 (0.01).
Return on equity was -18.3 per cent (0.5), excluding non-recurring
items -9.1 per cent (0.5). Return on capital employed was -5.6 per
cent (3.4), excluding non-recurring items -1.2 per cent (3.4).
JANUARY-JUNE COMPARED WITH THE CORRESPONDING PERIOD LAST YEAR
Sales amounted to EUR 2 819 million (Jan-Jun/2005: 2 603). Comparable
sales rose by 8.6 per cent.
The operating result was EUR 14 million (-27) excluding non-recurring
items and to EUR -40 million (43) including non-recurring items.
The result for last year was burdened by the labour dispute in the
Finnish paper industry, which affected the Consumer Packaging and
Publishing business areas in particular. As a result, the increase in
this years delivery volumes improved the operating result compared
with January-June last year. The result for the period under review
was also improved by the rise in sales prices in the Publishing and
Office Papers business areas. The result was weakened by the
increased energy costs in particular.
The deliveries of paperboard to customers totalled 588 000 tons (512
000). Production was curtailed to correspond to demand by 31 000 tons
(21 000).
The total delivery volume of paper products was 2 120 000 tons (2 018
000). Production curtailments were 99 000 tons (118 000).
Of the business areas, Consumer Packaging, Publishing and Map
Merchant Group improved their profitability.
The operating result for January-June includes 39 per cent of Metsä-
Botnia's operating result. Last year operating result included 47 per
cent of Metsä-Botnias operating result during January-March and 39
per cent during April-June.
The share of results from associated companies was EUR -1 million (-
3).
Financial income and expenses totalled EUR -54 million (-106).
Translation differences from accounts receivable, accounts payable,
financial items and the valuation of currency hedging were EUR 5
million (-26). Net interest and other financial expenses amounted to
EUR -59 million (-80). Other financial expenses include a valuation
gain for interest rate hedges of EUR 7 million (-17).
At the end of June the exchange rate of the US dollar in euros was
5.1 per cent lower and the rate of the British pound in euros was 2.7
per cent lower than at the end of June 2005. However, on average the
dollar strengthened by 4.4 per cent and the pound weakened by 0.1 per
cent compared with January-June in 2005.
The result before taxes was EUR -95 million (-66). Result before
taxes excluding non-recurring items totalled EUR -41 million (-132).
Result for the period under review was EUR -100 million (-45). Income
taxes, including the change in deferred tax liabilities, were EUR -5
million (21).
Earnings per share were EUR -0.30 (-0.14). Earnings per share
excluding non-recurring items were EUR -0.15 (-0.35).
Return on equity was -8.9 per cent (-3.7), excluding non-recurring
items -4.3 per cent (-9.6).
Return on capital employed was -1.1 per cent (2.2), excluding non-
recurring items 1.1 per cent (-0.7).
PERSONNEL
The number of personnel was 15 277 at the end of June (15 154 on 31
December 2005), of which 4 946 worked in Finland (4 488). The effect
of corporate transactions on the number of personnel was -169. The
number of summer employees was about 450, which resulted in a net
increase in personnel of 123 people.
M-real employed an average of 15 207 people during January-June (Jan-
Jun/2005: 15 660). The number of personnel of the Group includes 39
per cent of Metsä-Botnias personnel.
INVESTMENTS
Gross investments in January-June totalled EUR 204 million (Jan-
Jun/2005: 203), which includes a share of EUR 97 million (56) of
Metsä-Botnias investments. Metsä-Botnias share includes EUR 28
million paid for the shares in its subsidiaries and associated
companies in Uruguay. Total investments in fixed assets amounted to
EUR 176 million.
M-reals share of Metsä-Botnias investments is based on 39 per cent
share of ownership. Last year M-reals share was 47 per cent in
January-March and 39 per cent in April-June.
The main shutdown of the investment project at the Simpele paperboard
mill was implemented from 20 March to 6 April 2006. The production
volume and quality of the products after start up have been according
to plan. With the investment, the paperboard production capacity of
the Simpele mill will rise to 215 000 tons per year.
MAIN DEVELOPMENT AND EFFICIENCY IMPROVEMENT MEASURES
The main development measures during the January to June period have
been the completion of the development programme at the Simpele
paperboard mill, the product quality improvement investment at the
Alizay mill and the introduction of Kaskinens BCTMP pulp mainly in M-
reals own paper production.
In March 2006, M-reals subsidiary Tako Carton Plant Ltd. decided to
centralise the manufacture of folding cartons to the Tampere
production plant as part of the operational efficiency improvement
programme. As a result, Tako Carton Plants Järvenpää plant was shut
down at the end of June.
On 30 June 2006, M-real sold the French Pont Sainte Maxence
speciality paper mill to the German company Arques Industries. A loss
of EUR 35 million has been booked from the sale of the mill in the
result for the second quarter. The annual capacity of the Pont Sainte
Maxence mill is 120 000 tons and it employs about 200 people.
As a result of the efficiency improvement measures during January-
June, a reduction of about 600 people has been agreed (not including
the personnel of Pont Sainte Maxence). Of these, the reduction of
about 200 people concerns units and functions located in Finland and
about 400 located elsewhere in Europe.
FINANCING
At the end of June the equity ratio was 35.0 per cent (Dec/2005:
36.6) and the gearing ratio 108 per cent (Dec/2005: 95).
Interest-bearing net liabilities totalled EUR 2 381 million at the
end of June (Dec/2005: 2 205). Of the long-term liabilities, 7 per
cent were denominated in currencies other than the euro. Of these
loans, 74 per cent was subject to variable interest rates and the
rest to fixed rates. The average interest rate for the liabilities
was 5.0 per cent and the average maturity of long-term liabilities
was 4.1 years at the end of June. The interest rate maturity was 10
months at the end of the period; the interest rate maturity has
varied between 10 and 16 months during the period.
The cash flow from business operations before investments and
financing was EUR 41 million in the second quarter (Jan-Mar/2006:
65). Working capital rose by EUR 57 million from the end of the year.
Of the net currency flow on average, 7 months were hedged at the end
of the report period. The degree of hedging has varied between 7 and
9 months during the period; 96 per cent of the shareholders equity
denominated in currencies other than euro was hedged at the end of
the report period.
Liquidity is good. Liquidity was EUR 1 454 million at the end of
June, of which EUR 1 355 million was binding long-term credit
commitments and EUR 99 million liquid assets and investments. In
addition, the Group had non-binding domestic and foreign commercial
paper programmes and credit limits in use for short-term financing
needs at a value of about EUR 600 million.
On 30 June 2006 Standard & Poors Rating Services placed the rating of
M-reals long-term credits under watch for a potential decrease of
the credit rating from its current level BB-.
SHARES
The highest price of M-reals B share on the Helsinki Stock Exchange
was EUR 5.62 during the January to June period, the lowest EUR 3.61
and the average price EUR 4.63. At the end of June the price of the B
share was EUR 3.87. The average price in 2005 was EUR 4.36. At the
end of last year the price was EUR 4.22.
The exchange of the B share was EUR 1 316 million during the January
to June period, or 97 per cent of the shares outstanding. The market
value of the A and B shares totalled EUR 1 280 million at the end of
June.
Metsäliitto Cooperative owned 38.6 per cent of the shares at the end
of June, and the voting rights conferred by these shares was 60.5 per
cent. The holding of foreign owners in the shares was 33.4 per cent.
The Annual General Meeting on 13 March 2006 authorized the Board of
Directors for one year from the date of the Annual General Meeting to
decide on increasing the share capital through one or more rights
issues and/or one or more issues of convertible bonds such that in
the rights issue or issue of convertible bonds, a total maximum of
58 365 212 M-real Corporation Series B shares with a nominal value of
EUR 1.70 can be subscribed for, and that the company's share capital
can be increased by a total maximum of EUR 99 220 860.40. The
authorization will confer the right to disapply shareholders' pre-
emptive right to subscribe for new shares and/or issues of
convertible bonds and to decide on the subscription prices and other
terms and conditions. Shareholders' pre-emptive subscription rights
can be disapplied providing that there is a significant financial
reason for the company to do so, such as strengthening of the
company's balance sheet, making possible business structuring
arrangements or taking other measures for developing the company's
business operations. The Board of Directors may not disapply the pre-
emptive subscription rights on behalf of a related party.
STRATEGY REVIEW
On 13 March, M-real's Board of Directors has initiated a strategic
review of M-real's current business portfolio, with a view to M-real
exploring potential benefits of participation in the consolidation
and restructuring of the European paper industry. At the moment no
estimate on the potential conclusions of the strategy review can be
presented.
METSÄ-BOTNIAS URUGUAY PULP MILL PROJECT
Metsä-Botnias Uruguay pulp mill investment is progressing as planned
according to its schedule and budget. The mill, which will produce
one million tons of pulp, is expected to start up in the third
quarter of 2007. At the end of June about 2 600 people were working
in the project.
EVENTS AFTER THE REPORT PERIOD
On 7 July 2006 Moodys Investor Service notified that it would reduce
M-reals Ba3 credit rating to level B2. The rating outlook remained
negative. The effect of the change in credit rating on M-reals
current financial costs is about EUR 2.5 million per year.
Argentina has appealed to the International Court of Justice in The
Hague regarding the Uruguay pulp mill projects (Botnia and the
Spanish ENCE). Argentina requested the Court to order a prohibition
of measures for the mill projects. The International Court of Justice
in The Hague published its resolution on 13 July 2006. The Court
stated there were no grounds on which to order the pulp mill projects
to be interrupted, so the construction work for the Botnia pulp mill
in Uruguay continues according to plan.
NEAR TERM OUTLOOK
The demand for M-reals main products was fairly good in the second
quarter, though weaker than in the first quarter primarily for
seasonal reasons. In the third quarter the demand for the main
products is expected to improve to some extent.
The price of uncoated fine paper was increased slightly during the
second quarter. The price of coated fine paper sheets was also
increased in Continental Europe, but the effect of the increase on
the average price remained slight. M-real has announced price
increases for all its main paper grades and they will enter into
force as of the beginning of September. The average prices of both
fine papers and coated magazine paper are expected to be at a
somewhat higher level in the third quarter than in the second
quarter. The market price of folding boxboard is expected to remain
stable.
The measures required by the cost savings programme published in 2004
have been defined and are being implemented. The planning for a new
cost savings and efficiency improvement programme has been started.
The programme will take a more detailed shape during the third
quarter.
M-reals result for the third quarter before taxes and non-recurring
items is expected to be clearly better than for the second quarter.
Despite the result improving measures in progress, the year-end
result before taxes will remain negative.
Espoo, 27 July 2006
THE BOARD OF DIRECTORS
BUSINESS AREAS AND MARKET DEVELOPMENT
Consumer Packaging
II I IV III II I-II I-II II 06/I
06 06 05 05 05 06 05 06
change
Sales 237 257 231 196 199 494 437 -7.8%
EBITDA 24 44 37 33 6 68 55 -45.5%
EBITDA, % 10. 17. 16.0 16.8 3.0 13.8 12.6
1 1
Operating result 2 24 16 14 -16 26 11
Operating result, % 0.8 9.3 6.9 7.1 - 5.3 2.5
8.0
Non-recurring items 0 0 0 0 0 0 0
Return on capital 1.3 10. 7.8 6.7 - 6.1 2.8
employed, % 9 6.9
Return on capital 1.3 10. 7.8 6.7 - 6.1 2.8
employed excluding 9 6.9
non-recurring items,
%
Deliveries, 1 000 284 304 268 226 231 588 512 -6.6%
tons
Paperboard 270 299 272 292 128 569 421 -9.7%
production, 1 000
tons
EBITDA = Earnings before interest, taxation, depreciation and
amortization
The second quarter compared with the previous quarter
The operating result of the Consumer Packaging business area for the
second quarter was EUR 2 million (Jan-Mar/2006: 24).The result does
not include non-recurring items.
The operating result was mainly weakened by the investment shutdown
at the Simpele mill and the strike of Finnish paper workers. In
addition, the result was weakened by the lower delivery volume and
the weakened US dollar.
Total deliveries by Western European folding boxboard producers
decreased by 5 per cent compared with the previous quarter. During
the corresponding period, M-real's deliveries of folding boxboard
decreased by 6 per cent. The sales price of folding boxboard
denominated in euros was slightly lower than in the previous quarter
mainly due to the strengthening of the euro. The delivery volume of
liner decreased from the first quarter. The average prices remained
unchanged.
January-June compared with the corresponding period in 2005
The business areas operating result for January-June totalled EUR 26
million (Jan-Jun/2005: 11). The corresponding period in 2005 was
weakened by the decreases in production and delivery volumes caused
by the labour dispute in the Finnish paper industry and the decrease
in product inventories. The profitability of the current year is
mainly weakened by the rising energy costs.
Total deliveries by Western European folding boxboard producers
increased by 7 per cent compared with the corresponding period last
year. M-reals deliveries were 14 per cent higher. Last years
delivery volumes remained lower than normal due to the labour dispute
in the Finnish paper industry. The price of folding boxboard
denominated in euros was at the level of the corresponding period
last year.
The delivery volume of liner was clearly higher than last year. The
average price was at the level of the corresponding period last year.
Publishing
II I IV III II I-II I-II II
06 06 05 05 05 06 05 06/I
06
change
Sales 216 225 230 181 177 441 385 -4.0%
EBITDA 23 32 34 35 0 55 29 -28.1%
EBITDA, % 10. 14. 14. 19. 0.0 12.5 7.5
6 2 8 3
Operating result 2 11 13 14 -21 13 -13
Operating result, % 0.9 4.9 5.7 7.7 - 2.9 -3.6
11.9
Non-recurring items 0 0 0 0 -2 0 -2
Return on capital 0.9 4.1 4.8 5.6 -7.7 2.5 -2.3
employed, %
Return on capital 0.9 4.1 4.8 5.6 -7.0 2.5 -2.0
employed excluding
non-recurring items,
%
Deliveries, 1 000 306 318 326 257 256 624 563 -3.8%
tons
Production, 1 000 270 307 315 294 155 577 463 -12.1%
tons
EBITDA = Earnings before interest, taxation, depreciation and
amortization
The second quarter compared with the previous quarter
The Publishing business areas second quarter operating result was
EUR 2 million (Jan-Mar/2006: 11). The result does not include non-
recurring items. The operating result was primarily weakened by the
decrease in product inventories, the lower delivery volume and the
strike by the Finnish paper workers. Prices remained at previous
quarters level.
Total deliveries by Western European coated magazine paper producers
decreased by one per cent. The delivery volume of the Publishing
business area decreased by 4 per cent.
January-June compared with the corresponding period in 2005
The business areas operating result for January-June totalled EUR 13
million (Jan-Jun/2005: -13). Last years operating result was
significantly weakened by the labour dispute in the Finnish paper
industry. This years result was improved by the increase in the
average sales price and the cost savings measures implemented. The
result was weakened by the rise in the price of energy.
Total deliveries by Western European coated magazine paper producers
decreased by one per cent compared with the corresponding period last
year. The delivery volume of the Publishing business area increased
by 11 per cent.
Commercial Printing
II I 06 IV III II I-II I-II II
06 05 05 05 06 05 06/I
06
change
Sales 380 394 376 381 368 774 731 -3.6%
EBITDA -26 24 3 25 9 -2 31
EBITDA, % -6.8 6.1 0.8 6.6 2.4 -0.3 4.2
Operating result -51 -2 -41 0 -17 -53 -21
Operating result, % - -0.5 - 0.0 -4.6 -6.8 -2.9
13.4 10.9
Non-recurring items -41 0 -29 0 -1 -41 0
Return on capital - -0.5 - 0.0 -5.5 -8.6 -3.2
employed, % 16.2 13.7
Return on capital -3.2 -0.5 -3.9 0.0 -5.1 -1.9 -3.2
employed excluding
non-recurring items,
%
Deliveries, 1 000 481 497 469 480 464 978 917 -3.2%
tons
Production, 1 000 494 509 476 482 452 1003 922 -2.9%
tons
EBITDA = Earnings before interest, taxation, depreciation and
amortization
The second quarter compared with the previous quarter
The Commercial Printing business areas second quarter operating
result was EUR -51 million (Jan-Mar/2006: -2). Non-recurring costs of
EUR 41 million are included in the result for the second quarter. The
amount consists of the sales loss of the Pont Sainte Maxence mill and
the business areas share of restructuring costs of the Stockstadt
and Hallein mills.
Profitability was mainly weakened by the seasonally lower delivery
and production volumes.
Total deliveries by Western European coated fine paper producers
decreased by 7 per cent. M-reals deliveries of coated fine paper
decreased by 5 per cent. The average sales price denominated in euros
was at the level of the previous quarter. The price of speciality
papers increased as a result of price increases and an improved
product mix.
January-June compared with the corresponding period in 2005
The business areas operating result for January-June was EUR -53
million (-21). The result includes non-recurring costs of EUR 41
million booked in the second quarter. Profitability was improved by
the 7 per cent increase in the business areas delivery volume and
decreased fixed costs. The average prices were at last years level.
The result was significantly weakened by the increase in fibre and
energy costs.
Total deliveries by Western European coated fine paper producers
increased by 6 per cent. M-reals delivery volume of coated fine
paper increased by 8 per cent compared with last year. Deliveries
increased the most in Europe and North America.
Office Papers
II I 06 IV III II I-II I-II II
06 05 05 05 06 05 06/I
06
change
Sales 174 183 167 174 187 357 363 -4.9%
EBITDA -2 20 18 13 5 18 25
EBITDA, % - 10.9 10.8 7.5 2.7 5.0 6.9
1.1
Operating result -17 4 3 -3 -10 -13 -5
Operating result, % - 2.2 1.8 -1.7 -5.3 -3.6 -1.4
9.8
Non-recurring items -10 0 0 0 -12 -10 -9
Return on capital - 2.2 1.6 -1.1 -5.1 -3.4 -1.3
employed, % 9.0
Return on capital - 2.2 1.6 -1.1 1.0 -0.7 0.9
employed excluding 3.7
non-recurring items,
%
Deliveries, 1 000 251 266 242 254 279 517 538 -5.6%
tons
Production, 1 000 252 264 258 260 268 516 516 -4.5%
tons
EBITDA = Earnings before interest, taxation, depreciation and
amortization
The second quarter compared with the previous quarter
The operating result of the Office Papers business area for the
second quarter was EUR -17 million (Jan-Mar/2006: 4). The result
includes a non-recurring cost of approx EUR 10 million, which is the
business areas share of the non-recurring expense reserve of EUR 13
million related to the operational efficiency improvement programme
at the Alizay mill. As a result of the programme, the number of
personnel at the mill is expected to be reduced by about 100 people.
In addition, the renewal of the paper machines former and an
extensive maintenance shutdown of the pulp mill were simultaneously
implemented at the Alizay mill in April. The shutdown lasted close to
three weeks.
Total deliveries by Western European uncoated fine paper producers
decreased by 4 per cent. Office Papers business areas product
delivery volume decreased by 6 per cent. Sales prices remained at the
level of the previous quarter on average.
January-June compared with the corresponding period in 2005
The business areas operating result excluding non-recurring items
for January-June totalled EUR -3 million (4). The result was weakened
by the rise in energy costs. On the other hand, the result was
improved by the increase in the average sales price and delivery
volume.
Total deliveries by Western European uncoated fine paper producers
increased by 2 per cent. The delivery volume of the Office Papers
business area decreased by 4 per cent.
Map Merchant Group
II I 06 IV III II I-II I-II II
06 05 05 05 06 05 06/I
06
change
Sales 354 365 357 341 351 719 692 -3.0%
EBITDA 8 9 2 6 9 17 17 -11.1%
EBITDA, % 2.3 2.5 0.6 1.8 2.6 2.4 2.5
Operating result 7 7 0 5 7 14 13
Operating result, % 2.0 1.9 0.0 1.5 2.0 1.9 1.9
Non-recurring items 0 0 -4 0 0 0 0
Return on capital 8.2 8.7 2.1 4.5 9.3 8.5 8.8
employed, %
Return on capital 8.2 8.7 7.1 4.5 9.3 8.5 8.8
employed excluding
non-recurring items,
%
Deliveries, 1 000 354 363 347 337 343 717 675 -2.5%
tons
EBITDA = Operating result before depreciation and impairments
The second quarter compared with the previous quarter
The operating result of the Map Merchant Group for the second quarter
was EUR 7 million (Jan-Mar/2006: 7).
The result was as expected and included no non-recurring items.
January-June compared with the corresponding period in 2005
The operating result of the Map Merchant Group for the first half of
the year was at the level of the corresponding period last year, EUR
14 million (13). The result was improved by the increased delivery
volume and weakened by the decreased average sales margin. The
results did not include non-recurring items.
M-REAL GROUP (all figures unaudited)
CONDENSED CONSOLIDATED INCOME STATEMENT
EUR million 1- 1- Change 1-12/05 4-6/06
6/2006 6/2005
Continuing operations:
Sales 2 819 2 603 216 5 241 1 378
Other operating income 69 139 -70 206 32
Operating expenses -2 743 -2 508 -235 -5 008 -1 393
Depreciation and -185 -191 6 -403 -92
impairment losses
Operating result -40 43 -83 36 -75
% of sales -1.4 1.7 0,7 -5.4
Share of results in -1 -3 2 -2 0
associated companies
Net exchange gains and 5 -26 31 -33 -3
losses
Other financial income -59 -80 21 -115 -33
and expenses, net
Result before taxes -95 -66 -29 -114 -111
% of sales -3.4 -2.5 -2.2 -8.1
Income taxes -5 21 -26 34 8
Result for the period -100 -45 -55 -80 -103
% of sales -3.5 -1.7 -1.5 -7.5
Attributable to:
Shareholders of parent -100 -45 -55 -81 -102
company
Minority interest 0 0 0 1 -1
Earnings per share for -0.30 -0.14 -0.16 -0.25 -0.31
result attributable to
the shareholders of
parent company, euros
CONDENSED CONSOLIDATED BALANCE SHEET
30.6.20 % 30.6.20 % 31.12.20 %
06 05 05
EUR million
ASSETS
Non-current assets
Intangible assets 665 10.6 647 10.6 654 10.3
Tangible assets 3 174 50.5 3 137 51.5 3 178 50.2
Biological assets 43 0.7 31 0.5 36 0.6
Shares in 115 1.8 113 1.9 114 1.8
associated and
other companies
Interest bearing 38 0.6 42 0.7 46 0.7
receivables
Deferred tax 32 0.5 41 0.7 33 0.5
receivables
Other non-interest 13 0.2 24 0.4 23 0.4
bearing receivables
4 080 64.9 4 035 66.3 4 084 64.5
Current assets
Inventories 737 11.7 632 10.4 749 11.8
Receivables
Interest bearing 169 2.7 180 3.0 167 2.7
receivables
Non-interest 1 202 19.1 1 112 18.2 1 215 19.2
bearing
Cash and cash 99 1.6 129 2.1 112 1.8
equivalents
2 207 35.1 2 053 33.7 2 243 35.5
Total assets 6 287 100.0 6 088 100.0 6 327 100.0
SHAREHOLDERS
EQUITY AND
LIABILITIES
Shareholders
equity
Equity attributable 2 142 34.1 2 308 37.9 2 271 35.9
to shareholders of
parent company
Minority interest 58 0.9 30 0,5 45 0.7
Total equity 2 200 35.0 2 338 38.4 2 316 36.6
Non-current
liabilities
Deferred tax 329 5.2 368 6.0 336 5.3
liabilities
Post employment 204 3.2 215 3.5 211 3.3
benefit obligations
Provisions 66 1.0 52 0.9 62 1.0
Other non-interest 48 0.8 95 1.6 60 0.9
bearing liabilities
Interest bearing 2 123 33.8 1 614 26.5 1 877 29.7
liabilities
2 770 44.0 2 344 38.5 2 546 40.2
Current liabilities
Non-interest 753 12.0 676 11.1 813 12.9
bearing liabilities
Interest bearing 564 9.0 730 12.0 652 10.3
liabilities
1 317 21.0 1 406 23.1 1 465 23.2
Total liabilities 4 087 65.0 3 750 61.6 4 011 63.4
Total shareholders 6 287 100.0 6 088 100.0 6 327 100.0
equity and
liabilities
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
EUR million 1-6/06 1-6/05 1-12/05 4-6/06
Cash flow from
Operating Activities
Result for the period -100 -45 -80 -103
Adjustments to the 263 267 480 136
result, total
Change in working -57 -9 -82 8
capital
Cash flow arising from 106 213 318 41
Operations
Finance costs, net -51 -78 -136 -21
Income taxes paid -15 -23 -46 -10
Net cash flow arising 40 112 136 10
from Operating
Activities
Investments in -204 -203 -452 -101
intangible and
tangible assets
Asset sales and other 12 314 312 10
investing cash flow
Net cash flow arising -192 111 -140 -91
from
Investing Activities
Minoritys share in 23 0 12 4
share issue
Changes in loans and 157 -298 -100 67
in
other financial items
Dividends paid -39 -39 -39 0
Net cash flow arising 141 -337 -127 71
from Financial
Activities
Changes in Cash and -11 -114 -131 -10
Cash Equivalents
Cash and Cash 112 242 242 110
Equivalents at
beginning of period
Translation -2 1 1 -1
adjustments
Changes in Cash and -11 -114 -131 -10
Cash Equivalents
Cash and Cash 99 129 112 99
Equivalents at end of
period
STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
EUR million Share Share Translat Fair Retained Minori Total
capitalpremium ion value earnings ty
fund differen and intere
ces other st
reserve
s
Shareholders 558 667 6 2 1 160 37 2 430
equity Jan 1,
2005, IFRS
Translation 0
differences
Net expenses -2 -2
recognised
directly in
equity
Change in 7 7
minority
interest during
the period
Result for the -81 1 -80
period
Total recognised -2 -81 8 -75
income for the
period
Dividends paid -39 -39
Shareholders 558 667 6 0 1 040 45 2 316
equity Dec 31,
2005, IFRS
Translation -8 -8
differences
Net expenses 18 18
recognised
directly in
equity
Change in 13 13
minority
interest during
the period
Result for the -100 0 -100
period
Total recognised -8 18 -100 13 -77
income for the
period
Dividends paid -39 -39
Shareholders 558 667 -2 18 901 58 2 200
equity June 30,
2006, IFRS
KEY RATIOS
1- 1- 1- 4-
6/2006 6/2005 12/2005 6/2006
Sales, EUR million 2 819 2 603 5 241 1 378
Operating result, EUR -40 43 36 -75
million
excl. non-recurring 14 -27 4 -21
items
Result before taxes, EUR -95 -66 -114 -111
million
excl. non-recurring -41 -132 -142 -57
items
Result for the period, -100 -45 -80 -103
EUR million
Earnings per share, EUR -0.30 -0.14 -0.25 -0.31
excl. non-recurring -0.15 -0.35 -0.35 -0.16
items EUR
from continuing -0.30 -0.14 -0.25 -0.31
operations EUR
from discontinued 0.00 0.00 0.00 0.00
operations EUR
Return on equity, % -8.9 -3.7 -3.4 -18.3
excl. non-recurring -4.3 -9.6 -4.8 -9.1
items, %
Return on capital -1.1 2.2 1.2 -5.6
employed, %
excl. non-recurring 1.1 -0.7 0.5 -1.2
items, %
Equity ratio, % 35.0 38.4 36.6 35.0
Gearing ratio, % 108 85 95 108
Shareholders equity per 6.53 7.03 6.92 6.53
share, EUR
Interest-bearing net 2 381 1 993 2 205 2 381
liabilities,
EUR million
Gross capital 204 203 452 101
expenditure,
EUR million
Personnel at the end of 15 277 15 964 15 154 15 277
the period
SECURITIES AND GUARANTEES
EUR million 6/06 6/05 12/05
For own loans 101 139 108
For associated 1 1 1
companies
For affiliated 5 5 5
companies
For others 10 11 11
Total 117 156 125
OPEN DERIVATIVE 6/06 6/05 12/05
CONTRACTS
EUR million
Interest rate 3 302 10 971 7 416
derivatives
Currency derivatives 3 577 4 097 5 365
Other derivatives 116 23 54
Total 6 995 15 091 12 835
The fair value of open derivative contracts calculated at market
value at the end of the review period was EUR 12.0 million (EUR -37.3
million Dec 31, 2005 and EUR -41.8 million June 30, 2005).
Also include other closed contracts to a total amount of EUR 3 134.7
million (EUR 8 164.8 million Dec 31, 2005 and EUR 6 268.9 million
June 30, 2005).
QUARTERLY INFORMATION
SALES BY SEGMENTS I-II I-II II I 06 IV III II 2005
EUR million 06 05 06 05 05 05
Consumer Packaging 494 437 237 257 231 196 199 864
Publishing 441 385 216 225 230 181 177 796
Commercial 774 731 380 394 376 381 368 1488
Printing
Office Papers 357 363 174 183 167 174 187 704
Map Merchant Group 719 692 354 365 357 341 351 1390
Internal sales and 34 -5 17 8 -4 -23 -1
other operations 17
GROUP TOTAL 2819 2603 1378 1441 1369 1269 1259 5241
OPERATING RESULT I-II I-II II I 06 IV III II 2005
BY SEGMENTS, EUR 06 05 06 05 05 05
million
Consumer Packaging 26 11 2 24 16 14 -16 41
Publishing 13 -13 2 11 13 14 -21 14
Commercial -53 -21 -51 -2 -41 0 -17 -62
Printing
Office Papers -13 -5 -17 4 3 -3 -10 -5
Map Merchant Group 14 13 7 7 0 5 7 18
Other operations -27 58 -18 -9 -18 -10 -15 30
Operating result -40 43 -75 35 -27 20 -72 36
% of sales -1.4 1.7 -5.4 2.4 - 1.6 -5.7 0.7
2.0
Share of result in -1 -3 0 -1 2 0 -4 -2
associated
companies
Net exchange gains 5 -26 -3 8 -7 0 -15 -33
and losses
Other financial -59 -80 -33 -26 -17 -19 -52 -115
income and
expenses, net
Result on -95 -66 -111 16 -49 1 -143 -114
continuing
operations before
tax
Income tax -5 21 8 -13 11 2 21 34
Result on -100 -45 -103 3 -38 3 -122 -80
continuing
operations
Result on 0 0 0 0 0 0 0 0
discontinued
operations
Result for the -100 -45 -103 3 -38 3 -122 -80
period
Minority interest 0 0 1 -1 2 -1 1 -1
Profit/loss -100 -45 -102 2 -36 2 -121 -81
attributable to
shareholders of
parent company
Earning per share - - - 0.01 - 0.01 - -
adjusted for share 0.30 0.14 0.31 0.1 0.37 0.26
issue, EUR 3
NON-RECURRING I-II I-II II I IV III II 2005
ITEMS 06 05 06 06 05 05 05
Consumer Packaging 0 0 0 0 0 0 0 0
Publishing 0 -2 0 0 0 0 -2 -2
Commercial -41 0 -41 0 -29 0 -1 -29
Printing
Office Papers -10 -9 -10 0 0 0 -12 -9
Map Merchant Group 0 0 0 0 -4 0 0 -4
Other operations -3 81 -3 0 -5 0 0 76
Non-recurring -54 70 -54 0 -38 0 -15 32
items in
operations, total
Non-recurring 0 -4 0 0 0 -4 -4
financial items 0
Non-recurring -54 66 -54 0 -38 0 -19 28
items, total
Operating result 14 -27 -21 35 11 20 -57 4
excl. non-
recurring items
% of sales 0.5 -1.0 -1.5 2.4 0.8 1.6 - 0.1
4.5
Result before -41 -132 -57 16 -11 1 - -142
taxes, result 124
excl. non-
recurring items
% of sales -1.5 -5.1 -4.1 1.1 -0.8 0.1 - -2.7
9.8
Earnings per - - - 0.0 - 0.0 - -
share, excl. non- 0.15 0.35 0.16 1 0.01 1 0.3 0.35
recurring items 2
Return on equity, -4.3 -9.6 -9.1 0.5 -0.5 0.4 - -4.8
excl. non- 17.
recurring items 6
Return on capital 1.1 -0.7 -1.2 3.4 1.4 2.3 - 0.5
employed, excl. 0.3
non-recurring
items
RETURN ON CAPITAL I-II I-II II 06 I 06 IV 05 III 05 II 05
EMPLOYED, % 06 05 2005
Consumer 6.1 2.8 1.3 10.9 7.8 6.7 -6.9 4.8
Packaging
Publishing 2.5 -2.2 0.9 4.1 4.8 5.6 -7.7 1.3
Commercial -8.6 -3.2 -16.2 -0.5 -13.7 0.0 -5.5 -4.9
Printing
Office Papers -3.4 -1.3 -9.0 2.2 1.6 -1.1 -5.1 -0.5
Map Merchant 8.5 8.8 8.2 8.7 2.1 4.5 9.3 6.0
Group
GROUP TOTAL -1.1 2.2 -5.6 3.4 -1.8 2.3 -5.7 1.2
CAPITAL EMPLOYED 06/06 03/06 12/05 9/05 6/05 3/05 12/04
EUR million
Consumer 907 917 878 857 835 894 943
Packaging
Publishing 1094 1124 1094 1077 1056 1121 1132
Commercial 1243 1273 1178 1204 1225 1249 1313
Printing
Office Papers 746 754 762 764 780 805 818
Map Merchant 318 323 324 315 308 306 301
Group
Other assets 578 514 610 506 479 476 428
GROUP TOTAL 4886 4904 4846 4723 4683 4851 4935
Segments capital employed includes segments assets (= goodwill,
other intangible assets, tangible assets, biological assets,
investments in associated companies, inventories and accounts
receivables, prepayment and accrued income (excluding interest and
tax items) ) deducted by segments liabilities (= accounts payable,
advances received and accruals and deferred income (excluding
interest and tax items)).
PERSONNEL I-II I-II I-IV
Average 2006 2005 2005
Consumer Packaging 2 629 2 677 2 667
Publishing 1 468 1 483 1 486
Commercial 4 620 4 860 4 816
Printing
Office Papers 1 847 1 969 1 948
Map Merchant Group 2 506 2 521 2 515
Other operations 2 137 2 150 2 146
GROUP TOTAL 15 207 15 660 15 578
DELIVERIES
1000 tons I-II I-II II 06 I 06 IV 05 III II 05 2005
06 05 05
Consumer Packaging 588 512 284 304 268 226 231 1006
Publishing 624 563 307 318 326 257 256 1146
Commercial Printing 978 917 481 497 469 480 464 1866
Office Papers 517 538 251 266 242 254 279 1034
Paper businesses 2120 2018 1040 1080 1037 991 999 4046
total
Map Merchant Group 717 675 354 363 347 337 343 1359
PRODUCTION
1000 tons I-II I-II II 06 I 06 IV 05 III II 05 2005
06 05 05
Consumer Packaging 569 421 270 299 272 292 128 985
Publishing 577 463 270 307 315 294 155 1072
Commercial Printing 1003 922 494 509 476 482 452 1880
Office Papers 516 516 252 264 258 260 268 1034
Paper mills total 2096 1901 1016 1079 1048 1036 875 3985
Metsä-Botnias pulp 485 415 234 251 252 234 108 901
1)
M-reals pulp 862 733 422 440 421 379 350 1533
1) Equals to M-reals ownership in Metsä-Botnia (39% as from II 05,
47% until I 05).
M-REAL CORPORATION
Hannu Anttila
President and CEO
