Metsä Tissue reports healthy Q3 sales growth
Cost inflation continues to squeeze profits
Metsä Tissue, a leading producer of tissue and cooking papers, reported sales totalling 692 million euros (661) and operating profit excluding non-recurring items of 45 million euros (72) for the year to date September. Net sales showed a year-on-year increase of roughly 5 per cent on the corresponding period last year as a result of higher sales volumes (+3%) and favourable exchange rates (+2%). Sales of Metsä Tissue's own brands, especially Lambi, Katrin and Serla, showed a year-on-year increase of 11 per cent. Operating profit was heavily impacted by sharp increases in the cost of raw materials, pulp and recovered paper. Pulp prices have risen by approximately 40 per cent since the end of 2009, and recovered paper prices have nearly doubled in continental Europe. The negative impacts of this cost inflation were partially mitigated by successful pulp hedging and price increases. Rising energy prices continue to challenge the business both directly and indirectly through energy taxation reforms. In the third quarter, a 2 million euro non-recurring charge was booked related to restructuring at the Mänttä mill in Finland. Two major business development programmes published during the previous quarter, one related to Polish operations and the other to the company's Baking and Cooking business, both proceeded on schedule. Shortly after the end of the third quarter, Metsä Tissue finalized a deal concerning the purchase of a specialty paper machine (PM5) and related infrastructure assets at M-real Corporation's Reflex mill in Düren, Germany. The deal followed up a Memorandum of Understanding signed in June 2010. The transaction is expected to close at the beginning of November. Metsä Tissue intends to launch production of SAGA products at the Düren mill in the first half of 2011. The mill's close proximity to key markets will improve product availability and create synergies with the company's existing production and warehousing locations. As part of the deal, 74 employees will transfer to Metsä Tissue. Related to the decision to acquire capacity in Germany, statutory negotiations were initiated at the company's Mänttä mill in Finland. The process was completed in August, resulting in a headcount reduction of 117 employees. Production will continue on PM7 in Mänttä, but all other baking and cooking paper production as well as all related converting will be concentrated in Germany. The older machine in Mänttä, PM5, is to be shut down. In a move designed to support the Katrin brand's growth targets, Metsä Tissue announced its decision to significantly augment the company's Away-from-Home converting capacity. The confirmed EUR 7 million project is scheduled for completion by the first quarter of 2012 at the Mänttä mill. Process harmonization is continuing intensively as part of a programme designed to introduce uniform company-wide ways of working and a common ERP system. The new system will be launched on a phased basis from 1 January 2011 onwards starting with Metsä Tissue locations in the West Europe region. Other Q3 highlights include the completion of the step-wise Lambi Kids concept launch targeted at families with children. The Lambi brand further boosted its visibility with a newly redesigned website. All other Metsä Tissue brand websites are likewise undergoing a renewal process. Continuing its long-standing involvement in the fight against breast cancer, Lambi launched its fifth annual line of Pink Ribbon products supporting breast cancer research. Also in October, Katrin launched a pioneering social media campaign called ‘Global Hand Chain' in support of UNICEF's Global Handwashing Day. Growth in demand for tissue and cooking papers is expected to continue. High pulp prices and, especially, escalating recovered paper prices and other input costs are still causing great cost pressure. The company's large-scale strategic projects will together contribute to a more solid base for further business development and growth as well as to improvements in customer service and supply reliability. Investments in brand and product development will continue. Tissue and Cooking Papers 1-9/10 1-9/09 Q3/10 Q3/09 QI-IV/09 Sales 692 661 236 226 890 EBITDA 70 103 21 42 135 - ” -, excl. non-recurring items 75 103 23 42 135 Depreciation and impairment losses -34 -31 -10 -11 -42 Operating result 36 72 11 31 93 - ” -, excl. non-recurring items 45 72 13 31 93 Capital expenditure 18 18 7 8 35 Personnel at end of period 3 105 3 213 3 105 3 213 3 150