M-real: Transition to International Financial Reporting Standards (IFRS) (19 April, 2005)

M-real Corporation Stock Exchange Bulletin 19.4.2005 at 11.15 a.m.

M-real's comparative IFRS information

M-real changed its financial reporting standards from Finnish Accounting
Standards (FAS) to International Financial Reporting Standards (IFRS) at the
start of 2005. In August 2004, the company released its preliminary estimate of
the impacts of this transition on its opening IFRS balance sheet. The purpose
of this release, and the appendix to it, is to provide specified information on
the effects of adoption of IFRS on the company's consolidated income statement
and balance sheet. For M-real the main effects of the adoption of IFRS relate
to the reporting of pension liabilities, deferred taxes, derivative contracts
and some financing arrangements, and the recognition of certain impairment
losses in the opening IFRS balance sheet. 

 

The transition date is January 1, 2004 and on that date M-real has prepared its
opening IFRS balance sheet. In preparing the opening balance sheet the company
has applied some exemptions available to first-time adopters of IRFS, which are
explained in more detail in the appendix to this release. 

 

The following tables address the effects of adoption of IFRS on the company's
consolidated key figures. 

 
	                  01-12-2004    01-09-2004    01-06-2004    01-03-2004	
Year 2004	          FAS   IFRS    FAS   IFRS    FAS   IFRS    FAS   IFRS
Operating profit, 
EUR million	          -75	27    -47     41      -19     33      1	    24
Profit/loss attributable								
to shareholders of parent 								
company, EUR million	  -15	45     49     91      111    123    142	   141
Earnings per share, EUR								
  From continuing 
  operations 	        -0.79 -0.52  -0.58 -0.40   -0.29   -0.25  -0.14	 -0.17
  From discontinued								
  operations	         0.71  0.72   0.81  0.83    0.81    0.83   0.81   0.83
  From continuing and     								
  discontinued 
  operations            -0.08  0.20   0.23  0.43    0.52    0.58   0.67	  0.66
Equiry attributable to 
 shareholdersof parent 
 company at the end of 
 period, EUR million     2627  2393   2241  2004    2303    2033   2328	  2038
Net interest bearing 
 liabilities at the
 end of period, 
 EUR million	         2161   2183  2278  2293    2614    2669   2551	  2619
Total assets at the 
 end of period,
 EUR million	         6394	6486  6447  6510    6489    6540   6550	  6589
Return on capital								
employed, %	         -1.0	 0.9  -0.8   1.6    -0.3     1.8    0.3	   2.0
Equity ratio, %	         41.5	37.5  37.2  31.4    35.8    31.5   35.8	  31.4
Gearing, %	         82	90     100   112     113     129    109	   127


Opening balance sheet		
01-jan-04	           FAS	    IFRS
Total equity, 
EUR million	          2 245	   1 960
Net interest bearing
liabilities, EUR million  3 109	   3 171
Total assests, EUR	  7 106	   7 162
Equity ratio, %	           31.9	    27.8
Gearing ratio, %	    137	     159
 
	

 
	

 
	

 
	

 
	

 

 

The company's consolidated operating profit for 2004 was EUR 102 million higher
under IFRS than FAS. IFRS-based operating profit was improved in comparison to
FAS reporting by the discontinuance of goodwill amortisation (EUR 52 million)
and the inclusion of fixed asset write-downs of Reflex and Savon Sellu mills
(EUR 62 million) on the opening IFRS balance sheet but in income statement
under FAS. Other IFRS effects resulted in a net reduction of EUR 12 million in
operating profit. 

 

The adoption of IFRS had a negative effect on the consolidated shareholders'
equity reported on the opening IFRS balance sheet in the amount of EUR 285
million, contrary to the EUR 320 million anticipated in the August 18, 2004
estimate. The reduction in negative effect is mainly due to changes in Finnish
pension plan related to the principles applied in calculating disability
pension contribution that will go into effect on January 1, 2006 and, contrary
to earlier interpretation, will cause disability pension arrangements to be
treated as defined contribution plans. The most significant negative effects on
shareholders' equity originate from the inclusion of pension liabilities on the
balance sheet (EUR 115 million), reversal of sale and leaseback agreement (EUR
45 million), recognition of a deferred tax liability with respect to the fair
value of forest assets in excess of their tax basis (EUR 40 million), valuation
of derivatives at fair value and discontinuing the application of hedge
accounting (EUR 30 million), and the recognition of impairment losses on
certain assets (EUR 126 million). The combined effect of positive adjustments
totals EUR 71 million on the opening balance sheet, EUR 24 million of which
relates to tax assets due to decrease in the Finnish corporate tax rate, EUR 26
million to other deferred tax assets, and EUR 21 million to other items. 

 

By the end of 2004, the negative effect of IFRS adoption on shareholders'
equity had fallen to EUR 234 million. 

 

The appended tables and notes further describe the effects of IFRS on the
company's 2004 consolidated income statement and its opening and year-end 2004
balance sheets. 


M-REAL CORPORATION

Corporate Communications


For more information contact Juhani Pöhö, Executive Vice President and CFO,
tel. +358 10469 5283 



M-real Corporation, headquartered in Finland and employing some 16,000 people,
is a European paper and paperboard company, providing premium solutions for
consumer packaging, communications and advertising end-uses. Through its
worldwide sales network, M-real serves its customers who mostly comprise
publishers, printers, paper merchants, offices and well-known consumer product
companies and carton printers. M-real is listed on the Helsinki Stock Exchange.
Its turnover in 2004 was EUR 5.5 billion. 

www.m-real.com