M-REAL?S THIRD-QUARTER RESULT BEFORE TAXES IMPROVED
M-real Corporation Stock Exchange Bulletin on 25 October 2006 at 1:00
pm.
M-REALS THIRD-QUARTER RESULT BEFORE TAXES IMPROVED
M-real's result before taxes, excluding non-recurring items, improved
clearly in the third quarter, nevertheless showing a loss of EUR 20
million (-57 in the previous quarter). The operating result excluding
non-recurring items amounted to EUR 17 million (-21).
The operating result improved as business returned to normal
following the items that burdened the previous quarter and due to a
moderate seasonal increase in delivery volumes. The previous
quarter's operating result was weakened by costs of EUR 20 million
arising from maintenance and investment shutdowns, as well as the two-
day strike of paper workers at the Finnish mills.
Profitability was weakened by the EUR 2 million adjustment in the
selling price of the Pont Sainte Maxence mill, which was booked as a
non-recurring item in addition to the sales loss of EUR 35 million
booked in the previous quarter.
KEY FIGURES 7-9/06 4-6/06 1-3/06 1- 1- 1-12/05
9/06 9/05
Sales, EUR million 1,367 1,378 1,441 4,186 3,872 5,241
Operating result, EUR 15 -75 35 -25 63 36
million
excluding non- 17 -21 35 31 -7 4
recurring items, EUR
million
Result before taxes, EUR -22 -111 16 -117 -65 -114
million
excluding non- -20 -57 16 -61 -131 -142
recurring items, EUR
million
Result for the period, -33 -103 3 -133 -42 -80
EUR million
Earnings per share, EUR -0.10 -0.31 0.01 -0.40 -0.13 -0.25
Return on equity, % -6.1 -18.3 0.5 -7.9 -2.3 -3.4
excluding non- -5.8 -9.1 0.5 -4.7 -6.2 -4.8
recurring items, %
Return on capital 1.8 -5.6 3.4 -0.2 2.3 1.2
employed, %
excluding non- 2.0 -1.2 3.4 1.4 0.2 0.5
recurring items, %
Equity ratio at end of 34.3 35.0 36.2 34.3 37.4 36.6
period, %
Gearing ratio at end of 111 108 100 111 87 95
period, %
Interest-bearing net 2 402 2 381 2 296 2 402 2 040 2 205
liabilities at end of
period, EUR million
Gross investments, EUR 101 101 103 305 308 452
million
Paperboard deliveries, 285 284 304 873 738 1 006
1,000 tonnes
Paper deliveries, 1,000 1 031 1 040 1 080 3151 3009 4 046
tonnes
Personnel at end of 14 509 15 277 15 046 14 15 15 154
period 509 412
Mikko Helander, appointed CEO on 18 October 2006, comments on M-
real's situation:
While our result improved in the third quarter, it still remained
negative. Comparable delivery volumes increased slightly from the
second quarter, but we failed to implement our targeted price
increases except for office papers and the coated fine paper market
in the UK. Production input costs have remained high and the need for
price increases in paper and paperboard products is very high.
On 18 October 2006 we announced an extensive profit improvement
programme as a first step in our strategic review. The plan, which
includes possible capacity closures, a new cost savings programme,
potential divestments and an impairment charge, will take effect
immediately with planned completion by the end of 2007. The profit
improvement programme is being undertaken to cut capacity and costs
and to improve the company's competitiveness on the market. We are
also launching a working capital reduction programme to improve our
cash flow.
Fourth-quarter result before taxes and excluding non-recurring
items is not expected to be materially below third quarter's level.
The full-year result before taxes and excluding non-recurring items
will be negative," says Helander.
M-REAL CORPORATION
For additional information, please contact Mikko Helander, CEO, tel.
+ 358 10 469 4300 or Seppo Parvi, Executive Vice President and CFO,
tel. +358 10 469 4321.
M-REAL CORPORATION
INTERIM REPORT 1 JANUARY TO 30 SEPTEMBER 2006
MARKET SITUATION
Economic growth in Europe is expected to continue its relatively good
pace in the near future. A slight decrease is anticipated in 2007
compared with this year. Economic growth is also expected to decrease
in North America and somewhat in Asia. Energy prices and the exchange
rate of the US dollar remain the most significant uncertainty
factors.
In Europe, advertising spending is growing steadily and moderate
growth is expected to continue also next year. Industrial production
is this year generally expected to outperform last year's growth but
the rate of growth is expected to slacken next year.
European deliveries by Western European coated and uncoated fine
paper producers have remained at somewhat higher levels compared with
last year, while deliveries of coated magazine papers have continued
at the previous year's level. The deliveries of all the above-
mentioned paper grades to Eastern Europe have grown significantly
compared with the corresponding period last year. No significant
change has taken place in the average paper market prices in Europe.
The price of office paper is the only one rising slightly.
In folding boxboard, deliveries to Europe by Western European
producers increased slightly compared with last year. Demand has
developed very favourably in Eastern Europe. Comparability with the
previous year is affected by the labour dispute in the Finnish paper
industry. The market price of folding boxboard in Europe has remained
unchanged.
JULY-SEPTEMBER COMPARED WITH THE PREVIOUS QUARTER
The sales of M-real Group for the third quarter amounted to EUR 1,367
million (4-6/2006: 1,378). Comparable turnover rose by 0.6 per cent.
The operating result excluding non-recurring items totalled EUR 17
million (-21). Operating result including non-recurring items
totalled EUR 15 million (-75). The operating result for July-
September includes EUR 2 million of non-recurring costs arising from
an accrual adjustment in accounts payable of Pont Sainte Maxence
mill, which was sold in June. 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 improved as business returned to normal
following the items that affected the previous quarter and due to a
moderate seasonal increase in delivery volumes. The previous
quarter's operating result was weakened by a cost of about EUR 20
million arising from maintenance and investment shutdowns, and the
two-day strike of paper workers at the Finnish mills.
The operating result for the third quarter continued to be weakened
by the relatively weak US dollar and high 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 2 million. In terms of electricity
derivatives, M-real has adopted hedge accounting according to IFRS as
of the beginning of the second quarter of 2006. A valuation gain
totalling EUR 5 million has been booked in shareholders equity for
the hedge accounting at the end of September.
Deliveries of paperboard to customers totalled 285,000 tonnes
(284,000). Production was curtailed by 10,000 tonnes in line with
demand (19,000).
The deliveries of paper products totalled 1,031,000 tonnes
(1,040,000). Comparable deliveries were up 17,000 tonnes. Production
curtailments were 52,000 tonnes (63,000).
Profitability improved in all business areas except for the Map
Merchant Group.
The share of the results in associated companies amounted to EUR 1
million (0).
Financial income and expenses totalled EUR -38 million (-36). Foreign
exchange gains and losses from accounts receivable, accounts payable,
financial income and expenses and the valuation of currency hedging
were EUR -1 million (-3). Net interest and other financial expenses
amounted to EUR -37 million (-33). Other financial expenses do not
include a valuation gain on interest rate derivatives (3). A
valuation gain totalling EUR 10 million has been booked in
shareholders equity for hedge accounting at the end of September.
At the end of September, the US dollar exchange rate against the euro
was 0.4 per cent higher and the rate of the British pound against the
euro 2.1 per cent higher than at the end of June. However, on average
the dollar weakened by 1.4 per cent and the pound strengthened by 1.2
per cent compared with the previous quarter.
The result before taxes excluding non-recurring items amounted to EUR
-20 million (-57) and including non-recurring items to -22 million (-
111).
The result for the third quarter was EUR -33 million (-103). Income
taxes, including the change in deferred tax liabilities, amounted to
EUR -11 million (8).
Earnings per share were EUR -0.10 (-0.31); excluding non-recurring
items EUR -0.08 (-0.16).
The return on equity was -6.1 per cent (-18.3); excluding non-
recurring items -5.8 per cent (-9.1). The return on capital employed
was 1.8 per cent (-5.6); excluding non-recurring items 2.0 per cent (-
1.2).
JANUARY-SEPTEMBER COMPARED WITH THE CORRESPONDING PERIOD LAST YEAR
Sales were EUR 4,186 million (1-9/2005: 3,872). Comparable sales rose
by 8.8 per cent.
The operating result was EUR 31 million (-7) excluding non-recurring
items and EUR -25 million (63) including non-recurring items. The
most significant non-recurring items this year concern the loss (-37)
arising from the sale of the Pont Sainte Maxence paper mill in June
and the efficiency improvement programmes at the Alizay, Stockstadt
and Hallein mills (-19); last year's most significant non-recurring
item concerned the sales profit from an 8 per cent interest in Metsä-
Botnia (81).
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 year's delivery volumes especially improved the operating result
compared with January-September last year. The result for the report
period was also improved by the rise in selling prices in the
Publishing and Office Papers business areas. The result was weakened
by the increased energy costs in particular.
Paperboard deliveries to customers totalled 873,000 tonnes (738,000
tonnes). Production was curtailed to correspond to demand by 41,000
tonnes (24,000).
The total delivery volume of paper products was 3,151,000 tonnes
(3,009,000). Comparable deliveries were up 168,000 tonnes. Production
curtailments were 151,000 tonnes (161,000).
With the exception of the Map Merchant Group, profitability excluding
non-recurring items improved in all business areas.
The operating result for January-September includes 39 per cent of
Metsä-Botnia's operating result. Last year the operating result
included 47 per cent of Metsä-Botnias operating result during
January-March and 39 per cent during April-September.
The share of the results in associated companies amounted to EUR 0
million (-3).
Financial income and expenses totalled EUR -92 million (-125).
Foreign exchange gains and losses from accounts receivable, accounts
payable, financial income and expenses and the valuation of currency
hedging were EUR 4 million (-26). Net interest and other financial
expenses amounted to EUR -96 million (-99). Other financial expenses
include EUR 6 million of valuation gains on interest rate hedges (-
6).
At the end of September the exchange rate of the US dollar against
the euro was 5.1 per cent lower and the rate of the British pound
against the euro 0.6 per cent lower than at the end of September
2005. However, on average the dollar strengthened by 1.5 per cent and
the pound by 0.1 per cent compared with January-September in 2005.
The result before taxes was EUR -117 million (-65). The result before
taxes excluding non-recurring items totalled EUR -61 million (-131).
The result for the report period was EUR -133 million (-42). Income
taxes, including the change in deferred tax liabilities, were EUR -16
million (23).
Earnings per share were EUR -0.40 (-0.13). Earnings per share
excluding non-recurring items were EUR -0.23 (-0.34).
The return on equity was -7.9 per cent (-2.3); excluding non-
recurring items -4.7 per cent (-6.2). Return on capital employed was
-0.2 per cent (2.3); excluding non-recurring items 1.4 per cent
(0.2).
PERSONNEL
The number of personnel at the end of September was 14,509 employees
(15,154 employees at 31 December 2005), of whom 4,314 worked in
Finland (4,488). The effect of acquisitions and divestments on the
number of personnel was -169. M-real employed an average of 15,085
people during January-September (1-9/2005: 15,695). The Group's
personnel includes 39 per cent of Metsä-Botnias personnel.
INVESTMENTS
Gross investments in January-September totalled EUR 305 million (1-
9/2005: 308), which includes a EUR 161 million share of Metsä-
Botnias investments (67). This share includes EUR 28 million paid
for the shares in Metsä-Botnia's subsidiaries and associated
companies in Uruguay. Total investments in fixed assets amounted to
EUR 277 million.
M-real's share of Metsä-Botnia's investments is based on a 39 per
cent share of ownership. Last year M-reals share was 47 per cent in
January-March and 39 per cent in April-September.
On 29 September 2006, Kyro Corporation and M-real Corporation agreed
on an arrangement which gives M-real the option to purchase the
Kyröskoski natural gas powerplant from Kyro. The plant is owned by
Kyro Power Oy, a subsidiary of Kyro Corporation. According to the
agreement, M-real will be able to exercise its option to purchase in
the summer of 2007 when the current energy supply agreement between M-
real and Kyro expires.
FINANCING
At the end of September, the equity ratio was 34.3 per cent (12/2005:
36.6) and the gearing ratio 111 per cent (12/2005: 95).
Interest-bearing net liabilities amounted to EUR 2,402 million at the
end of September (12/2005: 2,205). Seven per cent of the Group's long-
term loans were denominated in foreign currencies. Of these loans, 76
per cent was subject to variable interest rates and the rest to fixed
interest rates. The average interest rate on the loans was 5.1 per
cent and the average maturity of long-term loans was 4.0 years at the
end of September. The interest rate maturity was 8 months at the end
of September. During the report period the interest rate maturity has
varied between 8 and 16 months.
Third-quarter cash flow from business operations before investments
and financing was EUR 82 million (4-6/2006: 41). Working capital was
up EUR 74 million from the turn of the year.
At the end of the report period, an average of 7 months of the net
foreign currency exposure was hedged. The degree of hedging during
the period has varied between 7 and 9 months; 95 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 at the end of September was EUR 1,501
million, of which EUR 1,405 million consisted of binding long-term
credit commitments and EUR 96 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 approximately EUR
600 million.
On 7 July 2006, Moodys Investors Services downgraded the rating on M-
real's long-term credits from Ba3 to B2. The rating outlook remained
negative.
On 4 August 2006, Standard & Poors Ratings Services downgraded the
rating on M-reals long-term credits from BB- to B+. The rating
outlook remained negative.
SHARES
The highest price of M-reals B share on the Helsinki Stock Exchange
in January-September was EUR 5.62, the lowest EUR 3.26 and the
average price EUR 4.36. At the end of September the price of the
Series B share was EUR 3.99. The average price in 2005 was EUR 4.36.
The last quotation of the share price at the end of 2005 was EUR
4.22.
The trading volume of the Series B share in January-September was EUR
1,702 million, or 132 per cent of the shares outstanding. The market
value of the Series A and B shares at the end of September totalled
EUR 1,315 million.
At the end of September, Metsäliitto Cooperative owned 38.6 per cent
of M-real Corporation's shares and the voting rights conferred by
these shares was 60.5 per cent. International investors owned 32.9
per cent of the shares. Hermes Focus Asset Management Europe Ltd
announced that as of 23 August 2006, its holding in M-real had
increased to 5.10 per cent of the share capital and 2.25 per cent of
voting rights in the company.
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 AND RELATED MEASURES
On 13 March 2006, M-reals Board of Directors 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. On 18 October 2006
M-real announced an extensive profit improvement programme as a first
step in its strategic review.
The programme, which includes possible capacity closures, a new EUR
100 million cost savings programme, potential divestments and an
impairment charge of approximately EUR 200 million, will take effect
immediately with planned completion by the end of 2007. The intent of
the plan is to cut capacity and costs and improve the company's
competitiveness on the market. M-real is also launching a programme
to reduce working capital by EUR 100 million.
M-real's Board of Directors appointed Mikko Helander as the new CEO
for M-real as of 18 October 2006. His predecessor, Hannu Anttila, has
been appointed Executive Vice President, Strategy, for Metsäliitto
Group.
METSÄ-BOTNIAS URUGUAY PULP MILL PROJECT
Work on Metsä Botnia's pulp mill investment project in Uruguay
has reached the machinery installation stage. At the end of
September approximately 3,600 people were employed in the
project. The mill, which will produce one million tonnes of
eucalyptus pulp, will start up in the third quarter of 2007.
The estimated cost of the project is USD 1.1 billion.
EVENTS AFTER THE REPORT PERIOD
On 13 October 2006 M-real Corporation sold its entire 52.78 per cent
holding in the Tampere-based hydroelectric power station company
Alakoski Oy to H. Liljeroos Oy and Koskienergia Oy.
NEAR TERM OUTLOOK
The demand for M-real's main products was relatively good in the
third quarter. Comparable delivery volumes increased slightly on the
previous quarter. Demand for the main products is expected to
continue at a good level.
The price of uncoated fine paper was raised in Europe at the end of
the third quarter; as a result, the average selling price is also
expected to rise somewhat in the fourth quarter. M-real's efforts
towards price increases in coated papers have failed to reach the
intended outcome. Compared with the third quarter, the average price
of coated fine paper is expected to rise slightly in Europe due to a
price increase carried through in the United Kingdom. Because of
heavy cost pressure, there is a clear need to raise also the market
prices for coated magazine paper and folding boxboard; however, the
average market prices will probably remain unchanged during the rest
of the year.
The profit improvement programme announced on 18 October 2006 was
initiated immediately. An impairment of approximately EUR 200 million
related to the profit improvement programme will be booked by the end
of this year. Fourth-quarter result before taxes and excluding non-
recurring items is not expected to be materially below third
quarter's level. The result before taxes and excluding non-recurring
items for the entire year will be negative.
Espoo, 25 October 2006
THE BOARD OF DIRECTORS
BUSINESS AREAS AND MARKET DEVELOPMENT
Consumer Packaging
III II I 06 IV III I- I- III
06 06 05 05 III III 06/II
06 05 06
change
Sales 236 237 257 231 196 730 633 -0.4%
EBITDA 38 24 44 37 33 106 88 58.3%
EBITDA, % 16.1 10.1 17.1 16.0 16.8 14. 13.
5 9
Operating result 17 2 24 16 14 43 25
Operating result, % 7.2 0.8 9.3 6.9 7.1 5.9 3.9
Non-recurring items 0 0 0 0 0 0 0
Return on capital 7.5 1.3 10.9 7.8 6.7 6.6 3.9
employed, %
Return on capital 7.5 1.3 10.9 7.8 6.7 6.6 3.9
employed excluding
non-recurring items,
%
Deliveries, 1,000 285 284 304 268 226 873 738 0.4%
tonnes
Paperboard 273 270 299 272 292 842 713 1.1%
production, 1,000
tonnes
EBITDA = Earnings before interest, taxation, depreciation and
amortization
The third quarter compared with the previous quarter
The Consumer Packaging business area reported an operating result of
EUR 17 million for the third quarter (4-6/2006: 2). The result does
not include non-recurring items. The previous quarter's operating
result was mainly weakened by the investment shutdown at the Simpele
mill and the strike of Finnish paper workers.
Deliveries by Western European folding boxboard producers were up one
per cent compared with the previous quarter. M-reals deliveries of
folding boxboard increased by a corresponding amount. The selling
price of folding boxboard denominated in euros was on par with the
previous quarter.
The volume of linerboard deliveries decreased from the second quarter
due to a shutdown related to the linerboard machine former
investment. The average selling price remained unchanged.
January-September compared with the corresponding period in 2005
The business areas operating result for January-September totalled
EUR 43 million (1-9/2005: 25). The previous year was weakened by the
7-week labour dispute in the Finnish paper industry and the resulting
decrease in production and delivery volumes. The profitability of the
current year is mainly weakened by the rising energy costs.
Deliveries by Western European folding boxboard producers increased
by 7 per cent compared with the corresponding period last year. M-
reals folding boxboard deliveries were up 20 per cent. In 2005,
delivery volumes remained below normal levels due to the labour
dispute in the Finnish paper industry. The average selling price of
folding boxboard remained unchanged compared with the previous year.
The volume of linerboard deliveries was also clearly higher than last
year. The average price was at the level of the corresponding period
last year.
Publishing
III II I IV III I- I- III
06 06 06 05 05 III III 06/II 06
06 05 change
Sales 226 216 225 230 181 667 566 4.6%
EBITDA 36 23 32 34 35 91 64 56.5%
EBITDA, % 15.9 10.6 14. 14. 19. 13.6 11.3
2 8 3
Operating result 14 2 11 13 14 27 1
Operating result, 6.2 0.9 4.9 5.7 7.7 4.0 0.2
%
Non-recurring items 0 0 0 0 0 0 -2
Return on capital 5.3 0.9 4.1 4.8 5.6 3.4 0.3
employed, %
Return on capital 5.3 0.9 4.1 4.8 5.6 3.4 0.5
employed excluding
non-recurring items,
%
Deliveries, 1,000 320 307 318 326 257 944 820 4.2%
tonnes
Production, 1,000 307 270 307 315 294 884 757 13.7%
tonnes
EBITDA = Earnings before interest, taxation, depreciation and
amortization
The third quarter compared with the previous quarter
The Publishing business area reported an operating result of EUR 14
million for the third quarter (4-6/2006: 2). The operating result
does not include non-recurring items. The operating result was
improved by higher delivery volumes, change in inventories and lower
fixed costs. Prices were at the previous quarter's level.
Deliveries by Western European coated magazine paper producers
increased by 4 per cent. The Publishing business area's delivery
volume was up 4 per cent.
January-September compared with the corresponding period in 2005
The business areas operating result for January-September totalled
EUR 27 million (1). 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 selling
price and the cost savings measures implemented.
Deliveries by Western European coated magazine paper producers were
on par compared with the corresponding period last year. The
Publishing business area's delivery volume was up 15 per cent. The
corresponding period last year was affected by the labour dispute in
the Finnish paper industry.
Commercial Printing
III II I 06 IV III I- I- III
06 06 05 05 III III 06/II
06 05 06
change
Sales 361 380 394 376 381 1 1 -5.0%
135 112
EBITDA 14 -26 24 3 25 12 55
EBITDA, % 3.9 -6.8 6.1 0.8 6.6 1.1 4.9
Operating result -10 -51 -2 -41 0 -63 -21
Operating result, % -2.8 - -0.5 - 0.0 -5.6 -1.9
13.4 10.9
Non-recurring items -2 -41 0 -29 0 -43 0
Return on capital -3.2 - -0.5 - 0.0 -7.0 -2.1
employed, % 16.2 13.7
Return on capital -2.6 -3.2 -0.5 -3.9 0.0 -0.6 -2.1
employed excluding
non-recurring items,
%
Deliveries, 1,000 453 481 497 469 480 1 1 -5.8%
tonnes 431 397
Production, 1,000 456 494 509 476 482 1 1 -7.7%
tonnes 459 404
EBITDA = Earnings before interest, taxation, depreciation and
amortization
Pont Sainte Maxence is included until June 30 2006.
The third quarter compared with the previous quarter
The Commercial Printing business area reported an operating result of
EUR -10 million for the third quarter (4-6/2006: -51). The third-
quarter result was weakened by a EUR 2 million adjustment on the
selling price of the Pont Sainte Maxence mill. Non-recurring cost
items of EUR 41 million (sales loss for the Pont Sainte Maxence mill
(35) and a share of the efficiency improvement programmes at the
Stockstadt and Hallein mills (6 in total)) were booked in the second
quarter.
Profitability weakened due to the decrease in delivery and production
volumes. Raw material costs (particularly the fibre and energy costs)
increased on the previous quarter. Profitability improved due to
lower fixed costs.
Deliveries by Western European coated fine paper producers increased
by 2 per cent. Commercial Printing´s total deliveries were down 6 per
cent (on comparable basis 1 per cent). The average selling price
denominated in euros was at the level of the previous quarter. The
price of speciality paper increased by slightly as a result of price
increases.
January-September compared with the corresponding period in 2005
The business areas operating result for January-September amounted
to EUR -63 million (-21). The result includes EUR 43 million non-
recurring costs. Despite the increased delivery volume and lower
fixed costs, the business area's profitability failed to improve
markedly as a result of higher fibre and energy costs. The selling
prices were at last years level.
Deliveries by Western European coated fine paper producers increased
by 5 per cent. Commercial Printing´s total delivery volume increased
by 2 per cent compared with last year (on comparable basis 4 per
cent). Deliveries increased the most in markets outside Europe,
particularly in North America.
Office Papers
III II I IV III I- I- III
06 06 06 05 05 III III 06/II 06
06 05 change
Sales 181 174 183 167 174 538 537 4.0%
EBITDA 15 -2 20 18 13 33 38
EBITDA, % 8.3 - 10. 10.8 7.5 6.1 7.1
1.1 9
Operating result -1 -17 4 3 -3 -14 -8
Operating result, % - - 2.2 1.8 -1.7 -2.6 -1.7
0.6 9.8
Non-recurring items 0 -10 0 0 0 -10 -9
Return on capital - - 2.2 1.6 -1.1 -2.3 -1.2
employed, % 0.2 9.0
Return on capital - - 2.2 1.6 -1.1 -0.6 0.3
employed excluding 0.2 3.7
non-recurring items,
%
Deliveries, 1,000 258 251 266 242 254 775 792 2.8%
tonnes
Production, 1,000 259 252 264 258 260 775 776 2.8%
tonnes
EBITDA = Earnings before interest, taxation, depreciation and
amortization
The third quarter compared with the previous quarter
The Office Papers business area reported an operating result of EUR -
1 million for the third quarter (4-6/2006: -17). In the previous
quarter, the result was burdened by a non-recurring cost of
approximately EUR 10 million, which was 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.
Deliveries by Western European uncoated fine paper producers
decreased by 5 per cent. The delivery volume of the Office Papers
business area's products was up 3 per cent.
January-September compared with the corresponding period in 2005
The business areas operating result for January-September totalled
EUR -14 million (-8). The result includes a EUR 10 million cost
reserve for the efficiency improvement programme at Alizay and,
correspondingly in the comparison period, a EUR 9 million share of
the costs related to the efficiency improvement programme at the
Swedish mills. The result was improved by a rise in the average
selling price. The result was weakened by an increase in energy
costs.
Total deliveries by Western European uncoated fine paper producers
were up by 3 per cent. The delivery volume of the Office Papers
business area decreased by 2 per cent.
Map Merchant Group
III II I IV III I- I-III III
06 06 06 05 05 III 05 06/II
06 06
change
Sales 342 354 365 357 341 1 1 033 -3.4%
061
EBITDA 5 8 9 2 6 22 23
EBITDA, % 1.5 2.3 2.5 0.6 1.8 2.1 2.2
Operating result 3 7 7 0 5 17 18
Operating result, % 0.9 2.0 1.9 0.0 1.5 1.6 1.7
Non-recurring items 0 0 0 -4 0 0 0
Return on capital 4.9 8.2 8.7 2.1 4.5 7.3 7.3
employed, %
Return on capital 4.9 8.2 8.7 7.1 4.5 7.3 7.3
employed excluding
non-recurring items,
%
Deliveries, 1,000 347 354 363 347 337 1 1 012 -2.0%
tonnes 064
EBITDA = Earnings before interest, taxation, depreciation and
amortization
The third quarter compared with the previous quarter
The Map Merchant Group reported an operating result of EUR 3 million
for the third quarter (4-6/ (4-6( 2006: 7). The result was weakened
by a reduced delivery volume attributable to the holiday season.
January-September compared with the corresponding period in 2005
The operating result of the Map Merchant Group for January-September
was at the level of the corresponding period last year, amounting to
EUR 17 million (18).
M-REAL GROUP (all figures unaudited)
CONDENSED CONSOLIDATED INCOME STATEMENT
EUR million 1- 1- Change 1-12/05 7-9/06
9/2006 9/2005
Continuing operations:
Sales 4 186 3 872 314 5 241 1 367
Other operating income 98 174 -76 206 29
Operating expenses -4 034 -3 698 -336 -5 008 -1 291
Depreciation and -275 -285 10 -403 -90
impairment losses
Operating result -25 63 -88 36 15
% of sales -0.6 1.6 0.7 1.1
Share of results in 0 -3 3 -2 1
associated companies
Net exchange gains and 4 -26 30 -33 -1
losses
Other financial income -96 -99 3 -115 -37
and expenses, net
Result before taxes -117 -65 -52 -114 -22
% of sales -2.8 -1.7 -2.2 -1.6
Income taxes -16 23 -39 34 -11
Result for the period -133 -42 -91 -80 -33
% of sales -3.2 -1.1 -1.5 -2.4
Attributable to:
Shareholders of parent -131 -43 -88 -81 -31
company
Minority interest -2 1 -3 1 -2
Earnings per share for -0.40 -0.13 -0.27 -0.25 -0.10
result attributable to
the shareholders of
parent company, euros
CONDENSED CONSOLIDATED BALANCE SHEET
30.9.20 % 30.9.20 % 31.12.20 %
06 05 05
EUR million
ASSETS
Non-current assets
Intangible assets 658 10.4 654 10.5 654 10.3
Tangible assets 3 185 50.3 3 166 50.6 3 178 50.2
Biological assets 37 0.6 33 0.5 36 0.6
Shares in 114 1.8 113 1.8 114 1.8
associated and
other companies
Interest bearing 38 0.6 43 0.7 46 0.7
receivables
Deferred tax 31 0.5 40 0.6 33 0.5
receivables
Other non-interest 14 0.2 26 0.4 23 0.4
bearing receivables
4 077 64.4 4 075 65.1 4 084 64.5
Current assets
Inventories 741 11.7 726 11.6 749 11.8
Receivables
Interest bearing 175 2.7 178 2.9 167 2.7
receivables
Non-interest 1 246 19.7 1 159 18.5 1 215 19.2
bearing
Cash and cash 96 1.5 120 1.9 112 1.8
equivalents
2 258 35.6 2 183 34.9 2 243 35.5
Total assets 6 335 100.0 6 258 100.0 6 327 100.0
SHAREHOLDERS
EQUITY AND
LIABILITIES
Shareholders
equity
Equity attributable 2 108 33.3 2 310 36.9 2 271 35.9
to shareholders of
parent company
Minority interest 60 1.0 31 0.5 45 0.7
Total equity 2 168 34.3 2 341 37.4 2 316 36.6
Non-current
liabilities
Deferred tax 331 5.2 359 5.8 336 5.3
liabilities
Post employment 205 3.2 215 3.4 211 3.3
benefit obligations
Provisions 61 1.0 56 0.9 62 1.0
Other non-interest 49 0.8 82 1.3 60 0.9
bearing liabilities
Interest bearing 1 997 31.5 1 639 26.2 1 877 29.7
liabilities
2 643 41.7 2 351 37.6 2 546 40.2
Current liabilities
Non-interest 811 12.8 823 13.1 813 12.9
bearing liabilities
Interest bearing 713 11.2 743 11.9 652 10.3
liabilities
1 524 24.0 1 566 25.0 1 465 23.2
Total liabilities 4 167 65.7 3 917 62.6 4 011 63.4
Total shareholders 6 335 100.0 6 258 100.0 6 327 100.0
equity and
liabilities
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
EUR million 1-9/06 1-9/05 1-12/05 7-9/06
Cash flow from
Operating Activities
Result for the period -133 -43 -80 -33
Adjustments to the 395 350 480 132
result, total
Change in working -74 -18 -82 -17
capital
Cash flow arising from 188 289 318 82
Operations
Finance costs, net -57 -96 -136 -6
Income taxes paid -24 -31 -46 -9
Net cash flow arising 107 162 136 67
from Operating
Activities
Investments in -305 -308 -452 -101
intangible and
tangible assets
Asset sales and other 14 320 312 2
investing cash flow
Net cash flow arising -291 12 -140 -99
from
Investing Activities
Minoritys share in 28 0 12 5
share issue
Changes in loans and 181 -258 -100 24
in other financial
items
Dividends paid -39 -39 -39 0
Net cash flow arising 170 -297 -127 29
from Financial
Activities
Changes in Cash and -14 -123 -131 -3
Cash Equivalents
Cash and Cash 112 242 242 99
Equivalents at
beginning of period
Translation -2 1 1 0
adjustments
Changes in Cash and -14 -123 -131 -3
Cash Equivalents
Cash and Cash 96 120 112 96
Equivalents at end of
period
STATEMENT OF CHANGES IN SHAREHOLDER´S EQUITY
EUR million Share Share Translat Fair Retained Minor Total
capitalpremium ion value earnings ity
fund differen and inter
ces other est
reserve
s
Shareholder´s 558 667 6 2 1 160 37 2 430
equity
January 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
Shareholder´s 558 667 6 0 1 040 45 2 316
equity
December 31,
2005, IFRS
Translation -8 -8
differences
Net expenses 15 15
recognised
directly in
equity
Change in 17 17
minority
interest during
the period
Result for the -131 -2 -133
period
Total recognised -8 15 -131 15 -109
income for the
period
Dividends paid -39 -39
Shareholder´s 558 667 -2 15 870 60 2 168
equity
September 30,
2006, IFRS
KEY RATIOS 1- 1- 1- 7-
9/2006 9/2005 12/2005 9/2006
Sales, EUR million 4 186 3 872 5 241 1 367
Operating result, EUR -25 63 36 15
million
excl. non-recurring 31 -7 4 17
items
Result before taxes, EUR -117 -65 -114 -22
million
excl. non-recurring -61 -131 -142 -20
items
Result for the period, -133 -42 -80 -33
EUR Million
Earnings per share, EUR -0.40 -0.13 -0.25 -0.10
excl. non-recurring -0.23 -0.34 -0.35 -0.08
items, EUR
From continuing -0.40 -0.34 -0.25 -0.10
operations, EUR
From discontinued 0.00 0.00 0.00 0.00
operations,EUR
Return on equity, % -7.9 -2.3 -3.4 -6.1
excl. non-recurring -4.7 -6.2 -4.8 -5.8
items, %
Return on capital -0.2 2.3 1.2 1.8
employed, %
excl. non-recurring 1.4 0.2 0.5 2.0
items, %
Equity ratio, % 34.3 37.4 36.6 34.3
Gearing ratio, % 111 87 95 111
Shareholder´s equity per 6.42 7.04 6.92 6.42
share, EUR
Interest-bearing net 2 402 2 040 2 205 2 402
liabilities,
EUR million
Gross capital 305 308 452 101
expenditure,
EUR million
Personnel at the end of 14 509 15 412 15 154 14 509
the period
SECURITIES AND GUARANTEES
EUR million
9/06 9/05 12/05
For own loans 71 138 108
For associated 1 1 1
companies
For affiliated 5 5 5
companies
For others 10 11 11
Total 87 155 125
OPEN DERIVATIVE 9/06 9/05 12/05
CONTRACTS,
EUR million
Interest rate 3 493 10 793 7 416
derivatives
Currency derivatives 3 658 3 952 5 365
Other derivatives 148 23 54
Total 7 299 14 768 12 835
The fair value of open derivative contracts calculated at market
value at the end of the review period
was +5.2 EUR million (-37.3 EUR million Dec 31, 2005 and -25.0 EUR
million September 30, 2005)
Also include other closed contracts to a total amount of 3 253.9 EUR
million ( 8 164.8
EUR million Dec 31, 2005 and 7 056.3 EUR million September 30, 2005).
QUARTERLY INFORMATION
SALES BY I-III I- III II I 06 IV III 2005
SEGMENTS 06 III 06 06 05 05
EUR million 05
Consumer 730 633 236 237 257 231 196 864
Packaging
Publishing 667 566 226 216 225 230 181 796
Commercial 1135 1112 361 380 394 376 381 1488
Printing
Office Papers 538 537 181 174 183 167 174 704
Map Merchant 1061 1033 342 354 365 357 341 1390
Group
Internal sales 55 -9 21 17 8 -4 -1
and other 17
operations
GROUP TOTAL 4186 3872 1367 1378 1441 1369 1269 5241
OPERATING RESULT BY I- I- III II I 06 IV III 2005
SEGMENTS, EUR III III 06 06 05 05
million 06 05
Consumer Packaging 43 25 17 2 24 16 14 41
Publishing 27 1 14 2 11 13 14 14
Commercial Printing -63 -21 -10 -51 -2 -41 0 -62
Office Papers -14 -8 -1 -17 4 3 -3 -5
Map Merchant Group 17 18 3 7 7 0 5 18
Other operations -35 48 -8 -18 -9 -18 -10 30
Operating result -25 63 15 -75 35 -27 20 36
% of sales -0.6 1.6 1.1 -5.4 2.4 -2.0 1.6 0.7
Share of result in -3 1 0 -1 2 0 -2
associated 0
companies
Net exchange gains 4 -26 -1 -3 8 -7 0 -33
and losses
Other financial -96 -99 -37 -33 -26 -17 -19 -115
income and
expenses, net
Result on -117 -65 -22 -111 16 -49 1 -114
continuing
operations before
tax
Income tax -16 23 -11 8 -13 11 2 34
Result on -133 -42 -33 -103 3 -38 3 -80
continuing
operations
Result on 0 0 0 0 0 0 0 0
discontinued
operations
Result for the -133 -42 -33 -103 3 -38 3 -80
period
Minority interest 2 -1 2 1 -1 2 -1 -1
Result attributable -131 -43 -31 -102 2 -36 2 -81
to shareholders of
parent company
Earning per share - - - - 0.01 - 0.01 -
adjusted for share 0.40 0.13 0.10 0.31 0.12 0.25
issue, EUR
NON-RECURRING ITEMS I-III I- III II I 06 IV 05 III 2005
06 III 06 06 05
05
Consumer Packaging 0 0 0 0 0 0 0 0
Publishing 0 -2 0 0 0 0 0 -2
Commercial Printing -43 0 -2 -41 0 -29 0 -29
Office Papers -10 -9 0 -10 0 0 0 -9
Map Merchant Group 0 0 0 0 0 -4 0 -4
Other operations -3 81 0 -3 0 -5 0 76
Non-recurring items -56 70 -2 -54 0 -38 0 32
in operations, total
Non-recurring 0 -4 0 0 0 0 -4
financial items 0
Non-recurring items, -56 66 -2 -54 0 -38 0 28
total
Operating result 31 -7 17 -21 35 11 20 4
excl.
non-recurring items
% of sales 0.7 -0.2 1.2 -1.5 2.4 0.8 1.6 0.1
Result before taxes, -61 -131 -20 -57 16 -11 1 -142
excl. non-recurring
items
% of sales -1.5 -3.4 -1.5 -4.1 1.1 -0.8 0.1 -2.7
Earnings per share, -0.23 - - - 0.01 -0.01 0.01 -0.35
excl. 0.34 0.08 0.16
non-recurring items,
EUR
Return on equity, -4.7 -6.2 -5.8 -9.1 0.5 -0.5 0.4 -4.8
excl. non-recurring
items, %
Return on capital 1.4 0.2 2.0 -1.2 3.4 1.4 2.3 0.5
employed, excl. non-
recurring items, %
RETURN ON CAPITAL I-III I-III III 06 II 06 I 06 IV 05 III 05
EMPLOYED, % 06 05 2005
Consumer 6.6 3.9 7.5 1.3 10.9 7.8 6.7 4.8
Packaging
Publishing 3.4 0.3 5.3 0.9 4.1 4.8 5.6 1.3
Commercial -7.0 -2.1 -3.2 -16.2 -0.5 -13.7 0.0 -4.9
Printing
Office Papers -2.3 -1.2 -0.2 -9.0 2.2 1.6 -1.1 -0.5
Map Merchant 7.3 7.3 4.9 8.2 8.7 2.1 4.5 6.0
Group
GROUP TOTAL -0.2 2.3 1.8 -5.6 3.4 -1.8 2.3 1.2
CAPITAL EMPLOYED 09/06 06/06 03/06 12/05 9/05 6/05 12/04
EUR million
Consumer 914 907 917 878 857 835 943
Packaging
Publishing 1091 1094 1124 1094 1077 1056 1132
Commercial 1208 1243 1273 1178 1204 1225 1313
Printing
Office Papers 742 746 754 762 764 780 818
Map Merchant 313 318 323 324 315 308 301
Group
Other assets 609 578 514 610 506 479 428
GROUP TOTAL 4877 4886 4904 4846 4723 4683 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-III I-III I-IV
Average 2006 2005 2005
Consumer Packaging 2 632 2 696 2 667
Publishing 1 470 1 500 1 486
Commercial 4 499 4 849 4 816
Printing
Office Papers 1 846 1 962 1 948
Map Merchant Group 2 494 2 516 2 515
Other operations 2 144 2 172 2 146
GROUP TOTAL 15 085 15 695 15 578
DELIVERIES
1000 tonnes I-III I-III III II 06 I 06 IV 05 III 2005
06 05 06 05
Consumer Packaging 873 738 285 284 304 268 226 1006
Publishing 944 820 320 307 318 326 257 1146
Commercial Printing 1431 1397 453 481 497 469 480 1866
Office Papers 775 792 258 251 266 242 254 1034
Paper businesses 3151 3009 1031 1040 1080 1037 991 4046
total
Map Merchant Group 1064 1012 347 354 363 347 337 1359
PRODUCTION
1000 tonnes I-III I-III III II 06 I 06 IV 05 III 2005
06 05 06 05
Consumer Packaging 842 713 273 270 299 272 292 985
Publishing 884 757 307 270 307 315 294 1072
Commercial Printing 1459 1404 456 494 509 476 482 1880
Office Papers 775 776 259 252 264 258 260 1034
Paper mills total 3119 2937 1023 1016 1079 1048 1036 3985
Metsä-Botnia pulp 728 649 243 234 251 252 234 901
1)
M-realLs pulp 1305 1112 443 422 440 421 379 1533
1) Equals to M-real´s ownership in Metsä-Botnia.
Pont Sainte Maxence is included in Commercial Printing´s figures in
all tables until June 30 2006.
M-REAL OYJ
Mikko Helander
CEO
