PRICE OF PAPER AND US DOLLAR EXCHANGE RA
M-real Corporation Stock Exchange Bulletin 6.2.2003 at 12.00 1(22)
PRICE OF PAPER AND US DOLLAR EXCHANGE RATE WEAKENED M-REAL´S
PROFITABILITY
In 2002 M-real Groups operating profit fell to EUR 324.3 million
from EUR 389.2 million in the previous year. The main reasons for the
weakened profitability were the lower selling prices of paper coupled
with the fall in the exchange rate of the United States dollar.
Earnings were also weakened by the shutdowns and start-up costs
required for the investments that were carried out at the Äänekoski
and Kyro board mills. In comparative terms, however, paper deliveries
increased by 3 per cent.
Key figures for 2002
- Earnings per share EUR 0.36 (0.55 euros in 2001)
- Board of Directors dividend proposal: 0.60 euro (0.60)
- Net profit for the financial year: EUR 208.9 million (212.2)
- Profit before extraordinary items: EUR 134.3 million (154.0)
- Operating profit: EUR 324.3 million (389.2)
- Cash flow from operations: EUR 666.4 million (695.9)
- Return on capital employed: 5.8 per cent (6.9)
- Turnover: EUR 6,564.2 million (6,923.3)
- Equity ratio at the end of the year: 34.2 per cent (30.0)
- 92 per cent capacity utilization rate at the board mills (88), 85
per cent at the paper mills (82)
In the fourth quarter the profitability of all M-real's business
areas weakened. The selling price of board grades was at the previous
quarter's level. The capacity utilization rate at the board mills was
92% (Jul.-Sept. 2002: 95%). In October-November the paper business
areas received a seasonal boost in demand compared with preceding
months. The capacity utilization rate at the paper mills was 83%
(83%).
"The varying degrees of downbeat sentiment that continued to surround
the world economy throughout 2002 also showed up in the paper and
board industry in many ways. Demand for the high-quality printing
papers required for communications and advertising remained weak in
2002, leading to continued production curtailments. Demand for the
folding boxboard used in consumer packaging as well as for other
grades of paperboard held up well," comments President and CEO Jouko
M. Jaakkola, sizing up the market situation in 2002.
In the beginning of 2003 M-real increased its holding in Metsä Tissue
to over 90 per cent in order to be able to make independent decisions
about the future of Metsä Tissue. As Metsä Tissue remains as a non-
core business for M-real, the aim is to find a partner for further
development of Metsä Tissue.
The economic outlook for the current year is still uncertain in the
world's main economic areas, though some individual signs of a turn
for the better can be detected in the United States. The main
financial indicators nevertheless do not give any clear guidance
concerning the future trend. "The prospects for the paper industry
are still very uncertain. It remains difficult to forecast when the
cyclical upswing will get under way, but I believe that the bottom in
paper demand has been reached," estimates Jaakkola.
M-REAL CORPORATION
Corporate communications
For further information, please contact:
Jouko M. Jaakkola, President and CEO, M-real Corporation, tel. +358
10 469 4118, GSM +358 50 2261
Veli-Matti Mynttinen, Executive Vice President, M-real Corporation,
tel. +358 10 469 4655, GSM +358 50 2895
M-REAL CORPORATION
REPORT OF THE BOARD OF DIRECTORS, 2002
FINANCIAL STATEMENT BULLETIN, 2002
THE MARKET
Demand for folding boxboard was good throughout 2002 and capacity was
in nearly full use, except for the rebuilt board machine that started
up at Äänekoski. Deliveries of linerboard increased and fluting
deliveries were down on the previous year.
In western Europe demand for folding boxboard rose by 3 per cent. The
selling price was at the level of 2001. The selling price of liner
and fluting was down 12 per cent.
Demand for paper remained weak throughout the year. Demand for
uncoated fine paper was nevertheless up on the previous year and
better than for other grades, especially in the first quarter and at
the beginning of the second quarter. Demand for coated fine paper was
at a uniformly low level all year long, save for seasonal changes in
demand. Demand for coated magazine paper, however, picked up somewhat
in the second quarter.
Deliveries by western European producers of coated magazine paper
were up 2 per cent on the previous year. The selling price fell by
about 8 per cent. Deliveries by producers of coated fine paper rose
by 6 per cent and those of uncoated fine paper by 2 per cent. Despite
the downward pressure due to the weak demand that set in a year
earlier, the price declined moderately: the selling price of coated
fine paper was 6 per cent lower than a year ago and that of uncoated
fine paper 3 per cent lower.
Demand for magazine paper and coated fine paper in the last quarter
of the year showed the normal seasonal growth. Deliveries of magazine
paper increased by 9 per cent and those of coated fine paper by 2 per
cent. Deliveries of uncoated fine paper, however, were down 3 per
cent.
Demand for Metsä Tissues tissue paper products remained stable
throughout the year.
PROFIT FOR THE FINANCIAL YEAR
M-reals operating profit in 2002 was EUR 324.3 million (389.2
million in 2001). Operating profit accounted for 4.9 per cent of
turnover (5.6). The profitability of the Consumer packaging and
Publishing business areas weakened. Home & Office and Commercial
printing improved their profitability. Metsä Tissues earnings also
improved.
The main reasons for the weakening in profitability were the lower
selling price of paper, particularly magazine paper, the investment-
related shutdowns and start-up costs at the Äänekoski and Kyro board
mills as well as the fall in the exchange rate of the United States
dollar. In addition, operating profit for the financial year includes
EUR 25 million of non-recurring income and EUR 37 million of non-
recurring expenses. All of the non-recurring income and EUR 28
million of the non-recurring expenses were allocated to the last
quarter. The most important of the non-recurring income items was a
credit to income of EUR 17 million for the Group reserve connected
with finalization of the purchase price for Zanders, whereby the
amortization of goodwill has been extended. The most significant of
the non-recurring expenses were the reorganization costs for the Map
merchanting business area and write-downs on asset items. These
expenses came to a total of EUR 17 million.
M-real delivered 1,129,000 tonnes (1,128,000 tonnes) of paperboard to
customers. The mills production was curtailed by 41,000 tonnes in
line with demand (122,000). The capacity utilization rate was 92 per
cent (88).
Paper deliveries from the mills totalled 3,638,000 tonnes
(3,643,000). The comparable delivery volume rose by 3 per cent on the
previous year. The delivery volume of coated and uncoated fine paper
rose by 4 per cent and the comparable delivery volume of magazine
paper by 11 per cent. Owing to the imbalance in supply and demand,
production had to be curtailed significantly, as it was a year ago.
Production curtailments amounted to 605,000 tonnes (677,000 tonnes).
The capacity utilization rate at the mills was 85 per cent (82).
The effect of the change in foreign exchange rates, including hedging
income, on operating profit was EUR 29.9 million (18.6). By the end
of 2002 the United States dollar weakened by 19 per cent and the
British pound by 6.9 per cent compared with the previous turn of the
year. On average, the euro exchange rate of the dollar was 5.5 per
cent lower than in 2001 and the exchange rate of the British pound
sterling 1.1 per cent lower.
Turnover was EUR 6,564.2 million (6,923.3). In comparable terms,
turnover fell by 4 per cent. Sales to Finland accounted for 6 per
cent of turnover (7).
Net financial expenses were EUR 190.0 million (235.2). Financial
expenses include a foreign exchange loss of EUR 30.5 million on the
companys convertible subordinated capital notes and on other
financial items. Net interest and other financial expenses amounted
to EUR 159.5 million (212.5).
Other operating income amounted to EUR 73.4 million (71.2). The sum
does not include non-recurring items.
Profit before extraordinary items was EUR 134.3 million (154.0).
A capital gain of EUR 156 million on the sale of shares in Albbruck
was booked to extraordinary income along with EUR 12.8 million of tax-
related expense items connected with the arrangement.
Profit for the financial period was EUR 208.9 million (212.2). Taxes,
including the change in the imputed deferred tax liability, were EUR
59.8 million (115.0).
Earnings per share were EUR 0.36 (0.55).
The return on capital employed was 5.8 per cent (6.9). The return on
equity was 3.0 per cent (4.7).
OCTOBER-DECEMBER EARNINGS COMPARED WITH THE PREVIOUS QUARTER
Operating profit was EUR 50.7 million (Jul.-Sep. 2002: 97.1).
Operating profit accounted for 3.2 per cent of turnover (6.1). The
profitability of all the business areas weakened. Operating profit
includes EUR 25 million of non-recurring income and EUR 28 million of
non-recurring expenses.
The weakening in the profitability of the Consumer packaging business
area was due mainly to the start-up costs of the Äänekoski board
machine, the fall in the exchange rate of the US dollar as well as
December shutdowns in accordance with the collective labour
agreement. The selling price of paperboard grades was at the previous
quarters level. Paperboard deliveries amounted to 283,000 tonnes
(284,000 tonnes). The capacity utilization rate was 92 per cent (95).
The paper business areas benefited from a seasonal improvement in
demand in October-November compared with earlier months. The
weakening in fourth-quarter profitability was attributable mainly to
the slightly lower selling prices of coated fine paper and magazine
paper, the fall in the exchange rates of the United States dollar and
British pound as well as the seasonal slowdown in sales at the end of
December. The delivery volume of fine paper was at the previous
quarters levels, and the delivery volume of magazine paper rose by 9
per cent. The total volume of paper deliveries was 891,000 tonnes
(870,000). Production curtailments amounted to 164,000 tonnes
(198,000 tonnes). The capacity utilization rate of the paper mills
was 83 per cent (83).
Consolidated turnover was EUR 1,587.3 million (1,604.1).
PERSONNEL
The number of personnel at the end of December was 20,323 employees
(21,515 employees at 31 December 2001), of which 5,941 employees
worked in Finland (6,091). The net decrease in the personnel was
1,192 employees. Acquisitions and divestments caused a net decrease
of 82 employees.
The Groups personnel includes 47 per cent of Metsä-Botnias
employees.
CAPITAL EXPENDITURES ON FIXED ASSETS
M-reals total capital expenditures during 2002 amounted to EUR 304
million.
The projects for rebuilding the Kyro wallpaper base machine and
Äänekoski board machine were completed. Kyros modernized production
line started up in the spring on schedule and the rebuilt board
machine at Äänekoski came on stream in September. Bringing both
machines up to full output has gone well. The Äänekoski board machine
will concentrate on manufacturing a new type of paperboard that is
used in packaging healthcare products. The aggregate cost of the
capital expenditures at Kyro and Äänekoski was about EUR 110 million.
The investments for Zanders development programme are progressing
according to plans and will be completed during 2003. M-reals Board
of Directors decided in December to modernize the waste water
treatment plant at the Husum mill at an investment cost of about 42
million euros. Design of the plant is in progress and the
construction will be started in March 2003. The new plant will become
operational in December 2004.
M-real does not have other major investments that were in progress.
Metsä Tissue decided on an investment and development programme for
its operations in Germany in October. Capital expenditures under the
programme total about EUR 45 million and it will for the most part be
carried out by the end of 2004.
The modernization investment for the evaporator plant at Metsä-
Botnias Kemi pulp mill has moved ahead in line with plans and the
new evaporation plan will go into operation in January 2003.
ACQUISITIONS AND DIVESTMENTS
In April, M-real acquired an 85 per cent holding in CN
Papiervertriebs GmbH, a German paper and printing service company. In
April, M-real sold the Winpac division, which is engaged in paper and
board sheeting operations, to the companys line management. In June,
M-real sold the entire shares outstanding in Coupe Service SA, a
French sheeting company, to Procop SA.
In June, M-real sold its 50 per cent holding in Papierfabrik Albbruck
GmbH & Co. KG to Myllykoski Oyj. The purchase price was 235 million
euros and M-real realized a capital gain of about 156 million euros
on the deal.
In July, M-real and the other shareholders in Transfennica Oy Ab sold
51 per cent of Transfennicas shares to the Dutch transport company
Spliethoffs Bevrachtingskantoor B.V.
On October 3, Metsä Tissue received a permit from the Polish Ministry
of the Interior to purchase a 9.9 per cent additional stake in the
Polish tissue paper company Zaklady Papiernicze Krapkowicach SA. The
shares were transferred to Metsä Tissue on 11 October, raising the
companys holding in ZPK to 50.3 per cent and the company become a
Metsä Tissue subsidiary. In December Metsä Tissue purchased
additional ZPK shares, giving it a shareholding of 89.4 per cent.
In December Map Merchants signed an agreement on acquiring the Czech
office paper merchant Narpex in order to strengthen its position in
the Czech Republic. The debt-free purchase price of the acquired
company was just over EUR 3 million. The deal has been approved by
the authorities.
OTHER STRUCTURAL ARRANGEMENTS
In February M-real agreed with Myllykoski Oyj on terminating the
sales and marketing co-operation that had been pursued under the M-
real alliance name since 1996. Decoupling of the functions was
completed during the autumn.
Operations of the Silverdalen paper millin Sweden, were wound up at
the end of March in accordance with the previously taken decision.
M-real Corporation, UPM-Kymmene Corporation, Metsäliitto Osuuskunta
and Oy Metsä-Botnia Ab carried out the spin-off of the Kemiart Liners
business as from the beginning of April. The decisions on the future
strategy and ownership structure of the business will be taken by the
end of 2004.
In August M-real redeemed private shareholders shares in Zanders
Feinpapiere AG. Zanders thus became a wholly-owned subsidiary of M-
real.
RESEARCH AND DEVELOPMENT
The total volume of research activities remained at the level of
2001. The efficiency, information flow and cooperation of the R&D
units with the mills was stepped up.
The international networks of research bodies have been utilized to a
growing extent in planning and developing research and development
programmes.
Research has been geared primarily towards improving competitive
quality factors that are connected with end use. Significantly, a
major commercial breakthrough has been achieved in digital four-
colour printing.
Another noteworthy research result was the significant improvement
that has been made in the energy consumption efficiency of the
pulping process thanks to long-term development cooperation. In
connection with the rebuild of the Äänekoski board machine, a new
improved board grade was developed. The Home & Office business area
came out with new copy paper products based on proprietary
technology.
In response to future challenges, M-real is studying ways to improve
the usability and functional characteristics of consumer products by
incorporating information technology into M-reals consumer products.
Understanding visual quality and exploiting in commercially are also
amongst the challenges of the future.
ENVIRONMENT
M-real conducted a review of its environmental policy. Areas that
were redefined included management, the companys own processes,
purchasing and communications.
M-real and its wood procurement partner Metsäliitto have given their
commitment to using wood raw material that comes from sustainably
managed forests. Accordingly, measures were continued to develop
management of the Chain of Custody of roundwood and to promote the
certification of forests. In Russia and the Baltic countries internal
inspections of the felling sites were continued. The requirements set
for pulp suppliers were updated such that the level of demand is the
same as for M-reals own wood procurement.
M-reals most important environmental investment over the next few
years will be the waste water treatment plant at the Husum mill. The
facility will start up in 2004.
M-real continued its efforts to improve energy efficiency, to reduce
the emissions from its own power plants and to increase the
proportion of bioenergy. The new wood-fired power plant at Äänekoski
started up in the report year.
M-real will publish a separate Environmental Report for 2002.
FINANCING
Interest-bearing net liabilities amounted to EUR 3,019 million at the
end of the financial year (Dec. 2001: 3,482).
The equity ratio at the end of the period was 34.2 per cent (Dec.
2001: 30.0) and the gearing ratio was 119 per cent (Dec. 2001: 145).
Liquidity is good. Liquidity at the end of the year was EUR 1,400
million, of which 1,200 million consisted of binding long-term credit
facilities and 200 million was liquid funds and investments (273). In
addition, the Group had at its disposal non-binding domestic and
foreign commercial paper programmes and credit facilities amounting
to EUR 800 million.
At the end of the financial year an average of 4 months of net
foreign currency exposure was hedged. The degree of hedging during
the report period has varied between 2 and 4 months. At the end of
the report period, about 90 per cent of the shareholders equity not
in euros was hedged. At the end of the year the Groups liabilities
were tied to fixed-interest rates for a period of 15 months. During
the financial year the fixed-rate period has varied from 10 to 15
months.
At the close of the year, 22 per cent of the Groups long-term loans
were denominated in foreign currencies. Of these loans, 56 per cent
was subject to variable interest rates and the rest to fixed interest
rates. The average interest rate on the loans was 4.7 per cent at the
end of 2002 and their average maturity was 7.4 years.
In June M-real floated an issue of bonds to a total amount of 350
million United States dollars. The bonds have maturities of 7, 10 and
12 years.
In August M-real repaid prematurely the 350 million US dollar
convertible subordinated capital notes that were issued in 1997. The
total exchange rate loss on the notes amounted to EUR 63.9 million. A
total of EUR 42.2 million of the foreign exchange loss was booked as
a charge against earnings in the financial year and EUR 21.7 million
against earnings for 2001.
In November an 850 million euro syndicated loan with a maturity of 5
years was signed. The loan was used to refinance the syndicated loans
taken out in 1996 and 1997. A total of 22 banks took part in the
arrangement.
At the end of June 2001 M-real and some of its subsidiaries agreed to
sell their trade receivables to a third party under the terms of a
continuing and irrevocable transaction (securitization). The
securitization of trade receivables has been continued. The
securitized trade receivables are included in the consolidated
balance sheet. The balance sheet and key figures for the previous
year have been adjusted to a comparable basis (in 2001 securitized
trade receivables were not included in the consolidated balance
sheet).
The companys credit ratings remained unchanged during the financial
year. Standard and Poors rating for M-real's long-term loans is BBB-
and for short-term loans A3, with a neutral outlook. Moody's rating
for long-term loans is Baa3 and for short term loans P3, with a
negative outlook.
BOARD OF DIRECTORS AND AUDITORS
The Annual General Meeting held on 13 March 2002 re-elected the
following persons to seats on M-reals Board of Directors for a term
extending up to the next Annual General Meeting: Timo Haapanen, Asmo
Kalpala, Erkki Karmila, Runar Lillandt, Matti Niemi, Antti Oksanen,
Antti Tanskanen and Arimo Uusitalo.
The auditors elected were Göran Lindell, Authorized Public
Accountant, and the independent public accountants
PricewaterhouseCoopers Oy, with Ilkka Haarlaa, Authorized Public
Accountant, acting as chief auditor and Björn Renlund, Authorized
Public Accountant, and Jouko Malinen, Authorized Public Accountant,
as deputy auditors.
SHARES
The highest price of M-reals Series B share on Helsinki Exchanges
during the financial year was EUR 10.44 and the lowest price was EUR
5.88. The average share price was EUR 8.28. In 2001 the average price
was EUR 6.96. The price of the Series B share was EUR 8.00 at the end
of the financial year, 31 December 2002.
Turnover of the Series B share was EUR 857 million, or 72.5 per cent
of the shares outstanding. The market capitalization of the Series A
and B shares at 31 December 2002 totalled EUR 1,427 million.
At 31 December 2002, Metsäliitto Osuuskunta owned 38.5 per cent of M-
real Corporations shares and 64.2 per cent of the voting rights
conferred by these shares. International investors owned 35.1 per
cent of the shares.
The Board of Directors does not have valid authorizations to carry
out a share issue or issues of convertible bonds or bonds with
warrants.
IAS PROJECT
On 7 June 2002 the Commission of the European Union approved the
proposed regulation according to which publicly listed companies that
are registered in the EU area must prepare their consolidated annual
accounts in accordance with IAS (International Accounting Standards)
no later than for the 2005 financial year.
In autumn 2001 M-real initiated a project to put in place IAS
capabilities. The project has moved ahead in accordance with plans
and the company will prepare its consolidated annual accounts in
accordance with IAS as from the beginning of 2005.
EVENTS AFTER THE CLOSE OF THE FINANCIAL PERIOD
On 20 January 2003 M-real purchased 5,781,200 shares of Metsä Tissue
that were owned by SCA (Svenska Cellulosa Aktiebolaget). The purchase
price was EUR 12.30 per share, or EUR 71.1 million in total. The
shares represent 19.3 per cent of Metsä Tissues total shares
outstanding. Through the deal, the M-real Groups shareholding in
Metsä Tissue rose to 84.85 per cent. Later the same day M-real
purchased additional shares, bringing its holding to more than 90 per
cent. Thereby M-real became entitled under the Companies Act to
redeem the remainder of the Metsä Tissue shares. M-real announced it
was launching a redemption process in accordance with the Companies
Act as soon as this is appropriate in practice.
OUTLOOK FOR THE CURRENT YEAR
The slowdown in economic growth that got under way in 2000 continued
in Europe. Economic growth in North America, however, is generally
expected to have improved in 2002 compared with the nearly zero level
of 2001. Asias economic growth is estimated to have been somewhat
better than it was in 2001. On the foreign exchange markets, the
United States dollar and British pound weakened markedly against the
euro in 2002.
The economic outlook for the current year is still uncertain in the
main economic areas, though some individual signs of a turn for the
better can be detected in the United States. The main financial
indicators nevertheless do not give any clear guidance concerning the
future trend.
The trend in the world economy will have a central impact on M-reals
earnings in the current year. It is still difficult to forecast when
the cyclical upswing in the paper and board industry will get under
way. The slump in paper demand nevertheless has probably bottomed out
by now. It is not expected that there will be an essential change in
the demand for M-reals main products. Paper production will have to
be curtailed in line with demand in the current year, as it was last
year.
The current programme of efficiency-boosting measures will be seen to
completion during 2003. The cost savings will be realized in full
measure in the Groups profits as from the beginning of 2004.
Espoo, 6 February 2003
BOARD OF DIRECTORS
BUSINESS AREAS AND MARKET TRENDS
Consumer packaging
2002 2001 IV III II I 02 IV 2001-
02 02 02 01 2002
change
Turnover 921, 951, 227, 231, 232, 230, 242, -3,1%
1 3 0 7 4 0 7
Operating profit 83,4 130, 8,1 24,8 16,7 33,8 28,0 -36,2%
0
Operating profit, 9,1 13,7 6 10,7 7,2 14,7 11,5
%
Return on capital 9,7 15,0 5,2 11,6 7,6 16,0 12,3
employed, %
Mill deliveries, 1129 1128 283 284 287 274 288 0%
1,000 t
Board mills 92 88 92 95 90 90 86
capacity
utilization rate,
%
Demand for the products of the Consumer packaging business area were
good throughout the review period. Folding boxboard production
capacity was in full use nearly all year long, with the exception of
the rebuilt machine at Äänekoski. Demand for linerboard increased,
whereas fluting faced weaker demand. The depreciation of the US
dollar depressed the euro-denominated selling price of all product
groups.
The business areas operating profit was EUR 83.4 million (130.0).
The weakening in profitability was due mainly to the shutdowns and
start-up costs required for the investments at the Äänekoski and Kyro
board mills and to the fall in the exchange rate of the US dollar.
Operating profit was 9.1 per cent of turnover (13.7). Turnover fell
by 3 per cent on the previous year. The capacity utilization rate of
the paperboard mills was 92 per cent (88).
Deliveries of folding boxboard in western Europe were up 3 per cent
on the previous year. M-reals folding boxboard enjoyed brisk demand
throughout the year, but delivery volumes remained at the level of
2001 due to the temporary decrease in production volumes caused by
the machine rebuilds at Äänekoski and Kyro. Selling prices were at
the level of 2001. In euro terms, the average selling price
nevertheless declined somewhat owing to the effect of a lower US
dollar.
Delivery volumes of linerboard grew by 7 per cent. The bulk of the
growth came from the European market (11%). The average selling price
in euros fell by 3 per cent owing to the weakening in the US dollar.
Demand for fluting fell somewhat and the delivery volume declined by
2 per cent from the record level reached in 2001. The average price
in euros was down 5 per cent.
The weakening in worldwide demand for wallpaper base continued during
the report period and the delivery volume was down 4 per cent
compared with 2001. The average selling price in euros fell by 9 per
cent.
Fourth-quarter operating profit was down 67 per cent on the previous
quarter. Profitability was lowered by the start-up expenses for the
Äänekoski board machine, seasonal factors in December as well as the
fall in the euro-denominated average selling price due to the
depreciation of the US dollar. Folding boxboard deliveries were down
5 per cent. Delivery volumes of linerboard fell by 7 per cent.
Fluting deliveries, however, were up 5 per cent.
Commercial printing
2002 2001 IV III II I 02 IV 2001-
02 02 02 01 2002
change
Turnover 1218 1289,4 293, 291, 300, 333, 325, -5,5%
,1 1 0 1 9 2
Operating 97,0 79,6 19,8 19,9 25,0 32,3 34,1 21,9%
profit
Operating 8,0 6,2 6,8 6,8 8,3 9,7 10,5
profit, %
Return on 8,8 6,9 7,1 7,3 7,9 10,2 12,7
capital
employed, %
Mill 1409 1389 345 337 351 375 353 1,4%
deliveries,
1,000 t
Capacity 83 82 82 76 83 90 82
utilization
rate, %
The Commercial printing business area suffered all year long from the
weak demand that set in during the first part of 2001, and capacity
utilization rates remained low. The weak demand also pushed prices
down. The fall in prices nevertheless remained moderate, at about 5
per cent. In addition, the weakening in the United States dollar
together with increased deliveries to markets outside Europe
depressed the average selling price in euros.
The profitability during the report period improved on the previous
year. Operating profit was EUR 97.0 million (2001: 79.6). Operating
profit was lifted by an improvement in production efficiency, cost-
cutting, lower raw material costs, the winding up of operations at
the Silverdalen mill in March as well as a higher delivery volume.
Operating profit was 8.0 per cent of turnover (6.2). Turnover fell by
6 per cent on the previous year.
Deliveries by west European producers of coated fine paper rose by 6
per cent in 2002. The delivery volume of M-reals products rose by 1
per cent. The average running time of the paper machines was 7 days
longer than in 2001 and the capacity utilization rate was 83 per cent
(82). The order book was a good week at the end of the year.
Fourth-quarter operating profit was on a par with the previous
quarter. Selling prices declined somewhat and, additionally, the
weakening in the dollar depressed the average selling price in euros.
Delivery volumes rose.
The Kangas paper mill was transferred to the Publishing business area
as from the beginning of 2002. The figures for 2000 and 2001 have
been adjusted accordingly
Home & Office
2002 2001 IV III II I 02 IV 2001-
02 02 02 01 2002
change
Turnover 934, 875, 221, 222, 234, 255, 223, 6,7%
1 1 5 2 6 8 7
Operating profit 107, 84,7 19,9 32,8 24,6 29,9 10,3 26,6%
2
Operating profit, 11,5 9,7 9,0 14,8 10,5 11,7 4,6
%
Return on capital 9,6 6,6 7,3 12,2 8,3 10,6 4,3
employed, %
Mill deliveries, 902 832 211 218 223 250 219 8,4%
1,000 t
Capacity 89 88 79 88 91 96 88
utilization rate,
%
The products of the Home & Office business area enjoyed very good
demand in the first quarter and at the beginning of the second
quarter. In May-June demand fell off sharply and remained at this
lower level throughout the latter part of the year. Selling prices
fell by about 3 per cent from the level in 2001.
The business area posted operating profit of EUR 107.2 million
(84.7). The improvement in profitability was due mainly to the
increased delivery volumes, with a further boost from improved
production efficiency. Operating profit was 11.5 per cent of turnover
(9.7). Turnover rose by 7 per cent on the previous year.
Deliveries by west European producers of uncoated fine paper fell by
2 per cent in 2002. M-reals delivery volume rose by 8 per cent. The
average running time of the paper machines was 2 days longer than in
2001 and the capacity utilization rate was 89 per cent (88). The
order book at the end of the year was a bit over two weeks.
Operating profit in the fourth quarter fell by 39 per cent compared
with the previous quarter. The fall in profitability was due largely
to the lower delivery volume as well as to the seasonally related
increase in expenses.
Publishing
2002 2001 IV III II I 02 IV 2001-
02 02 02 01 2002
change
Turnover 790, 924, 204, 191, 193, 201, 210, -14,5%
1 4 0 0 5 6 5
Operating profit 39,4 74,7 9,4 14,4 -0,7 16,3 8,3
Operating profit, 5,0 8,1 4,6 7,5 -0,4 8,1 3,9
%
Return on capital 3,5 6,0 3,4 5,5 -0,2 5,4 3,3
employed, %
Mill deliveries, 977 1063 255 234 235 254 250 -8,1%
1,000 t
Capacity 84 79 87 87 77 85 79
utilization rate,
%
The weak demand that beset the Publishing business area in the second
quarter of 2001 continued in 2002, causing a marked decline in
selling prices. In addition, the depreciation of the US dollar
depressed the average euro-denominated selling price. The 50 per cent
holding in the Albbruck mill was divested in June.
The business area reported operating profit of EUR 39.4 million
(74.7). The weakening in profitability was due to selling prices that
were about 8 per cent lower, the depreciation of the US dollar as
well as to the fall in the delivery volume due to divesting MD Papier
and Albbruck. Operating profit was 5.0 per cent of turnover (8.1).
Turnover fell by 15 per cent on the previous year. Comparable
turnover was up 3 per cent.
Deliveries of coated magazine paper (LWC) in western Europe rose by 2
per cent. M-reals comparable delivery volume rose by 11 per cent.
The divestment of MD Papier and Albbruck caused a drop in the
delivery volume. The average running time of the paper machines was
24 days longer than in 2001 and the capacity utilization rate was 84
per cent (79). The order book at the end of the year was slightly
less than three weeks.
Operating profit in the fourth quarter fell by 35 per cent compared
with the previous quarter. The fall in profitability was due to the
seasonally weaker demand in December, shutdowns in Finland in
accordance with the collective labour agreement as well as lower
selling prices. The weakening in the US dollar during the quarter
also lowered the average selling price in euros.
The Kangas paper mill was transferred to the Publishing business area
as from the beginning of 2002. The figures for 2000 and 2001 have
been adjusted accordingly.
Map Merchant Group
2002 2001 IV III II I 02 IV 01 2001-
02 02 02 2002
chang
e
Turnover 1542,8 1635,6 375, 371, 387, 409, 389,3 -5,7%
0 7 1 0
Operating -14,9 -3,6 -9,3 -5,9 -0,9 1,2 -14,4
profit
Operating -1,0 -0,2 -2,5 -1,6 -0,2 0,3 -3,7
profit, %
Return on -3,0 -0,8 -9,0 -4,0 -0,8 1,8 -12,2
capital
employed, %
Delivery 1270 1351 311 307 314 338 331 -6,0%
volumes,
1,000 t
The Map paper merchanting business areas financial year was also
overshadowed by the continuing difficult market situation. Map moved
ahead with its programme for integrating and rstructuring operations.
The business area reported an operating loss of EUR 14.9 million (a
loss of 3.6 million in 2001). Profitability was weakened by the fall
in the delivery volume owing to slack demand. In addition, operating
profit was burdened by a total of EUR 17.3 million of non-recurring
reorganization expenses, credit losses and write-downs on asset
items. Despite the price competition spurred by weak demand, the
average selling price declined moderately. Turnover was down 6 per
cent.
Delivery volumes during the report year totalled 1,270,000 tonnes,
down 6 per cent on the delivery volumes in 2001. Delivery volumes
remained at an evenly low level all year long.
Zanders
2002 2001 IV III II I 02 IV 2001-
02 02 02 01 2002
change
Turnover 459, 512, 83,7 122, 121, 131, 120, -10,4%
4 9 4 7 6 1
Operating profit 2,4 0,2 -4,1 -1,5 1,9 6,1 -2,0
Operating profit, 0,5 0,0 -4,9 -1,2 1,6 4,6 -1,7
%
Return on capital 0,9 0,3 -5,4 -0,9 2,4 7,0 -2,3
employed, %
Mill deliveries, 350 360 80 82 90 97 89 -2,8%
1,000 t
Capacity 76 78 69 65 80 90 78
utilization rate,
%
The weak market situation also kept Zanders deliveries and capacity
utilization rates at a low level. Selling prices fell slightly. In
addition, the change in the product mix coupled with a cheaper dollar
depressed the average selling price in euros. Integration of Zanders
operations into M-real was continued during the report period. The
operational reorganization and measures aiming at improving
production efficiency progressed according to plans. About 60 per
cent of the efficiency-boosting and investment programme had been
carried out by the end of the year.
Operating profit was EUR 2.4 million (0.2). The improvement in
profitability was due to the fall in fixed costs resulting from the
restructuring of operations as well as to lower raw material costs.
Profitability was nevertheless weakened by the capital expenditure-
caused disturbances in production operations in the latter part of
the year. Turnover was down 10 per cent.
The average capacity utilization rate of the paper machines was 76
per cent (78).
In August M-real redeemed the Zanders Feinpapiere AG shares of the
companys private shareholders. Zanders thus became a wholly-owned
subsidiary of M-real.
Operating profit in the fourth quarter fell compared with the
previous quarter. Factors that cut into profitability were investment-
caused disturbances in production, the fall in selling prices, the
weakening in the US dollar as well as a somewhat lower delivery
volume. In addition, operating profit was burdened by an EUR 2.4
million of non-recurring expenses for integrating Zanders sales
network into M-reals.
OTHER BUSINESSES
Metsä Tissue Corporation
2002 2001 IV III II I 02 IV 2001-
02 02 02 01 2002
change
Turnover 647, 649, 170, 162, 155, 159, 163, -0,3%
8 6 7 3 7 2 2
Operating 43,1 36,5 5,9 17,2 8,4 11,6 13,8 18,1%
profit
Operating 6,7 5,6 3,5 10,6 5,4 7,3 8,5
profit, %
Return on 13,2 10,3 7,6 21,0 10,5 14,0 16,6
capital
employed, %
Operating profit in 2002 was EUR 43.1 million (Jan.-Dec. 2001:36.5).
The higher profitability was due to a rise in cost-effectiveness, an
improved product palette and a slight increase in deliveries.
Operating profit was 6.7 per cent of turnover (5.6). Turnover was EUR
647.8 million (649.6).
The growth in demand for tissue products has been very modest in
Europe. At the same time, new capacity has entered the market,
causing the competitive situation to tighten further.
Metsä Tissues sales volume rose by about 3 per cent in comparable
terms, but the euro-denominated average selling price was down 5 per
cent compared with 2001. The fall in the average selling price was
attributable above all to the lower market prices of raw paper.
Fourth-quarter operating profit fell to EUR 5.9 million from EUR 17.2
million in the previous quarter. The drop in profitability was due to
a weaker selling period compared with the previous quarter as well as
to a total of EUR 3.7 million of non-recurring cost provisions for
restructuring operations, which was charged to fourth-quarter
earnings. The provisions were made mostly to cover the operations in
Germany.
In 2002, Metsä Tissue Corporations share price registered a high of
EUR 11.00 and a low of EUR 8.50. At the end of the year the share
price was EUR 10.50. Turnover of Metsä Tissue shares was EUR 17.5
million, representing 5.9 per cent of the total number of shares
outstanding. The companys market capitalization at 31 December 2002
was EUR 315 million. At the end of the financial year M-real owned
65.6 per cent of Metsä Tissues shares. Foreign investors held 21.8
per cent of the shares at the end of the report period.
In October Metsä Tissue announced it had started up an investment and
development programme encompassing its business functions in Germany.
The aim of the programme is to improve quality and the degree of
converting, especially within consumer products, whilst raising
productivity. Capital expenditures under the programme total about
EUR 45 million and it will for the most part be carried out by the
end of 2004. Owing to the staff cuts that are part of the programme,
the fourth-quarter result includes an expense provision of about EUR
3 million.
M-REALGROUP (all figures unaudited)
PROFIT AND LOSS ACCOUNT 1-12/02 % 1-12/01 %
(EUR million)
Turnover 6 564,2 100,0 6 923,3 100,0
Interest in
associated companies -4,9 4,5
Other operating income 73,4 71,2
Operating expenses 5 850,7 6 131,4
Depreciation 457,7 478,4
Operating profit 324,3 4,9 389,2 5,6
Net exchange gains/ -30,5 -22,7
losses
Other financial income -159,5 -2,9 -212,5 -3,4
and expenses
Profit before 134,3 2,0 154,0 2,2
extraordinary items
Extraordinary items 144,5 183,3
Profit before taxes and
minority interest 278,8 4,2 337,3 4,9
Taxes -59,8 -115,0
Minority interest -10,1 -10,1
Profit for the period 208,9 3,2 212,2 3,1
PROFIT AND LOSS ACCOUNT Change % 10-12/02 %
(EUR million)
Turnover -359,1 -5,2 1587,3 100,0
Interest in
associated companies -9,4 -1,9
Other operating income 2,2 26,7
Operating expenses -280,7 1454,7
Depreciation -20,7 106,7
Operating profit -64,9 -16,7 50,7 3,2
Net exchange gains/ -7,8 5,0
losses
Other financial income 53,0 -45,6
and expenses
Profit before extraordinary -19,7 -12,8 10,1 0,6
items
Extraordinary items -38,8 0,0
Profit before taxes and
minority interest -58,5 -17,3 10,1 0,6
Taxes 55,2 -1,8
Minority interest 0,0 -1,4
Profit for the period -3,3 -1,6 6,9 0,4
M-REALGROUP (all figures unaudited)
BALANCE SHEET 12/2002 % 12/2001 %
(EUR million)
Assets
Fixed assets 4 934,5 66,6 5 164,4 64,5
Current assets
Inventories 814,9 11,0 877,5 11,0
Other current assets 1 460,9 19,7 1 689,3 21,1
Liquid funds 199,9 2,7 273,4 3,4
Total 7 410,2 100,0 8 004,6 100,0
Liabilities
Shareholders´ equity 2 461,0 33,2 2 651,2 33,1
Minority interest 74,6 1,0 59,6 0,7
Provisions for liabilities 66,3 0,9 113,9 1,4
and charges
Long-term liabilities 3 030,3 40,9 2 919,6 36,6
Short-term liabilities 1 778,0 24,0 2 260,3 28,2
Total 7 410,2 100,0 8 004,6 100,0
M-REALGROUP (all figures unaudited)
CASH FLOW STATEMENTS 1-12/02 1-12/01
(EUR million)
Profit before extraordinary 134,3 154,0
items
Depreciation 457,7 478,4
Taxation -56,7 -45,2
Other changes -14,3 20,6
Funds from operations 521,0 607,8
Change in working capital 145,4 88,1
Cash flow from operations 666,4 695,9
Gross capital -310,0 -740,0
expenditures 1)
Disposal and other changes 223,9 277,9
in fixed assets
Cash flow after capital 580,3 233,8
expenditure
Share issue 0,0 280,0
Interest-bearing net debt of -9,0 -219,2
companies acquired and
divested
Dividend -108,4 -83,4
Change in interest-bearing 462,9 211,2
liabilities
(+ decrease / - increase)
1) Exc. Interest-bearing net debt of acquired companies.
M-REALGROUP (all figures unaudited)
KEY FIGURES 1-12/02 1-12/01 10-12/02
Earnings per share, EUR 0,36 0,55 0,04
(diluted 1-12/02; 0,36 EUR)
Return on capital employed, % 5,8 6,9 3,8
Return on equity, % 3,0 4,7 1,3
Gross capital expenditures, 310 740 130
EUR million 1)
Personnel, average 21 070 22 237 20 469
12/02 12/01
Shareholders´ equity per 13,75 13,08
share, EUR
Equity ratio, % 34,2 30,0
Gearing ratio, % 119 145
Securities and guarantees, EUR 12/02 12/01
million
For own loans 487 581
For associated companies 0 1
For affiliated companies 26 5
For others 5 31
Total 518 618
Open derivative contracts, Gross Gross
EUR million amount amount
12/02 12/01
Interest rate derivatives 9 998 10 816
Currency derivatives 4 832 3 368
Total 14 830 14 184
1) Excl. interest-bearing net debt of acquired companies.
M-REALGROUP Quarterly data
TURNOVER Quarter I-IV Quarterly
EUR Million 2002 2001 IV 02 III 02 II 02 I 02 IV 01
Commercial 1 218,1 1 289,4 293,1 291,0 300,1 333,9 325,2
printing
Home & Office 934,1 875,1 221,5 222,2 234,6 255,8 223,7
Publishing 790,1 924,4 204,0 191,0 193,5 201,6 210,5
Consumer 921,1 951,3 227,0 231,7 232,4 230,0 242,7
packaging
Map Merchant 1 542,8 1 635,6 375,0 371,7 387,1 409,0 389,3
Group
Zanders 459,4 512,9 83,7 122,4 121,7 131,6 120,1
Metsä Tissue 647,8 649,6 170,7 162,2 155,7 159,2 163,2
Internal sales 50,8 85,0 12,3 12,0 11,6 15,0 27,0
and other
operations
GROUP TOTAL 6 564,2 6 923,3 1587,3 1604,1 1636,7 1736,1 1 701,7
OPERATING PROFIT Quarter I-IV Quarterly
AND RESULT
EUR Million 2002 2001 IV 02 III 02 II 02 I 02 IV 01
Commercial 97,0 79,6 19,8 19,9 25,0 32,3 34,1
printing
Home & Office 107,2 84,7 19,9 32,8 24,6 29,9 10,3
Publishing 39,4 74,7 9,4 14,4 -0,7 16,3 8,3
Consumer 83,4 130,0 8,1 24,8 16,7 33,8 28,0
packaging
Map Merchant -14,9 -3,6 -9,3 -5,9 -0,9 1,2 -14,4
Group
Zanders 2,4 0,2 -4,1 -1,5 1,9 6,1 -2,0
Metsä Tissue 43,1 36,5 5,9 17,2 8,4 11,6 13,8
Other -33,3 -12,9 1,0 -4,6 -17,3 -12,4 -5,8
operations
OPERATING 324,3 389,2 50,7 97,1 57,7 118,8 72,3
PROFIT
% of turnover 4,9 5,6 3,2 6,1 3,5 6,8 4,3
Net exchange -30,5 -22,7 5,0 -16,8 0,2 -18,8 -19,9
gains/losses
Other financial -159,5 -212,5 -45,6 -38,7 -37,2 -38,0 -46,8
income and
expenses
PROFIT BEFORE 134,3 154,0 10,1 41,5 20,7 62,0 5,6
EXTRAORDINARY
ITEMS
% of turnover 2,0 2,2 0,6 2,6 1,3 3,6 0,3
OPERATING Quarter I-IV Quarterly
PROFIT, %
2002 2001 IV 02 III 02 II 02 I 02 IV 01
Commercial 8,0 6,2 6,8 6,8 8,3 9,7 10,5
printing
Home & Office 11,5 9,7 9,0 14,8 10,5 11,7 4,6
Publishing 5,0 8,1 4,6 7,5 -0,4 8,1 3,9
Consumer 9,1 13,7 3,6 10,7 7,2 14,7 11,5
packaging
Map Merchant -1,0 -0,2 -2,5 -1,6 -0,2 0,3 -3,7
Group
Zanders 0,5 0,0 -4,9 -1,2 1,6 4,6 -1,7
Metsä Tissue 5,6 3,5 10,6 5,4 7,3 8,5
GROUP TOTAL 4,9 5,6 3,2 6,1 3,5 6,8 4,3
M-REALGROUP
RETURN ON CAPITAL I-IV Q Year
EMPLOYED, %
2002 2001 2000
Commercial printing 8,8 6,9 16,4
Home & Office 9,6 6,6 9,3
Publishing 3,5 6,0 21,0
Consumer packaging 9,7 15,0 22,2
Map Merchant Group -3,0 -0,8 7,4
Zanders 0,9 0,3
Metsä Tissue 13,2 10,3 -3,1
GROUP TOTAL 5,8 6,9 13,5
CAPITAL EMPLOYED, 12/02 12/01 12/00
EUR Million
Commercial printing 1 113,5 1 178,6 1 171,0
Home & Office 1 129,9 1 179,4 1 482,0
Publishing 1 103,9 1 219,4 1 254,2
Consumer packaging 944,4 904,6 856,5
Map Merchant Group 410,4 484,8 496,7
Zanders 341,7 323,9
Metsä Tissue 325,5 342,3 378,9
Other assets 527,8 660,8 452,5
GROUP TOTAL 5 897,1 6 293,8 6 091,8
PERSONNEL 2002 2001
AVERAGE
Commercial printing 3 507 3 678
Home & Office 2 125 2 106
Publishing 1 769 2 261
Consumer packaging 3 151 3 089
Map Merchant Group 2 745 2 855
Zanders 2 324 2 724
Metsä Tissue 3 067 3 000
Other operations 2 382 2 524
GROUP TOTAL 21 070 22 237
M-REALGROUP
PRODUCTION Quarter I-V Quarterly
1000 tons 2002 2001 IV 02 III 02 II 02
Commercial printing 1410 1378 357 331 353
Home & Office 915 873 207 231 233
Publishing 1) 990 1073 256 244 235
Zanders 348 357 80 75 95
Paperboard 679 665 173 167 169
Fluting 224 228 57 64 49
Liner 2) 151 132 37 40 39
CTMP 280 136 76 79 63
Metsä Tissue 432 408 110 112 106
Metsä-Botnias pulp 2) 1057 946 249 294 250
M-reals pulp 1191 1074 308 290 304
PRODUCTION Quarterly
1000 tons I 02 IV 01 III 01 II 01 I 01
Commercial printing 369 348 332 325 373
Home & Office 244 207 199 221 246
Publishing 1) 255 242 246 272 313
Zanders 98 85 91 88 93
Paperboard 170 152 170 161 182
Fluting 54 60 57 54 57
Liner 2) 35 36 35 31 30
CTMP 62 49 34 25 28
Metsä Tissue 104 97 108 98 105
Metsä-Botnias pulp 2) 264 234 258 209 245
M-reals pulp 289 264 251 261 298
1) Includes 50 % of the production in MD Papier (until 30.6.2001) and
Albbruck (until 30.6.2002).
2) Equals to M-real´s owernship (47 %).
M-REAL CORPORATION
Jouko M. Jaakkola
President and CEO
